Hon. Justice David Wangutusi of the Commercial Division of the High Court has ordered Stanbic Bank to pay over UGX230 million to an Iganga businessman, Mr Isanga Dauda, for illegally refusing to credit his account with a loan that the bank had approved.
Justice Wangutusi, despite objections by Stanbic, ruled that the loan facility was withdrawn in total breach since the complainant (Isanga) did not do any act the loan agreement had prohibited.
“…there was a valid contract, the plaintiff did his part as required by the facility letter and the defendant (bank) failed to honour her part by failing to disburse and ultimately withdrawing the facility. The end result is that the defendant is liable to pay damages,” he ruled.
Although the businessman had sued for special damages of UGX9.98 million; loss of earnings of UGX 557,684,313= (UGX Five Hundred Fifty-Seven Million Six Hundred Eighty-Four Thousand Three Hundred Thirteen Only), as the money he would otherwise have earned court only granted him special damages of UGX9,980,000 at interest 25% per annum from 20-Dec-2012 till payment in full as well as general damages of UGX200,000 million at 8% from the date of judgment till payment in full.
Background and facts of the case
The background to the suit is that in August 2012, Mr. Isanga Dauda, applied for a Term Loan Facility of UGX 500,000,000= (UGX Five Hundred Million Only). The purpose of the loan was to facilitate trade in produce namely beans, maize, coffee and cement. The businessman was asked to file his financial statements and management accounts for the year ending 2011. Mr. Isanga was also asked to prepare a cash flow projection for five years in respect of the 500 million shillings he had applied for.
To assist him to do the above, the bank gave him a list of prequalified auditors from which he picked Allied Certified Public Accountants.
The chosen company of auditors went ahead and prepared the Financial Statement for the Year Ending 31-December 2011 and Management Accounts for the period ending 30-June-20221. The businessman was also made to provide four properties in Iganga Municipality and Jinja Municipality as security.
The businessman paid a total of UGX 5,780,000= (UGX Five Million Seven Hundred Eighty Thousand Only) in legal and administration fees.
Satisfied by the auditors’ reports and the securities, the bank then made a business term loan offer of UGX 500,000,000= (UGX Five Hundred Million Only) in a facility letter dated 25-October-2012. The facility letter indicated the purpose of the loan was to restock his business with 100 tonnes of beans, 200 tonnes of maize and 20 tonnes of coffee.
The loan facility was to be utilized in full within 30 days from the date of the Facility Letter and repaid in full within 48 equal monthly instalments of UGX 16,439,433 each (inclusive of interest at the current interest rate) payable on the last business day of each calendar month. Repayment would begin a month after disbursements and thereafter monthly.
Stanbic Bank shifts goalposts
After the businessman had provided all that was required in the facility letter, Stanbic refused to credit his account with the said amount.
Wondering why the bank had not credited his account the Plaintiff wrote to the bank asking for an explanation upon which he was informed that the bank had decided to withdraw the facility because of what the bank called “flagrant breach of the representation and warranties.”
The bank proceeded to, on 19-February-2013, release the mortgages in respect of the properties pledged as collateral.
Pearl Bank Celebrates Customers in Festive Campaign Dubbed Pearl SantaThis prompted Mr Isanga to sue the bank saying that, the bank misrepresented to him that if he fulfilled the conditions set out which included auditors preparation of accounts, cash flow projections, financial statements, spousal consent, provisions of securities and registration of mortgage, he would access the UGX 500 million.
He added that having done all that was required which involved several expenses, the bank turned around and denied him the facility and that for those reasons he has suffered both special and general damages. He claimed special damages of UGX9.98 million; loss of earnings of UGX 557,684,313= (UGX Five Hundred Fifty-Seven Million Six Hundred Eighty-Four Thousand Three Hundred Thirteen Only), as the money he would otherwise have earned.
He also asked the court to grant him general and aggravated damages for breach of contract.
Stanbic, in defence, denied liability saying that while indeed it was true that Mr Isanga, made an application for the facility, he was required to provide information that would assist the Defendants in making their decisions regarding the said application, but he instead provided defective information. Stanbic said that a financial audit of the businessman’s business points of operation and his securities discovered that the businessman had materially misrepresented his financial standing.
Stanbic claimed that the maize mill and coffee processing operations were inoperative and that there were no records available to justify the level of operations reflected in his loan application. The bank also in defence said that the businessman was involved in several types of business which complicated the monitoring of the utilisation of the facility and that this business structure posed a high risk for the diversion of funds.
In his ruling- Hon. Justice Wangutusi ruled that since the client had paid the arrangement fees, provided security for the loan and signed the offer letter and acceptance sheet on 6th November 2012, this had in effect created a loan agreement with the bank.
The judge also dismissed the bank’s pleadings that even if the said coffee and maize mills were not in operation, these were never part of the contract.
“With lots of respect, I do not see how this finding would affect the contract let alone be an event of default. Maize milling and coffee processing was not part of the agreement. In the Facility Letter, Clause 2 clearly states that Plaintiff would buy and sell beans, maize and coffee. The coffee would be bought by Plaintiff already graded. For those reasons, functional maize mills and coffee processors were not envisaged in the agreement. They could therefore not form part of the contract in which case the Plaintiff cannot be said to have breached that requirement,” the judge ruled.
The judge also reminded the bank about the opinion of the independent auditors recommended to Mr. Isanga by the Bank. The auditors, in their opinion, said: “In our opinion, proper books of accounts have been kept and the accompanying financial statement, which is in agreement with the books of account, give a true and fair view of the state of the proprietor’s financial affairs as at 31st Dec-2011 and of its operating results and cash flows for the year that ended in accordance with International Financial Reporting Standards?’
“This being the report of the auditor prequalified by the Defendant, there is no doubt that the Plaintiff kept proper records. There is also no doubt that they justified the level of operations that were reflected in the application. And I believe that was the reason why Defendant offered the Loan Facility,” Justice Wangututsi said.
“While the Defendant (Stanbic) alleged misrepresentation by the Plaintiff (Mr Isanga), there is no evidence to support the claim. Likewise, there is no evidence to suggest or show that the Plaintiff was going to divert the money if disbursed. The result is that the Loan Facility was withdrawn in total breach since the plaintiff did not do any act the Loan Agreement had prohibited. The withdrawal of the facility can only be declared a breach of the Facility Loan Agreement and I so find,” he concluded.
When contacted, the bank confirmed knowledge of the matter in a statement.
“The bank is aware of the matter and the next course of action an appeal,” Stanbic Bank said in a brief statement.
