DTB Loan Law Suits

Legal disputes over sour loans on their books have scarred some banks, strained relationships with clients and put a harsh spotlight on their banking practices. DERRICK KIYONGA digs into some of the ongoing legal arguments in court and highlights the deep structural forces threatening to drive some banks and their clients over the edge.

Diamond Trust Bank (DTB) is embroiled in a long-running loan dispute worth about Shs 120 billion with businessman Hamis Kiggundu. The bank is also locked up in another dispute with a couple that lays bare several shocking banking practices.

At exactly 3:45pm on April 3, 2017, Francis Nekuusa and Stella Nekuusa, his wife, received a letter, MMAKS Advocates, a prominent law firm in the country, wrote on behalf of Diamond Trust Bank (DTB). In the letter, MMAKS asked the couple to pay within two hours over Shs 10 billion or else the bank confiscates their property.

DTB purported that the couple signed off as guarantors for F&S Industries Limited the first loan of Shs 1.3 billion. The couple then signed off another loan worth Shs 4.1 billion, which was to invigorate Global Fuel Systems Limited. DTB also asserted that Francis and Stella, in their joint names, took another loan of Shs 4.3 billion followed by another in an overdraft format.

This draft was valued at Shs 616.8 million.

“Should the payment of this sum not be made by yourselves by close of business on the 3rd April 2017, we are instructed to file a summary suit to recover the said sums owed from you personally without further notice,” MMAKS Advocates wrote.

In their defense filed in court following the intervention of Justice Christopher Madrama, who was initially in charge of the case before he was elevated to the Court of Appeal, Francis and Stella took apart the DTB narrative.

ADMISSION

First, they admit they signed for a term loan of Shs 3.5 billion on February 29, 2016 but never received the money from DTB nor utilized it. Francis also admitted that on October 21, 2014, together with his wife, they executed a joint personal guarantor for F&S Steel Limited, worth Shs 5 million, and not the billions DTB talks about.

Furthermore, he admitted that he executed an executive guarantee deed for a loan facility for Global Fuel Systems Limited, worth Shs 5 million. The couple accuses DTB of using their accounts to carry out fraudulent transactions, which included paying legal transactions unknown to them, purchase of property from persons unknown to them, which transactions were not based on any cheque or instrument executed by them.

According to court documents, there are about 15 transactions that DTB carried out on their account without their knowledge. On December 7, 2012, Shs 100 million was given to Amit Panchal, on December 12, 2012, Shs 160 million was given to Yamishidi Muteesasira, on December 21, 2012, Shs 5 million was given to Paul, on January 05, 2012, Gingo Mujje was given Shs 26. 4 million, on November 12, 2013, Bossa Kiyingi got Shs 200 million, on December 19, 2013 Broadway Masaka got Shs 55 million.

On January 20, 2014, Gingo Mujje got another Shs 80 million. On April 24, 2014 Nsamba Trading got Shs 20 million. On August 21, 2015, two separate transactions were made and Shs 173 million was deposited on account 005tlAA13291002, Lucky Steel got Shs 323 million on August 21, 2015 and Shs 161 million was given to what they called “funds transfer to regularize excess.”

They claim Shs 1 billion was given to F & S Steel Limited on August 7, 2015 while Shs 100 million was given to “account regularization” on August 27, 2015 and Shs 176 million was deposited on account 020TLNA14052001. The deductions, according to court papers, seen by The Observer totalled to Shs 2 billion.

On July, 20, 2015, Francis and Stella said they banked Shs 4 billion on their DTB account obtained from the sale of property and withdrew Shs 882 million. They alleged, however, that DTB continued to withdraw huge sums of money without their permission. “

That the plaintiff debited our personal accounts on the 23 of March 2016 to the tune of Shs 2,389, 918, 187 and Shs 148, 047, 432, bringing the total of unrequested, unutilized overdrafts to Shs 3, 354.847,77, which is not supported by any costumer instruction or instrument,” the couple said. Three years down the road, the MMAKS Advocates letter triggered a protracted legal battle at the High court’s Commercial division.

Though the case remains unresolved, MMAKS Advocates has been accused of forging documents to fit its agenda. Justice David Wangutusi, who took over the case from Justice Madrama, was reported to his bosses who included retired Principal Judge Justice Yorokamu Bamwine.

Justice Wangutusi was later dragged to the Judicial Service Commission (JSC) for allegedly issuing a consent decree the couple claim was a work of fraud and “judicial racketeering.” In the lawyers’ speak; “judicial racketeering” refers to a combined effort by judges and lawyers to frustrate cases. Justice Wangutusi’s woes started on May 16, 2018, when he advised that an independent auditor should be appointed.

The auditor was to establish the exact amount under claim and the warring parties were advised to come up with terms of reference jointly agreeable to guide the desired audit as well as make a proposal on the choice of the independent auditor. Before the issue of the “independent auditor” could be resolved, DTB, through Timothy Masembe Kanyerezi, MMAKS’ managing partner, proposed a negotiated an out-of- court settlement, which Frank and Stella agreed to.

