The Supreme Court has affirmed syndicated lending permitted in Uganda in a verdict that also affirms that foreign banking or non-banking institutions striving to deliver credit facilities to Ugandans are not bound by local laws.
The top court judges spoke of the Financial Institutions Act, 2004, and the Financial Institutions (Agent Banking) Regulations, 2017 in discovering that international financial transactions and syndicated lending are not regulated by local Ugandan law. |
| Courtesy photo |
“Similarly, no law was brought to this Court’s attention that forbids foreign financial institutions from extending credit facilities to any financial institution or person in Uganda. If anything, in furtherance of international trade and investment, financial institutions the world over are known to engage in global financial business transactions by dealing with, or through, financial institutions based in other jurisdictions,” the five Supreme Court justices ruled.
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| Courtesy photo |
"In the case of Uganda,” Chief Justice Owiny Dollo, who induced the unanimous conclusion of the court, said, “such international financial business transactions are certainly neither governed by the Financial Institutions Act, 2004, as amended nor the Financial Institutions (Agent Banking) Regulations, 2017, made pursuant thereto.”
The ordeal judge, he ruled, erred in keeping that the credit agreements between the parties were illegal. In any event, the judges ruled, Judge Adonyo ought to have accorded the parties a hearing to specify the fate of the cash advance and not determine the issue summarily.
The extreme court, as the judges illustrated, must definitively address the matter of illegality, which has been put up and disputed from the High Court up to the Supreme Court. The court pointed up that resolving this issue is important to prevent excessive delays and resulting inequity that the parties involved would suffer if the case were directed back to the trial court, only to be petitioned once again to the Supreme Court.
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By resolving the matter, the court said a vital legal point in the plea would be explained, delivering a clear insight into the law considering individuals in Uganda engaging in financial transactions with foreign financial institutions or persons. This, the court says, will allow banking and other financial institutions performing business in Uganda, as well as those interacting with institutions within the country, to hold out their operations with confidence, knowing that they are secure by the law.
Also, the judges said that having called an audit of the transactions to verify the status of the loans between the parties, the trial judge was under a duty to determine the aspects of the dispute between Ham and Diamond Trust Bank Uganda, over which the issue of illegality had not arisen. The omnibus finding of the illegality of all the transactions was a miscarriage of justice, they said. The other judges included Faith Mwondha, Percy Night Tuhaise, Mike Chibita, and Stephen Musota.
The Supreme Court decision glues a role adopted by the Bank of Uganda in which the financial regulator defined that foreign-based banks do not need their license to lend funds originating abroad.
At the time, the Central Bank explained that foreign banks’ lending deposits held in jurisdictions other than Uganda are controlled and supervised by their home authorities and a foreign bank doesn't need to establish a representative office in Uganda to conduct lending.
Dr. Bazinzi Natamba, the Deputy Director of Communications at the Bank of Uganda, told Daily Monitor in a telephone discussion and subsequent email that the bank will issue a statement.
The case between Mr. Kiggundu and the two banks will now go to trial in the High Court. The Supreme Court has directed that the case be heard by another High Court judge “basing only on issues of fact arising from the pleadings”.
Background
Mr. Kiggundu and his companies, Ham Enterprises Ltd and Kiggs International Ltd(Ham) took credit facilities from Diamond Trust Bank Kenya and Diamond Trust Bank Uganda. The loan facilities were secured by mortgages over various properties, including Kyadondo Block 248 Plot 328 land at Kawuku, FRV 1533 Folio 3 Plot 36-38 Victoria Crescent II Kyadondo, and LRV 3176 Folio 10 Plot 923 Block 9 Land at Makerere Hill Road. Ham also equipped personal and corporate guarantees.
Following what the bank termed as the failure of Ham and his companies to pay, DTB-U commenced a recovery process for the money in early 2020. By the time the process started, Mr. Kiggundu, according to the DTB lawyers, owed DTB Kenya $4m (Shs14.8b) and DTB Uganda $6.9m (Shs25.6b).
In reaction, the businessman sued the two banks in the High Court, arguing unjust contractual terms and illegal deductions from his accounts. Further, he sought an order directing a full account reconciliation of all financial transactions between the parties.
As a result, DTB agreed to the appointment of an auditor by the court, and Justice Henry Adonyo, the trial judge, issued the order accordingly. Nevertheless, on August 10, 2020, Mr. Kiggundu amended his lawsuit and submitted a new allegation that the loan agreements were illegal and unenforceable due to DTB Kenya lacking a license to operate in Uganda.
