Court of appeal pushes back ruling in $16 million loan dispute

Dar es Salaam.  The Tanzania Court of Appeal has suspended proceedings in a $16.275 million loan dispute between Equity Bank and three companies (Nas Hauliers, Everest Freight and Tanga Petroleum) because of a discrepancy in the number of plaintiffs listed in the case documents.

The discrepancy relates to the difference in the number of plaintiffs in the judgement and those mentioned in the notice of appeal.

The court raised this issue when hearing an appeal filed by Equity Bank (T) Limited and Equity Bank (K) of Kenya against Nas Hauliers Limited, Everest Freight Limited, and Tanga Petroleum.

In the appeal, the banks challenged the decision of the Commercial Division of the High Court of Tanzania, which awarded the companies a victory in a $16.275 million loan dispute claimed to have been lent by the banks but refused to be repaid.

The appeal was scheduled to be heard on Tuesday, April 30, 2024, by a panel of three judges from the Court of Appeal, namely Rehema Mkuye (panel leader), Abraham Mwampashi, and Zainabu Muruke.

However, before the appeal hearing began, the Court noted a difference in the number of plaintiffs listed in the judgement being appealed and those listed in the notice of appeal and in the grounds of appeal.

This issue was first raised by Judge Muruke in the contested judgement, which listed a total of five plaintiffs, namely three claimants (the companies) and two defendants, Equity Tanzania and Equity Kenya.

However, the notice of appeal and the grounds of appeal show that there are 13 plaintiffs, namely two appellants (the Equity banks), and 11 respondents, namely the three companies plus eight other individuals (directors of these companies).

These directors are Ally Hemed Said, Ahmed Hemed Said, Bahman Salim Hemed, Idrissa Said Abraham, Issa Mohamed Said, Suleiman Nassoro Mohamed, Samiha Ally Hemed Said, and Alexandria Estate Limited, who provided personal guarantees for the disputed loan.

They arose from a counter-claim filed by the banks. In that claim, they were both claimants and the companies and their directors were respondents. However, in the judgement, the directors are not mentioned on either side (claimants or respondents), except that they are only mentioned within the judgement as respondents in the counter-claim.

Thus, the judges separately questioned whether these two documents (the notice of appeal and the grounds of appeal) are properly before the court, including people who are not mentioned in the judgement being appealed. “We are at a crossroads as to whether the notice of appeal and the grounds of appeal were filed in court as they should be. Therefore, we need to deliberate on these,” said Judge Mkuye. Lawyers for both sides, Mpaya Kamara and Timon Vitalis representing the appellants (Equity banks) and Frank Mwalongo representing the respondents (the borrowing companies and their directors), admitted to the discrepancy.

They claimed that this discrepancy may appear minor and has no adverse effects since it does not affect the rights of either party.

“However, if we look at pages 45 and 59 of the judgement, it clearly states that the counter-claims were filed against three respondents (the Nas companies and others) and eight more respondents (the directors),” lawyer Kamara explained.

He claimed there is no flaw in the notice of appeal and the grounds of appeal listing all 11 respondents, including the directors of these companies, and if there is an error, it is in the judgement that did not mention the directors on its face. “In our view, this is a minor error that does not go to the root of the case,” lawyer Kamara argued. He asked the court to apply the principle of disregarding errors that do not go to the root of the case.

Lawyer Mwalongo argued that, as far as the plaintiffs (the directors) are concerned, there is no problem.

“For me, I don’t see a problem; it’s enough that the judgement mentions them inside,” lawyer Mwalongo argued. He emphasised that neither side complains about being affected by this discrepancy, as it does not touch the root of the case. Therefore, he also asked the court to use the same principle to disregard an error that does not go to the root of the matter.

The court is scheduled to render a decision on this issue on a date that will be communicated to the plaintiffs once it is ready.

The case in question dates back to 2018, when State Oil took a $18.64 million loan from a foreign lender, Lamar Commodity Trading DMMC of Dubai, with Equity Bank Kenya’s guarantee.

According to the judgement, the companies agreed with Equity Bank (K) Limited (EBK) for a standby letter of credit (SBLC/LC). In those agreements of May 22, 2019, EBK issued the LC to secure loans from a foreign company, Lamar Commodity Trading DMCC in Dubai/Numora Trading PTE Limited. The companies took out the loan to pay off other debts owed to banks in the country, including Equity Bank (T) Limited (EBT), Amana Bank, and UBL Bank Limited, and to increase their capital. The funds from Numora, facilitated by Lamar, were sent to EBK, which in turn sent them to EBT, which was appointed as its agent to hold the securities for these companies.

EBT paid off all the debts owed by the companies and held their securities, and the remaining funds were disbursed to the companies.

However, later, the companies filed a case against the banks (EBT and EBK), among other things, requesting the court to order EBT to return its immovable and movable securities held as collateral by EBK through the LC to obtain the loan.

The companies, among other things, claimed that the $16.27 million loan from Lamar/Numora did not have EBK’s guarantee, arguing that the LC issued by EBK was defective and that the loan was not registered with the Bank of Tanzania (BoT).

The banks, EBT, and EBK also filed counterclaims against the companies and their directors, claiming more than $19 million in loan debt paid by EBK to Lamar/Numora as its guarantor after the companies failed to repay the loan, along with interest.

The banks called six witnesses, including a representative from BoT, who testified that the loan, repayable within one year, did not need to be registered and that only loans repayable after two years needed registration.

They also called Lamar’s director and Numora’s shareholder (the lender), who testified that they provided the loan to the companies with EBK’s guarantee, and when the companies failed to repay the loan, EBK, as the guarantor, had to pay.

In a judgement issued by Judge Deo Nangela on April 19, 2023, among other things, after an analysis, he dismissed the banks’ counterclaims, stating they failed to prove their claims.

Instead, he awarded victory to the companies, stating they had proven their claims.

He ruled that the companies had already repaid the loan and the banks had no claims against them, and he ordered the companies to return all their securities held by EBT as collateral for the loan, a decision that the banks have appealed.

This is the banks’ second appeal after another by State Oil, which also claimed that the banks guaranteed a $18.6 million loan, which it repaid, but the banks refused to repay it, and it went to court and got the victory that it had repaid the loan.