Introduction[1]
In the annals of legal history, certain cases emerge as significant benchmarks, offering profound insights into complex legal matters. The civil suit of Excellent Assorted Manufacturers Ltd & Ephraim Ntaganda v. Dfcu Bank Limited & Ors[2], , is a recent landmark case handed down by Justice Boniface Wamala that postulates the principle of The Banker's Liability, and further delves deep into issues surrounding banking practices, contractual obligations, and professional qualifications of an accountant, whether their evidence is admissible without a practicing certificate.
Therefore, the purpose of this write-up is to elucidate the key aspects and implications of this noteworthy case and the key take aways.
The Facts at a Glance
Between the years 2011 and 2016, the plaintiffs, Excellent Assorted Manufacturers Ltd and Ephraim Ntaganda, were esteemed customers of Crane Bank Ltd. During this period, they maintained various bank accounts and availed themselves of multiple loan facilities, collateralized by various properties and personal guarantees. In January 2017, the assets and liabilities of Crane Bank were assumed by Dfcu Bank Limited, the first defendant in this case.
The plaintiffs initiated legal proceedings against Dfcu Bank Limited, challenging not only the actions and omissions of Dfcu Bank but also those of its predecessor and its agents concerning the credit facilities and the properties involved. They alleged that Dfcu Bank's predecessor had imposed unreasonable charges, extorted irregular arrangement fees, overcharged interest, and levied unexplained legal fees and stamp duty charges. These alleged wrongful actions caused severe financial distress to the plaintiffs, leading to defaults on their loan repayments. Subsequently, the plaintiffs sold a property that had served as collateral and remitted the proceeds to Dfcu Bank's predecessor.
In response, on April 19, 2017, Dfcu Bank served the plaintiffs with default notices, signaling the commencement of the security realization process. The plaintiffs sought professional advice and discovered what they deemed to be fraudulent, bad faith, and illegal conduct on the part of Dfcu Bank's predecessor, leading them to outline specific instances of fraud and illegality.
In a countermove, Dfcu Bank countered the plaintiffs' claims, asserting that the charges were legitimate and that the plaintiffs had defaulted on their loan repayments. They sought the dismissal of the suit with costs. Additionally, in their counterclaim, Dfcu Bank demanded substantial sums from the plaintiffs and other parties involved, along with the declaration of their right to enforce certain securities.
The second defendant, in response, denied wrongdoing and claimed to have acted in good faith regarding the cancellation of the plaintiffs' certificate of title, arguing for the dismissal of the suit against them.
Key Takeaways from the Judgment
One of the critical aspects of this case pertains to the competence of a key witness, DW3, who provided professional audit reports and opinions. The plaintiffs' counsel challenged DW3's qualifications on the grounds that he neither held the required qualifications nor was a practicing accountant according to the provisions of the Accountants Act No. 19 of 2013.
The Court closely examined the requirements for a practicing accountant as defined by the Accountants Act. Under this Act, an "accountant" is someone enrolled as a member of the Institute of Certified Public Accountants, while a "practicing accountant" is a registered accountant issued with a practicing certificate. These two categories are distinct. To become a practicing accountant, one must comply with the provisions under sections 27 and 28 of the Act, which include obtaining practical experience and paying the required registration fee.
The Court emphasized that practicing accountancy in Uganda without a valid practicing certificate is not only illegal but also an offense, carrying penalties of fines and imprisonment. Furthermore, it clarified that certain public officers and individuals working for private sector entities with public interest do not require a practicing certificate to perform accounting services, provided they are accountants and members of the Institute.
The learned Judge held as follows;
A person can be an accountant by profession (in accordance with sections 5 and 25 of the Act) but not a practicing accountant. To be a practicing accountant, one must comply with the provisions under sections 27 and 28 of the Act. The relevant part of section 27 provides as follows;
“Registration as practising accountants.
(1) A person who is enrolled as a full member of the Institute under section 25, who wishes to practise accountancy, shall apply to the Council to be registered as a practising accountant.
(2) Where the Council is satisfied that a member who applies for registration under subsection (1) fulfills the conditions for registration specified in subsection (3), the Council shall direct the secretary to register the member and to issue him or her with a certificate of practice for the year.
(3) A member shall only be registered as a practising accountant, where that member has obtained the relevant practical experience as prescribed by the Council and pays the registration fee.
(4) The name of a member who is registered under this section, shall be entered in the register of practising accountants.”