The businessman sought a statement from the court that the demands from both DTB Kenya and DTB Uganda were “illegal and unenforceable”. He, instead, asked that the two banks pay him Shs34.2b as money that was unlawfully deducted from his accounts. He also strived for the unqualified removal of mortgages on his properties and the discharge of all corporate as well as personal guarantees issued to secure the borrowings.
Therefore, Mr. Kiggundu applied to the court to cease the appointment of an auditor and for summary judgment on the premise that the defense by DTB Uganda and DTB Kenya was a perpetuation of illegalities. Justice Adonyo issued an order stopping the appointment of an auditor, found that the two banks had engaged in illegal lending, and ordered the banks to pay the businessman Shs34.2b.
Justice Adonyo further proclaimed that Mr. Kiggundu’s properties and all corporate and personal guarantees issued to secure his borrowings were to be unconditionally released.
With Tuesday’s ruling, the matter now returns to the court to be heard on its values.
By resolving the matter, the court said a vital legal point in the plea would be explained, delivering a clear insight into the law considering individuals in Uganda engaging in financial transactions with foreign financial institutions or persons. This, the court says, will allow banking and other financial institutions performing business in Uganda, as well as those interacting with institutions within the country, to hold out their operations with confidence, knowing that they are secure by the law.
Also, the judges said that having called an audit of the transactions to verify the status of the loans between the parties, the trial judge was under a duty to determine the aspects of the dispute between Ham and Diamond Trust Bank Uganda, over which the issue of illegality had not arisen. The omnibus finding of the illegality of all the transactions was a miscarriage of justice, they said. The other judges included Faith Mwondha, Percy Night Tuhaise, Mike Chibita, and Stephen Musota.
The Supreme Court decision glues a role adopted by the Bank of Uganda in which the financial regulator defined that foreign-based banks do not need their license to lend funds originating abroad.
At the time, the Central Bank explained that foreign banks’ lending deposits held in jurisdictions other than Uganda are controlled and supervised by their home authorities and a foreign bank doesn't need to establish a representative office in Uganda to conduct lending.
Dr. Bazinzi Natamba, the Deputy Director of Communications at the Bank of Uganda, told Daily Monitor in a telephone discussion and subsequent email that the bank will issue a statement.
The case between Mr. Kiggundu and the two banks will now go to trial in the High Court. The Supreme Court has directed that the case be heard by another High Court judge “basing only on issues of fact arising from the pleadings”.
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| Courtesy photo |
Background
Mr. Kiggundu and his companies, Ham Enterprises Ltd and Kiggs International Ltd(Ham) took credit facilities from Diamond Trust Bank Kenya and Diamond Trust Bank Uganda. The loan facilities were secured by mortgages over various properties, including Kyadondo Block 248 Plot 328 land at Kawuku, FRV 1533 Folio 3 Plot 36-38 Victoria Crescent II Kyadondo, and LRV 3176 Folio 10 Plot 923 Block 9 Land at Makerere Hill Road. Ham also equipped personal and corporate guarantees.
Following what the bank termed as the failure of Ham and his companies to pay, DTB-U commenced a recovery process for the money in early 2020. By the time the process started, Mr. Kiggundu, according to the DTB lawyers, owed DTB Kenya $4m (Shs14.8b) and DTB Uganda $6.9m (Shs25.6b).
In reaction, the businessman sued the two banks in the High Court, arguing unjust contractual terms and illegal deductions from his accounts. Further, he sought an order directing a full account reconciliation of all financial transactions between the parties.
As a result, DTB agreed to the appointment of an auditor by the court, and Justice Henry Adonyo, the trial judge, issued the order accordingly. Nevertheless, on August 10, 2020, Mr. Kiggundu amended his lawsuit and submitted a new allegation that the loan agreements were illegal and unenforceable due to DTB Kenya lacking a license to operate in Uganda.
The businessman sought a statement from the court that the demands from both DTB Kenya and DTB Uganda were “illegal and unenforceable”. He, instead, asked that the two banks pay him Shs34.2b as money that was unlawfully deducted from his accounts. He also strived for the unqualified removal of mortgages on his properties and the discharge of all corporate as well as personal guarantees issued to secure the borrowings.
Therefore, Mr. Kiggundu applied to the court to cease the appointment of an auditor and for summary judgment on the premise that the defense by DTB Uganda and DTB Kenya was a perpetuation of illegalities. Justice Adonyo issued an order stopping the appointment of an auditor, found that the two banks had engaged in illegal lending, and ordered the banks to pay the businessman Shs34.2b.
Justice Adonyo further proclaimed that Mr. Kiggundu’s properties and all corporate and personal guarantees issued to secure his borrowings were to be unconditionally released.
With Tuesday’s ruling, the matter now returns to the court to be heard on its values.
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