In a case that will be studied closely by commercial banks across the region as they race to serve juicy clients, Court of Appeal judges have sent a strong warning: promises made to clients must be honoured or they face consequences.
Court of Appeal recently held that KCB Bank must pay businesseswoman, Deborah Kigongo of Kaaya Enterprises Limited, damages, costs, and withheld contract funds after it failed to honour its promise to send letters of credit (LCs) to a supplier of road construction equipment in Singapore.
The ruling, which could have wider implications on the financial sector in Uganda, Court of Appeal established that in its December 2, 2012, email, KCB bank promised to issue LCs to the supplier within a week for them to issue bill of lading.
This would have enabled Kaaya enterprises to quickly clear goods that were already at Mombasa port. The bank ended up not issuing the promised LCs and neither did it inform the businesswoman.
KCB lawyers told Court of Appeal that Kaaaya Enterprises had not met their terms for them to issue the required document. On the other hand, Kaaya lawyers informed court that the bank became unresponsive to their requests for information regarding the progress of the issuance of LCs, telling Kaaya that bank “employees had gone for Christmas break and could not process the LCs during the festive period.”
After the festive season, the bank’s position changed, refusing issue the LCs altogether. Judges noted the bank’s initial promise to issue LCs prevented the business owner from sourcing alternative funding while incurring demurrage costs.
The delay to clear the goods resulted into part of goods being auctioned by Kenya Ports Authority, leading to business loss. The court upheld an earlier commercial court ruling in 2018, which ordered KCB to pay Kaaya Enterprises Limited Shs 100m in general damages, special damages of Kenya shillings 1,481,126 and $8,387.
In a further blow to KCB, Court of Appeal accepted a cross appeal from Kaaya Enterprises, where she prayed to be paid $53,000 worth of contract earnings that Unra withheld when she couldn’t deliver goods because of the bank’s failure to honour its promises.
The lead judge Justice Christopher Gashirabake stated thus: “The respondent is awarded the sum of $53,313.9 as damages for loss of 30% of the contract price in its contract with the Uganda National Roads Authority.”
The case received limited press attention, but it is now widely being watched within banking boardrooms in the region. Banks’ crucial role in facilitating international trade means they must be careful while making promises; whether formal or informal.
Every promise carries legal weight. Since the ruling in December, Kigongo told The Observer that KCB has yet to remit the funds and has indicated an intent to appeal further. Some industry analysts suggest the bank is merely employing stalling tactics to delay the inevitable payout.
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