The learned Justice Boniface Wamala Further added that;
Under section 28(1) of the Act, a person registered as a practicing accountant under section 27 shall be granted a certificate of practice by the registrar.
Under section 35(1) of the Act, a person shall not practice accountancy in Uganda without a certificate of practice issued under section 28 or 29 of the Act.
Section 29 is in respect of renewal of an earlier issued certificate. Under section 35(2), a person who contravenes subsection (1) commits an offence and is, on conviction, liable to a fine not exceeding five hundred currency points or imprisonment not exceeding two years and ten months or both. It is therefore illegal and indeed an offence to practice accountancy without a practicing certificate.
He stated that Section 34 of the Act provides for what amounts to practicing accountancy. It provides as follows;
“Practicing accountancy.
(1) A person shall be deemed to practise accountancy if he or she, whether by himself or herself or in partnership with another person, for payment—
(a) offers to perform or performs services involving auditing, verification and certification of financial statements or related reports; or
(b) renders any service which, under accounting practices or regulations made by the Council, is a service that amounts to practicing accountancy.
(2) All heads of accounts, finance and internal audit in public and private sector entities, with public interest, shall be members of the institute in accordance with the regulations made under this Act.
(3) A public officer or a person referred to in subsection (2) and is employed by another person to perform or render services that would otherwise amount to practising accountancy, shall not be considered as practising accountancy under this section.”
The learned Justice re-emphasized a principle stated under Para 30 of the Judgement and I quote.
Let me first say something about the provision of Section 34(3) above which provides that
“A public officer or a person referred to in subsection (2) and is employed by another person to perform or render services that would otherwise amount to practising accountancy, shall not be considered as practising accountancy under this section”.
The import of this provision is that if an accountant by profession is employed as a public officer or in a private sector entity with public interest, such a person does not require a practicing certificate in order to perform or render services that would otherwise amount to practising accountancy.
With or without a practicing certificate, his/her work would be valid. However, as a bottom line, the person has to be an accountant and a member of the Institute (ICPAU). If such a person is not an accountant, they can neither practice accountancy nor qualify to work as head of accounts, finance and internal audit in public and private sector entities, with public interest.
Court took congnizant of the fact that the DFCU lied under the category of a public Interest Entity; held that in the present case and in the context of section 34(2) of the Act, the “private sector entities with public interest” envisaged by the Accountants Act are what are termed as Public Interest Entities (PIEs). For purposes of audit and accounting regulation, both ordinarily public entities and private entities may be classified as PIEs.
A public interest entity is a business that is of significant public focus because of the nature of the business, its size or the number of employees. In the United Kingdom, the definition of a PIE includes entities with transferable securities listed on a UK regulated market, credit institutions and insurance undertakings.
In Uganda, neither the Accountants Act nor the Regulations define PIEs. However, under the Institute of Certified Public Accountants of Uganda (IFRS for SMEs) Implementation Guidelines 2009, certain entities are designated as publically accountable that are not limited to the Institute of Certified Public Accountants of Uganda (IFRS for SMEs) Implementation Guidelines 2009 Specifically Guideline 2,
In conclusion court held that
In light of the foregoing, a bank such as the 1st Defendant, even when a private entity, falls in the category of a public interest entity (PIE) and is thus captured by the provision under section 34(2) of the Accountants Act. As such, its head of internal audit had to be an accountant and member of the Institute (ICPAU). In view of evidence that DW3 was not, the conclusion is that he practiced accountancy illegally. His reports, whether called audit reports or investigation reports, are a product of illegality which cannot be relied upon by the Court.
Court further reiterated the legal position in the case of Aliganyira Betty v Uganda, HC Criminal Appeal No. 001 of 2021 which came to the same conclusion over a report with somewhat similar traits.
As a matter of fact, in the Aliganyira case, the person in issue was an accountant but was not in possession of a practicing certificate. His report was found illegal and incapable of being relied upon by the Court.
In this case, DW3 was not only lacking a practicing certificate but was as well not an accountant. His reports are a product of gross illegality which makes him incompetent to offer any useful evidence before the Court. The four reports are accordingly expunged from the record.
Another Key Take Away: Pleadings and Boundaries of Legal Arguments.
A fundamental principle reiterated in this case is the significance of pleadings in a legal dispute. The court emphasized that parties are strictly bound by their pleadings, and any deviation from these pleadings is prohibited, except through a formal amendment process as per Order 6 Rule 7 of the Civil Procedure Rules. This principle ensures that the court's decision remains firmly rooted in the issues presented in the initial pleadings, preventing surprises and ensuring fairness to all parties.
