Minne Mbue v Jamii Bora Bank Limited [2013] KEELRC 36 (KLR)

Minne Mbue v Jamii Bora Bank Limited [2013] KEELRC 36 (KLR) Minne Mbue v Jamii Bora Bank Limited [2013] eKLR Neutral citation: [2013] KEIC 566 (KLR) Republic of Kenya In the Industrial Court at Nairobi Civil Cause 1837 of 2011 Nzioki wa Makau, J November 1, 2013 Between Minne Mbue Claimant and Jamii Bora Bank Limited Respondent Judgment 1.The Claimant herein Minne Mbue is an Accountant. She pleads that prior to March 2010she was employed by the Central Bank of Kenya on permanent and pensionable terms.She avers that the Respondent requested the Claimant to terminate her employmentwith Central Bank of Kenya and work for the Respondent as the Respondent’s ExecutiveDirector. The Claimant accepted the offer and terminated her employment with CentralBank of Kenya and entered into a written contract with the Respondent dated 25thMarch 2010. In it, she agreed to work for the Claimant as its Executive Director for aperiod of 5 years with effect from 5th April 2010 and upon expiry, the contract could berenewed for a further period of 5 years. She pleaded that on 29th August 2011 at therequest of the Respondent, the Claimant agreed to terminate the said contract ofemployment to enable the Respondent undertake major structural changes within itsorganization. The Claimant avers that the contract was terminated under Clause 19.6 ofthe contract of employment and as a result she is entitled to three months salary in lieuof notice and salary for the unexpired period of the contract – 104 months, pay for leave1 days accrued but not taken, telecommunication costs for 104 months, fuel consumptioncosts for 104 months, annual club membership for 8 years, health insurance for 8 yearsand gratuity at rate of 25% of the total gross salary for the entire contract period. Thetotal claim was Kshs. 112,594,570/-. 2.The Respondent denied the Claim and averred that it was not privy to the terms of thecontract of employment between the Claimant and her previous employer the CentralBank of Kenya. The Respondent strictly denied that it caused the Claimant to terminateher employment with the Central Bank of Kenya. Further, the Respondent averred thatthe contracting parties entered into a contract of employment on 25th March 2010 asequal contracting parties and that the Respondent did not in any way force, coerce orunduly influence the Claimant to terminate her employment with her previousemployer. The Claimant’s averments on the termination clauses were denied and theClaimant put to strict proof thereof. The term of the contract was to commence on 15thApril 2010 for 5 years renewable for a further period of 5 years unless otherwiseterminated. The Respondent avers that the Claimant completely and miserable failed inher duties as set out in the letter of employment and her job description as a result ofwhich the Respondent suffered massive financial losses prompting it to mitigate thelosses by inter alia terminating the contract of employment of the Claimant. One of theparticulars of the averment was that the Claimant outsourced the staff loans to EcoBankLimited instead of promoting the Respondent’s business interests, disobeying instructions of the board, failing to supervise staff under her, dismissing staff withoutconsultation leading to low staff morale, absenteeism and so forth. 3.The Respondent averred that the termination of the Claimant’s employment wasmutually agreed upon by the Claimant and the Respondent due to the Claimant’s poorperformance. The Respondent denied that the dismissal of the Claimant was underClause 19.6 of the contract of employment. The Claimant was offered a terminationunder Clause 19.6 but this was recanted after the Claimant made a counter offerthrough her letter dated 10th September 2011. The termination it was averred waslawful, procedural and fair. The Claimant was given an exit package notwithstandingthat the Respondent was entitled to summarily dismiss the Claimant for unsatisfactorywork performance and irregular borrowing. 4.After interlocutory applications and the filing of additional supplementary documents,the matter was finally set down for hearing and the Claimant testified on 24th Januaryand 25th January 2013, 6th February 2013, 8th March 2013. The examination in chief andcross-examination were closely aligned to the pleadings filed. The Claimant testified atlength about her experience, qualification and career path culminating with herengagement with the Respondent. She testified that clause 20 of the contract ofemployment did not provide performance as one of the grounds for termination ofemployment. She stated that she did not request nor tender resignation to the Board ofDirectors. She referred to Minute 10(f) of the 140th Board of Directors Meeting of 29th August 2011 and said that it was the Respondent who initiated the process ofengagement. The Board resolved that the disengagement should be amicable. Thecontract of employment provided for the package under Clause 20.1. She testified thatthe balance of the contractual salary and benefits would be payable. 