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ELRCDismissedCause No E404 of 2023· [2023] KEELRC 2542 (KLR)

Kariuki v SBM Bank (Kenya) Limited (Cause E404 of 2023) [2023] KEELRC 2542 (KLR)

Employment and Labour Relations Court
19 October 2023
LNLINNET NDOLO
1,791 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~7 min to read original · ~4 min brief

The bottom line

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Kenya's Employment Court refused to freeze a retrenched bank worker's loan, ruling courts cannot let borrowers slip into endless default while a case is pending.

What this practically means

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Executive summary

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This is a ruling on a Notice of Motion dated 16th May 2023 in which a former employee of the Respondent bank sought interim orders freezing his staff loan, restraining conversion of the loan to market rate, restraining recovery measures including use of external debt collectors, and directing his delisting from the Credit Reference Bureau. The Claimant's employment was terminated through redundancy in December 2021, leaving an outstanding loan balance which he could no longer service. He argued the loan was linked to his challenge against the redundancy, that a credit life insurance cover should have cushioned him for nine months, and that negative listing prejudiced his economic and social rights. The Respondent, through its Head of Employee Relations, explained the restructuring that followed its acquisition of employees from two defunct banks, the failed Voluntary Early Separation Scheme, and the subsequent redundancy. It noted that the Claimant committed to continue servicing the loan, was granted a three-month moratorium, and had not followed up the insurance claim. The Court framed the question as whether the Claimant had established a case for an interlocutory injunction under the Giella v Cassman Brown principles, applying the Mrao definition of a prima facie case. It observed that the merits of the termination could only be canvassed at full trial, but that the Claimant, by his own admission in arrears, was effectively asking to go into perpetual default. Relying on Jacob Kelly Omondi Onyango v National Bank of Kenya, the Court held it would be irresponsible to endorse a non-performing loan. The Motion was declined with costs in the cause.

Key legal issues

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01

Whether the Claimant met the conditions for an interlocutory injunction

Holding

The Claimant failed to establish a case warranting the interlocutory relief; the Motion was declined with costs in the cause

Reasoning

The Court applied the Giella v Cassman Brown conditions and Mrao's definition of a prima facie case. It held that the merits of the redundancy could only be determined at trial, and that the substance of the application was a request to permit perpetual default on a loan. Even sympathetic to the Claimant's plight, the Court held that endorsing a non-performing loan would be irresponsible and cause irreversible damage to the parties and the wider public.

p. 4
02

Whether a borrower in default can rely on the circumstances of his termination to justify freezing his loan

Holding

No; every borrower, whether an insider or not, must meet their financial obligations to their bank

Reasoning

Relying on its earlier decision in Jacob Kelly Omondi Onyango v National Bank of Kenya, the Court reasoned that banks operate in a strictly regulated environment with customers' funds available on call, that non-performing loans harm macroeconomic stability, and that perpetual default harms borrowers and the public interest. The Claimant's joblessness and the challenged redundancy did not justify freezing the loan.

p. 4

Legal principles established

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  • It is never in the public interest to allow borrowers to go into perpetual default on loan repayments; courts should not endorse non-performing loans

Court orders

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  1. 1.The Claimant's Notice of Motion dated 16th May 2023 is declined with costs in the cause

Authorities

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Cases cited (4)

  • Giella v Cassman Brown & Co Ltd
    (1973) EA, 358
  • Mrao v First American Bank of Kenya Limited & 2 others
    (2003) KLR 125
  • Nguruman v Jan Bonde Nielsen & 2 others
    [2014] eKLR
  • Jacob Kelly Omondi Onyango v National Bank of Kenya
    [2017] eKLR
Jurisdiction invoked
Original employment and labour relations jurisdiction over an application incidental to a claim by a former employee against his former employer

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Kariuki v SBM Bank (Kenya) Limited (Cause E404 of 2023) [2023] KEELRC 2542 (KLR)", Case Analysis (2023). Cause No E404 of 2023. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2023/2542/eng@2023-10-19

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.