Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & ADMIRALTY DIVISION

HCC NO.543 OF 2010

SAMUEL GACHIE KAMITI........................................................PLAINTIFF

VS.

EQUITY BANK LIMITED.................................................1ST DEFENDANT

JAMES NJUGUNA MWANGI...........................................2ND DEFENDANT

MARY WANGARI WAMAE..............................................3RD DEFENDANT

KENNETH MBAABU MUCHIRI.....................................4TH DEFENDANT

GERALD GACHOKA WARUI..........................................5TH DEFENDANT

ANDREW MWANGI KIMANI..........................................6TH DEFENDANT

THE TRUSTEES OF THE EQUITY BANK

EMPLOYEES’ SHARE OWNERSHIP PLAN (ESOP)...7th DEFENDANT

JUDGEMENT

1. An Employee Stock Ownership Plan (ESOP) is a type of Employment Benefit Plan intended to encourage Employees to acquire
Stocks or Ownership in the Company. Sometime in 2005, Equity Bank Limited (the 1st Defendant or Equity or Bank) embarked
on the establishment of an ESOP. One of the then Shareholders of Equity Bank, Africap Microfinance Fund sold 50% of its shares
being 1000000 shares to the ESOP.

2. Samuel Gachie Kamiti (Kamiti) was with effect from 12th January 2006 the General Manager of the Alternative Business
Channels Department of the Bank. Over time he purchased 6,557,080 ESOP Units. One unit in the ESOP was equivalent to one
share in Equity Bank.

3. It is the case of Kamiti that Equity Bank stage-managed a series of events that made his exit from the Bank inevitable. His
evidence was that the position he held was removed from the Bank’s organizational structure and his job was rendered redundant.
On 26th January 2010, Kamiti wrote to the Bank and requested to proceed on early retirement with effect from 22nd March 2010.

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 Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

4. The Bank took the position that Kamiti’s application for early retirement did not meet its requirements and the Bank declined the
application through a communication to Kamiti on 2nd March 2010. In view of that refusal, Kamiti states that he was forced to
tender his resignation on 2nd March 2010. On the same day he wrote to the Chairman of the Trustees of the Bank’s ESOP requesting
for the redemption of his 6557080 ESOP shares by having them transferred into his name. In that letter Kamiti invokes Section 119
(a) of the Capital Market Authority Regulations 2001.

5. On 18th March, 2010 Mary Wangare Wamae (the 3rd Defendant or Mary) wrote to Kamiti informing him that under the ESOP
Trustee Deed, his contributions of Khs.24,330,000 had been refunded to him through a Credit Transfer into his Account Number
0020190067204. Kamiti was dissatisfied with this settlement because, he asserts that at the close of business on 2nd March, 2010,
the Nairobi Stock Exchange closing price for the Bank’s shares was Kshs.15.75 per share and that had the Bank redeemed and
transferred the shares as per his instructions and within the Rules of the ESOP, it would have a value of Khs. 103,274,010.60.

6. The Bank took the position, which it still holds, that it dealt with Kamiti’s shares under the provisions of Rule 6.6 of the
Settlement Deed as amended by a Deed of Variation dated 11th November 2009 which provided that an Employee who ceased to be
an Employee of the Bank for whatever reason before the vesting date of his shares, deemed to be the fifth anniversary of the
allocation of the Units, was not permitted to or deemed to have given a Redemption Notice and the Employee would forfeit all such
Rights to such Units without any Right to Compensation. The Bank explains that the Variation was necessary to advance retention
of Employees and had been agreed upon at the inception of the ESOP.

7. The Bank whose evidence was presented by the 3rd Defendant asked the Court to note that the ESOP Units were made available
to the Employees at significant discounts. In addition that the members were entitled to Dividends when declared and that in view
of the benefit of splitting shares, the Employees were a favoured lot of the Bank’s shareholders.

8. At the heart of the Dispute is whether the Variation of the Deed of Settlement was legal, regular and bidding on the Plaintiff. The
Bank’s ESOP was formed vide the Deed of Settlement dated 29th August 2005. There is then the Deed of Variation dated 11th
November 2009. The Deed of Variation has the following clause on the Vesting Date which has proved controversial;

“Vesting date: means the date specified in an allocation notice on which the units vest in an employee being not earlier than the
fifth anniversary from the acceptance date”.

Kamiti asserts that the Deed of Variation was neither discussed with him nor brought to his attention. Further that the Defendants
never sought his written Consent before proceeding with the Amendment whose result was to wipe out the accrued value of his
Shares, Rights and Benefits.

9. It is also Kamiti’s case that the Deed of Variation received the sanction of the Bank at the Annual General Meeting held on 26th
March 2010, a date after his Resignation and that it was only on 12th May 2010 when the Capital Market Authority(CMA or the
Authority) received the said Deed of Variation from the 1st Defendant for approval purposes.

