Kenya Commercial Bank (KCB) has lost a three-year court battle over a Sh2,050 mistaken mobile money transfer, with the court holding that banks have a duty to act promptly to preserve funds once notified of an erroneous payment.
The High Court upheld a Small Claims Court finding that KCB was negligent after failing to prevent withdrawal of the money despite receiving the customer’s complaint within minutes of the transaction.
In a judgment that reinforces the legal duty of banks to take reasonable steps to safeguard disputed funds following reports of mistaken electronic transfers, the court held that while banks cannot unilaterally reverse erroneous transfers without the recipient’s consent, they must act with reasonable diligence to preserve the funds once notified of the mistake.
Additionally, banks cannot rely solely on customer confidentiality or internal procedures where those measures delay the funds’ recovery efforts.
The dispute arose after Nakuru advocate Sammy Kamonjo Kiburi mistakenly sent Sh2,050 through M-Pesa on February 12, 2023 to the wrong KCB Paybill.
He immediately contacted Safaricom, which referred him to KCB because the money had already reached a KCB account. The court heard that Mr Kiburi called KCB’s customer care within minutes of the transaction and was assured the matter would be addressed and funds reversed within seven days. KCB issued him with a reference number acknowledging the complaint.
Seven days later, KCB informed him that the money had already been withdrawn from the recipient’s account and could not be reversed.
The bank also declined to disclose the recipient’s identity, citing customer confidentiality, prompting Mr Kiburi to sue before the Small Claims Court which ruled in his favour awarding him the Sh2,050 together with costs of the suit and interest.
The court said the decisive issue was the bank’s response after receiving notice of the error rather than the mistake itself.
KCB challenged the lower court’s judgment, arguing that Mr Kiburi’s loss resulted from his own mistake in entering the wrong Paybill number and that the bank had acted diligently after receiving the complaint.
It maintained that reversing the funds required the recipient’s consent and that it could not interfere with a customer’s account without lawful authority.
The bank told the court it escalated the complaint to its Chuka branch, where the recipient’s account was domiciled. However, it said the account was locked only after the funds had already been transferred to another mobile number through internet banking and withdrawn.
In rejecting the appeal, the High Court said the undisputed evidence showed Mr Kiburi reported the erroneous payment within minutes and KCB acknowledged receiving the complaint on the same day.
The court noted that the funds were withdrawn the following day before the account was frozen.
“The duty is not to reverse the funds unilaterally; it is to take reasonable steps to prevent the dissipation of the funds while the reversal process is underway,” Justice Joseph Sergon explained.
The court added that KCB’s internal process of escalating the complaint from its headquarters to the branch “resulted in a delay that allowed the recipient to withdraw the funds.”
It said the bank had not produced evidence showing what steps it took between receiving the complaint and the withdrawal.
On customer confidentiality, the court said KCB’s own witness admitted during cross-examination that the recipient’s identity should have been disclosed immediately after Mr Kiburi reported the mistake.
The court found that withholding those details contributed to Mr Kiburi’s inability to pursue recovery directly.
The court also rejected KCB’s argument that Mr Kiburi was contributorily negligent simply because he entered the wrong Paybill number.
“The respondent’s prompt action in reporting the mistake was made showed that he acted reasonably after the mistake was made,” the court said.
KCB also challenged the award of instruction fees because Mr Kiburi represented himself as an advocate. The court dismissed that ground, holding that the Small Claims Court awarded only costs and that any dispute over taxation should have been pursued separately.
