Reprieve for Stanbic Bank as court quashes Sh500 million award

Dar es Salaam. The Court of Appeal has quashed an order that required Stanbic Bank Tanzania Limited to pay an engineering firm Sh497 million, saying the decision that gave rise to the order was incomplete.

The top court judges sided with the bank that the judge who determined the case made a fatal omission by failing to decide on a counterclaim of Sh282 million raised against Singida-based engineering firm Trust Engineering Works Ltd.

“Although the parties were heard on the counterclaim, the issues arising from it were not determined. The judgment was, for that reason, rendered defective. The same is hereby quashed and the orders arising therefrom are set aside,” said Court of Appeal judges--Augustine Mwarija, Rehema Kerefu and Penterine Kente.

The business relationship between the bank and Trust Engineering went astray in 2013 when the later sued the bank at the Commercial Division of the High Court for loss alleged to have caused by a botched lease agreement for the purchase of construction equipment.

Court records shows that on October 22, 2010, the parties entered into a loan agreement in which the Trust Engineering secured Sh541 million for the purchase of a grader, a roller and an excavator.

Under the agreement, the company was also to repay the loan by installments within three years ending October 26, 2013.

Believing the company had defaulted, Stanbic repossessed the equipment and sold them. The bank contended that by September 13, 2013 the engineering firm owed them Sh282 million. At the Commercial Court, Trust Engineering sought a declaration that there was misrepresentation of contract, thus demanded payment of Sh247 million for the losses alleged caused by the bank’s actions.

The bank denied the claims and instead raised a counterclaim seeking payment of Sh281 million plus interests.

The High Court was to decide on whether or not the appellant (Stanbic Bank) was justified to reposes the equipment from the respondent who had at the material time, repaid a substantial amount of the loan.

Having considered the arguments of both parties, the commercial court sided with the engineering firm in August 2016 to find that the agreement misled the firm.

The court was of the view that the firm was misled because it was made to understand that the agreement was one for the hire purchase while the bank repossessed the equipment on the account of defaulting.

The High Court further declared Stanbic Bank did not have the right of repossessing the equipment and thus ordered they be returned to the respondent.

Trust Engineering was also awarded general and punitive damages of Sh150 million and Sh100 million respectively as well as cost of the suit.

The court neither considered the counterclaim of Sh281 million nor determined issues which arose from the counterclaim. The counterclaim was left undecided.

Stanbic aggrieved

Stanbic Bank was not happy with the decision of the High Court and in 2019 lodged an appeal against it.

The Court of Appeal chose to only the eighth ground of appeal out of nine presented by the bank.

The gist of that ground of appeal was that the High Court erred in law and fact by failing to determine the counterclaim of Sh281 million raised by the bank. When allowed to address the court on the issue, counsel for Stanbic, Paschal Kamala, said the counterclaim ought to have been determined since the trial court heard the parties’ evidence on the issue.

Mr Kamala argued that the trial court was enjoined to determine the issue because the bank had produced evidence to prove that the engineering firm had an outstanding amount of Sh281.

“The omission rendered the entire judgment and the decree of the trial court defective,” argued Mr Kamala has he moved the court to quash the judgment and set aside the decree.

A lawyer who represented Trust Engineering, Mr Geofreye Lugomo, initially resisted the issue of counterclaim and blamed the bank over alleged failure to prosecute the counterclaim. However, he changed his line of argument at the hearing of the appeal.

He agreed that if the assumption was wrong, then the judgment was defective and the remedy was for the court to quash it and order the trial court to compose it afresh.

Award quashed

The Court of Appeal decision focused on whether or not the counterclaim was determined, and if the answer was yes, whether the omission was fatal.

The judges reproduced the evidence of the director of Trust Engineering, Mr Bernard Tengio, who had told the court that at the time the bank decided to repossess the equipment, his company was in arrears of Sh181 million.

The witness is on record as telling the court that the value of the equipment at the time of selling would have not only set-off the outstanding amount but the seizure and sale of the equipment caused them a loss of Sh247 million. On its part, the bank through the evidence of John Lukilo argued that despite the repossession and sale of the equipment, it was still owed by the respondent Sh86 million.

The judges agreed that the trial court had framed the issue arising from the counterclaim and in their evidence, the parties had adduced evidence on it.

“The issue ought therefore, to have been expressly determined. That was not done. We are unable to agree with Mr Lugomo that, since the suit was decided in favour of the respondent, the counterclaim was in effect, dismissed,” said the judges.

The judges sided with the lawyer for Stanbic: “We agree with the appellant’s counsel, first, that since the counterclaim is an independent suit, failure to determine it renders the judgment incomplete and therefore defective.”

The court has thus ordered that the record of the case be remitted to the trial court for it to compose a judgment afresh in accordance with the law.