10. On its part the Bank asserts that so as to serve as an incentive for employees to remain with the Bank, a meeting of the Staff of
Bank held in Nyeri at the time of inception of the ESOP agreed that the minimum period of service before Vesting of Units would
be 5 years. Subsequently, there was a Variation in the Deed of Settlement which was effected on 11th November 2009 when the
Plaintiff was still in the employment of the Bank and that the provisions of the Variations are binding on him. An outstanding
feature of the Deed of Variation is the Vesting Date. Thereafter, and after getting the approval of the Authority, the Bank sought and
obtained the approval of the two Deeds at is Annual General Meeting. The Bank’s position is that the Deed of Settlement dated 29th
August 2005 and its subsequent Variation dated 11th November 2009 took effect on the respective dates of those Deeds and not at
the Annual General Meeting of 20th March 2010. It is stated that the Agenda of ESOP at the Annual General Meeting was to seek
the Members’ approvals to have the ESOP registered with the Capital Market Authority (CMA) and not an Agenda to have the
Deed of Settlement and its Variation approved by the Members. The Bank emphasized that as at that date CMA had approved the
two Documents and they were in operation.

11. A second limb of the Plaintiffs Claim is for the sum of Khs. 2,622932 being dividends payable to him on his shares at the rate of
40cents per share for the year ended 31st December 2009. The Claim is pegged on the exit date of Kamiti. Simply he left in March
2010 and was a Member of ESOP upto that date and was therefore entitled to Dividends on his Unit for the year 2009. In the end
Kamiti seeks Judgement against the Defendants as follows:-

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 Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

(a) Payment of:-

i) Payment of the accrued value of the Plaintiff’s shares at the Nairobi Stock Exchange on the 2nd March 2010
Khs.103,274,010.00.

ii) Dividends payable to the Plaintiff for the year 2009- Khs.2,622,832.00

iii) payment of damages for lost investment income which the Plaintiff could have realized from the date of his resignation
(ie. 2nd March 2010) form the 1st Defendant’s employment, until the date of trial and/or final determination of the suit if he
had received the full value of this shares and accrued dividends.

(b) In the alternative to (a), payment of damages for lost investment Income which the Plaintiff would have realized form
Alternative Investments, between the 30th June, 2006, until the date of trial and /or the final determination of the suit, had
the Plaintiff not invested the sum of Ksh.24,340,200/= in the Equity Bank Employees’ Share Ownership Plan(ESOP).

(c) A declaration that the purported Amendment of the Settlement Deed dated 29th August, 2005 by introducing a vesting
date with effect from the 11th November 2009, vide the Deed of Variation dated 11th November 2009 whose effect was to wipe
out and/or reduce the accrued value of the Plaintiff’s 6,557,080 ESOP shares was illegal, null and void.

(d) A declaration that the Plaintiff’s shares were deemed to have been transferred into his name in the 1st Defendant’s share
Register as per his request dated 2nd March, 2010, and that any calculation of the accrued value of the Plaintiff’s shares
and/or the Plaintiff’s benefits should have been in accordance of with the Settlement Deed dated 29th August, 2005 and Rules
as well as Regulations made under The Capital Markets Authority Act, prior to the Deed of Variation dated 11th November,
2009.

(e) Special damages

(f) Damages for breach of contract.

(g) Costs of this suit.

(h) Interest on (a) and (b) at the commercial rate of 20% per annum from the date of filing suit judgment until payment in
full.

(i) Interest on (g) at the commercial rate of 20% per annum from the date of filing suit until payment in full.

(j) Any other of further relief as this Honourable Court may deem fit to grant.

12. The Defendants resist the Claim.

13. There was no agreement on the issues but it is clear to the Court that four (4) broad issues have to be determined:-

a. Is the Deed of Variation dated 11th November 2009 legal and valid"

b. If the answer to (a) above is in the affirmative, is the Vesting Date created under the Deed of Variation enforceable as against
Kamiti"

c. Has Kamiti proved that he was entitled to Dividends for the year 2009"

d. What reliefs, if any, is the Plaintiff deserving"

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14. The Equity Bank ESOP was created vide a Deed of Settlement dated 29th August 2005 (D Exhibit pages 1-30). At that time the
Bank was not listed on the Nairobi Securities Exchange. It subsequently obtained listing in August 2006. The Bank was henceforth
brought under the fold of The Capital Markets Act and the Regulations made thereunder.

