Appeal court overturns State Oil victory in loan dispute with Equity Bank

Dar es Salaam. The Court of Appeal has overturned a judgment that awarded victory to State Oil Tanzania in a case involving the repayment of a $18.64 million loan (over Sh47 billion) against Equity Bank Tanzania Limited (EBT) and Equity Bank Kenya Limited (EBK).

Instead, the court has ordered a fresh hearing of the commercial case number 105 of 2020 filed by State Oil at the Commercial Division of the High Court of Tanzania against Equity Bank Tanzania.

The decision was made by a panel of three judges – Rehema Mkuye (Lead Judge), Abraham Mwampashi and Zainabu Muruke – on May 16 following an appeal by the EBT and EBK.

The court reached the decision after identifying flaws in the proceedings whereby it was realised that the court continued to hear and decide the case without amending the statement of claim after the defendants increased from one to two.

The court thus deemed it a significant and uncorrectable error, arguing that it violated the mandatory provisions of Order 1 Rule 10(4) of the Civil Procedure Code (CPC) and affected the proceedings and subsequent judgment.

Therefore, exercising its review authority under Section 4(2) of the Appellate Jurisdiction Act (as amended in 2019), the court annulled part of the High Court’s order dated December 10, 2020, directing EBK to file written defences.

“We also set aside all proceedings emanating from that order,” stated the Appeals Court in its decision written by Judge Mwampashi on behalf of the panel, concluding: “We further set aside the judgment and remit the record of commercial case number 105 of 2020, High Court Commercial Division, for a fresh hearing after complying with the requirements of Order 1 Rule 10(4) of the CPC.”

Initially, State Oil filed the case against EBT, as an agent of EBK, following a dispute over the repayment of a $18,640,000 loan owed by State Oil to EBK.

Before the case began, EBT’s lawyers requested the court to join EBK as a second defendant, arguing that EBK also had an interest in the case.

The court granted this request and on December 10, 2020, ordered EBK to be joined in the case and file its written defenses.

Consequently, the plaintiffs in the case increased from two to three, with one plaintiff being State Oil and two defendants being EBT and EBK.

However, the High Court did not order an amendment to the statement of claim to reflect these changes, but instead proceeded with the hearing using the original statement of claim by the two plaintiffs. State Oil was declared the victor, prompting both EBT and EBK to appeal the judgment.

The appeal was scheduled to be heard on April 13, 2024, but before the hearing commenced, the Appeals Court raised the aforementioned procedural flaw.

It questioned the legality of the High Court’s decision to continue with the hearing and ultimately deliver a judgment without first ordering an amendment to the statement of claim after the addition of a defendant.

The case dates back to 2018 when State Oil obtained a $18.64 million loan from an external lender, Lamar Commodity Trading DMMC of Dubai, with EBK as its guarantor. State Oil also provided its collateral to EBK under EBT’s supervision.

When State Oil defaulted on the loan, its guarantor, EBK, had to pay. Consequently, EBK became the creditor and State Oil owed EBK the loan amount.

After the repayment deadline expired without State Oil paying, EBT, acting as its agent, demanded payment from State Oil on behalf of EBK. State Oil then took the matter to court.

In the lawsuit, State Oil requested the court to order EBT to return the collateral assets it had pledged to secure the loan from EBK. State Oil claimed it did not owe the banks anything, arguing that EBK did not guarantee its loan.

During the trial, Lamar’s representative, the lender who provided the loan, testified that they had given the loan to State Oil after it was guaranteed by EBK. Therefore, when State Oil failed to repay, its guarantor, EBK, paid the debt.

However, in its judgment delivered by Judge Stephen Magoiga on October 1, 2021, the court agreed with State Oil’s claims. It ruled that State Oil had already repaid its debt and therefore the banks had no claim against it.

Thus, Judge Magoiga ordered all collateral assets pledged by State Oil to be returned to the company.