The court cited previous decisions to underscore the importance of this rule. It was made clear that a departure from pleadings can result in an error of law, and decisions should be based solely on the issues contested before the court. This not only upholds the principles of justice but also maintains the integrity of the legal process.
In this particular case, the court found that a substantial departure from pleadings had occurred when one party introduced an issue during their submissions that had not been part of the initial pleadings or presented as evidence. The court strongly condemned this action, as it violated established legal norms and undermined the principles of fairness and justice. The learned Judge held;
It is trite law that parties are bound by their pleadings and a departure from the pleadings is barred by law except by way of amendment of pleadings. Order 6 Rule 7 of the CPR is instructive on the point. In Attorney General vs Paul Ssemogerere & Another, SC Constitutional Appeal No. 3 of 2004, Mulenga JSC held that;
“It is a cardinal principle of our judicial process that in adjudicating a suit, the trial court must base its decision and orders from pleadings and issues contested before it. Founding a court decision or relief on unpleaded matter or issue not properly placed before it is an error of the law”
The same position was reiterated in Luyimbazi Sulaiman vs Stanbic Bank (U) Ltd, SCCA No. 02 of 2019, where Prof. Tibatemwa-Ekirikubinza, JSC held that;
“It is a cardinal rule that a party is bound by their pleadings and it is not open to the court to base its decision on an unpleaded issue. Even where there is discordance between what is pleaded and the evidence or submissions, such that either the submissions or evidence cover up for a defect in the pleadings, the cardinal rule still applies. This is because the defence would otherwise be denied an opportunity to make a reply to the new allegations raised and hence the ends of justice will not be served.”
Court thus held that;
It follows, therefore, that the present trial never rotated upon the contents of the P&A Agreement as its relevance to the proceedings was deemed to be an agreed fact. Indeed, when Counsel for the Plaintiffs sought to introduce it in evidence, Counsel for the 1st Defendant vehemently objected raising issues of privity and confidentiality, among others. As such, no trial of facts rotated around the said agreement. Since its admission, the first time the provisions of the said agreement became a subject of contention was during submissions by Counsel for the 1st Defendant in reply to the Plaintiffs’ submissions.
Whatever construction that Counsel for the 1st Defendant has chosen to give to the provisions of the said agreement has not been part of the trial and was not tested in evidence. This is despite the fact the Plaintiffs were not privy to the said agreement and, as such, would not be in position to speak as to the context and purpose of its provisions.
Court was in agreement with Learned Counsel for the Plaintiffs that Counsel for the 1st Defendant has, in the course of submissions, introduced a matter that ought to have been part of their pleadings, or at least part of evidence before the Court; which course of action constitutes a departure from their pleadings and is grossly offensive to the law.
I, indeed, find this a substantial departure as it breaks all the rules of the game of pleadings and trial in a civil matter. It would be highly prejudicial to the Plaintiffs if the Court were to allow this case to be decided on a matter that was neither pleaded nor subjected to evidence and trial.
Another Key Take Away arose from Alternative Defences and Specific Pleadings. The case also shed light on the necessity of specifically pleading alternative defenses in a legal dispute. In this instance, the first defendant raised three alternative defenses to the plaintiffs' claims, namely the verification clause argument, estoppel by silence argument, and the time limitation argument. However, it was established that these defenses had not been explicitly raised in the written statement of defense (WSD) nor by clear implication.
The court clarified that the law requires the party asserting these defenses to state facts that point to these defenses in the pleadings. This allows the opposing party to respond to them, raises relevant issues, presents evidence, and ensures that legal arguments are made within the boundaries of a well-defined case.
In this case, the alternative defenses were introduced for the first time during the submissions, which the court deemed to be highly prejudicial to the plaintiffs and contrary to established legal procedures.
Counsel for the 1st Defendant raised three other alternative defences to the Plaintiffs’ claim, namely; the verification clause argument, the estoppel by silence argument and the time limitation argument.
The scenario before the court was that the said defences and arguments over them have featured for the first time in the proceedings in the submissions in reply by the 1st Defendant’s Counsel.
Court faulted the defence on raising issues that were not specifically pleaded.
In regards to the defence of limitation not specifically pleaded.
In law, a defendant who intends to raise the defence of limitation under the Limitation Act or under any other law providing for time limitation must specifically plead the defence to enable the opposite party divulge facts answering to such a claim.