15. One such set of Regulations is the Capital Markets (Collective Investment Schemes) Regulations 2001. Part IX of those
Regulations is on ESOPs. Regulation 109(1) contemplates that a listed Company may set up an ESOP to enable its employees own
shares of the listed Company subject to approval of the Authority. Regulation 109(2) has this requirement,

‘Every ESOP shall be registered with the Authority”.

The Authority being the Capital Markets Authority.

16. The Regulatory Requirements for ESOPs is set out in Regulation 111 as follows:-

“An ESOP Unit Trust shall comply with the following requirements—

(a) application and registration for an ESOP Unit Trust shall be accompanied with the following information
and documents—

(i) proposed trust deed and scheme rules;

(ii) names of the proposed trustees;

(iii) board of directors resolution approving the establishment of ESOP Unit Trust and the appointment of
the proposed trustees;

(iv) shareholders’ approval for the establishment of the ESOP Unit Trust and the terms of the trust deed
(where already obtained); and

(v) any other information that the Authority may require.

(b) every trust deed to an ESOP Unit Trust shall include the following particulars—

(i) parties to the trust deed;

(ii) interpretation of terms used in the trust deed;

(iii) declaration of trust;

(iv) appointment and removal procedures for trustees;

(v) procedure for creation and issuance of units;

(vi) method of pricing and valuation of units;

(vii) procedure for repurchase of units;

(viii) procedure for income distribution;

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(ix) apportionment of unit holders’ entitlements in respect of dividends, rights and capitalization issues;

(x) company’s and trustees covenants;

(xi) restrictions on the trustees;

(xii) trustees fees and charges;

(xiii) liability of the trustees;

(xiv) register of unit holders and records of trust f und charges and commissions;

(xv) audit and periodic reports;

(xvi) procedures for winding up;

(xvii) applicable law;

(xviii) procedure for variation of trust deed;

(xix) procedure for settlement of disputes.

(c) Every ESOP Unit Trust shall have scheme rules which shall include the following—

(i) eligibility for membership;

(ii) procedure for saving and/or acquisition and repurchase of units;

(iii) maximum individual holding;

(iv) employee rights in respect to units;

(v) pricing and valuation of units;

(vi) in case of an options scheme there shall be a procedure for granting options, maximum limit, executive
rights in respect to units and entitlement in the event of reconstruction or winding up

17. Following the Bank’s listing at the Nairobi Securities Exchange, its ESOP required registration with the Authority. The Court
does not hear a controversy about whether or not the Bank’s ESOP was infact duly registered with the Capital Markets Authority. It
has to be common cause that it was duly registered. It is also a shared position that one of the instruments lodged for Registration
was Deed of Settlement dated 29th August 2005. The Deed comprised of the Trust Investment and the Rules.

18. Indeed this seems to be confirmed by the letter from the Chief Executive of The Authority dated 3rd June 2009 (Defendants
Supplementary Documents page 3). This letter reads,

June 3, 2009

Dr. James Mwangi, MBS

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 Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

Managing Director & Chief Executive

Equity Bank Limited

NHIF Building, 14th Floor

NAIROBI

Dear Dr. Mwangi

RE: APPLICATION FOR REGISTRATION OF THE EQUITY BANK LIMITED EMPLOYEE SHARE OWNERSHIP
PLAN

We refer to your application for the registration of the Equity Bank Limited Employee Share Ownership Plan (ESOP)
submitted on your behalf by Coulson Harney Advocates.

The Authority has considered the application and reviewed the Trust Deed and Rules submitted therewith and is satisfied
that they comply with the Capital Markets (Collective Investment Scheme) Regulations 2001.

Consequently, in exercise of powers conferred on the Authority by Section 30 of the Capital Markets Act and Regulation 109
of the Capital Markets (Collective Investment Scheme) Regulations 200, approval is hereby granted for the registration of
the Equity Bank Limited Employee Share Ownership Plan (ESOP) on condition that:

i. A copy of the resolution by shareholders approving the establishment of the ESOP Unit Trust and the terms of the Trust
Deed is submitted to the Authority at the earliest opportunity.

ii. The outstanding complaints with regard to the existing Employee Share Ownership Scheme are resolved by July 15,2009.

Kindly not to ensure compliance with the Capital Markets Act and Regulations issued thereunder.

Yours sincerely,

Signed

Stella Kilonzo (Mrs)

Chief Executive

cc. Mr. Richard Harney

Coulson Harney Advocates

Purshottam Place, 7th Floor

Chiromo Road

NAIROBI

19. The Authority’s communication of approval is dated 3rd June 2009. A date of some significance because it is before the Deed of

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Variation dated 11th November 2009 which introduced a Vesting Date that irks Kamiti. Part of Kamiti’s case is that the Deed of
Variation is invalid as against him and it had not received the approval of the Authority by the time he left the scheme. Although
this was not expressly pleaded, it turned out to be an issue in the course of hearing in which both the Plaintiff and Defence witnesses
testified. Indeed when Kamiti’s Lawyers made submissions on it, the Defence were happy to respond without protesting that the
issue was not pleaded (see pages 12,13 and 14 of the Defence Submissions) Following the proposition in Odd Jobs vs. Mubia
[1970] EA 476 this Court is bound to determine the issue. The holding in this overworked decision is that a Court may base its
decision on an unpleaded issue if it appears from the course followed at Trial that the issue has been left to the Court for Decision.

