Wakilii

Citibank Uganda Ltd v Uganda Fish Packers Ltd and 6 Others (Civil Appeal No. 38 of 2017)

Court of Appeal · [2023] UGCA 66 · 2023 Appeal Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Civil appeal from High Court (Commercial Division) judgment, with cross-appeal by the 2nd–6th Respondents
Decision
Appeal substantially allowed; trial judgment set aside; 2nd–7th Respondents reinstated as guarantors; cross-appeal dismissed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal substantially allowed the appeal. It held that mere shareholding or directorship does not impute fraud, which must be strictly pleaded and proved; accordingly the 2nd–6th Respondents were not participants in the fraud. However, the 7th Respondent, on the evidence of her email communications with the rogue bank employee, was found to have participated in the fraud, so her discharge was reversed. The knowledge and conduct of an agent acting adversely to his principal's interests is not attributed to the principal. Undue influence based on unproven Indian culture could not stand absent expert evidence. Where distinct facilities existed, only the fraud-affected facility discharged guarantors; the 2nd–6th Respondents remained liable as guarantors and were reinstated.

Outcome

Appeal substantially allowed; trial judgment set aside; 2nd–7th Respondents reinstated as guarantors; cross-appeal dismissed

Facts

The Appellant bank extended credit facilities to the 1st Respondent (Uganda Fish Packers Ltd), guaranteed by the 2nd–7th Respondents, comprising family-related companies and individual directors. The facilities were reduced into facility letters dated 15 May 2007, 6 November 2007, and 8 September 2008; the third was never disbursed. On the death of the 1st Respondent's managing director Riyaz Kurji in May 2009, the bank treated this as a Material Adverse Change event and terminated the facilities, demanding repayment. The bank later discovered a fraudulent scheme involving its relationship manager, Robert Kasekende, and Riyaz Kurji, involving fabricated 'confirmed orders' under the pre-shipment facility and bribes. The bank sued to recover USD 3,706,895 and UGX 7,003,733,847 plus interest. The trial court entered judgment against the 1st Respondent but discharged the guarantors on grounds of fraud and material variation, awarding them costs against the 1st Respondent. The bank appealed, contending the guarantors participated in and benefitted from the fraud.

Issues

  1. Whether the 2nd to 7th Respondents, as guarantors, participated in or benefitted from the fraud so as to preclude their discharge from liability.
  2. Whether the conduct of a fraudulent bank employee should be attributed to the appellant bank where the employee acted adversely to the bank's interests.
  3. Whether undue influence could be presumed against the 7th Respondent based on unproven Indian culture without expert evidence.
  4. Whether continuing guarantees permitted variation of the facility without the guarantors' consent, including variation arising from fraud.
  5. Whether there were distinct and separate financial facilities, and whether all facilities were affected by the fraud.
  6. Whether the trial judge properly awarded costs against the 1st Respondent rather than the Appellant without giving reasons.

Orders

  • The appeal substantially succeeds.
  • The judgment of the trial court is set aside.
  • The 2nd to 6th Respondents are reinstated as guarantors.
  • The 7th Respondent is reinstated as a guarantor to the 1st Respondent.
  • All money due to be paid to the Appellant with interest of 2.5% per annum from 8th June 2009 until payment in full.
  • The cross-appeal is hereby dismissed with costs.
  • 80% of costs awarded to the Appellant.

