Omission of word in suit costs State Sh1bn in Euro Bank case

The omission proved costly after the case was thrown out for being hopelessly incompetent.

Sunday February 21 2016

Justice Alnashir Visram. Court of Appeal Judge Alnashir Visram demonstrated how costly mistakes can be in pleadings when a suit is instituted by a party with no legal personality. PHOTO | FILE | NATION MEDIA GROUP

Justice Alnashir Visram. Court of Appeal Judge Alnashir Visram demonstrated how costly mistakes can be in pleadings when a suit is instituted by a party with no legal personality. PHOTO | FILE | NATION MEDIA GROUP 

A simple omission of a word in a suit by Central Bank of Kenya-appointed liquidator has dealt a major blow for the government’s bid to recover more than Sh1 billion from depositors of the collapsed Euro Bank.

Indeed, Court of Appeal Judge Alnashir Visram demonstrated how costly mistakes can be in pleadings when a suit is instituted by a party with no legal personality.

The case had been lodged by the defunct Deposit Protection Fund (DPF), the liquidator of Euro Bank, against businesswoman Roseline Njeri Macharia and Guardian Bank.

Upon filing the suit, the liquidator omitted the word ‘Board” in the pleadings, an omission that proved costly after the case was thrown out for being hopelessly incompetent.

The DPF and the Deposit Protection Fund Board (DPFB) ceased to exists after the creation of the Kenya Deposit Insurance Corporation through the CBK Act to provide cover for depositors and act as a liquidator of failed financial institutions.

The fund had lodged an appeal in April 2007 against the High Court decision to dismiss its suit against Ms Macharia and Guardian Bank.

The liquidator had sought an injunction to stop the transfer, sale or alienation of a prime parcel of land in Nairobi until a debt of Sh804 million had been recovered.

It was argued the lump sum was attracting an annual interest of 15 per cent.

NON-EXISTENT BODY

Before the case could be heard in the High Court, Ms Macharia and the bank filed an application seeking to strike out the plaint on grounds that it was filed by a non-existent body.

Ms Macharia and the bank argued that the DPF had no legal personality or capacity to sue.

Guardian separately lodged a preliminary objection to the effect that both the DPF and DPFB had ceased to exist following amendment to the Banking Act.

The court was informed that Section 36 of the Banking Act created a corporate body, the DPFB, but did not give the DPF corporate status.

Therefore, the defendants urged the court to declare the suit lodged by a non-legal entity as incompetent.

Guardian said after the repeal of Sections 36 and 37 of the Banking Act, the DPF and DPFB ceased to exist and was replaced by the Kenya Deposit Insurance Corporation on July 2014.

Therefore, it argued that no provision was made in the Act for pending cases by or against the DPF or DPFB to be continued by any other body.

High Court Judge Fred Ochieng concurred with the defendants and allowed the application striking out the DPF plaint and consequently, the suit.

He said case instituted by a body with no legal capacity was a nullity.

“In my considered opinion, that which was purportedly instituted by a non-existent person cannot thereafter be brought to life, or have its life sustained by replacing the said non-existent person with the proper plaintiff,” ruled the judge.

The judge further said the appeal exemplified how costly mistakes could ruin a well intentioned case.

He pointed out that the suit “lends credence to the epitaph that the law is an ass.”

Aggrieved, the liquidator moved to the Court of Appeal faulting the judge for the dismissal.

Through lawyer Waweru Gatonye, the liquidator said it made an oral application to cure the defect in the plaint but it was rejected.

He told Justice Visram that no pleading ought to be dismissed if the defect could be cured by way of an amendment. 

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