Absa Bank Ordered to Pay UGX 6b for Illegally Selling Progressive Secondary School

Absa Bank Uganda has been ordered to pay 6 billion Shillings for illegally selling a school after it failed to repay a loan it had contracted.

According to the court records, in 2004, Progressive Secondary School and its proprietors applied for loans worth 1.2 billion Shillings from then Barclays bank and used the land on which it was seated as security. The loan was to be given in two instalments of 650 million each.

However, the school says that it only received Shs 650 million but Absa Bank claimed that it had given it all the money. In 2009, when the time for repayment came, the Bank claimed that Progressive had defaulted on the loan and subsequently, sold it to Luyanzi Academic Foundation.

Dissatisfied, the owners ran to the High Court Commercial division where the presiding judge David Wangutusi found that the actions of the bank to sell the school were legal because it had failed to repay its loan. This forced the owners of Progressive Secondary School to appeal both the findings and decisions of the High Court.

In the appeal, they stated that the sale and transfer of the school by the bank was illegal, unlawful and a breach of the loan and mortgage deed. They laid down eight grounds of appeal all of which related to the fact that the trial judge erred in law and fact when he ruled the way he did.

Now the Court of Appeal in a unanimous decision allowed an appeal by Progressive Group of Schools Ltd, Ab’mooti Investments Ltd and Kaahwa Erisa Amooti against Absa and Luyanzi Academic Foundation.

In a 62-page ruling, three Justices of the Court of Appeal; Richard Buteera, the Deputy Chief Justice, Catherine Bamugemereire and Stephen Musota held that indeed the trial justice had failed to properly evaluate the evidence on record hence arriving at the wrong conclusions.

The justices held that they were unable to see any evidence on record to suggest that the loan was actually paid to Progressive Secondary School. They said the trial Judge took it as an obvious fact that where a loan facility letter or agreement has been proved, money was indeed availed to the school and they just did not want to pay the loan or failed to pay.

“In our view, the learned trial Judge ought to have given this matter much more attention in his judgment. Considering that the contract agreement was for the disbursement of monies as agreed therein, failure to disburse the sums promised in the facility letter amounts to a breach of contract. It would therefore be inconsequential whether the procedure of sale was followed or not because the sale would automatically become unjustifiable,” the judgement reads in part.

It adds that Absa Bank officers were not also transparent about the agreement and the transactions which they entered into. “There was a lot of confusion and banks should not operate that way. There is expected a great deal of transparency and consumer/customer protection.

What the bank did in this case, in our view, contravenes and is contrary to the Bank of Uganda’s Consumer Protection Guidelines and the common expectations and standards of a prudent and respectable Banker,” the ruling reads.

Having ruled that the bank did not pay the school the amount as agreed upon, the court then said that the sale of the school was illegal.

“It follows that it was unlawful for the 1st Respondent to dispose of the Appellants’ properties in particular Kyadondo Block 227 Plot 1424 and Block 226 of Plot 43 without sufficient advertising. The said sale, therefore, was illegally done. This Court cannot sanction illegality… In the circumstances, we find that the execution of the impugned sale agreement in a manner not envisaged by the Power of Attorney and by a person not authorized under the said instrument was void. Accordingly, the sale agreement between the 1st and 2nd Respondents for the suit properties was tainted with illegality,” the judgment reads.

With that, the judges ordered that the school revert to its former owners. For each of the 13 years that they have been deprived of it, the judges ordered that Absa pays 400 million Shillings, which brings the figure to 5.2 billion Shillings. The court also ordered that the Bank and Luyanzi Academic Foundation pay 200 million for general damages and 50 million Shillings for exemplary damages.

This money will attract an annual interest of six per cent until full payment is done. The Bank was also ordered to pay for the cost of the suit in both the high court and the Court of Appeal.

Scroll to top
Close