UGANDA, Wakiso | Real Muloodi News | In a ruling by the Court of Appeal in Uganda on March 2, 2023, Absa Bank, formerly Barclays Bank, was ordered to pay damages for the illegal sale of mortgaged properties belonging to Progressive Secondary School in Bweyogerere, Wakiso District.
The court also ordered the Registrar of Titles to cancel and reinstate the titles to Progressive, Ab’mooti Investments and Kaahwa Erisa Amooti as registered owners.
The school, along with the other two appellants, had challenged the sale as fraudulent in 2009 and requested a declaration that the sale and transfer of securities be declared illegal.
The school had also requested orders for the recovery of mortgaged securities, an account of all financial transactions on the loan account, and compensation for loss of income and cost of the suit.
Loan Facilities by Barclays Bank
In 2004, Progressive Secondary School applied for two loan facilities of USh650m from Barclays Bank, which has since become Absa Bank.
The two facilities had a total value of USh1.3b and had a seven and eight-year repayment period.
Barclays assessed the facilities for onward processing, and in the subsequent offer letters, Progressive was asked to comply with terms and conditions, including “perfecting the security procedure for the three plots” put as mortgages to secure the loans before the money would be advanced.
Loan Disbursement and Alleged Breach of Contract
After Progressive had “perfected” the securities as directed, Barclays proceeded to process USh650m as part of the USh1.3b the school had applied for.
However, according to court documents, Progressive denies ever receiving the other facility of USh650m.
Instead, Barclays had prepared a new offer letter with a USh1.39b loan amount, whose repayment would expire in 60 months, from January 29, 2008, to January 29, 2013.
Progressive claimed that Barclays still “did not effect disbursement of the new facility,” which incapacitated its ability to execute or implement the expansion and development project of the school as it had been planned under the application.
Barclays indicated that the new facility was indeed disbursed on March 3, 2008, and had subsequently been credited to the account of Progressive to “offset the debit balance, which as a result of failure to service the loan was, as of November 5, 2008, indebted to a tune of USh1.39b.”
After Progressive had failed to honour undertakings, including a commitment to pay Shs60m during the first school term ending April 2009, Barclays, on November 14, 2009, advertised the mortgaged properties, which were later disposed of at Shs1.5b to Luyanzi Academic Foundation.
Legal Challenge and Court Ruling
Before the “expiry of the term period and after receipt of a substantial amount to offset the loan [Barclays] by its letter dated November 5, 2008, made the demand of the loan amount under the new facility letter,” before commencing enforcement of the mortgage, which was eventually advertised for sale.
“This issue of notification by way of statutory demand and notices of sale together with advertisements were all fulfilled …. For these reasons, court finds no merit in the suit and it dismisses it with costs,” the trial Judge ruled.
The ruling by the Court of Appeal sets a precedent for the banking industry in Uganda, emphasising the need for transparency and accountability in the lending and recovery process.
The ruling has also raised concerns about the vulnerability of borrowers, especially schools and other institutions, to the actions of unscrupulous banks.
The ruling has been welcomed by Progressive Secondary School, which can now regain ownership of its mortgaged properties. The school’s management has stated that it intends to use the properties to enhance its operations and provide better services to its students.
Absa Bank Uganda, on the other hand, has been ordered to pay damages to Progressive Secondary School for the illegal sale of its properties. The bank has not yet stated the ruling or its next course of action.
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