How Mauritian lender lost Sh969m deposit in fallen Chase Bank days to maturity

Court filings show that on March 18, 2016, AfrAsia Bank deposited Sh969 million at Chase Bank, which was set to earn interest at 2.35 percent per annum for one month. Barely 20 days after the deposit, on April 7, 2016, Chase Bank was placed under receivership, and SBM Bank acquired its assets. AfrAsia’s deposit was due to mature on April 18, 2016.

When SBM acquired Chase Bank’s assets, AfrAsia sought to recover its funds but was met with resistance, prompting a legal battle that has now lasted nine years.

Initially, both banks agreed to refer the dispute to arbitration and appointed the Paul Gachoka as the arbitrator. The arbitrator ruled in favour of SBM Bank, dismissing AfrAsia’s claim.

Dissatisfied with the outcome, AfrAsia appealed to the High Court, arguing that the arbitration award was contrary to public policy and that SBM Bank, as Chase Bank’s successor, was liable to refund its money. The High Court sided with AfrAsia Bank and set aside the arbitrator’s decision.

SBM Bank then sought to challenge the decision in the Court of Appeal, arguing that the High Court had overstepped its jurisdiction by reviewing factual and legal aspects of the case.

The bank argued that the High Court had no authority to set aside the arbitration award based on factual findings, as arbitral awards should only be challenged in strictly limited circumstances set out in the Arbitration Act.

It added that the High Court had failed to recognise that it had acquired Chase Bank’s assets but not necessarily all of its liabilities. It relied on banking and insolvency laws, arguing that the Transfer of Business Act should not be interpreted as automatically transferring all liabilities from Chase Bank to SBM Bank.

AfrAsia countered by arguing that SBM Bank had no automatic right of appeal and had failed to seek the necessary permission under Kenya’s Arbitration Act. It said the award was flawed because it ignored key provisions of the Transfer of Business Act, which it claimed made SBM Bank responsible for Chase Bank’s liabilities.

It argued that the High Court had correctly exercised its jurisdiction because both parties had previously agreed in writing that an appeal on matters of fact and law would be allowed.

The Court of Appeal has now dismissed SBM Bank’s appeal. The three-judge bench, comprising justices Fredrick Ochieng, Francis Tuiyott and Fatuma Sichale, found that SBM Bank had failed to obtain the necessary permission to challenge the High Court decision.

In its decision of February 28, 2025, the court found that SBM Bank’s appeal was procedurally defective. The judges said that under Section 35 of the Arbitration Act, an appeal from a High Court decision is only allowed in exceptional circumstances and requires prior approval from the Court of Appeal.

The judges noted that the leave granted orally by the High Court was invalid, making SBM Bank’s appeal inadmissible.

“Indeed, the decision supports the proposition that the jurisdiction of this court is triggered by an agreement by the parties to the second appeal to this court or leave granted by the court in accordance with Section 39(3)(b). So, again, we must decline the invitation to entertain an appeal from the decision of the High Court on a section 39 application for want of an agreement or leave,” said the court.

The Court of Appeal also raised a critical legal question of whether the Transfer of Business Act applies to the disposal and transfer of assets and liabilities from a bank in receivership to another bank under the Kenya Deposit Insurance Corporation (KDIC) Act. However, since the appeal was struck out, the court refrained from making any substantive ruling.