Rules and key headnotes

Corporate Personality — Whether Fraud of a Director or Shareholder is Imputed to the Company
Mere shareholding or directorship in a company does not impute fraud on that company; the company, as a separate legal entity, is protected from the fraudulent acts of its directors unless involvement in fraud is specifically proved so as to justify lifting the corporate veil.
Pleadings — Fraud Must Be Specifically Pleaded and Strictly Proved
Fraud is a serious allegation that must be specifically pleaded with particulars and strictly proved to a standard heavier than the ordinary balance of probabilities; it cannot be inferred from phrases such as that a party 'ought to have known'.
Agency — Attribution of Agent's Knowledge and Conduct to Principal — Adverse Interest Rule
Where an agent acts outside the scope of his authority and adversely to the interests of his principal, the knowledge and conduct of the agent will not be attributed to the principal, and the principal is not bound by such transactions under section 160(2) of the Contracts Act.
Proof of Custom — Requirement of Expert Opinion under Section 46 of the Evidence Act
Where a court must form an opinion on the existence of a custom to presume undue influence, that custom must be established by expert opinion evidence; a finding of presumed undue influence based on an unproven cultural practice cannot stand.
Guarantees — Continuing Guarantees — Effect of Fraudulent Material Variation
A continuing guarantee secures all sums lawfully owed by the principal debtor, but does not extend to fraudulent transactions; a fraudulent material variation of the principal contract discharges the guarantors, and continuing guarantee terms cannot be relied upon to countenance fraud.
Multiple Facilities — Discharge of Guarantors Limited to Fraud-Affected Facility
Where distinct and separate financial facilities are each independently guaranteed, fraud affecting one facility does not discharge guarantors of a separate, unaffected facility; guarantors of the uncorrupted facility remain liable.
Costs — Judicial Discretion and Duty to Give Reasons
Costs are discretionary and ordinarily follow the event, but a court departing from that rule must give reasons; an appellate court may interfere where reasons are absent and the costs order is shown to be wrong.

Legislation cited (8)

Cases cited (26)

  • Baden v Society General (1992) 4 ALL ER 161
  • Veronica Nakiyingi v Micheal Nsobani (Civil Appeal No. 44 of 2008)
  • Moore Stephens (a firm) v Stone & Rolls Limited (in liquidation) (2009) UKHL 39
  • Balamu Bwetegeine Kiiza v Zephania Kadooba Kiiza (Civil Appeal No. 59 of 2009)
  • Woodel V BM Samuels Finance Group plc (1995) P&CR 311
  • Law Society of Kenya v Center for Human Rights and Democracy, Court of Appeal Civil Appeal No.308 of 2012
  • Kiska Limited v Vittorio De Angelis (1969) EA 6
  • Kampala Bottlers Ltd v Damanico (U) Ltd (Civil Appeal No. 22 of 1992)
  • J.W.R Kazzora v M.L.S Rukuba (Civil Appeal No. 13 of 1992)
  • Interfreight Forwarders (U) Ltd v East African Development Bank (Civil Appeal No. 33 of 1992)
  • National Social Security Fund v Alcon International (Civil Appeal No. 15 of 2009)
  • Pandya v R [1957] EA 336
  • National Environmental Management Authority v Solid State Ltd (Civil Appeal No. 15 of 2015)
  • Banco Arabe Espanol v Bank of Uganda (Civil Appeal No. 8 of 1998)
  • Salmon v Salmon [1897] AC 22
  • John Katarikawe v William Katwiremu & anor (1977) HCB 187
  • Okello Okello v UNEB SCCA No. 12/87
  • Fredrick Zaabwe v Orient Bank Ltd (Civil Appeal No. 4 of 2006)
  • Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
  • HL Bolton Co v TJ Graham and Sons [1956] 3 ALL ER 624
  • Kampala District Land Board v Venansio Babweyaka (Civil Appeal No. 2 of 2007)
  • Ernest Kinyanjui Kimani v Muira Gikanga [1965] E.A 735
  • R v Ndembera s/o Mwandawale (1947) 14 EACA 85
  • Cresensio Mukasa v Yakobo M.N Senkungu (Civil Appeal No. 35 of 2006)
  • Lazarus Estates Ltd v Beasley [1956] 1QB 702
  • Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873

Full judgment

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Citibank Uganda Ltd v Uganda Fish Packers Ltd and 6 Others (Civil Appeal No. 38 of 2017) [2023] UGCA 66 (23 February 2023)
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.