Standard Chartered Bank fined shs60m for cancelling loan offer

KAMPALA, UGANDA | THE INDEPENDENT | Standard Chartered Bank has been fined 60 million Shillings for cancelling a loan facility it had already granted to a couple.

In her ruling, Justice Patricia Mutesi of the High Court found that Standard Chartered Bank errored when it cancelled a mortgage facility it had already granted to a couple; Peter Victor Kwagala and Priscilla Mbabazi.

According to court records, Kwagala who had worked with the Bank since September 2017 as a credit analyst applied for a staff mortgage facility for the purchase of land in Kawempe division in 2020. The land that also had rental houses was valued at 300 million Shillings.  However, Kwagala was only eligible for a 250 million Shillings mortgage facility.

However, the bank told him that to qualify for a higher amount, the income of his wife Mbabazi could also be considered. After reviewing her pay slips, the Bank found out that they jointly qualified for a mortgage facility of 312 million Shillings.

After this, the Bank required that the couple show evidence that they had paid at least 20% of the value of the land. This translated to 60 million Shillings. To meet this requirement, the couple executed a sale agreement with the land owner and paid him an initial deposit of 5 million Shillings.

They then submitted that agreement and a copy of the land title, along with other required documents to the Bank and on July 15, 2020, the Bank notified them that it had approved their application for a mortgage facility of Shs 240 million.

However, the bank asked Kwagala who had a running salary loan at the time, to clear that loan to zero balance and to also avail proof of payment of the 60 million Shillings to the land owner.  The couple says they depleted their savings and also took some friendly loans to fully clear the 60 million. On August 25th 2020, they signed the mortgage facility letter and the mortgage deed and they were told the money would be given to them in five working days.

To their disbelief, the money didn’t come as promised and instead, the bank told Kwagala that it had been told by its holding company that the department in which he was working was going to be phased out.

He was subsequently sacked from the bank in December 2020 and the Bank declined to give him the loan arguing that now he was no longer their employee and the loan and been paged on his salary.

Dissatisfied, Kwagala and his wife Mbabazi petitioned the court seeking among others a declaration that the Bank had breached its contractual obligations by cancelling a loan it had already granted. In her ruling, Mutesi found out that indeed the Bank was in default on its obligations.

“The facility letter and mortgage deed, in and of themselves, are binding contracts within the meaning of Section 10(1) of the Contracts Act, 2010. They can be enforced as contracts irrespective of whether the mortgage deed was registered or not…It is an agreed fact that the Plaintiffs executed the mortgage deed and the facility letter with the Defendant…The Court reiterates that it found that these two documents constitute binding and enforceable contracts… The mortgage deed and the facility letter created binding and enforceable legal obligations. It is not disputed that the Plaintiffs complied with all their duties under the contracts. It is also not disputed that the Defendant did not perform its duty of disbursing the loan sum,” the judge ruled.

She added that the execution constituted an absolute and unqualified communication of acceptance of the terms of the facility offer letter and the mortgage deed, therefore, it was not legally possible for the Bank to withdraw the loan offer because it had already crystallised into a binding contract with attendant enforceable legal obligations.  “My considered position is that while Defendant had the sole discretion to recall the loan, that discretion was delimited by Clause 3.3 of the facility letter which prescribed the grounds under which Defendant could recall the loan. That provision did not expressly anticipate that Defendant could recall the loan due to restructuring instructions from its holding company even before those instructions were implemented. It is, therefore, clear to me that Defendant travelled beyond the scope of its contractual discretion when it recalled the Plaintiffs’ loan,” the ruling reads in part.

As a remedy, the judge ordered that the bank pay 9 million Shillings in special damages with a 21% per annum interest from 2020 until full payment. She also granted 50 million Shillings in general damages at 16% interest per annum until full payment. She also granted the couple the costs for the suit.

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