Court reiterated the principle In Yaya Farajallah v Obur Ronald & Others, HCCS No. 081 of 2018, where it was stated that a limitations defence is an affirmative defence and must be pleaded.
Once it is not pleaded, the defendant will ordinarily not be granted the protection of that law since the court cannot grant a defendant the benefit of the limitation law contrary to the rules of pleading and the principle of avoidance of surprise. This is because failure to raise substantive responses to a plaintiff’s claims until trial or, worse, until the close of trial, is contrary to the spirit and requirements of The Civil Procedure Rules and the goal of fair contest that underlies the Rules. Such a failure also undermines the important principle that the parties to a civil suit are entitled to have their differences resolved on the basis of the issues joined in the pleadings. In this case, the defence of limitation was never raised by the 1st defendant either in the pleadings or throughout the proceedings.
It was the courts finding that It would be highly prejudicial to the Plaintiffs if the same is taken into consideration and made a basis of any decision in this matter. In all, therefore, all the arguments by Counsel for the 1st Defendant based on the newly introduced defences must fail as they accordingly do.
This also Highlights the aspect of Interpreting Banking Relationships and the Relevance of the Parole Evidence Rule.
Another critical aspect addressed in the case was the interpretation of a banker-customer relationship and the application of the parole evidence rule in contract interpretation.
The court elucidated that the relationship between a bank and its customer is both contractual and fiduciary. This means that the bank is under a duty to treat its customers' accounts with meticulous care, with the highest standards of integrity and performance. The bank's obligations extend to keeping proper records of accounts, as these records serve as the basis for claims and disputes.
Furthermore, the parole evidence rule came into play when interpreting certain provisions of a contract between the parties. This rule dictates that when parties have expressed their contract in writing and assented to it as a complete and accurate representation of their agreement, extrinsic evidence—whether oral or otherwise—of prior negotiations or understandings will not be admitted to vary or contradict the written contract.
In this case, it was noted that the clause regarding "documentation charge" in the contract was ambiguous, as it lacked a clear definition or explanation. Consequently, the court applied the contra proferentem rule, which dictates that ambiguous provisions in a contract should be construed against the drafter. This rule encourages clear and unambiguous drafting to prevent hidden or latent meanings in contract clauses.
The court ruled that the bank's decision to charge the plaintiff a lump sum as "documentation fees" and then separately charge other mortgage processing fees was not a sound business practice and constituted an unconscionable bargain. The court stressed that the bank had a fiduciary duty to its customers, which required actions to be lawful, authorized, made in good faith, and in the customer's best interest. The learned justice explained in detail as to what constitutes a Banker-Customer Relationship he held and I quote as follows;
The relationship between a bank and customer is both contractual and fiduciary in nature. The term fiduciary refers to a duty of utmost good faith, trust, confidence and condor owed by a fiduciary to the beneficiary. The bank is the fiduciary and the customer is the beneficiary. It is a duty to act with the highest degree of honesty and loyalty toward another person and in the best interest of the other person. (See: The Black’s Law Dictionary 7th Edition at page 523 and Eric Butime Katabarwa Vs. Standard Chartered Bank HCCS No. 963 of 2020.
Therefore In that regard, the bank is under an obligation to treat the accounts of its depositors with meticulous care, always having in mind, the fiduciary nature of their relationship. As seen In Philippine National Bank vs. Norman Y Pie, Philippines Supreme Court (Second Division) G.R. No. 157845 September 20, 2005,
It was stated that the fiduciary relationship imputes the bank’s obligation to observe the highest standards of integrity and performance; the relationship requires the bank to assume a degree of diligence higher than that of a good father of a family. In that regard, therefore, the customer expects the bank to treat his/her account with the utmost fidelity, whether such account consists only a few hundred or millions of monies
The Duty Bestowed on The Bank Extends to and Requires The Bank to Keep Proper Records of Account.
It is on the basis of such records that a claim for or against a bank can be determined. Since between a bank and a borrower the former is the one obligated to keep a more dependable record and to avail statements of account, a bank that cannot keep and avail accountable records will be hard-pressed in making any claims against a borrower and would be hard put to discharge any such claims by a borrower. See: Ezekiel Osugo Angwenyi & Another v National Industrial Credit Bank Limited [2017] eKLR and Robert Mugo Wa Karanja v Ecobank (Kenya) Limited & another [2019] Eklr
In relation to the facts at hand
Turning to the present facts, it is not in dispute that the sum of UGX 50,000,000/= was deducted from the 1st Plaintiff’s account under a narration; “legal fees/charges”, as per the 1st Plaintiff’s account statement.