20. But first it needs to be said that an ESOP Unit Trust may be varied in accordance with its Rules (Regulation 122). This Right to
amend is again contemplated by Regulation 111(6) which stipulates that every Trust Deed to an ESOP Unit Trust shall include a
procedure for variation of the Trust Deed. The Deed of Settlement of 29th August 2005 itself provided for a Power and Right to vary
its terms. Clause 19 stipulated,

“Variation of this Settlement, the Company may by written Deed add or vary the terms of this settlement and each of the
Trustees from time to time shall adhere to the terms of this settlement as so added to or varied”.

21. It is common ground that the Vesting Date had an implication on the redemption or surrender of the Unit Trusts. Under clause
4.1.2 of the Deed of Settlement, the Trustees could, in principle, vary the terms and conditions attaching to Redemption or surrender
of Units. Whether or not the Vesting Date introduced by the Deed of Variation should affect the Plaintiff is a matter that I shall
return to.

22. Kamiti pressed that the Authority only received the Deed of Variation on 12th May 2010 which was a date after he had resigned
and called for the transfer of the ESOP shares into his name. The information on the date of Receipt was obtained by Kamiti
through various letters by his Advocates to the Authority to which the Authority eventually responded as follows:-

20 May 2010

Mathew O. Oseko

Managing Partner

Oseko & Company Advocates

P.O Box 47291-00100

Queensway House, 5th Floor

Kaunda Street

NAIROBI

Dear Mr. Oseko,

RE: CLAIM AGAINST THE TRUSTEES OF EQUITY BANK EMPLOYEES SHARE OWNERSHIP PLAN (ESOP) AND
EQUITY BANK LIMITED BY SAMUEL GACHIE KAMITI.

We refer to our correspondences in the above matter, kindly find attached copies of the deed of settlement dated 29th August
2005 and Deed of Variation dated 11 November 2009 forwarded to the Authority by Equity Bank Limited on 12 May 2010.

Yours Sincerely,

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Rose Lumumba (Mrs).

Manager Legal Affairs. (my emphasis)

23. The testimony by the 3rd Defendant was that the variation of the Deed of Settlement was approved by the Capital Markets
Authority on 3rd June, 2009. This is what she stated in paragraph 42 of the witness statement,

“The variation of the Deed of Settlement was approved by the Capital Markets Authority on 3rd June 2009. The approval served
as a confirmation the clause on 5 year vesting term which then cannot be termed as an illegality or null and void having been
approved by the Regulating Authority”. (my emphasis)

24. Yet there is no evidence to support the assertation that the Deed of Variation was one of the Documents reviewed and approved
by the Authority on 3rd June, 2009. (The letter is reproduced in paragraph 19 of this Decision). The letter of 3rd June 2009 is fairly
clear that the Authority had considered “the application and reviewed the Trust Deed and Rules submitted therewith”. The letter
does not mention the Deed of Variation. Of some significance is the date of the letter of the Authority is 3rd June, 2009. Yet the
Deed of Variation was dated 11th November 2009. How then, it can be asked, was it communicating the approval of a Deed of
Variation dated 11th November 2009 which would be 3 months later" This was not explained by the Defence or their witnesses.

25. On the part of Kamiti, there was a letter from CMA (P. Exhibit and paragraph 23 of this Decision) suggesting that the authority
received the Deed of Variation on 12th May, 2010. If this is so then the Deed of Variation could not have been approved before
Kamiti had sought to exercise his Right to have the Units transferred to himself, an act of Redemption. When, if, did the Deed of
Variation receive the sanction of the Authority was always a contentious issue" The Plaintiff had produced some evidence that it
was received on 12th May 2010 and if the Defence had any evidence to the contrary then it bore a responsibility to put it forward. As
between the two parties, as to when exactly the Deed of Variation was sent to the Authority for approval and when it received the
approval, the information reposed in the Trustees who allegedly sent it for approval. Under Section 112 of the Evidence Act, the
burden of proving the fact was upon the 2nd to 7th Defendants. Section 112 reads,

“In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of
proving or disproving that fact is upon him”.

