Wakilii

Ham Enterprises Limited and 2 Others v Diamond Trust Bank(U) Limited and Another (Civil Appeal 13 of 2021)

Supreme Court · [2023] UGSC 15 · 2023 Appeal Partly Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Second appeal to the Supreme Court from a Court of Appeal decision sitting as a first appellate court, arising from a High Court preliminary objection and civil suit.
Decision
Appeal partly allowed; the credit facilities held lawful and the illegality claim disallowed, with the suit remitted to the High Court for trial before another judge on issues of fact.

The full judgment

Read the complete, verbatim text of this judgment.

Sign in to read the full judgment
Cited — treatment unverified cited in 1 (treatment unverified) Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions — always read the source judgment before relying on it.

Holding

The Supreme Court held that the Financial Institutions Act 2004 and the Agent Banking Regulations 2017 do not apply to a foreign bank that extends credit to a Ugandan borrower through a locally licensed bank acting as its agent in a syndicated loan; such a foreign lender does not transact financial institution business in Uganda, so the credit facilities were lawful. The Court of Appeal was wrong to decline to determine the illegality question and to strike out the amended plaint, since a plea of illegality may be raised at any stage and overrides pleadings. The appeal succeeded in part; the suit was remitted to the High Court for trial on the facts, with 50% of costs to the respondents.

Facts

The 1st and 2nd appellants, real-estate companies, obtained credit facilities from the 1st respondent (a Ugandan licensed bank) and the 2nd respondent (a Kenyan bank), with the 3rd appellant as guarantor. The 2nd respondent advanced funds to the 1st appellant through the 1st respondent, which it appointed as agent and held an escrow account with, for disbursement and recovery. Contending the respondents wrongly debited their accounts at unlawful interest rates, the appellants sued in HCCS No. 43 of 2020 and obtained an order for an account and reconciliation. They later amended the plaint to add a claim that the 2nd respondent's lending was illegal because it operated financial institution business in Uganda without a Bank of Uganda licence under the Financial Institutions Act 2004. On a preliminary objection, the trial judge struck out the defence and declared the facilities and the agency illegal. The Court of Appeal allowed the respondents' appeal, struck out the amended plaint, and remitted the suit for retrial, leading to this second appeal.

Issues

  1. Whether the Court of Appeal erred in raising and determining, of its own volition, issues not set out or implicit in the grounds in the memorandum of appeal.
  2. Whether the Court of Appeal erred in declining to adjudicate the question of illegality of the credit facilities, and in striking out the amended plaint that introduced illegality as a cause of action.
  3. Whether a plea of illegality and an amendment introducing it as a new cause of action may be raised, and at what stage of proceedings.
  4. Whether the trial judge erred in disposing of the entire head suit under Order 6 rule 30 of the Civil Procedure Rules without affording the parties a hearing.
  5. Whether the Financial Institutions Act 2004 and the Financial Institutions (Agent Banking) Regulations 2017 apply to a foreign bank extending credit to a Ugandan borrower through a locally licensed bank acting as its agent.

Orders

  • The amendment of the plaint, which introduced the claim of illegality as a cause of action, was proper in law.
  • The syndicated credit-facility executed between the 2nd Respondent and the 1st Appellant, with the 1st Respondent as agent of the 2nd Respondent, is lawful; and neither the Financial Institutions Act 2004, as amended, nor the Financial Institutions (Agent Banking) Regulations 2017 apply to them.
  • The claim impugning the legality of the credit-facility contracts between the parties is disallowed.
  • High Court Civil Suit No. 43 of 2020 is remitted to the High Court for trial before another judge, basing only on issues of fact arising from the pleadings.
  • The Respondents are awarded 50% of the costs in the Supreme Court and in the Court of Appeal.

Key headnotes

Civil Procedure — Appeals — Power of appellate court to raise issues extraneous to the memorandum of appeal
An appellate court may, of its own volition, raise and determine issues not set out or implicit in the grounds of the memorandum of appeal where doing so would achieve the ends of justice, provided every party is afforded the opportunity to be heard on those issues.
Contract Law — Illegality — Raising a plea of illegality at any stage of proceedings
A plea of illegality may be raised at any stage of the proceedings, without the need to amend the pleadings, and it overrides all other matters before the court including admissions or agreements of the parties; no court will enforce an illegal contract once the illegality is brought to its notice and the party invoking the court is implicated in it.
Civil Procedure — Pleadings — Amendment introducing an additional cause of action
An amendment that introduces illegality as an additional and independent cause of action, while retaining the original claims, does not substitute the original cause of action and is permissible; it is not a trivial or merely technical claim that should be disallowed.
Civil Procedure — Cause of action — Ingredients required for disclosure
A plaint discloses a cause of action where it pleads the existence of the plaintiff's right, the violation of that right, and the defendant's liability for that violation; a reasonable cause of action is one which, on the pleadings, has some chance of success.
Banking & Finance — Financial Institutions Act — Foreign and syndicated lending to a Ugandan borrower
The Financial Institutions Act 2004 and the Agent Banking Regulations 2017 do not apply to a foreign bank that extends credit to a Ugandan borrower through a locally licensed bank acting as its agent in a syndicated loan arrangement; such a foreign lender, which holds no deposits in Uganda and lends through a licensed local bank, does not transact financial institution business in Uganda and requires no licence.
Banking & Finance — Agent banking — Scope of the Agent Banking Regulations 2017
Agent banking under the Financial Institutions Act 2004 and the Agent Banking Regulations 2017 contemplates a retail or human agent operating outlets on behalf of a locally licensed financial institution to extend banking to the underserved; it does not govern an agency between a foreign bank and a licensed local bank in a syndicated lending arrangement, in which the agent bank is itself a co-creditor and fiduciary.
Civil Procedure — Points of law — Duty of a superior court to determine pure questions of law
A superior court before which a pure question of law is raised, requiring no further evidence, should determine the question itself rather than remit it to a lower court, in order to avoid avoidable delay and miscarriage of justice and to give an authoritative ruling.