That indeed counsel for the 1st Defendant himself conceded that the facility letter did not define what “documentation charge” is and to whom it was payable; whether to the 1st Defendant or a third party.
As such, the further submission by 1st Defendant’s Counsel that clause 8 of the sanction letter dated 12th July 2013 was explicit in providing for the amount of the documentation charge and that no further explanation or breakdown was required under the loan facility agreement, is not made out.
This Case also More Emphasis on The Doctrine of Parole Evidence Rule.
Court held that in the absence of a definition of the documentation charge, the clause in the facility letter was rendered ambiguous and open to various interpretations and questions. It ought to be noted that in interpretation of contracts, the general rule is that when two parties have made a contract and have expressed it in writing, to which they have both assented as the complete and accurate integration of that contract, evidence, whether parole or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing.
This is in substance what is called the "parol evidence rule”.See: Marvin A. Chirelstein, in Concepts and Case Analysis in the Law of Contracts (7th ed. 2006) at p 116.
The rule applies only to written agreements which are intended by the parties to be “a complete integration of the terms of the contract” and was intended to be “final”. In such cases, a court will refuse to use evidence of the parties' prior negotiations in order to interpret a written contract unless the writing is (a) incomplete, (b) ambiguous, or (c) the product of fraud, mistake, or a similar bargaining defect. See: Andrew Akol Jacha vs Noah Doka Onzivua, HCCA No. 0001 of 2014 [2016] UGHCLD 64
This Case also Elaborates The Principle Pertained In The Construction of Instruments:
Court held;
It is also a general rule of construction of instruments that extrinsic evidence is not admissible for the construction of a written contract, and the parties’ intentions must be ascertained, on legal principles of construction, from the words they have used. See: F.L Schuler AG v Wickman Machine Tools Sales Limited [1973] 2 All ER 39.
The learned judge ruled that the court, therefore, must resort to the relevant cardinal canons in the interpretation of contracts since it would be pertinent to ascertain the intention of the parties. One such principle is that the words used by the parties should be given their ordinary meaning in their contractual context. See: Multi-Link Leisure Developments Ltd v Lanarkshire Council [2011] 1 All ER 175.
The other principle is that the court should construe the contract with a businesslike intention or a commercial sense. As seen In Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33 BLR 14 cited in Andrew Akol Jacha vs Noah Doka Onzivua (supra), Lord Bridge stated that
“The poorer the quality of the drafting, the less willing the court should be to be driven by semantic niceties to attribute to the parties an improbable and un-businesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis”
This calls for clarity in drafting commercial contracts.
In Relation to the facts:
On the case before me, it is conceded that despite the inclusion of the clause on documentation charge in the facility agreement by the 1st Defendant, there was no inclusion of a definition or explanation of what it entailed. Consequently, the enforcement of the said clause was affected by ambiguities manifested by the fact that the sums deducted were variously referred to as legal fees/charges, stamp duty, search fees, valuation fees, registration fees, and survey fees. It is simply not clear to either party or to the Court as to what ‘documentation fees’ was meant to encompass.
Application of the Contra-Proferentum Rule
Court ruled that:
In the circumstances, and in view of the said latent ambiguity, the matter calls for application of the contra proferentem rule. The said rule requires construing or interpreting a contract or instrument against the drafter when ambiguities arise. The courts expect that the party who drafts the agreement shall take due care and caution and shall not insert ambiguous provisions in the agreement. The doctrine seeks to encourage clear, explicit and unambiguous drafting of the agreement and to avoid latent and hidden meanings of its clauses. The contra proferentem rule places the cost of losses on the party who was in the best position to avoid the harm. See: Andrew Akol Jacha vs Noah Doka Onzivua (supra)
Court further held that;
Applying the above principles, it does not make sound business sense for the Bank to charge the 1st Plaintiff with a block sum of UGX 50,000,000/= in the form of ‘documentation fees’ and then again separately charge them with other mortgage processing fees, including legal fees, search fees, valuation fees, stamp duty, registration fees, and survey fees.
The learned judge reasoned that; In his view, such would be an unconscionable bargain which makes sufficient ground for application of the contra proferentem rule. The bank owes a fiduciary duty of care to its customers to ensure that all actions affecting their accounts are authorized, lawful, made in good faith and made for purpose discharging the customer’s liabilities or for his/her benefit. See: Stanbic Bank (U) Limited versus Uganda Cross Limited SCCA No.04/2004
The Case also points of The Rationale of Interest Rates Granted by Court.