Confronted as to when exactly the Deed of Variation was submitted to the Authority, the 3rd Defendant stated,

“The copy of the actual Document submitted by Coulson Harney is not before Court”.

26. I have to reach the conclusion that the Deed of Variation had not been approved by 2nd March 2010 when Kamiti resigned and
sought to redeem his Units.

27. What is the effect of this finding" It is common ground that the Authority needed to approve the terms of the Deed of
Settlement so as to protect the employees who had invested in the ESOPs. The 3rd Defendant had testified,

“The CMA needed to approve the terms of the Deed of Settlement so as to protect investors”.

28. Did the Variations of the Settlement require similar approval" One answer would be in the Deed of Variation itself. At clause
14.4. (D. Exhibit 1 page 430, the Deed of Variation reads,

“Any Variation of the Terms of The Settlement and of these Rules shall be submitted to the Capital Markets Authority for
approval prior to being effected”. (my emphasis)

29. Although the Deed of Variation does not expressly define the words “the settlement”, the Recital to the Deed reveals as
follows:-

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 Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

i) By a Settlement Deed in respect of the Equity Bank Employees’ share ownership Plan (The Settlement Deed) dated the
29th day of August 2005 the Company established an Employee Share Scheme for the purpose of encouraging or facilitating
the holding of shares in the Company by or for the benefit of Employees of the Company and its Subsidiary Companies.

ii) The parties wish to vary the Settlement Deed in the manner hereinafter appearing.

30. Now an avowed objective of The Capital Markets Act is that it is an Act of Parliament to establish a Capital Markets Authority
for purposes of promoting, regulating and facilitating, inter alia, a fair Capital Market. Under Section 11(i)(d) of The Act, one of the
principal objects of the Authority is the protection of Investor Interests. The function of approving an ESOP Unit Trust falls within
this mandate. If a ESOP Unit Trust (which includes its Trust Deed and Scheme Rules) requires the approval of The Authority, then
a Variation of the Deed and Rules that has a significant impact on Investor interest must require the approval of the Authority.
There is no doubt whatsoever that the vesting date that was introduced by the variation Deed had a negative effect on any Investor
who, for whatever reason, ceased to be an Employee of the 1st Defendant before the Vesting date. The Vesting being the date
specified in an
Allocation Notice in which the Units vest in an Employee being not earlier than the fifth anniversary from the acceptance date. This
variation in my view required the approval of the Authority. Without such approval then it is invalid. This damning consequence of
non-approval is provided by the Deed of Variation itself (clause 14.4.). In the unequivocal words of the provisions “any Variation of
the Terms of the Settlement shall be submitted to the Capital Markets Authority for approval prior to being effected”. As there is
no evidence that the Deed of Variation was submitted to the Authority and approved before 2nd March 2010, the Terms therefore
could not be effected as against Kamiti.

31. But I may be wrong, and I would still have to consider the other reasons why Kamiti challenged the validity of the Deed of
Variation.

32. The 2nd to 6th Defendants were at all material times Trustees of the Banks ESOP. In this position they owed a Fiduciary Duty to
the Unitholders who included Kamiti. Just as to other Unitholders, the Trustees were enjoined to act in the best interests of Kamiti.
The effect of the introduction of a Vesting date, if it need to be repeated, was that it would potentially wipe out the accrued value of
any Unitholders Right who ceased to be employees before vesting order. The consequences had a negative impact on any
Unitholder affected by the Vesting date.

33. One of the grievances of Kamiti was that the Amendment was effected without any notification, consent or approval from him.
Let me for starters interrogate the complaint that he was not notified of the change. The Defence reacted to this assertion by arguing
that the change was in consonance of the initial intention of the ESOP which was well known to Kamiti. The 3rd Defendant gave
testimony as follows:-

“28. The ESOP was established for the purpose encouraging or facilitating the holding of shares in eh company for the benefit
of the Bank’s employees. It was also purposed to serve as an incentive for the employees to remain with the Bank and it is for
this latter reason that a minimum period of service before Vesting of the Units was agreed upon by the Staff of the Bank in the
meeting at Nyeri at the time of inception of ESOP in 2005. The employee would on the other hand benefit from appreciation in
the value of the investment in ESOP if they remained for 5 years and worked with others to better performance of the Bank
which would in turn rise to better share performance”.

The impression given was that concept of the Vesting Date was agreed upon at the inception of the ESOP in 2005.

34. Kamiti’s testimony was that in his knowledge, the Unitholders could redeem their shares when they desired and that this was
unconditional. He pointed to an Information Memorandum of 3rd July 2006 issued by the Bank which had the following statement
on the ESOP,

“Employees who leave the Bank’s employment or who no longer wish to be shareholders have their Units redeemed by the
Trust. The Trustees determine the date and income to be distributed to the Members in accordance with the Trust Deed”. (P
Exhibit page 46).