5.In cross-examination, the Claimant delved into her qualifications and employmenthistory. She worked with Alexander Forbes, Price Water House Coopers, InternationalControls Limited and she was a member of MEFMI a regional body which is a FinancialRegulators Training body. Where she took consultancy work in training Regional BankRegulators on Banking Risks with an emphasis on Credit & Operational Risks. She was aManager in Bank Supervision at Central Bank of Kenya and she knew City Finance Bank.The bank merged with Jamii Bora Micro Finance. Merger of financial institutionsrequires CBK approval. City Finance had a history of problems and it was struggling tomeet CBK capital requirements. It was the smallest bank at the time under CBK’sregulation. Merger was an effort to meet these challenges. The Claimant was involved inthe merger and acquisition. She was involved in assessing the application for merger. Inrelation to her contract with the Respondent she testified that if the bank is placedunder statutory management the contract is terminated. If termination is under Clause19.1, 19.2 and 19.3 Clause 20.1 of the contract would not apply. She was aware of theperformance challenges at the bank. Before the turn around, the institution needed abanking licence. Her first task was to merge the two entities in respect to financialreporting which she successfully did and the bank obtained a banking licence on 4th August 2010 three months after she took the job. Her second task was to mergeoperations in the 2 entities in terms of staff because there were professional staffworking for City Finance and on the other hand the Micro Finance did not have skilledbanking staff. Training was undertaken to improve their capacity. As per the FinancialAccounting Standards there was a requirement to take a post merger acquisition auditwhich entailed the scrutiny of Jamii Bora account books at the time of the merger andCity Finance in depth. The report showed huge impairment of the loan book of JamiiBora which required to be written off. This meant that the capital was affected and wasnow below the minimum requirement and Jamii Bora Bank could not get a Bankinglicence for 2011. The Governor summoned the Board to Central Bank and Jamii BoraBank was mandated to increase the capital to 500 million shillings. The Board of JamiiBora recommended to the shareholders a further injection of capital and therefore theprocess of rights issue ensued. They were not allowed into the clearing house, the plansto recruit key staff from baking sector became a challenge. She testified further that atthe time of the issue of her disengagement it was impossible in the circumstances todrive the business of the Bank forward. She said that she delivered on the required goalsin view of the situation prevailing though at the time of departure she had not turnedaround the Bank. She admitted that the Bank did not turn a profit during the periodthere a banking licence in place – August to December 2010. She conceded thatperformance of her duties was a material obligation of her engagement. She said thatshe was convinced by the then Director of Jamii Bora to join the upcoming bank. Sheadded that the remaining 10 years she would have had at Central Bank were factored in her tenure at Jamii Bora and agreed with Mr. Mutua, Counsel for the Respondent thatthere is no direct inference of the 10 years in the contract. The Claimant confirmed thatthe termination of the contract was by mutual consent. Any discussions prior to thecontract were superceeded by the contract. 6.In re-examination by Mr. Oyatsi, the Claimant stated on the letter of 9th September 2011attached as Exhibit MM3 in the Claimant’s bundle, the offer of termination is by theBank and she accepted the offer. However she said she did not accept the calculationsas accurate. The Bank sought indulgence on the amount to be paid – 35.2 million. TheBank proposed to pay her 24 months salary in full and final settlement. She did notaccept that offer. She stated that her contract was broken into 2 parts and renewal wasnot subject to any conditions. It was automatic renewal. 