Court ruled that
The discretion of the court on award of interest is provided for under Section 26(2) of the Civil Procedure Act. The basis for an award of interest is that the defendant has kept the plaintiff out of his money and the defendant has had the use of it himself and ought to compensate the plaintiff accordingly. See: Premchandra Shenoi and Anor Vs Maximov Oleg Petrovich SCCA No. 9 of 2003; Harbutt’s ‘placticine’ Ltd V Wayne tank & pump Co. Ltd [1970] QB 447 and Shakil Pathan Ismail vs DFCU Bank Ltd, HCCS No. 236 of 2017.
In determining a just and reasonable rate of interest, court takes into account the ever rising inflation and drastic depreciation of the currency. A plaintiff is entitled to such rate of interest as would not neglect the prevailing economic value of money, but at the same time one which would insulate him or her against any further economic vagaries and the inflation and depreciation of currency in the event that the money awarded is not promptly paid when it falls due as seen in Kinyera v the Management Committee of Laroo Building Primary School HCCS 099 of 2013
Another Key Take Away is This Case Re-emphases The Principles That Guide Banker-Customer Relationship Under [Para139].
Court held that,
Part II of the Bank of Uganda Consumer Protection Guidelines echoes three principles that guide the bank customer relationship namely; Fairness, Reliability and Transparency. When a customer opens up an account with the bank, the bank is under duty to apply its skill, expertise and all manner of safeguards to ensure that the customers’ money is safe from actions by third parties and other unauthorized persons. See: Fidelity Commercial Bank Limited v Italian Market Kenya Limited [2017] eKLR
Court further held that as already stated herein above, the bank had an obligation to inform the customer of the nature of service and its cost.
Paragraph 8(5) of the BOU Financial Consumer Protection Guidelines 2011 requires that for third party charges, a customer must be informed of the charges in advance so that they are able to negotiate with the 3rd party service providers and that the bank has no mandate to negotiate on behalf of a customer and to debit his account with any sums.
Further, the principles of transparency, fairness and reliability set out under paragraph 5 of the Guidelines also form the core and key principles that govern the banker-customer relationship. See: Mugobi Traders Ltd Vs Standard Chartered Bank Limited, HCMA No. 269 of 2016.
It follows, therefore, that the debits made without the customer’s knowledge, consent and or authority were done without mandate and were thus irregular. The irregularity can only be mitigated if it is ascertained that the sums were debited to cover an ascertainable service and there is evidence that the same was actually paid for the benefit of the customer.
It appears to me that the use of the URA receipt to explain this transaction is an attempt by the 1st Defendant to use any available documents that appear to be proximate in time to explain certain transactions even when there is no nexus between the documents. I find this trend unacceptable. Simply because a payment was done around the time the queried transaction was effected cannot be used as evidence to explain the query.,
I agree that a court of law cannot determine issues of accounts based on guesswork, and any bank which fails to keep proper records of accounts cannot sustain an ascertainable claim against a customer. See Ezekiel Osugo Angwenyi & another v National Industrial Credit Bank Limited [2017] eKLR.
This Case also Re-emphasizes The principle That a Customer’s Account Can Only Be Debited By The Bank In Presence of a Proper Instrument Authorizing The Transaction.
It is settled under the law of banking that a customer’s account can only be debited by the bank in presence of a proper instrument authorizing the transaction. On the case before me, evidence indicates that the 2nd Plaintiff’s account was debited with a sum of USD 748,000 and no instrument has been adduced as having authorized such a debit
In principle, when a customer maintains an account with the bank, he/she is not obligated to be checking the account every other day to confirm that the account is safe. See: Fidelity Commercial Bank Limited v Italian Market Kenya Limited [2017] Eklr
Court held that I have found no evidence to establish this assertion beyond the allegation raised during cross examination. But even if there was such evidence, the position of the law is that the standard operating procedures of the bank ought not to be relaxed or completely disregarded even where a customer is well known to the bank staff. See: Makua Nairuba Mabel vs Crane Bank Ltd, HCCS No. 380 of 2009.
Another Principle emphasized in This Case is Banks Must Keep Proper and Dependable Records of Accounts and Produce Them When Asked or When Such Transactions Are Queried. Under Para 223
Court held that
Having considered the extensive submissions by both Counsel on this present matter, I will begin by deriving guidance from the decision in Ezekiel Osugo Angwenyi & Another v National Industrial Credit Bank Limited (supra)
wherein a principle was laid down to the effect that in determining issues of accounts, a court of law cannot base on guesswork. The Bank must keep proper and dependable records of accounts and produce them when asked or when such transactions are queried.