Negotiations ensued, according to court documents, and it was mutually agreed in principle that the couple pays Shs 6 billion in full and final settlement of the DTB claim. Justice Wangutusi who has since been transferred to the High court’s International Crimes division adjourned the case to allow both parties time to come up with definite consent judgment terms drawn up for the court record.

Subsequently, a comprehensive draft agreement was drawn by lawyers for both parties and forwarded to clients to study and, if agreeable, append their signatures. Upon perusal, court records show, both Frank and Stella declined to append their signatures because paragraphs 3 to 5 suggested that DTB could sell all the properties, which constituted security for the mortgage and this was unacceptable to them.

FALSE CONSENT DECREE

“To our surprise, the learned trial judge [Wangutusi], though well knowing that there was neither an oral nor written consent judgment decree or order, concluded between the parties, moved himself and drew, signed and sealed what he termed as a “consent decree” on his own; not agreed to by both or either of the parties as if it were a judgment reached by the judge himself after a full trial or reached in a summary suit,” Frank wrote in his complaint to Justice Bamwine dated October, 22, 2018.

The couple took the battle to the High court’s Civil division- which is at the same level with the Commercial court – asking it to set aside Wangutusi’s “consent decree,” but the case was never fixed for hearing. On October 5, 2018, Trust General Auctioneers & Court Bailiffs wrote to the couple claiming they had instructions from MMAKS to kick them out of their property in Nalukolongo.

“Diamond Trust Bank Ltd is proceeding to enforce its rights under the mortgage by way of selling this property to recover its monies,” the bailiffs wrote and copied the letter to the police and the couple’s area Local Council one chairperson.

“You are accordingly put on notice to immediately vacate these premises upon receipt of this letter to pave way for this action to proceed without hindrance, failure of which you will forcefully be evicted without any further warning.”

With bailiffs closing in and the commercial court’s Justice Wangutusi reluctant to review his consent decree, the couple was stuck until Justice Bamwine intervened.

“The long and short of the enclosed complaint is that there is an application for review before Hon Justice Wangutusi which is yet to be fixed for hearing,” Justice Bamwine wrote to the deputy registrar of the Commercial court, Festo Nsenga, on October 22, 2018.

“However, the registrar has declined to entertain the application for interim order of stay claiming that the matter is only appropriate for the Execution court. If the matter goes to the Execution division, the application before Justice Wangutusi may be rendered nugatory. Given that Justice Wangutusi is out of station I direct that you put the matter on hold till his return of action and or directions.”

Justice Wangutusi never fixed the application for hearing and the only reprieve the couple got was when he was transferred and the case was assigned to Justice Richard Wejuli Wabwire in 2019. Court records show that on February 18, 2020, Justice Wabwire agreed to set aside Wangutusi’s consent judgment.

“It is incomprehensible why counsel for the applicants [Francis and Stella] who had instructions to look out for and state his clients’ interests opted to keep silent at a time when his input was most crucial. In circumstances such as these, where underlying unequivocal consensus of mind is an absolute requirement in order to give legal effect to the consent judgment and decree, counsel for the applicant ought to have been more vigilant,” Justice Wabwire ruled.

He added: “In the circumstances, consensus, consent could only have been implied from the silence by the applicant and his lawyers. The absence of evidence of consensus in the record of proceedings undermines the very root of the consent judgement.”

MMAKS OFF THE HOOK

Next for the couple was an attempt to get MMAKS off the case. In their application they said MMAKS lawyers Masembe and Stephen Zimula are potential witnesses in the main case. It was the couple’s case that both Masembe and Zimula attended meetings and drew all the legal documents for the matter now before court, handled all the bank’s cases, drafted all documents including, but not limited to, mortgage deeds, notices, guarantees, indemnity and all other correspondences, which are the basis of the lead suit and according to the couple will be tendered in court as evidence.

“That in the course of their services to the bank [DTB], and without prior knowledge and authority of the applicants, MMAKS drew various sums of money from the applicants’ accounts at the bank, which the applicants seek an explanation for,” the couple argued. Masembe explained the money paid out to his law firm by DTB was for the services offered to the bank when Francis and Stella were getting the credit facility in 2012 and the judge agreed with MMAKS, this time round.

“The applicants have not demonstrated that any of the transaction documents or communication was made or came to the knowledge of the second respondent [MMAKS] in furtherance of an illegality, crime and fraud,” he ruled.

“The second respondents [MMAKS] and the applicants’ documents on behalf of the first respondent [DTB] and the applicants [Francis and Stella] were, by obligation created under the facilities agreement, responsible for all costs inclusive of legal fees, which it was agreed would be recovered directly from their [Francis and Stella] account,” Justice Wabwire ruled. Another accusation leveled against Masembe and Zimula by the couple was to the effect that the trio had forged a document purporting to be from Frank and therein he acknowledged being indebted. “I have looked at the document in which the applicant allegedly acknowledged indebtedness,” the judge ruled. “However, no evidence was tendered to support the applicant’s allegations of forgery.”