7.The Respondent called its witnesses – Dickson Muchira Njeru the Head of Credit at JamiiBora since January 2010, Ingrid Sofia Munro a Director of Jamii Bora Bank. Dickson Njerutestified on the financial statements and financial reports to the Board of Directorswhich revealed the performance by the Bank for the period the Claimant was in charge.In some months there was good flows and on other months there were declines. IngridSofia Munro the co-founder of the Jamii Bora Group testified that Minnie Mbue was thefirst CEO of Jamii Bora Bank. Ingrid Munro knew her as a staff member at Central Bankas the staff member responsible for City Finance Bank among other banks. Ingridtestified that the idea of Minnie coming to the Bank was Minnie’s own idea. They had become very close during the merger. Minnie Mbue knew about City Finance Bank morethan anybody else. She had all the information about Jamii Bora Bank Ltd before andafter the merger because she was the person in charge at Central Bank. The original ideawas that Ingrid would be CEO and Minnie would be her deputy but Ingrid suffered astroke on 31st December 2009 and as a result of that it was generally agreed betweenthe investors, Minnie and Ingrid that Minnie becomes CEO of the Bank and Ingridbecomes the Chairman. Ingrid signed the letter of appointment. She testified that thecontract was for 5 years that meant that it could be renewed. She said it was commonpractice to have two 5 year terms provided of course one performs. There is room fortermination. The CEO came to manage the Bank in accordance with the laws of Kenyaand to make sure the bank performed. She was to manage the business of the bank witha view to realizing reasonable profit. Ingrid relinquished Chairmanship in September2010 when Richard Njoba took over. She testified that she had great hopes in Minniebut sadly this did not turn out to be her type of job. She was a good regulator but shewas not a good performer in building up the Bank. Ingrid was referred to letter of 7thSeptember 2011 and confirmed it was from the Bank to Minnie and is signed by Richardthe Chairman. The letter reflects the position of the Board. Ingrid confessed that shewas very sad with how things developed. She had a lot of faith in Minnie but she didn’tperform and the Bank just went down. In reference to the letter of Appointment Clause19 and 20, she testified that the letter provides on termination and Clause 20 provideseffect of termination. 8.On the letter of 9th September 2011, Ingrid testified that it was an offer and if Minnierejected it, it was out. It was in her a view a generous offer. The offer was 2 years salaryto be paid in 2 installments – 12 months salary at the end of January 2012 and 12months salary at the end of January 2013. She rejected the offer and came to Court. TheBank could not keep Minnie. It would have been dead in one year. 9.In cross-examination by Mr. Oyatsi for the Claimant, Ingrid testified that Bank was the8th Bank in performance and it was the fastest growing Bank. When Minnie came to thebank the bank went down. March 1st 2010 marks the beginning of the merged and thatis what went down when Minnie was in charge. Ingrid continued to be a Director aftershe vacated the position of Chairman of the Board. The Bank was audited in 2010 byDeloitte. She was asked questions on the report and said that the income went up in2009 due to merger. The biggest expense was employment. Minnie was hiring staff andshe sacked senior staff from Jamii Bora without payment of dues and new people werehired, the turnover of senior staff was too high. Ingrid had never seen such turnover.She agreed that the Bank failed to raise capital due to lack of performance. The bankwas given some respite for 3 months and managed to raise capital in the 3 months. Shetestified that Capital is one of the major contributors to growth. If you don’t havemoney you won’t perform. Minnie had the duty to perform and she had to raise funds.The Bank failed to raise funds from investors due to poor performance. On beingreferred to the Income statement/financial report in Annex 4 of the Respondent’sbundle she stated that the income increased between October, November and December after Minne had left. She attributed this to the new team. The loan portfoliowas increased causing the positive changes. The Board met often and decision wasreached to offer Minnie an amicable solution – the Bank offered 2 years pay but sheasked for 10 years. 