Passenger and cargo carrier Air Afrik has taken Stanbic Bank to court following the loss of a $20-million plane-leasing contract with the government of South Sudan over "banking irregularities and fraudulent banking dealings."
The suit has been filed at Milimani Commercial Courts in Nairobi. It exposes the South African bank to compensation that could run into millions of dollars for alleged breach of procedures.
Air Afrik, which has offices in Kenya and South Sudan, claims that Stanbic Bank, which also has operations in the two countries, breached banking regulations by failing to act diligently before crediting funds, freezing its accounts and reversing the funds without a valid court order or a directive from the Central Bank of Kenya.
At the centre of the dispute is a $7.2-million down payment said to have been made by the Government of South Sudan, which the bank is alleged to have credited to Air Afrik's bank account held in the same bank only to reverse it a few days later.
Stanbic Bank is accused of not following the rules of banking and the Kenyan law when reversing the money from Air Afrik's account.
However, in the court documents, Stanbic Bank says it acted on a Credit Advice Note from the Bank of South Sudan, which was not backed by funds to credit Air Afrik's account in Juba and could not therefore use its own funds.
Air Afrik says when the $7.2 million went into its account, the transaction was complete in law and the bank could not lawfully reverse the funds without a proper signing mandate or a court order.
The payment was the deposit for a plane-leasing contract that Air Afrik had signed with the Ministry of Defence and Veteran Affairs of South Sudan in September 2014. The contract was to lease several aircraft for a year, from October 1, 2014 to August 30, 2015.
Under the agreement, Juba was required to pay Air Afrik a deposit of 35 per cent ($7.2 million) of the value of total contract sum estimated at $20.64 million.
Stanbic says that on February 5, 2016, it received a Credit Advice Note from the Bank of South Sudan advising that its account at BSS had been credited on account of Air Afrik in relation to payment from the Ministry of Finance and Economic Planning under the subject "contract."
On February 8, the bank says it credited the airline's account with the same amount and debited it with the applicable commissions.
"At that point, the defendant Stanbic Bank had no reason to suspect or believe that the credit advice was not backed by actual funds," says Stanbic Bank.
Air Afrik claims that upon the money being credited in its account, it withdrew $1.1 million without any hindrance and the bank debited its accounts.
However, according to the lender, efforts to push the Bank of South Sudan to release the $7.2 million did not bear fruit as the central bank did not respond to their letters.
The lender says it notified Air Afrik that the amount had been credited to its account in error and therefore reversed it.
"The defendant Stanbic Bank suddenly and without any formal or other notification whatsoever to the plaintiff [Air Afrik] and without the plaintiff's knowledge, consent or approval illegally, unlawfully and without any court order, valid justification or colour of right whatsoever purported to freeze the plaintiff's bank account and denied the plaintiff access to its account," the company says in the court documents.
According to Air Afrik, the failure to get access to the funds weakened its capacity to service the plane-leasing contract. The contract was terminated, causing it losses and damages amounting to $14.4 million.
Air Afrik claims that Stanbic Bank failed to adhere to the payments regulations and procedures of South Sudan's banking industry requiring that all amounts exceeding $50,000 only be credited to the customer's account once the Bank of South Sudan had transferred the funds to its Nostro (offshore) accounts and the receipt is confirmed.
Air Afrik further claims that the action by Stanbic Bank to freeze its bank account and deny it access to its funds and further reverse the disputed cash without its consent and authority was done in bad faith.
Air Afrik also claims that the bank deliberately withheld crucial information from the company as its customer, with a view to covering its negligent errors, oversights and unlawful actions, and that the lender also failed to own up and take responsibility for its own errors and oversights and compensate the plaintiff adequately for the damages and inconveniences suffered.
Air Afrik is seeking a declaration from the court that by freezing its accounts without a court order and reversing the deposit of $7.2 million, the bank acted illegally.
The company seeks compensation amounting to $14.4 million for the loss suffered and the costs of the suit.
The suit is yet to be heard by the court.