Air Afrik Aviation Managing Director Eric Lugalia accuses Stanbic Bank of causing the collapse of his company’s business by freezing and reversing $7.2 million (Ksh 9.2 billion) in its bank account.
Lugalia testified on Monday stating that the freezing and reversing of the funds led to the termination of a plane leasing agreement with the South Sudan government.
In a statement filed before the High Court, he explained that the aviation firm failed to fulfill its obligations under the September 4, 2014 leasing agreement.
“I am further aware that the plaintiff (Air Afrik) spent substantial time and resources and also incurred substantial loss and damages in pursuit of the illegal freezing of its account but the 1st defendant (Stanbic) adamantly refused to unfreeze or allow the plaintiff to access the said credit balance,” Mr. Lugalia stated.
GoodReader (1)Stanbic has refuted the claims, arguing that the transaction was reversed after it was discovered that the credit note from the South Sudan government lacked actual funds and the bank could not utilize its own money.
The bank maintained that the actual transfer of $7.2 million was never made into its Nostro account as alleged by the Bank of South Sudan (the central bank) and that only a paper entry was made which should have been followed by an actual transfer of funds.
Stanbic asserted it was compelled to reverse the entry it had made to the customer’s account since it was an error and not supported by an actual transfer of funds.
“The 1st defendant (Stanbic) avers that due to the erroneous credit of USD 7,224,000 of the 1st defendant’s money into the plaintiff’s (Air Afrik) account, the 1st defendant was entitled to reverse the said entries and also stop further withdrawals by the plaintiff or other dealings based on the erroneous entry in the plaintiff’s account,” the lender stated in response.
The bank insists that there is no contractual or other obligation requiring it to use its own funds to settle a debt owed to the airline by a third party.
The carrier sued Stanbic in 2018 for allegedly breaching banking regulations by crediting $7.2 million into its account and subsequently freezing and reversing the funds without a valid court order or directive from the Central Bank of Kenya.
The airline is seeking damages for losses incurred after a $20 million plane leasing contract with the South Sudan government was terminated due to the withheld funds.
Air Afrik claims the money was deposited in September 2014 to secure a plane leasing contract with the Ministry of Defence and Veteran Affairs of South Sudan.
Under the agreement, Juba was required to pay Air Afrik a deposit of 35 percent ($7.2 million) of the total contract value, estimated at $20.64 million.
The lender stated that on February 5, 2016, it received a Credit Advice Note from the Bank of South Sudan indicating that its account at the central bank had been credited on behalf of Air Afrik for payment from the Ministry of Finance and Economic Planning for the contract.
On February 8, 2016, Stanbic credited the airline’s account with the same amount, deducting applicable commissions, before freezing and reversing the funds a few days later.
The hearing continues before Justice Nixon Sifuna on Tuesday.
