Shah Munge & Partners Limited v National Social Security Fund Board of Trustees & 2 others (Civil Appeal 309 of 2018) [2023] KECA 1199 (KLR)
The bottom line
#Kenya's Court of Appeal held a stockbroker liable for misusing NSSF's Kshs 251 million, ruling that correspondence alone can create a binding contract.
What this practically means
#Executive summary
#Key legal issues
#Whether a contract existed between the appellant and the Board of Trustees
A contract was established through the exchange of correspondence between the parties, whereby the appellant advised the purchase of a Treasury bond from the secondary market and the Board of Trustees forwarded the funds to the appellant for that purpose.
The court traced the exchange of letters: the Fund's letter of 25th June 2002 instructing the rediscounting of Treasury Bill No. 1471 and naming the appellant as broker; the appellant's letters of 26th and 27th June 2002 recommending the bond and requesting funds; and the Board's letter of 28th June 2002 forwarding cheque No. 001473 for the purchase of the bond. On this correspondence the court held it fallacious for the appellant to deny a contractual relationship.
Whether the appellant converted the Board of Trustees' funds to its own use
The appellant did convert the funds: the money paid into its office account at Euro Bank Ltd was immediately used to offset its overdraft of Kshs 49,209,434.91, followed by massive withdrawals, and the fixed deposit receipt issued in the Board's name was a cover-up unsupported by funds.
The court found it undisputed that the appellant's office account at Euro Bank Ltd was overdrawn when the funds were credited, that part of the sum immediately offset the overdraft and that massive withdrawals followed. The fixed deposit receipt initially issued in the appellant's name was cancelled and reissued backdated in the Board's name, even though the Board had no account at Euro Bank and had not been assigned the funds. The court concluded the receipt was a device to cover up the fraud.
Whether the appellant's Third Party claim against Euro Bank Ltd should have succeeded
The Third Party claim was correctly dismissed because the fixed deposit receipt in the Board's name had no value and Euro Bank could not be called upon to indemnify the appellant.
Adopting the trial judge's summation, the court noted that the Board had no account with Euro Bank, the appellant never endorsed the cheque to the Board, and by the time the receipt was reissued the appellant's office account had been depleted by withdrawals and offsetting of the overdraft. In the absence of a bank/customer relationship between Euro Bank and the Board, no cause of action could arise on the receipt.
Whether the appellant's counter-claim against the Board of Trustees was merited
The counter-claim had no merit; the Capital Markets Authority's suspension of the appellant for professional misconduct could not be faulted because the deposit of the Board's money in the appellant's account was a scheme of stealing.
The court found that the Board's money was deposited into the appellant's account at Euro Bank when the Board had no account there, characterising the arrangement as a scheme of stealing involving the Fund's Managing Trustees, the appellant and Euro Bank directors. It followed that the complaint to the Capital Markets Authority was lawful and the resultant fine and suspension gave the appellant no ground for compensation.
Legal principles established
#- On a first appeal, the Court of Appeal must reconsider the evidence, evaluate it itself and draw its own conclusions, though it has neither seen nor heard the witnesses and must make due allowance in that respect; it is not bound to follow the trial judge's findings of fact where he clearly failed to take account of particular circumstances or probabilities materially to estimate the evidence.
- A fixed deposit receipt issued in the name of a person who neither applied for it nor deposited funds with the bank, and which is not backed by funds, has no value, and admissions or undertakings regarding such a deposit cannot found a cause of action in the absence of a bank/customer relationship.
Court orders
#- 1.The appeal is dismissed with costs to the 1st respondent
- On appeal from
- High Court of Kenya
- Not stated in the judgment
- Jurisdiction invoked
- First appeal to the Court of Appeal from the High Court (the judgment invokes the first appeal jurisdiction as set out in Selle vs. Associated Motor Boat Co. of Kenya; no specific constitutional or statutory article is quoted)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Shah Munge & Partners Limited v National Social Security Fund Board of Trustees & 2 others (Civil Appeal 309 of 2018) [2023] KECA 1199 (KLR)", Case Analysis (2023). Civil Appeal (Memorandum of Appeal dated 24th August, 2018). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2023/1199/eng@2023-10-06
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.