Court Redraws the Lines: Banks Now Bear Fiduciary Duty Over Estate Accounts

MMA Advocate Faith Cherop

By Faith Cherop
Advocate | Despute Resolution, ESG Matters

Summary

The High Court in Succession Cause No. 527 of 1981: In the Matter of the Estate of the Late Mbiyu Koinange [2025] has established a significant precedent, ruling that a bank holding funds for a deceased’s estate stands in a fiduciary relationship to that estate and its beneficiaries. The court held EcoBank Kenya Limited (EcoBank) liable for the sum of Kshs. 284 million, plus interest, that was improperly withdrawn from an estate account. This decision fundamentally impacts all financial institutions in Kenya, which are now exposed to direct liability for failing to protect estate funds, irrespective of the instructions received from account signatories.

Background

This dispute arose from the long running administration of the estate of the late Mbiyu Koinange. Following a court-sanctioned sale of an estate asset, Close Burn Estate Runda, Maraga J (as he then was) issued an order on 26th July 2011, explicitly directing that the balance from the sale after distribution, of Kshs. 284 million shall not be disbursed without the authority of the court. These funds were held in an account at EcoBank titled “Estate of Mbiyu Koinange”. Subsequent to this order, the entire sum was withdrawn from the account without a corresponding court order authorising the release. The applicant, an administrator of the estate, sought an order to compel Ecobank to repay the amount.

EcoBank contended it was not liable because it was never served with the 2011 court order and had simply acted on the mandate provided by the account’s signatories, who were the advocates to the parties.

The Court’s Decision

The central legal question was; whether a bank owes a duty of care to an estate’s beneficiaries that goes beyond its contractual mandate with the account signatories, and whether a plea of ignorance of a court order is a viable defence.

The court held that EcoBank stood in a fiduciary relationship to the estate and therefore owed it the duty of utmost good faith, trust, confidence, and candour. In analysing duties owed by a collecting banker, under section 3(2) of the Cheques Act (Cap 35, Laws of Kenya), which provision shields a banker from liability when acting in good faith and without negligence in the ordinary course of business. The court emphasized that the mandate for the account was subject to the overriding authority of the court and that EcoBank was required to exercise a higher degree of care. By opening an account explicitly named “Estate of Mbiyu Koinange,” the bank had constructive knowledge of the special and protected nature of the funds.

The court went on to dismiss Ecobank’s defence of ignorance as irrelevant. It equated Ecobank’s actions as willful negligence, stating that the casual disbursement of such a large sum from the account could not be a mere oversight. The court affirmed that a banker has a duty to make inquiries prior to making any payments. This was even more so given the large sum of money involved and the special category of the customer i.e. the estate of a deceased person.

The Lesson

A financial institution such as a bank, holding funds belonging to a deceased’s estate is considered to have constructive knowledge of its specialised nature. This imposes a fiduciary duty to the estate itself, requiring the financial institution to verify its authority to disburse funds. A financial institution cannot absolve itself of liability by claiming it was not served with a court order or that it was merely following the instructions of signatories; failure to protect the funds amounts to willful negligence.

Conclusion

This ruling affirms the duty of care in relation to succession matters. It builds on the traditional relationship between a bank and its customer, establishing that for an estate, a bank’s duty is higher. The ruling serves as a warning to financial institutions to ensure strict compliance with court orders, especially when dealing with estate or trust accounts.

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