Spire Bank Limited (formerly known Equatorial Commercial Bank Limited) v Peter Hugh Harris [2019] KEELRC 2234 (KLR)
The bottom line
#A Kenyan court refused to make a former bank boss personally repay USD 700,000 in losses because negligence, even gross negligence, is not the same as fraud.
What this practically means
#Executive summary
#Key legal issues
#Whether the Respondent exceeded his delegated authority in approving the USD 200,000 facility
The Claimant failed to prove the Respondent solely approved the loan or breached his obligations; the loan was approved by the Credit Management Committee within its limit, though the Committee collectively failed to ensure cash collateral as required by policy
The loan to Pay Stream Limited was fully secured by a corporate guarantee and personal guarantee and was approved by the Management Credit Committee in a 'Round Robin' manner. No Committee member was called to refute the Respondent's testimony, prompting an adverse inference against the Claimant. However, the Committee collectively failed to escalate the matter to the Board for a cash collateral waiver since the amount exceeded the limit approvable without cash collateral.
Whether the Respondent acted beyond his mandate in authorizing the USD 500,000 payment
Yes - the payment was an overdraft requiring full Board approval; the Respondent's authorization without contemporaneous cash cover was grossly negligent but not fraudulent
In the absence of a contemporaneous cash guarantee the USD 500,000 payment was an overdraft facility whose approving authority was the full Board. The Respondent relied only on Kevin Connolly's word that cover would be remitted. The court found this grossly negligent, but no intentional fraudulent conduct was proved and no evidence showed the Respondent benefited personally from the transactions.
Whether the Respondent is personally liable to refund the USD 700,000
No - the contract of employment provides only termination as the consequence of breach; no statutory or contractual provision imposes liability for damages, and no fraud or personal benefit was proved
The foreign authorities relied on by the Claimant dealt with different statutes and circumstances. The employment contract provided termination, not damages, as the consequence of breach, and no provision of the Banking Act or Employment Act imposed an obligation on the employee to compensate the bank for losses from negligence. The claim fell within collective negligence (USD 200,000) and gross negligence (USD 500,000), not fraud.
Whether the Respondent's conduct amounted to fraud on a power
The conduct could be described as exercise of a power for an extraneous purpose (fraud on a power), which does not denote common law fraud
Applying Vatcher v Paul, the power to lend was exercised with an intention beyond the scope of or not justified by the bank policy document and the contract of employment. However, fraud on a power does not necessarily denote fraud in the common law meaning, and the Respondent's conduct was attributed to his pursuit of investors for the bank, not deliberate criminal conduct.
Legal principles established
#- The burden of proving breach of contractual obligations lies on the party asserting it, on a balance of probabilities
- Employee/employer relationships are governed primarily by the written contract; policy documents must be specifically referred to in the contract, and general common law principal-and-agent liability principles do not apply where a written contract governs the relationship
- Failure by a party to call a witness he might reasonably be expected to call permits an inference that the evidence would not have helped that party
Court orders
#- 1.The interim orders granted in favour of the Claimant in the ruling delivered on 15th July, 2013 are discharged unconditionally, including the injunction prohibiting the Respondent from operating, disposing and/or accessing 50% proceeds in Bank Account Numbers 0100843101, 0400843103, 0200843103 and 0400843103 held with Equatorial Commercial Bank Limited, 50% of Government Bonds presently in the sum of Kshs.4,500,000, and Motor Vehicle KAU 040 Q station wagon
- 2.The amounts held by the Claimant bank in the aforesaid accounts jointly held by the Respondent and his wife be availed to the Respondent with interest at the prevailing commercial interest rate from 25th July, 2013 to the date of judgment until the amounts are fully made available to the Respondent
- Jurisdiction invoked
- Employment and Labour Relations Court jurisdiction over employment relationship between bank and its Managing Director; Employment Act, 2007 and Banking Act, Cap 488 applied
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Spire Bank Limited (formerly known Equatorial Commercial Bank Limited) v Peter Hugh Harris [2019] KEELRC 2234 (KLR)", Case Analysis (2019). Memorandum of Claim filed 7th June 2013, amended 13th September 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2019/2234/eng@2019-02-14
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.