Ham Enterprises v. Diamond Trust Bank — Supreme Court Upholds Legality of Cross-Border Syndicated Lending

Dispute Resolution — Commercial Litigation · Banking & Finance

K&K Advocates acted as counsel for Diamond Trust Bank Uganda and Diamond Trust Bank Kenya throughout all three levels of court, securing dismissal of a claim seeking UGX 34 billion and USD 23 Million, and the unconditional release of all security.

Judgment: 13 June 2023

Background

Hamis Kiggundu and his companies obtained credit facilities from Diamond Trust Bank Uganda (DTB-U) and Diamond Trust Bank Kenya (DTB-K), secured by mortgages and guarantees. When Ham defaulted and recovery proceedings commenced, he filed suit challenging the legality of the lending arrangements — arguing that DTB-K's participation without a Ugandan Financial Institutions licence rendered the entire transaction void. Ham sought UGX 34,295,951,553 and USD 23,467,670.61 as money allegedly unlawfully deducted, as well as unconditional discharge of all mortgages and guarantees.

Procedural History

The High Court granted Ham summary judgment, ordered the forfeiture of all amounts owed to both banks, directed payment of Ham's claims, and ordered the unconditional release of all security. The Court of Appeal set aside the High Court orders and remitted the matter for retrial, but declined to resolve the legality question. The matter was appealed to the Supreme Court.

Decision of the Supreme Court

• The trial judge erred in finding the transactions illegal, and in any event, was required to afford DTB a proper hearing and determine aspects of the dispute unaffected by the illegality argument.
• A superior court before which a pure question of law arises has an overriding duty to determine it authoritatively. The Court of Appeal erred in remitting without resolving the legality question.
• Syndicated lending by foreign banking and non-banking institutions to Ugandan borrowers is lawful and enforceable. Foreign financial institutions that do not hold deposits in Uganda fall outside the Financial Institutions Act, and credit agreements they enter are valid.