10.In re-examination by Mr. Mutua, Ingrid testified that under Minute (f) of the BoardMinutes of 29th August 2011 exhibited, there was discussion and the effect of that parawas that the Bank had decided to negotiate a peaceful solution. The Bank tried to raisecore capital and failed until a new team was in place. 11.Parties filed their respective written submissions which have been considered. In sharpfocus was the Letter of Appointment and the provision of Clauses 19 and 20 of thecontract and the performance of the bank as well as the letter of offer of termination. 12.It is not disputed that the Claimant was an accomplished Accountant and Banker whojoined the Respondent from the Central Bank of Kenya where she was instrumental inthe merger of the City Finance Bank and the Jamii Bora Micro Finance. She worked for ashort period and helped merge the 2 institutions. The performance of the Bank was notso good. The Claimant and the Respondent agreed to disengage. What seems to be thereal grouse is the terms of the disengagement. The bank offered 2 years pay while theClaimant wanted payment for the 10 year period. Indeed during her testimony in Courtshe did reiterate her claim on the 10 years she could have worked for the Respondent. 13.The issues distilled for determination are 1. What was the duration of the contract?2. Was the termination in terms of the Contract?3. What reliefs is the Claimant entitled to in relation to the termination? 14.In contracts of employment, the terms of the contract are central to the resolution ofthese issues. The Contract entered into was a 5 year contract. The contract terms werenot fixed. It could be terminated in accordance with the provisions of the Contract. Thecontract could be renewed for a further 5 years. It therefore was not a contract for 10years. All things being constant, good performance and willingness of the Claimant andRespondent to continue in the engagement would have led to renewal. It was not anautomatic renewal. 15.The Claimant and the first Chairman of Jamii Bora Bank Limited had some chemistrywhich led to their interaction as CEO and Chairman of the Board. There was a lot ofexpectation but when performance of the Bank was on a downward spiral, theRespondent offered to disengage and the package was by way of payment of 24 monthssalary. The same would attract interest at rate of 9% per annum from December 2011until payment in full. The Claimant rejected the offer and the Bank proceeded toterminate the employment contract in terms of the letter dated 9th September 2011.The letter did not set out the terms of the disengagement save that it was with effectfrom 31st August 2011. 16.The Claimant’s legitimate expectations were dealt a cruel blow by the turn of events inmid 2011. The termination of the contract in 2011 was in accordance with provisionswithin the contract. The contract was not for 10 years. It could be terminated during anyof the periods it would be in effect. Gratuity was payable upon completion of thecontract term or part thereof. Other benefits were inextricably joined to the contractand were thus not extended beyond the term of the contract. The Claim ontelecommunication costs for 104 months, the claim for fuel consumption for 104months and the claim for medical, club membership, health insurance cover and salaryfor 104 months would all fail. The termination was in accordance with the contractwhich provided that there could be termination for cause. The Respondent and theClaimant were in agreement that disengagement was proper. 17.The Claimant had worked for 16 months. Her gratuity was 25% for the contract periodor portion thereof. She was thus entitled to Gratuity at rate of 25% for 16 months. Shewas entitled to a 3 month salary in lieu of notice. The bank made a generous offer of 2years salary. I would on my part only grant 12 months compensation available under thelaw. What had been offered was the best the Bank could have done was on the tablebut she rejected it. She is also entitled to the 10 days leave earned but not taken. Her gross pay was 800,000/-, 10 days of leave would be Kshs. 266,666.70 which she isentitled to. In short, she succeeds to some degree in her Claim. 18.I enter judgment for the Claimant as follows:-1.Salary for 3 months being pay in lieu of Notice – 2,400,000/-2.Gratuity for 16 months – 3,200,000/-3.One year compensation - 9,600,000/-4.Unpaid leave earned – 266,666.705.One half of Costs to be assessed or agreed6.Interest at Court rates from date of judgment till payment in full.It is so ordered. **DATED AND DELIVERED AT NAIROBI THIS 1 ST DAY OF NOVEMBER 2013****JUSTICE NZIOKI WA MAKAU****JUDGE**