Banks seek to knock out class action suit at Supreme Court

Commercial banks have launched a fresh assault in their protracted battle against a potentially devastating class action suit in which hundreds of their clients are seeking compensation for interest rates charged on loans without the Finance minister’s approval.

The Kenya Bankers Association (KBA), which was sued on behalf of all commercial banks, has moved to the Supreme Court seeking nullification of a High Court petition filed by Rose Florence Wanjiru in 2003 pursuing remedy for losses incurred after she was forced to pay ‘illegal bank charges.’

The KBA argues in its petition before the highest court of the land that a lobby cannot be sued on behalf of its members — an argument which if accepted would knock out Ms Wanjiru’s case on technical grounds.

Ms Wanjiru sued Standard Chartered Bank in 2003 seeking a refund of some Sh38,960 in interest she says the lender charged her without the Finance minister’s authority as provided for in the Banking Act.

The law provides that “no institution shall increase its rate of banking or other charges except with the prior approval of the minister”.

She now wants all banks compelled to refund past and present clients who have been made to pay similar charges.

The KBA went to the Supreme Court after the Court of Appeal dismissed its application to throw out the class action in October 2013.

It 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.

The lobby also argues that Ms Wanjiru should have sought permission from the High Court to compel the KBA to represent the 43 commercial banks in her class action suit, something the lobby says the appeals court ignored in its 2013 ruling.

“The first matter of public importance formulated for determination is whether a trade union should be sued in these circumstances where there is a need to investigate the contractual relations between 43 different commercial banks and the multitude of customers of each individual bank,” the KBA says in court papers, adding that Ms Wanjiru dragged it into the suit without complying with the civil procedure rules that require leave of the court for a person to defend proceedings in a representative capacity.

READ: Court opens door for millions to join interest rates suit

The KBA argues that the Court of Appeal’s failure to tackle the issue of whether Ms Wanjiru should have sought the court’s permission before suing it has created a loss of confidence in the judicial system even as it urges the Supreme Court to take up the matter and “correct the injustice”.
The matter comes up before the Supreme Court next Wednesday.

Ms Wanjiru in her response says the KBA did not raise the issue of its authority to defend its members in the Court of Appeal, and that the lobby is trying to hoodwink the Supreme Court into determining an issue that was not raised initially.

Ms Wanjiru insists that banks defied the law in charging more than 20 million clients higher interest rates without the government’s permission, and that they should not be allowed to benefit from an illegality.

She further argues that the lobby is trying to use the Supreme Court to escape duties delegated to it by the KBA Constitution.

“The impunity with which banks continued to levy illegal charges despite a government fiat cannot by any stretch of the imagination relate to the contractual relationship between a customer and his or her bank. In seeking a refund, I am only invoking the principle that no one ought to be allowed to benefit from his own wrongdoing,” Ms Wanjiru says.

The petitioner insists that the application is an attempt by banks to keep colossal profits they made by levying the unlawful charges, adding that a refund of all the rates and charges “is of more importance than the banks’ attempt to retain unjust riches”.

She also holds that determining the number of illegal increases slapped on bank customers is not as complex as argued by the KBA, saying records are computerised.

“There ought to be no investigative complications as regards each customer, as every bank has information regarding their customers. All banks are computerised, all that would be required is access to their respective data centres by a forensic information technology expert,” she adds.

Ms Wanjiru’s petition was dismissed in 2003 on a technicality but it was reinstated in October 2013 when the appeals court ruled that the High Court erred in its decision to dismiss it.

In June last year, Justice Francis Gikonyo allowed Ms Wanjiru’s request to invite, through newspaper advertisements, willing bank customers who were affected in a similar way to join her suit.

One of the parties seeking to join the case has asked the court to make all bank customers parties to the suit, as some interested in joining did not have access to newspapers during the 45-day window Ms Wanjiru was granted.

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

Godfrey Okutoyi argues bank customers should have been given the option of quitting the case and not invited to be enjoined.

Justice Gikonyo will on August 27 determine whether close to 200 other bank customers should be allowed to join the case. The judge was to deliver his ruling on Wednesday but said that he would have to look at each application individually to decide who to admit to the case and who to dismiss.

His decision follows arguments by lenders that some of the banks dragged into the suit were not operational in Kenya at the time Ms Wanjiru filed her suit in 2003.

More than 1,200 people had shown interest in being enjoined in the suit last year but less than 200 officially registered. Those seeking to join the case were to pay Sh1,160 to get on board.
The litigants are seeking a refund of all money the lenders levied without the approval of the Finance minister as provided under the Banking Act of 1989.

Besides the limited access to newspapers, Mr Okutoyi is also citing instances where possible applicants are fearful of joining due to financial challenges, conflict of interest and victimisation.