Fuad Mohamoud Mohamed v Diamond Trust Bank Kenya Limited & another [2021] eKLR

Key Facts

Transaction Type

Issues

• Determining the terms of the agreement between the parties regarding insurance cover for the security property.
• Identifying the party responsible for deciding the type of insurance to be obtained for the property.
• Assessing whether the party responsible for determining the insurance type fulfilled their obligation.
• Assessing whether the plaintiff is legally obligated to repay the debt to the first defendant.
• Determining liability for the loss caused by the building collapse.
• Deciding on the appropriate cost order in the case.
• Evaluating the damage suffered by the plaintiff due to the building collapse and determining the loss amount.

Holdings

• The court directed that the plaintiff and the 1st defendant bear their own costs in the case, as both parties succeeded in equal measure.
• The court awarded the plaintiff Kshs. 82,129,963 against the 1st defendant (Diamond Trust Bank Kenya Limited) for negligence in procuring an appropriate insurance cover, as the bank failed to secure a Contractors' All Risk Policy despite being aware of the construction status of the property. The judgment included interest at 16.25% per annum from the date of the suit until full payment.
• The suit against the 2nd defendant (Diamond Trust Insurance Agency Limited) was dismissed due to lack of proof of negligence or misrepresentation. The court found no liability on the 2nd defendant, as the insurance choice was made by the plaintiff, and the agent was not privy to the loan terms.
• The 1st defendant was awarded a counterclaim judgment of Kshs. 35,940,514.49 for the term loan and Kshs. 877,753.68 for the overdrawn position, with interest at 16.25% per annum from 2/8/2011 until full payment. The insurance premium finance claim was dismissed due to failed consideration.
• The court dismissed the plaintiff's prayer for an injunction against the 1st defendant's statutory power of sale, finding the notification of sale valid and the plaintiff's default established. The judgment also denied the declaration that the notification of sale was invalid.

Remedies

• iii) for the 1st defendant against the plaintiff in terms of the counter claim-; (a) Kshs. 35,940,514.49 with interest thereon at 16.25 % p.a, from the 2/8/2011, and subject to section 44 D of the banking Act, till payment in full.
• i) For the plaintiff against the 1st defendant kshs. 82,129,963. With interest thereon at 16.25%, p.a being the benefit the 1st defendant would derive from the contract between the parties, from the date of the suit till payment in full.
• (c) On costs between the plaintiff and the 1st defendants, and because each has succeeded in equal measure, I direct that each shall bear own costs.
• iii) for the 1st defendant against the plaintiff in terms of the counter claim-; (b) Kshs. 877,753.68 with interest thereto at 16.25% p.a from 2/8/2011 and subject section 44d of the banking Act, till payment in full.
• ii) The suit against the 2nd defendant is dismissed for lack of proof with no orders as to costs.

Contract Value

Monetary Damages

Legal Principles

• The court relied on estoppel principles, concluding that the bank's actions led the plaintiff to believe the appropriate insurance was in place, preventing the bank from later denying responsibility for the procurement process.
• The judgment emphasized a breach of duty, where the bank failed to fulfill its obligation to procure the necessary insurance policy (contractors' all risks) despite being aware of the property's construction status and contractual requirements.
• The court applied the legal principle of duty of care, finding that the bank had a responsibility to exercise reasonable care and skill in deciding the appropriate insurance cover for the property, particularly given its role in securing the loan.
• The court applied the burden of proof doctrine, determining that the defendants failed to produce the insurance policy documents, leading to an adverse inference against them regarding the type of cover procured.

Precedent Name

• Blyth vs Birmingham Co.
• Amarco company Vs Investment and mortgages bank Ltd
• Cooperative insurance co. Ltd vs David Wachira
• Brite Print (K) Ltd Vs Barclays Bank (K) Ltd
• National Bank of Kenya Ltd Vs pipe plastics saw kolit (K) P1I
• Tim sales Ltd Vs Harun Njugu
• Joel Vs Law Union & crown Insurance company
• O'conner Vs OBB Kirbly & co.
• Mumo Matemu Vs trusted society for Human rights
• Karak Brothers Co. Ltd Vs Burden
• Karanja vs Phoenix of EA assurance Co. Ltd
• Friendship Container Vs Mitchel Coffs (K) Ltd
• Amos Gikonyo vs Duncan Maingi
• Bid Insurance Broker Ltd vs British insurance provident fund
• Selangor United rubber estate Ltd Vs Cradoek

Key Disputed Contract Clauses

• Clause 8(iii) of the letter of offer dated 30/9/2010 stipulated that disbursement would occur only after compliance with the LTC's insurance requirements, forming a key basis for the plaintiff's claims of misrepresentation and negligence.
• Clause 6(iii) of the charge specified that the security included present and future developments on the property, which the court linked to the bank's duty to ensure adequate insurance coverage for construction risks.
• Clause 7(1)(ii) of the LTC required the bank to ensure contractors' all risks insurance was in place for construction projects, which became central to the dispute over whether appropriate coverage was procured.

Cited Statute

• Transfer of Property Act, 1882
• Insurance Act
• Banking Act

Judge Name

Passage Text

• The suit against the 2nd defendant is dismissed for lack of proof with no orders as to costs.
• I do find the report and its verdict to be a credible one which I adopt as the reasonable assessment of the loss.
• I do find that the 1st defendant was negligent and that negligence resulted in the damage and loss being occasioned to the plaintiff when the property collapsed while being constructed towards completion.

Damages / Relief Type

• Plaintiff awarded Kshs. 82,129,963 from 1st defendant for negligence in insurance procurement.
• Suit against 2nd defendant dismissed for lack of proof with no orders as to costs.
• 1st defendant awarded Kshs. 35,940,514.49 for term loan with interest at 16.25% p.a.
• 1st defendant awarded Kshs. 877,753.68 for overdrawn position with interest at 16.25% p.a.
• Each party directed to bear own costs.