Court opens door for millions to join interest rates suit
Lamin Manjang, Standard Chartered Bank CEO (left); Kenya Bankers Association chief executive Habil Olaka and Central Bank of Kenya governor Njuguna Ndung'u (right). StanChart is one of the defendants in the interest rates suit along with KBA and the CBK. Photos/FILE
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Court further granted interested bank clients 45 days to apply for enjoinment from the day that the notice will be published in the media, noting that these will allow expeditious determination of the dispute.
Justice Gikonyo ruled that the notice shall disclose the nature of the suit and the relief sought, full name of the petitioner and her advocate Samuel Gichuki.
Kenyan banks were Wednesday thrown into a free-for-all legal battle after the High Court opened the door for millions of past loan borrowers to join a potentially ruinous nine-year-old suit on interest rates.
Justice Francis Gikonyo allowed Rose Florence Wanjiru’s application seeking the court’s leave to invite, through newspaper advertisements, willing bank customers to join a suit she has filed challenging the legality of interest rates charged since the enactment of the Banking Act of November 1989.
The judge agreed with Ms Wanjiru that it was important for all persons interested in the matter to be enjoined to avoid the challenge of dealing with multiple suits of similar nature and in the interest of quick delivery of justice.
Justice Gikonyo subsequently directed Ms Wanjiru’s lawyer Samuel Gichuki to file in court a copy of the proposed notice of invitation within seven days for approval.
“The plaintiff shall, within seven days, submit to the court for approval a notice by public advertisement which is drawn in accordance with this ruling and order I rule 8 (2) of civil procedure rules,” said the judge.
Public advertisement of the suit, he said, is an “enabler of access to justice and getting them impleaded in the suit, either to support the case or to oppose it”.
The court further granted interested bank clients 45 days to apply for enjoinment from the day that the notice will be published in the media, noting that these will allow expeditious determination of the dispute.
Protracted litigation
Justice Gikonyo said that the time limit was necessary in order to avoid the protracted litigation that may delay determination of the suit.
Ms Wanjiru had in a petition filed in 2003 sought orders compelling Standard Chartered Bank and other lenders to return all money they have levied their customers without the approval of the Finance minister as required by the Banking Act of 1989.
The law provides that “no institution shall increase its rate of banking or other charges except with the prior approval of the minister”.
The petition, which was earlier dismissed on a technicality, got a new lease of life last October when the appeals court ruled that the High Court erred in its decision to dismiss it.
The suit was dismissed on grounds that the petitioner had failed to seek the court’s permission to sue on behalf of other customers.
Ms Wanjiru in April succeeded in reinstating the precedent-setting case that among other things requires banks to produce evidence that they actually sought and obtained the minister’s permission to levy the charges.
Failure to adduce such evidence would imply that commercial banks have been illegally levying various fees, charges and interest rates since 1991, opening the floodgates for more suits.
Ms Wanjiru in her application says she is suing on behalf of all bank customers, past and present, who have been affected by charges levied without the requisite approval of the Finance minister.
The Kenya Bankers Association (KBA), the Central Bank of Kenya (CBK) and Standard Chartered Bank are listed as respondents.
The High Court had on April 3, 2014 allowed Ms Wanjiru to advertise the suit but the decision was immediately set aside after the respondents demanded that the application to have other customers invited into the suit be heard in court and a decision made.
The three defendants had opposed the application to include other customers, arguing that Ms Wanjiru did not follow the civil procedure rules and that the proposed notice does not conform to the law.
The trio claims that the petitioner failed to seek consent of the parties on the format of notice that is to be publicised prior to filing the application seeking permission to advertise.
While granting Ms Wanjiru’s prayers, the High Court found that the defendants did not challenge the petitioner’s right to advertise but only the format and the procedure followed.
The defendants reckoned that the notice ought to carry just a brief of the suit but not any adverse evidence, which they claimed may prejudice their right of reply, arguing that they have no chance to respond to notices published in the mass media.
Justice Gikonyo ruled that the notice shall disclose the nature of the suit and the relief sought, full name of the petitioner and her advocate Samuel Gichuki.
The notice will further invite persons interested to apply for enjoinment, and will disclose the time limit within which to seek enjoinment and state that it is pursuant to orders given by the High court.
The case comes in the middle of ongoing debate on interest rates charged by commercial banks.
The suit is even more defining in the fact that an order requiring banks to compensate the customer for illegal charges levied since 1991 would affect the financial results that commercial banks have declared for 13 years and ultimately the taxes charged on the profits.
So huge is the threat that the Kibaki administration in anticipation of the looming compensation crisis and its impact on government revenues unsuccessfully tried to delete Section 44 of the Banking Act in 2004 through an amendment but the MPs defeated the Bill in Parliament.
The amendment sought to regularise all charges levied without the minister’s prior approval by deleting the section and inserting a clause that deemed charges levied between 1991 and 2004 to have been approved by the minister.
Financial stability
President Kibaki said in a memorandum to Parliament supporting the amendment that revision of financial statements of commercial banks and non-bank financial institutions would impact negatively on the country’s financial stability.
Mr Kibaki said the adjusted accounts would result in losses or lower profits and that the Treasury would be required to refund large sums of corporation taxes paid on the basis of profits earlier declared.
Ms Wanjiru accuses Standard Chartered Bank of failure to seek the minister’s approval before levying the charges while the CBK is accused of failing to regulate the banks and allowing them to arbitrarily increase charges.
Ms Wanjiru is seeking a declaration that all income accruing to the banks from charges levied without the minister’s approval since November 1989 are refundable to account holders.
