Aviation firm seeks compensation from Stanbic Bank for freezing its Ksh.9.2B

Captain Eric Lugalia, Air Afrik Aviation Managing Director told Justice Nixon Sifuna that the bank froze and later reversed the funds, a move that led to the termination of a plane leasing agreement with the government of South Sudan, worth millions of shillings.

In re-examination led by his lawyer Kang'ethe, Lugalia said after raising the alarm about freezing of their money, they held several meetings with the bank.

"The bank admitted it was an accreding error and even named the officers who had committed the error. They mentioned that the officers were punished following the complaint as they gave contradicting statements why they froze our bank account", Lugalia told court. 

Previously the Captain said following the reversal, Air Afrik was unable to execute its obligations under the leasing agreement dated September 4, 2014. The contract was eventually terminated.

“I am further aware that the Plaintiff (Air Afrik) spent substantial time, resources and also incurred substantial loss and damages in pursuit of the illegal freezing of its account but the 1st Defendant (Stanbic) adamantly refused to unfreeze or allow the Plaintiff to access the said credit balance,” Lugalia said in the sworn statement.

Air Afrik sued Stanbic in 2018 over alleged breach of banking regulations after crediting $7.2 million into its accounts before the funds were frozen and later reversed, without a valid court order or a directive from the Central Bank of Kenya.

The airline is seeking to be paid damages for losses suffered after a plane leasing contract of $20 million with South Sudan government was terminated after the funds were withheld. 

According to the airline, the money had been deposited for a plane-leasing contract it signed with the Ministry of Defence and Veteran Affairs of South Sudan in September 2014. 

Under the agreement, Juba was required to pay Air Afrik 35 per cent deposit ($7.2 million) of the value of total contract sum estimated at $20.64 million.

A financial expert also testified in the case stating that he was hired by Air Afrik Aviation to study their financial status as he is well versed with the procedures relating to processing of both local and international payments made through banking institutions.

Another witness, the Director of Financial Market Departments at the Bank of South Sudan also confirmed that the $7.2 Million Cheque that was assigned to Air Afrik Aviation was frozen and reversed by Stanbic Kenya Limited Bank due to insufficient funds in their account.

Chan Andrea Chan, the then Governor of the Bank of South Sudan told Justice Sifuna that it was CFC Stanbic Bank Kenya Limited's fault to fail to make a request to replenish its nostro account which led to the failure in acrediting the Air Afrik Aviation Ltd.

According to Chan the letter that was sent to the Bank of South Sudan by the Stanbic Bank had no connection to Air Afrik Aviation Ltd since the Aviation was Stanbic's customer and beneficiary and it was Stanbic Bank's obligation to ensure that it had sent a request to BOSS to replenish its nostro account to avoid having insufficient funds in honour of the pending external payments. 

"It is a standard procedure for any bank to request for replenishing of its nostro account since the bank could be in need of more funds to honour pending external payments," noted Chan.

Chan, who was incharge of overseeing the front, middle and back office foreign transactions at BOSS told the court that he came across the $7,224,000 which is equivalent to Sh 939 Million cheque that was signed and issued by the Ministry of Finance Economic Planning in favour of Air Afrik Aviation Ltd between the year 2015 and 2016.

"In the year 2015 and 2016 when the subject transaction in this suit happened, I was in charge of management of the office of the Governor of "BOSS". I am therefore familiar with all the facts regarding the transaction and more so the transfer of the sum of $7,224,000 which is the subject matter in this suit.”

He then told the court that his office underwent all the required procedures to disperse the funds to Stanbic Bank's account and gave a Credit Advice dates 5th October 2016 for the amount that was requested informing Stanbic that they had credit their account.

Emmanuel Mosoti, a financial expert said In January 2016, he was hired by Air Afrik Aviation Limited to study the documents pertaining to payment and subsequent reversal of the sum of USD 7,224,000 in their bank account held at CFC Stanbic Bank.

He said this is because having worked several banks before he was well versed with the procedures relating to processing of both local and international payments made through banking institutions. 

Mosoti said a bank has no right to interfere with the terms given by the customer. 

He said the account in which the transfer happened from CFC stanbic juba branch ( the payee bank) Ministry of finance and economic planning domiciled at the bank of south Sudan (not a stanbic account).

He said he studied all the documents provided by the client and prepared a report dated 21st January 2016.

"This related to the CFC Stanbic 7.22 million usd. The credit on the account showed that the payment was made on 4th February 2016. However value on the account was available on the 5th of February the same year," he told court.

On cross examination, Mosoti confirmed that his witness report was unsigned. (He signed it electronically by indicating the name).

According to the witness, the bank of south Sudan was a client to the CFC Stanbic bank.

On further cross examination, he said the account in bank statement was not the same as the one in credit advise. The account number was also not named in the payment order.

Hearing continues on November 25.