Temporary Reprieve for Foreign Lenders as Ugandan Court of Appeal Orders Retrial of Judgement Declaring Cross-Border Lending Illegal

On 5 May 2021, the Court of Appeal of Uganda delivered its much-anticipated judgement in the case of Kiggundu and Others v Diamond Trust Bank (U) Limited & Another. Diamond Trust Bank (K) Ltd (DTBK) had appealed the ruling of the High Court of Uganda, which had declared credit facilities advanced by the Kenyan bank, to two Ugandan borrowers to be illegal and unenforceable because DTBK did not have a licence to conduct “financial institutions business” in Uganda.

The three justices of the Court of Appeal, Deputy Chief Justice Richard Buteera, Justice Kenneth Kakuru and Justice Christopher Izama Madrama unanimously overturned the earlier decision of Justice Henry Peter Adonyo and ordered for a retrial of the case before another judge of the High Court.

In this Legal Alert, we discuss the salient issues arising from the Court of Appeal decision and set out our views on the practical implications on the East African syndicated lending market.


Between February 2011 and August 2018, Ham Enterprises Ltd and Kiggs International (U) (the Applicants/Respondents) received various credit facilities from DTBK with Diamond Trust (Uganda) Ltd (DTBU) acting as a collection agent in Uganda. DTBK and DTBU contended that the credit facilities had become non-performing, but the Borrowers contested the non-performance and instead claimed USD 23 million from DTBK and DTBU (the Defendants/Appellants) on account of unlawful deductions by the Applicants.

The crux of the case at the High Court of Uganda was whether DTBK was conducting financial institution business in Uganda and whether the failure to obtain a licence to conduct financial institution business in Uganda rendered the credit advanced to the borrowers illegal, void ab initio and consequently unenforceable. In an unexpected move, the High Court of Uganda agreed with the Applicants and found that DTBK was illegally operating a financial business in Uganda and consequently that the credit facilities were illegal and unenforceable and ordered the unconditional discharge of all securities and the return of the money taken by DTBK on account of the alleged non-performing loans.

Submissions at the Court of Appeal

The Appellants, aggrieved by the decision of the High Court, advanced several grounds of appeal at the Court of Appeal summarised below:

  1. the trial judge erred in law in finding that the Financial Institutions Act, 2004 (the FIA) applied to DTBK in respect of credit facilities issued in Kenya to Ugandan entities;
  2. the trial judge erred in law and in fact in finding that the DTBK required approval from the Bank of Uganda (the BoU) to issue credit facilities in Kenya to Ugandan entities;
  3. the trial judge erred in law in finding that it is illegal for a foreign bank using money held on deposit whether within Uganda and/or outside Uganda to engage in activities, such as lending and extending credit facilities to Ugandan entities, without authorisation from the BoU;
  4. the trial judge erred in law in finding that DTBU carried out agency banking in contravention of the Financial Institutions (Agent) Banking Regulations, 2017;
  5. the trial judge erred in law and in fact in finding that DTBU acted as an agent of DTBK contrary to Regulation 5 of the Financial Institutions (Agent Banking) Regulations, 2017 and Section 126 (3) of the FIA as well as similar laws of Uganda without receiving evidence;
  6. the trial judge erred in law in holding that DTBK committed illegalities by violating section 117 of the FIA in so far as it did not open a representative office in Uganda;
  7. the trial judge erred in law and in fact in finding that DTBK and DTBU breached the relevant loan agreements without relevant evidence;
  8. the trial judge erred in law and in fact in declaring that the credit facilities advanced to the Respondents are settled at law;
  9. the trial judge erred in law and in fact in striking out DTBU’s written statement of defence at the High Court whereas there was no challenge to it;
  10. the trial judge erred in law and in fact in finding that the sum of UGX 34,295,551,553 and USD 23,467,670.61 were unlawfully taken from the Respondents’ loan accounts without evidence;
  11. the trial judge erred in law in entering judgment for the plaintiffs as prayed for in their joint plaint by virtue of Order 9 rules 6, 8, 10 and 30 of the Civil Procedure Rules; and
  12. the trial judge erred in law and in fact in finding that the affidavit signed by Allen Kagoya was competent to support the relevant application.

Although the Appellants raised numerous points of law on whether the credit facility transactions were illegal or not, the Court of Appeal held that grounds 9 and 11 dealt with fundamental procedural issues which needed to be addressed first as they would affect the other substantive grounds of appeal. In this regard, the central issue considered by the Court of Appeal was whether the lower Court erred in striking out the Appellant’s statement of defence on the basis that it perpetuated an illegality as DTBK was allegedly conducting “financial institutions business” in Uganda without a licence (ground 9). The Court also considered the propriety of the High Court’s ultimate decision to enter judgment in favour of the Respondents for liquidated sums (ground 11).