35. His further evidence was that,

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“I was not aware of the change of Scheme Rules at the time. I learned about it much later”.

The witness was alluding to the time he resigned and sought to redeem the shares. That he was not aware of the Variation then. He
later was to testify,

“By the time I left the Bank I was not aware of any Variation”.

36. There was further evidence that in an email of 9th September 2009 to the 3rd Defendant, Kamiti had sought copies of the
Registered Trustee Deed, Rules and Regulations of the ESOP. Receipt of this email was acknowledged by the 3rd Defendant on 25th
September 2009. Yet there is no contention that the 3rd Defendant did not send the requested Documents to Kamiti.

37. Kamiti has put forth cogent evidence that notwithstanding some effort, prior to his resignation, a copy of the duly approved
Deed of Settlement was never forwarded to him. The apparent reluctance to forward the Document persisted even after the
Defendants had purported to apply the terms of the Deed of Variation when dealing with his Units and so in the end Kamiti had to
turn to the CMA for a copy thereof.

38. On the part of the Defence it sought to rely on some supposed discussions held in 2005 at the inception of the ESOP. Its case
being that the Vesting Date was discussed and agreed as a feature of ESOP. It may however be curious that the original Settlement
Deed was dated 29th August 2005 did not incorporate the Vesting Date which, undoubtedly is a critical aspect of the Scheme.

39. From the evidence, this Court finds and holds that the Trustees and Bank did not inform Kamiti of the Deed of Variation and its
contents before the date of his Resignation. If arguendo, it is accepted that the Variation was valid, then the information of the
Variation and its implication needed to be shared with the Unitholder as soon as it was effected so that the Unitholder would bear it
in mind on whatever decisions they would make. On 2nd March 2010, Kamiti resigned from the Bank. It was a date before the
Vesting Date. Under the Amended Rules he would not get market value for his Units. He was not aware of the Amendment. The
Bank and Trustees were well aware that the decision he was making would have a huge impact on his Investment on the Units. The
Bank and Trustees watched Kamiti make this decision without advising him of the implication. The Bank and Trustees were in the
very least cynical! They watched a Unitholder make a decision that would substantially reduce the value of his redemption without
telling him that the Rules had changed. How cynical"! How callous" The Trustees failed to act in the best interests of Kamiti and let
him make a decision that was obviously detrimental to his own interests. This is not how responsible and well-meaning Trustees
ought to act.

40. Having come to that conclusion I need not consider whether the Defendants needed to seek the approval or consent of the
Plaintiff before making Amendments to the Deed of Variation.

41. The Court finds that as the Deed of Variation was invalid, at least as against the Plaintiff, the Redemption of the Plaintiff’s
Units stood to be dealt in accordance with the Provisions of clause 5 of The Deed of Settlement and Rule 7 of The ESOP Rules.
These provides:-

“5.1 Unless otherwise agreed by the Trustees with the consent of the Company a unit holder who in accordance with the
ESOP Rules ceases to be employed by the Group shall upon such cessation be deemed to have applied for redemption of the
units registered in his name on the Register whereupon the Trustee shall, within 30 days, pay the balance standing to the
credit of the Unitholder’s account to the Unitholder. Alternatively, in order to implement redemption the Trustees may at
the request of the Unitholder transfer the shares corresponding tho the units redeemed to the Unitholder.

5.2 Where any Unit has not, at the time of its redemption, been paid up in full by a Unitholder, the Redemption Proceeds
shall be applied first in paying up the balance unpaid on the Unit and any balance then remaining shall be paid within 30
days to the Unitholder.

5.3 The Trustees shall only allow redemption of Units by Unitholders In accordance with the ESOP Rules without limiting
the foregoing allow partial redemption.

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5.4 The Company shall be entitled to require the Trustees (and the Trustees shall if so requires) to apply the Redemption
Proceeds first in or towards payment to the Company of any sums properly owing to the Company by reason of his
employment or otherwise by the Unitholder redeeming Units before any payment is made to the Unitholder.

5.5. the Trustees may determine the time and date on which Units shall be redeemed and may suspend redemption of in
their opinion conditions exist as a result of which disposal of Shares is impracticable or the price of the shares on the Official
List is too low having regard to movements in the price of shares within the immediately preceding period of 30 days”.

Rule 7 reads:

“7.1 In the event the issued share capital of the Company is increased pursuant to a bonus issue, scrip dividend or other
form of capitalization (“Capitalization Issue”) the Trustees shall apply to exercise their rights in full to acquire additional
Shares credited as fully paid be held pursuant to the terms of this settlement unless in the circumstances it is reasonable and
in the best interests of the Unitholder for the Trustees to receive income in respect of the new Shares that are the subject of
the Capitalization issue. Upon so doing the Trustees shall issue new units to Unitholders credited as fully paid up
corresponding to the number of new Shares issued to the Trustees fully paid up pursuant to the Capitalization Issue and
pro rata to their existing holdings of Units.

