Beyond Media Rhetoric: The legal, economic issues in the Ham v DTB case

My humble opinion it that just as the decision was on the face of it legally sound, the court decision was also economically sound

COMMENT | James Muhindo | In order for one to understand the rationale behind the court decision in the Hamis Kiggundu Versus Diamond Trust Bank Uganda & Kenya (Ham Vs DTB) case, we have to go back four decades, to when the rule on courts not entertaining illegalities was set.

The rule avers that “an illegality once brought to the attention of court cannot be allowed to stand.” On 13th of December 1978, a company called Makula International Ltd filed a case against two respondents, His Eminence Cardinal Nsubuga and Rev. Dr. Father Kyeyune, each in their representative capacity.

On the same day, the company also filed an application asking for permission of the court to sue the respondents in their representative capacity, as it is a legal requirement that before you sue a person in their representative capacity, you must seek first the permission of court.

Two days after the filing of the suit and the application (15th of December 1978), Judge Benjamin Odoki (as he then was) allowed the company’s request to sue the respondents in their representative capacity. But this was a little too late, as six months later, the case would be dismissed on grounds that it was illegal for Makula International Ltd to have filed a case against the respondents in their representative capacity (two days) before getting the permission to do so.

It did not matter whether the company had a legitimate claim against the respondents, or how the two parties got to the stalemate that resulted into the court case. All the court cared about was the fact that there are certain sets of rules that were supposed to be followed, and that Makula International Ltd did not follow those rules. PERIOD…!!

The import of the above case law to the Ham V DTB case is that once an illegality is discovered and is brought to court’s attention, then whatever actions which were accruing therefrom collapse along with it.

Brief Facts of the Ham V DTB Case

Mr. Hamis Kiggundu had for a very long time been a client of Diamond Trust Back Uganda. Over the course of their Bank-Customer relationship, Ham took different facilities from the Bank and both parties were working harmoniously.

In the course of this relationship, Ham expressed interest in borrowing more money than Diamond Trust back – Uganda could lend because of the limitations on the Credit exposure for Commercial Banks in Uganda (also known as the legal lending limit i.e. the most a bank can lend to a single borrower). It is at this point that DTB Uganda introduced Ham to DTB Kenya, to borrow from them the amount in excess of legal lending limit.

Following this relationship, it is alleged that between 2011 and 2016, Mr. Kiggundu acquired loans totaling to 41 Billion Shillings from DTB Uganda and Kenya to finance his real estate businesses. All was well until Ham (allegedly) discovered that monies to the tune of 85 billion Shillings and 34 billion Shillings were illegally deducted from his accounts without his knowledge and consent. He then filed a case, against the respondents seeking among others the recovery of monies unjustly obtained from his bank accounts and for various breaches of contractual, fiduciary and statutory duties by the DTB Uganda and Kenya.

However, upon discovering that DTB Kenya did not have a license to operate in Uganda, Mr. Kiggundu’s legal team filed an amended plaint, where they specifically raised the question of the illegality of the DTB Kenya conducting financial institutions business in Uganda without a license to do so under the Financial Institutions Act, 2004.

In its statement of defense, DTB Uganda and DTB Kenya simply admitted that indeed, the Kenyan Bank did not have the said license. At this point, all the Judge had to do was to rely on the legal doctrine of precedent by referring to the locus classicus case of Makula International Ltd Versus His Eminence Cardinal

Nsubuga. It is upon the grounds of the legality of DTB Kenya operating in Uganda without a permit that the Judge immediately entered a Ruling in favor of Mr. Hamis Kiggundu.

The implications of this decision on Uganda’s Banking Sector

My humble opinion it that just as the decision was on the face of it legally sound (as described above), the court decision was also economically sound.

When you step back and look at the risk posed by banks and other financial institutions that operate in the country without a license from Bank of Uganda (BoU), you discover that the court decision in this matter was not only protecting the banking sector but the Ugandan economy at large.

The rationale for the Financial Institutions Act providing for the regulation, control and discipline of financial institutions by the Central Bank, is to ensure protection of consumers of banking services and monetary policy. With this therefore, below are three reasons why I strongly believe that notwithstanding the character of the parties (especially the plaintiff and his lawyers) and the need for creditors to pay their debts in full, the court decision was good for the economy. (CLICK TO GO TO PAGE 2)