• Mon. Oct 2nd, 2023

Supreme Court Upholds Legality of $11m DTB Loan to Hamis Kiggundu

UGANDA, Kampala | Real Muloodi NewsUganda’s Supreme Court has delivered a landmark ruling, declaring the $11 million loan provided by Diamond Trust Bank (DTB) to businessman Hamis Kiggundu as legal.

Chief Justice Alphonse Owiny-Dollo, endorsed by a panel of five Supreme Court judges, stated that the syndicated credit facility executed between DTB Kenya and Ham Enterprises, with DTB Uganda as the agent, is lawful.

“The syndicated credit–facility executed between Diamond Trust Bank Kenya and Ham Enterprises, with Diamond Trust Bank Uganda as agent of Diamond Trust Bank Kenya is lawful; and neither the Financial Institutions Act of 2004, as amended, nor the Financial Institutions (Agent Banking) Regulations, apply to them,” ruled Chief Justice Alphonse Owiny-Dollo on Tuesday morning 13th June 2023.

The ruling resolves the longstanding dispute raised by Kiggundu, who alleged that DTB Kenya acted unlawfully in lending money to his company through DTB Uganda.

Records presented during the court proceedings revealed that Kiggundu had obtained loans totalling over Shs 120 billion from DTB Uganda and DTB Kenya between 2011 and 2016 to finance his real estate business.

However, DTB argued that Kiggundu had failed to fulfil his loan obligations, amounting to Shs 39 billion, as per the agreed terms.

Legal Battle and Previous Court Rulings

Following Kiggundu’s failure to meet his loan obligations, DTB threatened to seize the mortgaged properties. In response, Kiggundu filed a petition in the commercial court, claiming that he had already made full repayment and that the withdrawn funds exceeded the outstanding loan amount.

In 2020, the High Court ruled in Kiggundu’s favour, directing DTB to refund the money along with an 8% interest rate and the costs of the suit.

DTB, however, appealed the decision, leading to the Court of Appeal overturning the High Court ruling and ordering a retrial before a different judge.

Unsatisfied with this outcome, Kiggundu appealed to the Supreme Court. Chief Justice Owiny-Dollo’s ruling emphasised that the Court of Appeal should have addressed the issue of illegality raised in the credit facilities and referred the case back to the trial court for the determination of factual issues.

Interpretation of Illegality and Jurisdiction

Chief Justice Owiny-Dollo clarified that the issue of illegality in the case revolves around the terms and performance of the loan agreements, not the location of their conclusion.

The loan disbursement and servicing took place in Uganda, as the transactions were conducted through DTB Uganda, a bank licensed to operate in the country.

He further explained that DTB Kenya did not conduct financial institution business in Uganda, as the funds were transmitted to DTB Uganda, which disbursed them to Ham Enterprises.

The judge also highlighted that Ham Enterprises serviced the loan through DTB Uganda, acting as an agent of DTB Kenya in a fiduciary relationship. This arrangement, known as a syndicated loan facility, is a global lending practice aimed at spreading and reducing lending risks.

Owiny-Dollo stated that no law prohibits foreign financial institutions from extending credit facilities to institutions or individuals in Uganda, and international financial transactions are not governed by the Financial Institutions Act or Agent Banking Regulations.

Consequently, the trial judge erred in deeming the credit agreements between the parties illegal.

The Supreme Court’s ruling provides clarity and certainty for financial institutions conducting business in Uganda.

The judgment ensures that banks and other institutions can operate within the confines of the law, with oversight from the Central Bank.

The ruling also emphasises that the legality of financial transactions depends on the terms of the agreements and the jurisdiction of their performance.

In light of the decision, the case is remitted back to the High Court for trial before a different judge, focusing on factual issues arising from the pleadings.

Additionally, Ham Enterprises and Kiggundu are ordered to pay 50% of the legal costs to DTB Uganda and DTB Kenya.


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