7.2 In the event of a rights issue of new shares by the Company (“Rights Issue”) the Trustees shall make an offer in writing
to each Unitholder to subscribe additional units pro rata to their existing holding of Units, the Price for each Unit to
correspond to the Offer price of the shares n the Rights issue and otherwise on the same terms and conditions as the Rights
Issue including as to rights of renunciation and timetable for return, of applications. Unless by the closing date of the Rights
Issue a Unit holder has notified the Trustees that it wishes to subscribe for Units to the trustee shall renounce their rights in
respect of the corresponding number of shares. Upon renunciation the Trustees shall apply any proceeds of renunciation of
the Shares in Payment up as far as is possible of balance (if any) shall be paid up to the Unitholder as if it were Distribution
Proceeds. If a Unitholder desires to exercise his rights to purchase additional Units he shall notify the Trustees by the closing
date of the Rights Issue and pay in full for the Units.

7.3 If the capital of the company is reduced pursuant to the provisions of Section 68 of the Companies Act the Trustees shall
make such pro rata adjustment to the number of Units as they consider appropriate in the circumstances”.

42. In his communication of 2nd March 2010 to the Chairman of the Trustees of The ESOP (P Exhibit page 154), Kamiti invoked the
Provisions of clause 5.1 and paragraph 7 of The ESOP Rules and sought to redeem his 6,557,080 ESOP shares by transferring the
said ESOP shares to his name. To his shock and consternation, Kamiti was only paid Khs.24,340,000/- being the value of his
contribution to the scheme.

43. It was conceded by the Defence witness that the Plaintiff would have been paid the Market price of the Shares if the Vesting
date clause had not been applied. There is also uncontested evidence that one Unit in the ESOP was equivalent to the share in the
Defendant Bank. Kamiti held 6,557,080 ESOP Shares which translated to 6,557,080 Shares in the Bank. As at the close of Business
of 2nd March 2010 1 (one) Share of Equity Bank traded at the Nairobi Stock Exchange at Kshs.15.75(See P Exhibit page 206). The
value of the Shares held by Kamiti on that day would therefore be Khs.103,274,010. Poor Kamiti he was only paid
Ksh.24,340,000/-. The Plaintiff is entitled to the difference between this value of Khs.103,274,010/= and what he was paid being
Kshs.24,340,000/=.

44. The Plaintiff also claimed Lost Investment income and he invited Mr. Leslie Okudo Akumu (PW2), an Actuarial Scientists, to
prove these Damages. Even before evaluating that evidence I must determine whether damages of this nature are awardable in the
circumstances of this case.

45. In support of the argument for loss of Income, Counsel for Kamiti argued that damages for loss of profits from an alternative
Investment were in principle capable of being recovered in an action for deceit and fraud and that applying the fundamental
compensatory principle that underpins the award of damages, the Court could award damages in respect of such loss until trial. (
Paraboli Investments Ltd & another and Browallia Cal ltd & 2 others [2010] EWCA CIV 486). It was further asserted that
damages for breach of contract can include damages for loss of use of money as a direct consequence of the Defendants breach of
contract (Hungerfords vs. Walker [1989]HCA8. The Plaintiff also sought to make the point that in addition to awarding damages

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 Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

for breach of contract or tort, an award of damages by way of Interest for Loss of Money can be deserved. In Hungerfords (Supra)
Mason CJ and Wilson J. held,

“Judged from a commercial viewpoint, the Plaintiff sustains an economic loss if his damages are not paid promptly, just as he
sustained such a loss when his debt is not paid on the due date. The loss may arise in the form of the investment cost of being
deprived of money which could have been invested at interest or used to reduce an existing indebtedness. Or the loss may arise in
the form of borrowing cost, ie. interest payable on borrowed money or interest foregone because an existing investment is
realized or reduced”.

46. The Court was also asked to note the decisions therein of Brenna and Deane JJ. when they stated,

“There is not acceptable reason why the ordinary principles governing the recovery of common law damages should not, in an
appropriate case, apply to entitle a Plaintiff to an actual award of damages as compensation for a wrongfully and reasonably and
foreseeably caused loss of the use of the money. To the extent that the reported cases support the proposition that damage cannot
be awarded as compensation for the loss of the use of a specific sum of money which the wrongful act of a defendant has caused
to be paid away or withheld, they are contrary to principle and commercial reality and should not be allowed”.