Legislation cited (34)

  • Financial Institutions Act 2004 s.3
  • Financial Institutions Act 2004 s.4
  • Financial Institutions Act 2004 s.4(1)
  • Financial Institutions Act 2004 s.4(2)
  • Financial Institutions Act 2004 s.4(3)
  • Financial Institutions Act 2004 s.117
  • Financial Institutions Act 2004 s.125(3)
  • Financial Institutions (Amendment) Act No. 2 of 2016 s.1
  • Financial Institutions (Amendment) Act No. 2 of 2016 s.4
  • Financial Institutions (Agent Banking) Regulations 2017 reg.3
  • Financial Institutions (Agent Banking) Regulations 2017 reg.4
  • Financial Institutions (Agent Banking) Regulations 2017 reg.5
  • Financial Institutions (Agent Banking) Regulations 2017 reg.7
  • Financial Institutions (Agent Banking) Regulations 2017 reg.9
  • Financial Institutions (Licensing) Regulations 2005
  • Financial Institutions (Limits on Credit Concentration and Large Exposures) Regulations 2005 reg.6
  • Financial Institutions (Limits on Credit Concentration and Large Exposures) Regulations 2005 reg.9
  • Financial Institutions (Limits on Credit Concentration and Large Exposures) Regulations 2005 reg.10
  • Bank of Uganda Act 2000 s.1(d)
  • Bank of Uganda Act 2000 s.4
  • Bank of Uganda Act 2000 s.37
  • Constitution of Uganda 1995 art.161
  • Constitution of Uganda 1995 art.162
  • Civil Procedure Rules S.I 71-1 O.6 r.6
  • Civil Procedure Rules S.I 71-1 O.6 r.7
  • Civil Procedure Rules S.I 71-1 O.6 r.30
  • Civil Procedure Rules S.I 71-1 O.7 r.11
  • Civil Procedure Rules S.I 71-1 O.9 r.6, 8, 10 and 30
  • Judicature (Court of Appeal Rules) Directions r.2(2)
  • Judicature (Court of Appeal Rules) Directions r.30(1)
  • Judicature (Court of Appeal Rules) Directions r.32(1)
  • Judicature (Court of Appeal Rules) Directions r.86(1)
  • Judicature (Court of Appeal Rules) Directions r.102(a)
  • Judicature (Court of Appeal Rules) Directions r.102(c)

Cases cited (32)

  • Milly Masembe v Sugar Corporation and Another (Civil Appeal No. 1 of 2000)
  • Kifamunte Henry v Uganda (Criminal Appeal No. 10 of 1997)
  • Ntambala Fred v Uganda (Criminal Appeal No. 34 of 2015)
  • Restetuta Twinomugisha v Uganda Aluminium Ltd (Civil Appeal No. 19 of 2001)
  • Warehousing & Forwarding Co. of East Africa Ltd v Jafferali & Sons Ltd [1963] EA 385
  • Esso Petroleum Co. Ltd v Southport Corporation [1956] AC 218
  • Tanganyika Farmers Association Ltd v Unyamwezi Development Corporation Ltd [1960] EA 620
  • The Tasmania (1890) 15 AC 223
  • North Staffordshire Railway Co. v Edge [1920] AC 254
  • Yaya Farajallah v Obur Ronald & 3 Others (Civil Appeal No. 81 of 2018)
  • Ismail Serugo v Kampala City Council and Attorney General (Constitutional Appeal No. 2 of 1998)
  • Jeraj Shariff & Co. v Chotai Fancy Stores [1960] 1 EA 374
  • Interfreight Forwarders Ltd v East African Development Bank (Civil Appeal No. 33 of 1992)
  • Fang Min v Belex Tours & Travel (Civil Appeal No. 6 of 2013)
  • Dillon v Balfour (1887) 20 LR Ir 600
  • General David Tinyefuza v Attorney General (Constitutional Appeal No. 1 of 1997)
  • Drummond-Jackson v British Medical Association [1970] 1 All ER 1094
  • Auto Garage v Motokov (No. 3) [1971] EA 514
  • Mulindwa Birimumaso v Government Central Purchasing Corporation (Civil Appeal No. 3 of 2002)
  • N.A.S. Airport Services Ltd v Attorney General of Kenya [1959] EA 53
  • Wycliffe Kiggundu Kato v Attorney General (Civil Appeal No. 27 of 1993)
  • Nurdin Ali Dewji & Others v G.M.M. Meghji & Co. (1953) 20 EACA 132
  • Tororo Cement Co. Ltd v Frokina International Ltd (Civil Appeal No. 2 of 2001)
  • Cotter v Attorney General [1936] 5 EACA 18
  • Mercantile Credit Co. Ltd v Hamblin [1964] 1 All ER 680
  • Makula International Ltd v His Eminence Cardinal Nsubuga and Another (Civil Appeal No. 4 of 1981)
  • National Social Security Fund and W.H. Sentongo v Alcon International Ltd (Civil Appeal No. 15 of 2009)
  • Stephen Lubega v Barclays Bank (Civil Appeal No. 2 of 1992)
  • Mistry Amar Singh v Serwano Wofunira Kulubya [1963] EA 408
  • Scott v Brown Doering, McNab & Co. [1892] 2 QB 724
  • Cooke vs Gull LR 8 E.P. at page 116
  • Read v Brown (1888) 22 QBD 128
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.