In Stanbic Bank (U) Ltd Vs. Uganda Crocs Ltd (supra), Mulenga JSC held that upon the customer showing that the withdrawals from its accounts were made in breach of mandate, the burden shifted to the bank to prove its claim that the withdrawals were for discharging the customer’s liabilities or otherwise for the customer’s benefit, and did not occasion loss to the customer
This Case also Elucidated The Principle Governing Withdrawals In regards To Signed Cheques.
The court cited the case of Barclays Bank Ltd v W J Simms, Son and Cooke (Southern) Ltd [1980] 1 QB 677, Wherein court held that once the bank produces a cheque duly signed as per the mandate, as it did for this transaction, the bank is authorized to debit the account of that customer and that this debit was lawful
Further more
The term "utilization fees" was not defined in any of the sanction letters, and the letters only contained the clause "Utilization Fee: 1%" without specifying against what amount it was charged or chargeable.
The sanction letters did not provide an explanation of what the term "utilization fees" meant or entailed.
Counsel for the 1st Defendant argued that the meaning of utilization and arrangement fees should be derived solely from the sanction letters, but the letters themselves did not provide a definition or meaning for these terms.
The Plaintiffs disputed the meaning and application of certain fees, such as utilization fees and arrangement fees, in their contracts with the 1st Defendant (the bank).
The court found that the sanction letters did not define or explain the terms "utilization fees" and "arrangement fees," leading to ambiguity.
In cases of ambiguity, the law dictates that it should be resolved against the party who could have clarified the ambiguity at the time of making the contract.
The parole evidence rule, which generally restricts the introduction of extraneous evidence to interpret contract terms, has exceptions, and in this case, extrinsic evidence is acceptable to assign meaning to the terms in question.
The 1st Defendant argued that utilization fees meant a charge for utilizing the facility but did not provide adequate context for when and how these fees were applied.
The court questioned the lawfulness and regularity of charging utilization fees for simply utilizing a loan facility unless it was a revolving credit, which was not the case here.
There was a dispute over whether the loans and renewals were for 12 months or a longer period, and this ambiguity persisted throughout the case.
The 1st Defendant argued that all loans and renewals were for 12 months, and the 2nd Plaintiff was estopped from denying this due to signing facility letters requiring payment of charges upon renewal.
The court found that the term of the loan was ambiguous, as evidenced by facility letters indicating a term of 12 months but also specifying a longer repayment period.
The court noted that the repayment terms were logically inconsistent with a 12-month loan for the given loan amount and interest rate.
The court questioned why the 2nd Plaintiff had to sign new facility letters for renewing an existing loan and paying associated charges as if it were a new facility.
The court rejected the notion that the renewals constituted different loans, especially since a fresh mortgage had to be executed, incurring additional costs.
The court found it implausible that the renewals required a fresh mortgage, given the initial sanction letters' terms specifying the installment periods for the original loans.
The court accepted the Plaintiffs' claim that the renewals seemed intended solely to charge the customer repeatedly with the same fees, under the pretense that these were distinct loans.
The conclusion was that the charges of utilization and arrangement fees for the renewed loans against the 2nd Plaintiff were illegally applied.
The 2nd Plaintiff was deemed entitled to a refund of the debited sums with interest from the respective debit dates.
The court found that the fees charged were not supported by evidence that they were among those allowable by Crane Bank, suggesting another aspect of illegality.
Based on the court's findings, it held that certain utilization fees charged to the 2nd Plaintiff were unlawfully imposed, and those sums were ordered to be refunded with specified interest rates.
The sum previously debited from the 1st Plaintiff's account was already addressed and awarded in a prior ruling.
In summary, these key points revolve around the court's determination that certain fees were unlawfully charged and should be refunded to the Plaintiffs with specified interest rates, as well as the rejection of the notion that renewals constituted entirely new loans. The key points center around the ambiguity of terms in the contract, particularly regarding fees and the term of the loan, and the lack of clarity and explanation provided by the bank.
This Case also Relays The Principle Governing Contract Guarantees Under Para [423]
Court stated that
It is trite law that where a contract of guarantee is executed and the principal debtor fails to pay, the guarantor is liable to meet the principal obligation.
