Stanbic Bank is facing a Sh9.6 billion ($80 million) compensation claim after it froze and reversed funds in an account held by passenger and cargo carrier Air Afrik.
The High Court has allowed the carrier to amend its compensation claim from the initial $14.4 million (Sh1.74 billion) for losses suffered after the South Sudan government terminated a $20 million (Sh2.41 billion) plane leasing contract due to cash hitch.
Air Afrik sued Stanbic in 2018 over an alleged breach of banking regulations after crediting $7.2 million into its accounts before freezing and reversing the money without a valid court order or a directive from the Central Bank of Kenya (CBK).
Stanbic said that it froze the money and reversed the transactions after realising that the credit note from the South Sudan government did not have funds and the bank could not use its own funds.
High Court judge David Majanja said the bank would not suffer any prejudice if the carrier were allowed to amend the compensation claim.
Stanbic and the South Sudan government are pursuing an out-of-court settlement in a suit that exposes the Nairobi bourse-listed lender to a multi-billion shilling compensation.
“While I agree with the 1st defendant that there has been a delay in seeking the amendment given the information was in the plaintiff’s possession, I think the proposed amendment, in substance, does not change the cause of action but expands the scope of damages pleaded,” judge Majanja ruled.
The bank opposed the upward review of the compensation, saying it was brought in bad faith with the intention of muddling up the issues before court. Stanbic said the amendment introduces a new dimension to the case and is at risk of delaying the conclusion of the suit.
Air Afrik, which has offices in Kenya and South Sudan, claims that Stanbic, which also has operations in the two countries, breached banking regulations by failing to act diligently before crediting funds, freezing its accounts and reversing the funds without a valid court order or a directive from the CBK.
Air Afrik says when the $7.2 million went into its account, the transaction was complete in law and that the bank could not lawfully reverse the funds without a proper signing mandate or a court order.
The payment was the deposit for a plane-leasing contract that Air Afrik had signed with the Ministry of Defence and Veteran Affairs of South Sudan in September 2014. The contract was to lease several aircraft for a year -- from October 1, 2014, to August 30, 2015.
Under the agreement, South Sudan was required to pay Air Afrik a deposit of 35 percent ($7.2 million) of the value of total contract sum estimated at $20.64 million.
Air Afrik claims that upon the money being credited in its account, it withdrew $1.1 million without any hindrance and the bank debited its accounts.
However, according to the lender, efforts to push the Bank of South Sudan to release the $7.2 million did not bear fruit as the central bank did not respond to their letters.
The lender says it notified Air Afrik that the amount had been credited to its account in error and therefore reversed it.
According to Air Afrik, the failure to get access to the funds weakened its capacity to service the plane-leasing contract. The contract was terminated, causing the carrier losses and damages.
Besides the loss of the South Sudan contract, the company says it failed to execute other contracts of similar nature.
Stanbic said it subjected its officers to disciplinary procedures and tried to arbitrate on condition that the company does not press charges.
The parties are meanwhile pursuing an out-of-court settlement and Bank of South Sudan has appointed Kuol Maguith Kuol Arop to represent it in the negotiations in a July 19 letter to Stanbic.
Stanbic had in December asked for a settlement but Air Afrik turned down the offer in pursuit of the court case.
In the letter dated December 8, 2021, Stanbic offered to negotiate “to avoid the detraction, costs and waste of management time associated that will be incurred in the litigation”.
The bank then offered to pay $250,000 to the airline and also withdraw a cross-appeal it had filed against Air Afrik and the Bank of South Sudan.