The normal life of any business leader is spent fighting battles daily. It is these kinds of battles that make business challenging and worthwhile – you win some and lose some. It ceases being challenging when the outcome is perceived to be a result of an unfair playing field. Yet, the delays by the Presiding Judge to issue the signed ruling and or judgment on Tuesday 13th October 2020, six days after being delivered in open Court, has caused anxiety among the business community and international partners alike.
The ruling on the case of Ham Enterprises Limited versus Diamond Trust Bank Uganda (DTBU) and Diamond Trust Bank Kenya (DTBK) for recovery of outstanding loans in the sum of about USD$ 10,000,000 is both historic and game-changing. Historic due to the precedence it has set. Game-changing due to the anticipated repercussions to the way business is done. Loan syndication, foreign investments, and inter-country partnerships in Uganda could be affected.
The facts: Sometime in October 2017, Ham Enterprises applied for a loan in DTBK of US $4m. The loan was approved under Kenyan laws, disbursed in Kenya, and transferred to the entrepreneur’s account in DTBU as specified in the accepted offer letter. It is said the money was received and utilized. In August 2018, the entrepreneur requested for further funding from DTBK of US $0.5m. Again, money was disbursed in Kenya and transferred to the stated account in DTBU. For DTBU, Ham Enterprises has several facilities with them running from 2011 to date to a tune of US$ 6,663,453, under separate loan agreements.
The issue: DTBU contends that as of 21st January 2020, the outstanding loan of US $6,298,380 was due. And an outstanding overdraft facility of Ugx. 2,855,718,349 (of which Ugx. 2,500,0000,000 principle was outstanding). For DTBK, of the US $4m, a total of US $3,662, 241.70 was due as of 21st January 2020. And on the US $500,000, a total of US $458,604.48 was due as of 21st January 2020. An issue raised by Ham Enterprises is whether DTBK, a foreign bank, can lend to an entity in Uganda without a license. And whether if they do, they would be carrying out financial business in Uganda as per the Section 3, Financial Institutions Act (FIA), 2004 (which defines a Financial Institution), and Financial Institutions Amendment Act 2016, (which defines Financial Institution business). The ruling in court was based on the determination of the illegality of DTBK allegedly carrying out Financial Institutions Business in Uganda when they lent to Ham Enterprises.
According to Ham Enterprises, as of 21st January 2020, all loans had been paid off. A review of the Plaint shows no audit report and or any information attached to aver the claim that all loans have been paid off and that the bank illegally debited the US $24m and Ugx. 34bn from the bank accounts of Ham Enterprises. The information available on the Plaint is not enough to confirm that money was illegally debited off his account or his loans had been paid off. A thorough independent reconciliation/ audit, which was one of the prayers by Ham Enterprises, would have been able to substantiate the claims. But as per the Court ruling on 30th September 2020, the Audit was stopped by the Judge.
The ruling: Made in favor of Ham Enterprises, the Judge made six (6) orders: A declaration that the credit facilities issued to the Ham Group by the DTBU and DTBK have been settled; An order for the recovery by the Ham Group of the sums of UGX 34,295,951,553/= and USD 23, 467, 670.61 being money unlawfully deducted from their accounts; An order for the unconditional release of the Titles of the properties mortgaged by the Ham Group with the banks; An order to vacate the order to appoint an auditor as made by the Court; A permanent injunction issued against the banks from enforcing the mortgages against the Ham group; and Interest on the amounts awarded above at a rate of 8% p.a. from the date of filing the suit which to date amounts to about UGX. 9,600,000,000/= without calling any evidence the court made to justify the said orders.
We have since confirmed that this ruling has been appealed.
The questions: What is the justification for judgement given to refund contractual money without proof thereof for example by an expert assessment from the regulator or independent external auditor? What is the definition of a Financial Institution’s business? Is lending by a foreign Institution within their country but transferring money to a Ugandan entity’s local bank account doing financial business in Uganda? Is it proper for a Ugandan court to rule over a matter contracted under the laws of another country? What is the substance over form? Did Ham Enterprises get a loan from DTBK? Under which laws was the loan acquired? What were the terms of the offer sheet? Was the money transferred by the bank to the specified bank account? How much was transferred and under what payment terms? Was there a legal business transaction? It is illegal for an escrow agent of a foreign bank to collect loan installments on its behalf. Which law is applicable? Does “may” instead of “shall” as used in FIA section 117 (1) require an interpretation considering the matters at stake?
Back home: Did Ham Enterprises get loans and overdrafts from DTBU, under what terms? What are the amounts under contention? If indeed DTBU facilitated illegal financial transactions by allowing money from DTBK into Ham Enterprises bank accounts kept at DTBU, does that make all prior loans under different contracts illegal as well? Why are the six (6) orders in the ruling bundled under one finding yet they appear not related?
Ruling in the case of Aon Risk Services v Australian National University (2009) 239 CLR 175, Justice Heydon wrote, “Commercial life depends on the timely and just payment of money. Prosperity depends on the velocity of its circulation. Those who claim to be entitled to money should know, as soon as possible, whether they will be paid. Those against whom the entitlement is asserted should know, as soon as possible, whether they will have to pay. In each case that is because it is important that both the claimants and those resisting claims are able to order their affairs. How they order their affairs affects how their creditors, their debtors, their suppliers, their customers, their employees, and, in the case of companies, their actual and potential shareholders, order their affairs. The courts are thus an important aspect of the institutional framework of commerce. The efficiency or inefficiency of the courts has a bearing on the health or sickness of commerce.”
The DTBU and DTBK vs Ham Enterprises, 2020 is a game-changer case. The courts owe a duty of impartiality to all parties. With bias on facts and details, not opinions and generalities. The Judge’s written and signed ruling/judgement must be made public as soon as possible and all the questions answered to promote transparency. The ruling risks taking banking back to 1900. As observed by Justice Heydon, “the efficiency or inefficiency of the courts, has a bearing on the health or sickness of commerce.”
One of the qualities of great judgements is the ability to form lasting precedence, with many other judges, academia, and the general public alike referring to the ruling so many years after they are made. When all parties to the case have a sense of contentment and satisfaction that all evidence and facts relevant to the matter before the court were considered in the ruling, the appropriate case law referenced, and subject matter experts sought out where necessary, the ruling stands for posterity. When the court breaks down the issues into constituent parts (in cases matters are bundled and generalized), and considers each issue on its merit, examining the relevant facts, evidence, and the applicable law, it delivers a ruling that is less likely to be a subject of an appeal by either party.
By Mustapha Bernabas Mugisa, aka Mr. Strategy is Team Leader at Summit Consulting Ltd, www.summitcl.com.