Supreme Court allows borrowers to sue banks for illegal loan charges

Commercial banks Thursday lost a last-ditch effort to terminate a potentially devastating class action suit pitting them against hundreds of borrowers who are seeking compensation for interest rates they claim were illegally charged on their loans.

The Supreme Court dismissed the Kenya Bankers Association’s (KBA) application seeking to dismiss the class action suit that the borrowers had filed in the High Court, paving the way for hearing of the case to begin in earnest.

Judges Njoki Ndung’u, Kalpana Rawal, Philip Tunoi, Jackton Ojwang and Smokin Wanjala ruled that the issues the KBA had raised in its appeal had not been argued in the lower courts and could therefore not be canvassed in the Supreme Court.

The KBA had asked the top court to dismiss the suit on grounds that the complainants did not seek the High Court’s permission compelling a lobby group to defend a suit on behalf of its members.

The judges said the KBA had not raised the argument in the High Court and could therefore not introduce it in the Supreme Court.

The KBA is a lobby that draws its membership from Kenyan commercial banks.

The Supreme Court judges also ruled that the KBA had failed to demonstrate how its application to strike out the class action suit is of public interest or in pursuit of a fundamental right in danger of violation.

The Supreme Court has a narrow mandate that is restricted to hearing presidential election petitions, matters regarding violation of human rights and interpretation of the Constitution.

“We are all of the opinion that the application does not raise issues of general public importance. We find that the issue KBA raised in its intended appeal will raise a new issue. The matter must have been raised in both the High Court and the Court of Appeal to find a footing here. We therefore disallow the application,” the judges said, ordering the KBA to pay Rose Florence Wanjiru, the businesswoman who initiated the class action suit, the legal costs she incurred defending the appeal at the Court of Appeal and the Supreme Court.

The KBA’s court battle began 2003 in the High Court where Ms Wanjiru sued all commercial banks on behalf of past and present depositors for charging interest rates without the Finance minister’s authority as required by law.

Kenyan law requires lenders to seek the minister’s permission before increasing interest rates or other bank charges.

READ: 1,238 borrowers join interest rates battle against banks

The Supreme Court’s decision clears the way for High Court judge Charles Kariuki to start hearing the 15-year-old case that, if successful, could see the banks pay past borrowers billions of shillings in compensation for interest rates charged illegally.

The suit has attracted 185 other bank clients who claim to have been charged illegal interest rates. Parties to the suit are expected in court on November 18 for direction.

The KBA went to the Supreme Court after the Court of Appeal dismissed its bid to terminate the class action suit in October 2013.

The lobby holds that a trade union should not be sued in circumstances that will require it to investigate the contractual obligations between its members and their clients.

Lawyer Kenneth Fraser, representing the KBA, claimed that the Court of Appeal had ignored his argument that Ms Wanjiru needed to seek the court’s permission before dragging the association to court.

But Ms Wanjiru’s lawyer, Samuel Gichuki held that KBA was trying to hoodwink the Supreme Court into considering new arguments that were not raised in the High Court.

Mr Gichuki argued that the KBA raised the issue of representing its members in a bid to evade a task delegated to it by its own constitution.

Meanwhile, the battle over interest rates escalated on Thursday with another customer filing a fresh suit seeking compensation for losses he incurred after his bank allegedly levied him unauthorised charges.

Godfrey Paul Okutoyi, who missed a chance to join Ms Wanjiru’s suit in August, has sued the KBA and the Central Bank of Kenya (CBK) seeking compensation for the loss he is suffering from illegal escalation of interest rates.

Mr Okutoyi, who is an Equity Bank customer, argues that commercial banks have the best lawyers and external auditors to aise clients on the risks involved in flouting banking laws.

He also faults the CBK for negligence, arguing that the regulator has failed to take action against institutions violating banking laws.

“The CBK has failed to supervise KBA’s members in their continued arbitrary deprivation of customers’ property. It would be in the interest of justice if all the illegally levied rates of banking and other charges were ordered to be clawed back to respective customers’ accounts,” Mr Okutoyi says.

The KBA is yet to respond to Mr Okutoyi’s suit, which comes up for hearing on December 15.

Mr Okutoyi wants banks to present letters of approval from the Finance minister for any interest rate increment they have made since November 1989 to vindicate themselves from any punishment.

Mr Gichuki, who is also representing Mr Okutoyi, adds that banks should be subjected to a forensic audit to determine how much customers have lost through illegal interest rate increments since 1989. The amount adds up to trillions of shillings.

“Mr Okutoyi therefore prays for a declaration that the audited accounts of KBA’s members be revised upon deduction of their unjust enrichments and an order of compensation for the loss occasioned to the customers,” the lawyer says.

Mr Okutoyi had filed an application in Ms Wanjiru’s suit seeking to join all bank customers but failed after the court insisted on reviewing the reasons for each party joining the case.

The list of borrowers who have joined Ms Wanjiru’s class action suit includes businessman Horatius Da Gama Rose.

Mr Da Gama Rose, who is fighting to retain ownership of a 134-acre Karen land valued at Sh8 billion, hopes to use the suit to rescue two of his companies that were placed under receivership by Bank of Baroda in 2008.

He holds that they were placed under receivership based on illegal interest rates and penalties the mid-tier lender slapped the firms with.

Equity Bank is facing the highest number of complaints in the ongoing class action suit against lenders. Forty-two individuals and companies want compensation from the bank out of the total 187 claimants

Standard Charted faces 20 complainants in the class action suit, while Co-operative Bank has 17.

Others are CFC Stanbic (6), NIC Bank (4), Consolidated Bank (2) and Family Bank (2). Housing Finance, Gulf Africa, Diamond Trust Bank, Chase Bank and Oriental Commercial Bank each face one complaint.

SOURCE: BUSINESS DAILY