The Decision

The focus of the Court of Appeal’s attention was on the written statement of defence struck out by the High Court. In making its determination, the Court canvassed detailed technical points generally governing Ugandan civil procedure including statutory, jurisprudential and academic sources. After extensive deliberation, the Court of Appeal agreed with the Appellants that the written statement of defence raised serious points of law and fact which ought to have been determined through trial and the High Court had erred in failing to hear and determine the case on its merits. The Court also found that given that the claims which formed the subject matter of the dispute were not liquidated, there was no basis to enter judgement for a liquidated demand.

Given that the Appellants were basically denied a proper judicial audience with the striking off of the written statement of defence, the Court found that there was no need to consider the other ten grounds of appeal and therefore the suit would be referred back to the High Court for determination by another trial judge after both parties were afforded the chance to be heard. In sum, the crux of the Court of Appeal decision is that the trial judge erred in striking out the Appellants written statement of defence and entering judgment for the Respondents without hearing the parties.

Perhaps of particular interest to the banking sector is the following quote, albeit not informing the decision of the Court, by Deputy Chief Justice Richard Buteera in his judgment:

The legal point I find relevant to clarify is that I know of no law that makes it illegal for a Ugandan citizen or a foreigner resident in Uganda to borrow or pay back money borrowed from a foreigner or a foreign institution… A loan agreement with a foreigner or a foreign entity whether the contract is executed in Uganda or outside Uganda would be enforced by a Ugandan court in accordance with the terms of the agreement between the parties, the laws of the respective countries in which the agreement is made and/or executed and international laws and obligations as applicable in the respective countries.”

The above statement demonstrates a clear intention by the Court of Appeal to uphold the sanctity of lending contracts entered in good faith by parties during the course of commercial transactions. However, until the case is finally concluded on the substantive issues raised, the statement remains obiter dicta and does not fully address the issue of licensing of foreign lenders.


The Court of Appeal’s decision to order for a retrial is the first win for DTBK in its attempt to recover the outstanding liability of over USD 10 million from the Respondents as it gives DTBK an opportunity to make its case against the Respondents in the High Court.

Although the decision may not have granted the banking industry the certainty it had hoped for in respect of the status of cross-border lending in Uganda, the decision is still a positive step for foreign lenders with existing facilities in Uganda, syndicated or otherwise, as we await the decision from the High Court. Having said that the retrial in the High Court is not the only place to watch this case unfold. On 10 May 2021, the Respondents, being dissatisfied with the decision of the Court of Appeal, served a notice of appeal to the Court of Appeal and the Supreme Court indicating its intention to challenge the decision.

Even as the case continues to work its way through the appeals process, we note that there is an issue that has largely gone unnoticed in this debate. The matter in dispute turns on the definition of “financial institutions business” (the FIB Definition) as set out in the Financial Institutions Act, (2004) (the FIA). The FIB Definition is the relevant definition when analysing relevant licensing requirements in Uganda.

Currently, the FIB Definition includes “lending or extending money held on deposit or any part of that money including by way of…”. This means that licensing requirements for financial institutions lending in Uganda are triggered when deposit taking activity occurs. This implies that foreign lenders advancing credit into Uganda do not trigger any licensing requirement as they do not take deposits.

However, the deposit taking language was only introduced in the FIA in 2016. Before that, there was no deposit monies qualifier in the definition meaning that unlicensed foreign bank loans before 2016 may in fact be deemed to be illegal. In light of this, we have reviewed the various relevant definitions across East Africa and propose a simple amendment to the FIA that would safeguard the interests of lenders across the region. Our proposal would be to qualify the FIB Definition to read “financial institution business” means the business, at any time before or after the commencement of this Act,…”. This amendment would pre-empt any claims disputing pre-2016 loans into Uganda by foreign banks.

In light of the above, we would advise foreign lenders with pre-2016 loans to consider the ramifications of this case and the greater regulatory regime. We will continue monitoring the situation and keep you updated.

Should you have any questions regarding the information in this legal alert or any other banking, finance or restructuring matters, please do not hesitate to contact Sonal Sejpal or Fiona Magona.

Sonal Sejpal
ALN Kenya | Anjarwalla & Khanna
Fiona Magona
ALN Uganda | MMAKS Advocates

: Elizabeth Kiluu and Tony Areri (Associates)



The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.