Section 71 (1) of the Contracts Act 2010 provides that the liability of a guarantor shall be to the extent to which a principal debtor is liable, unless otherwise provided by contract. Section 71(2) of the Act provides that liability of a guarantor takes effect upon default by the principal debtor. In law, under a contract of guarantee, the guarantor promises the lender to be responsible, in addition to the principal borrower, for the due performance by the principal of their existing or future obligations.
The guarantor thereby promises or undertakes that he/she will be personally liable for the debt, default or miscarriage of the principal. The guarantor’s liability is ancillary or secondary to that of the principal who remains primarily liable to the creditor. There is no liability on the guarantor unless and until the principal has failed to perform his obligations. See: Moschi v Lep Air Services and Ors [1973] AC 345 and Paul Kasagga & Anor v Barclays Bank HCMA No. 113 of 2008.
The Case also Points out The Principle Governing Acquisition of Valid Title around Wetlands.
Court held under Para 438 as follows;
That under Section 91(1) and (2) of the Land Act Cap 227, the 2nd Defendant is vested with special powers to call for a duplicate certificate of title or instrument for cancellation or correction where, among others, the certificate of title or instrument is illegally or wrongfully obtained. In the present case, the Plaintiffs challenge the 2nd Defendant’s action of calling for the certificate of title to land comprised in FRV 1352 Folio 5 Plot 302 Block 21 for cancellation on the basis that the title was issued illegally for the land being in a wetland.
The position of the law set out by Counsel for the Plaintiffs present the correct position of the law on the matter. It is a requirement under the law that for an area considered as a wetland to be protected, it must be gazetted. The determination cannot be based on an individual’s subjective opinion. Certainly, it cannot be open to an authority such as the 2nd Defendant to unilaterally declare and determine that certain land is a wetland and proceed to cancel a certificate of title previously issued over that land. See: Sections 54 and 179(2)(g) of the National Environment Act No. 5 of 2019 and Regulation 8 of the National Environment (Wetlands, River Banks & Lake Shores Management) Regulations S.I No. 3 of 2000 and the case of Asuman Irunga & Others vs Attorney General & Others, HCMA No. 258 of 2017.
It is also the true position that unless a particular piece of land is gazetted as a wetland, the law does not bar a person from owning a proprietary interest in such land or from acquiring a valid title thereto. The law only bars a person from using the land in a manner that negatively affects the environment. See: Amooti Nyakana versus Attorney General & 2 Others, Constitutional Appeal No. 05 of 2011 [Per Katureebe CJ, (as he was then)].
IN LIGHT OF THE DAMAGES AWARDED BY COURT.
Court held that under the law, punitive damages are expressed by way of exemplary damages. Exemplary damages represent a sum of money of a penal nature in addition to the compensatory damages given for loss or suffering occasioned to the plaintiff. The rationale behind the award of exemplary/punitive damages is to punish the defendant and deter him from repeating the wrongful act and should not be used as means to enrich the Plaintiff. According to the dictum by Lord McCardle J, in Butterworth v Butterworth & Engle field [1920] P126, simply put, the expression exemplary damages means damages for example’s sake’’.
According to decided cases, there are only three categories of cases in which exemplary damages are awarded, namely;
(a) where there has been oppressive, arbitrary, or unconstitutional action by the servants of the government;
(b) where the defendant’s conduct has been calculated by him to make a profit which may well exceed the compensation payable to the plaintiff; or
(c) where some law for the time being in force authorizes the award of exemplary damages.
Three other considerations must also be borne in mind before making an award of exemplary damages, namely;
(i) The plaintiff cannot recover exemplary damages unless he or she is the victim of punishable behavior;
((ii) the power to award exemplary damages should be used with restraint; and
(iii) the means of the parties are material in the assessment of exemplary damages. See: Rookes V. Barnard [1946] ALL ER 367 at 410, 411 and Fredrick J. K. Zaabwe v. Orient Bank & Others, SC Civil Appeal No. 4 of 2006.
By Waboga David.
[1] Law Point Uganda encourages the readers to go back and read the full cases and supports the case-based method of learning which according to William Glanville in the Book Learning the Law 15th Edn Published in 2013 by Sweet & Maxwell Pg. 72 , he states that ‘Some teachers of law do not recommend the use of case books, although the numbers who adopt such a high-minded line is undoubtedly dwindling. In their view, the only way to become a proficient lawyer is to sit down and read cases, not contenting oneself with the headnote or any other simplified version of the case, but reading through the whole of the statement of facts and the whole of the judgments. [2] https://www.linkedin.com/feed/update/urn:li:activity:7104463241346494464
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