47. The Plaintiff’s Claim is premised on Breach of Contract. And it is clear to this Court that the Claim for loss of Investment
Income is really a Claim for Consequential Loss. While the decisions cited to this Court underscore that Damages for Loss of
Investment Income and Interest of Damages are awardable where appropriate, the decisions do not depart from the principles of
foreseeability or remoteness of Loss that has been applied in Damages for breach of contract since the old decision of Hadley vs.
Baxendale [1854] EWHC 9Exch 341. In this decision the Court identified two types of losses which a party can recover in the event
of breach of Contract;

(i) Loss which naturally arise from the Breach or that may have reasonably been in the contemplation of the contracting parties.

(ii) Losses which result from special circumstances and would only be recoverable if such losses were communicated to the
defaulting party when the contract was formed.

The former is an objective test, while the latter is subject. Fundamentally however any loss which falls outside these two limbs is
considered to be too remote and is thus not recoverable.

48. So as to deserve an Award of Loss of Investment Income, Kamiti first needed to establish that the loss was foreseeable. PW3
sought to prove the rate and amount of Investment Income that Kamiti could have realized if, following his resignation from the
Bank’s employment, the Shares held in the ESOP had been transferred to him at market value and if, instead of investing in the
ESOP, he had invested his funds totaling Khs.24,340,200 elsewhere. After analyzing Kamiti’s Investment exposure, education and
experience, PW3 returns an opinion that,

“…It would still have made much sense for him to invest in top performing International shares, bonds or funds with at least 3
years of performance history”.

49. Would it have been foreseeable that Kamiti would have acted in that manner" For a start, there was no communication by
Kamiti at the time when the Contract was formed, that the Bank would be required to meet Lost Investment Income in the event of it
default. Secondly, there is no evidence placed before this Court the natural alternative use of the funds was Investment in “top
Performing International Shares, bonds or funds”. In a word, the Lost Investment Income sought by the Bank was not foreseeable
and is remote. It cannot be awarded.

50. That said, this Court has found that the Bank paid Kamiti about 20% of what was due to him. He was deprived the use of the
remainder from the date it was due to him but not paid. This is a natural loss that is suffered by a person who is deprived use of
money due to him and one that must be compensated. This infact is the object for an award of interest. As the Court of Appeal said
in Highway Furniture Mart Limited vs. Permanent Secretary Office of The President & another [2006] eKLR,

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 Samuel Gachie Kamiti v Equity Bank Limited & 6 others [2018] eKLR

“The justification for an award of interest on the principal sum is, generally speaking, to compensate a Plaintiff for the
deprivation of the money or specific goods through the wrong act of a Defendant”.

Kamiti asks for interest at the Commercial rates of 20% per annum from the date of filing suit until payment in full. Yet even if I
was to agree that a Commercial rate was deserved and not the Court rates, no evidence was led in proof that the Commercial rate
was indeed 20% per annum. The law is that interest on Special Damages is awardable from the date of filing suit until payment.
The amount due to the Plaintiff is in the nature of Special Damages. In the absence of proof of the Commercial rates, this Court will
award interest at Court rates.

51. There was one further Claim by Kamiti. He claimed Khs.2,662,932.00 as Dividend payable to him on his 6,557,080 shares at
the rate of forty cents (40cts) per share for the year ended 31st December 2009. In disputing this Claim the Defendants submit;-

“We submit that the Plaintiff is not entitled to payment of Dividends because at the time the Dividends for the year 2009 were
being paid, the Plaintiff had left the employment of the 1st Defendant and the membership of the ESOP. He is therefore not
entitled to benefits that accrue to employees who are members of the ESOP. Further the Plaintiff has not submitted any evidence
to support this prayer and cannot therefore validly seek its award”.

52. This Court has combed through the evidence presented by the Plaintiff and is unable to find any evidence presented as to
whether dividends declared for the year ended 31st December 2009 was at the rate of 40cts per share as he had sought. This claim
was denied by the Defendants and the onus was on Kamiti to prove every aspect of it. It is sad that the Plaintiff is unable to obtain a
favourable outcome on this limb because it seems just that he should have been paid a dividend for the year 2009 when he still held
shares in the ESOP. But such is the nature of Civil Litigation, you only get what is proved or admitted.

53. The upshot is that Judgement is entered in favour of the Plaintiff as against the seven (7) Defendants jointly and severally for
payment of Ksh.78,934,010/= with Interest thereon at Court rates from the date of filing suit until payment in full. The Plaintiff will
also have costs.

Dated, Signed and Delivered in Court at Nairobi this 31st day of May,2018.

F. TUIYOTT

JUDGE

PRESENT;

Oseko for Plaintiff

Kichie for Defendant

Nixon - Court Assistant

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