The High Court has directed Eco Bank Kenya Limited to pay Sh284 million to the family of the late former Cabinet Minister Peter Mbiyu Koinange.
Justice Eric Ogolla, in a firm ruling, held the bank accountable for negligently and unlawfully allowing the withdrawal of the funds from an estate account that was expressly protected by a court order.
“Eco Bank Kenya Limited, domiciled at Eco Bank Kenya Ltd, Eco Bank Towers, do pay to the estate of the late Mbiyu Koinange the sum of Sh284,000,000 with interest accruing therefrom, from the date of High Court Orders Eco Bank Kenya to Pay Sh284 Million to Late Minister Mbiyu Koinange’s Estatedeposit being the amount which was withdrawn from bank account in the name of Estate of Mbiyu Koinange,” ruled Justice Ogolla.
The judge concluded that the bank owed the estate a fiduciary duty of care, which it breached either through willful negligence or willful fraud.
“It is the finding of this Court, and I so hold, that ECO Bank owed a duty of care to the estate, and that it stood in a fiduciary relationship to the estate and must therefore be held fully accountable to the estate herein and its beneficiaries,” the judge said.
The dispute revolves around the proceeds from the court-ordered sale of 100 acres of Closeburn Estate in Runda, a property of the late Koinange.
In accordance with a court order issued on 21st May 2010 by Justice Roselyne Nambuye, the sale was to enable distribution among the deceased’s numerous beneficiaries.
The estate, left behind by the late Peter Mbiyu Koinange, who died intestate on September 3, 1981, has been the subject of decades-long litigation.
From the Sh1.16 billion generated from the sale, Sh890 million was transferred from Co-operative Bank to Eco Bank Kenya Ltd, handled by the administrators’ advocates.
The court, in a subsequent order by Justice David Maraga (as he then was) on July 26 2011, directed that Sh284 million the remainder after partial distribution, be held and not disbursed without a further court order.
“The sum Sh 284,000,000 be held by counsel and shall not be disbursed without the authority of the court after determining or making reservation of the creditors’ claim,” reads the court order of July 26 2011.
Despite this, the estate’s administrators, including Eddah Wanjiru Mbiyu, a widow, claim that Eco Bank illegally allowed the withdrawal of the entire Sh284 million, without a court’s sanction.
“It later came to my knowledge that Eco Bank illegally and irregularly without the permission of the court caused the entire sum of Sh284 million to be withdrawn,” stated Ms. Eddah in her affidavit.
The application, which was supported by all houses of the polygamous estate, was presented by Senior Counsel Paul Muite.
He argued that the account was a trust account, opened specifically for the beneficiaries of the estate, and that no funds could be withdrawn without judicial approval.
“Eco Bank Limited irregularly, illegally and without authority of the court or the consent of the applicant herein and in total violation of the court orders issued on July 26 2011, allowed the funds to be withdrawn to the detriment of the applicant and the entire estate of the late Mbiyu Koinange,” said SC Muite.
Muite also reminded the court that the account opening documents showed the bank was aware that it was dealing with an estate account for a deceased person, thus obligating it to require a court order before any disbursements.
“Due diligence by the bank made it imperative for the bank to demand for court order as a condition for opening the account,” he submitted.
Eco Bank, in a replying affidavit sworn by Violet Monari, a branch manager, denied wrongdoing.
The bank claimed it was not served with the court order of July 26, 2011 and only became aware of a later order dated September 4, 2014, which it says it complied with.
“There is no indication that the court order of 26th July 2011 was ever served upon the bank,” Monari stated.
However, the court found this defense insufficient, noting that constructive knowledge applies in estate matters.
“Where… an account is opened in a Bank in the name of the estate, the bank must take the constructive knowledge of the special category of the customer,” said Justice Ogolla.
“Apart from the fact that the bank knew it was dealing with a deceased person’s estate, there was an express order stopping the release of the money deposited in the account.”
The judge added that the large sum involved (Sh284 million) should have raised red flags and necessitated executive-level oversight by the bank.
“It was an amount of money whose movement, transfer or disposition could not be done without attracting attention of the responsible Managers of the bank,” he added.
Justice Ogolla held that the account at Eco Bank was a court-directed trust account.
“This Court has noted with disturbing concern, the negligent manner in which Eco Bank treated the Estate’s Account,” the ruling reads.
“Therefore, the casual manner in which the ECO Bank treated the said account and disbursed the money could only have been done by way of willful negligence, if not willful fraud.”
The court further rejected Eco Bank’s argument that the claim was statute-barred, and that they acted within their mandate based on the account holders’ instructions. The judge emphasized the unique legal protection estate accounts enjoy under the Law of Succession.
“The estate of a deceased person is a special estate protected by the Law and administered by the Court through appointed Administrators,” Ogolla noted.
