{UAH} HAM ENTERPRISES & ANOTHER VS DTB (U) LTD & DTB (K) LTD, A WAKE-UP CALL FOR THE BANKING INDUSTRY.

HAM ENTERPRISES & ANOTHER VS DTB (U) LTD & DTB (K) LTD, A WAKE-UP CALL FOR THE BANKING INDUSTRY.

In the recent past, very few cases have shocked and or attracted attention in the manner that Ham enterprises & Others did. The reaction has been earth shaking with different people from all professions and walks of life seeking to have a share of their own thoughts highlighted through print media, electronic media et. al. Some have vilified the Judge in the matter, saying his judgment was reckless, others say it was partial (hence suggesting he was compromised), some say the judgment has taken us back to 1900 in-terms of banking practice, others have questioned his understanding of the banking laws and or regulations etc.

I want to begin by applauding the Judge in this matter. He had a very difficult job to execute, a job with huge ramifications for the industry but non the less he executed it with ease and in a timely manner. As a practicing Advocate, I am aware that often times, when we have cases that are difficult to handle, Judges tend to shy away from duty for years until they are transferred or retired so as to avoid the consequences of their decisions. I am sure many lawyers will agree with that.

Back to the case. Most of the commentaries that I have read, seem to stem from generalities or third party information as opposed to first hand information derived from a careful reading of the case at hand.

In this matter, Ham Enterprises & Others filed a case at the Commercial court seeking orders including recovery of monies erroneously taken out of their bank accounts at DTB Uganda. Along the way, they filed an amended plaint alleging illegalities on the part of the defendants.

DTB Uganda & DTB Kenya in their Written Statements of Defence, did not appear to take the matter seriously. They decided to do the usual denials that define most defenses in courts of law in Uganda, perhaps due to the fact that they knew they were cornered.
Fast forward, the Plaintiffs then filed an application in court seeking to strike out the defence on the grounds that it perpetuated illegalities, DTB Kenya not having been authorized to conduct financial institution business in Uganda.

The defendants in reply to that particular allegation sought to put the plaintiffs to strict proof and emphasized that the loan was obtained from Kenya.

The plaintiffs/applicants then sought to have this matter settled at the level of a preliminary objection as opposed to a full trial since the illegalities were glaring at that level going by the response above in the defence.

Further evidence also showed that DTB Kenya appointed DTB Uganda as its agent to debit the accounts of the plaintiffs/applicants.

The banking industry whereas it seeks to appear international in nature, its regulation still remains localized in most parts of the world. Uganda is no exception to this and this is what the judge emphasized in his ruling in the application. Uganda as a sovereign nation has laws that govern various sectors of its economy including banking. As a result, we have the Financial Institutions Act as amended. This Act is intended to regulate the banking industry. It defines as the Judge rightfully put it a financial institution to mean a company licensed to carry on or conduct financial institution business in Uganda. it further defines financial institution business to mean among others the business of lending or extending credit.

What clearly comes out is the fact that the bank registered in Kenya and therefore a foreign entity engaged in financial institution business in Uganda without the necessary approvals as required by law. If the bank wanted or was sharp enough it would have sought to establish a representative office in Uganda as per section 117 of the FIA but yet it did not instead choosing to appoint DTB Uganda as its agent through a letter. The process of appointment of an agent is regulated by law but yet it was not followed.

The serious lapses in the process constitute offences as per the FIA and this should now be the focus of the regulators in Uganda.

The court therefore went ahead to issue orders against the banks based on the fact that there were glaring illegalities. Court cites this very common decision of Makula International V His Eminence Cardinal Nsubuga & Another that 'a court cannot sanction that which is illegal'.
Once the banks lost the legality question, it meant that there entire case collapsed and judgment had to be entered. There was no counterclaim on record that they could perhaps try to hold onto and so that was it, fate sealed.

One very important question that some have raised is whether Ham Enterprises should have been allowed to take benefit of the illegality and I believe it will be the bone of contention in the appellate courts. This question will be settled at a later stage because their decisions in support of the fact that one cannot benefit from an illegality he/she was probably party too but again, depending on how the arguments will be presented by either warrying parties could sway the decision either way. Who had the duty of informing the central bank of the business and of obtaining the necessary authorisations? Was it Ham Enterprises or DTB Kenya?.

In my view, this case is a good opportunity for many sector players to redeem the industry, one notable point that came out is that financial institutions have taken advantage of the central banks slumber to perpetuate the said illegalities. The illegalities became a new normal and hence with this an un-expected decision they rushed to talk about a reckless decision, syndicated loans worth 5.7 trillions etc. Well talking about syndicated loans, it appears to me that DTB Kenya loaned the money on its own and appointed DTB Uganda to collect the loan. DTB Uganda, also made its own independent loans it appears to Ham Enterprises. This whole talk of syndication may be diversionary to deflect attention from the illegalities established by this case.

Is it not time that the central bank wakes up to do its job?. I believe so but I do not believe this decision marks the end of banking in Uganda but rather an opportunity for banks to regularize their transactions.

Emmanuel Elau
Advocate.

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"When a man is stung by a bee, he doesn't set off to destroy all beehives"

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