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A REPRIEVE IN RECOVERY OF FUNDS ERRONEOUSLY SENT TO WRONG ACCOUNTS – HIGH COURT RULES THAT BANKS MUST TAKE ALL NECESSARY MEASURES IN THE RECOVERY OF MISTAKENLY SENT FUNDS

Millions of transactions happen every day through M-PESA. So, it’s little wonder that a few mistakes might be made along the way. All it takes is one wrong digit in an account number and your money could be winging its way to the wrong account. Accidentally sending money from M-PESA to an unintended recipient can be stressful, especially if you’ve transferred a large amount. The worry is that the recovery process might be tedious or the recipient could withdraw the money from their account making it difficult to recover the funds. The banks cannot also debit the unintended recipient’s account in recovery of the money without consent and most people in such a situation end up losing their money. However, the Court has now changed the narrative and banks are to be held accountable in the recovery of funds mistakenly transferred to their customers.

In a recent decision delivered on 15th March 2024, the High Court in Commercial Appeal No. E192 OF 2023 Kingdom Bank Limited Vs Alice Wanja Wanjohi, upheld a decision from the Small Claims Court against Kingdom Bank Limited (the “Bank”) holding that banks are obligated to take proactive measures in pursuing the recovery of funds mistakenly transferred to their customers.

By way of Summary of facts, the claimant erroneously transferred Kshs. 50,600 /- through M-PESA to an account belonging to a customer of the Bank.  Upon realizing the error, the claimant promptly sought assistance from Safaricom, who directed her to follow up with the Bank. Despite her swift action, the Bank informed her that the funds had already been withdrawn and could not be recovered. Feeling aggrieved, the claimant pursued legal recourse at the Small Claims Court alleging that the Bank had failed to prevent the fraudulent transaction and adequately safeguard her interests.

The Small Claims Court ruled in the claimant’s favour by finding the Bank liable. The Bank appealed the decision to the High Court, contending that it held no liability for unauthorized actions conducted without its knowledge, attributing the error to the claimant and Safaricom.

The High Court affirmed the Small Claims Court’s ruling, emphasizing that even in the absence of a bank-customer relationship, the Bank had a duty to undertake all necessary measures to recover mistakenly sent funds. Failure to fulfil this duty could render the Bank liable for losses incurred by affected individuals.

Implication

The precedent established by the High Court could  expose banks to a floodgate of lawsuits initiated by individuals who inadvertently transfer money to  wrong bank accounts and the money is not recovered from the recipient.

In light of the decision, banks and financial institutions by extension will be required to take proactive measures in pursuing the recovery of funds erroneously transferred to their customers’ accounts.   However, it raises pertinent questions about what constitutes adequate measures for banks and financial institutions to mitigate liability in similar cases.

This article is for informational purposes only and should not be taken to be or construed as a legal opinion. For more insights, please do not hesitate to contact info@jmkadvocates.co.ke