Court orders UAP insurance to pay Akiba Commercial Bank Sh1.6 billion of loan defaults

Dar es Salaam.  UAP-Insurance Tanzania Limited has been ordered to pay Akiba Commercial Bank Plc Sh1.6 billion to cover defaults on repayment of loans it guaranteed.

The insurer had undertaken to guarantee various customers of the commercial bank who would receive loans in various forms by issuing Payment Guarantee Bond.

Background

Under the arrangement sealed between 2016 and 2017, the bank issued loans to various customers and accepted bonds issued by the insurance company as partial and full securities for the loans.

The bonds made the insurance company liable to repay any outstanding instalments under the contract in case of loan default.

It happened that in the course of operations under the arrangement, some borrowers who were secured by the bonds defaulted paying loans, prompting the bank to call payment of the loans as guaranteed by the insurer.

Among the recovery efforts that were made by Akiba Commercial Bank was to turn to the insurer and demand payment of the outstanding amount of loans, depending on the loan status of defaulting borrowers and as per the terms of each bond.

“Despite formal demands, the defendant (UAP-Insurance) failed or ignored to perform its contractual promise to effect the payments,” argued the bank.

The following are the names of the borrowers and the amount of loan advanced in brackets:-

Rajab Shaban Rajab (Sh200 million), Taabu Seda (Sh30m), Jumanne Kapoli (Sh85m), Elibariki Mbise (Sh150m), Legal Link Attorneys (Sh330m), Bashiru Juma (Sh100m), Dina Mgomera (Sh40m), Tughimbaghe Traders Company Limited ($55,215), Tajiri Lenasiwan (Sh10m) and Mazao E.A Limited (Sh1bn).

Other borrowers were Outassurance Brokers Company Limited (Sh30m), Verani Mushi (Sh15m), Malcom Investment Limited (Sh300m), Mkasi TV (Sh150m), Masemano Investment Limited (Sh626m), TZ Business Creation Company Limited (not pleaded), Didas Cornel Kulaya (Sh30m), Anna Shayo (Sh100m), Richard Mpumbila (Sh60m), Ali Bakari (Sh30m) and Abel General Dealers Co Limited (Sh30m).

According to the bank, all the bonds were independent contracts, unconditional and that it was claiming Sh1.8 billion and $44,172 from the insurance company based on Payment Guarantee Bonds and counter guarantees.

The bank was represented by Mr James Bwana (retired judge of the Court of Appeal) while the respondent enjoyed the legal service of Mr Karoli Tarimo.

Rejecting the claims

Upon being served with the complaint, the insurer disputed all the claims as unrealistic, over-claimed against what was guaranteed and asked the court to dismiss the suit with costs.

The company also accused the bank of failing to exercise first ranking securities and that some claims were made out of time of the agreed period of guarantee.

Despite admitting the presence of the arrangement, the company queried that the consolidation of several claims together was wrong.

“The bonds were to be invoked as last resort after the plaintiff (Akiba) has exercised first ranking securities. There was no proof of disbursement and the amount claimed in some claims were unrealistic, “argued the company.

Mr Tarimo admitted that his client had issued the Payment Guarantee Bonds in favour of the bank but pointed out that they refused to honour them because the plaintiff breached the terms and conditions of the bonds and facility letters for failure to disburse the money, failure to make forma demands to the guarantor and that the same were claimed outside of the validity time prescribed in the bonds.

Issues for decision

Before hearing of the lawsuit the court framed three issues that were agreed by parties for determination of the suit.

The court was to decide ‘what was the basis of the payments in respect of the guarantees bonds executed by parties and whether there was a breach of the terms and conditions of payments guarantee bonds by either party.

Court decides

There was no dispute between the parties that the Payment Guarantee Bonds were issued in favour of the plaintiff to various borrowers on different dates and were guaranteeing different amount.

There was also no dispute that some borrowers were partially guaranteed and some were sole and full guarantees and the bonds were the only securities for loans advanced. The parties were also in agreement that some money guaranteed remained unpaid and were cause of the dispute.

Having heard the parties, Judge Stephen Magoiga of the Commercial Division of the High Court said the insurance company was obliged to honour her commitment under the Payment Guarantee Bonds. The judge said the plaintiff has managed to prove by producing bank statement of each borrower that the money borrowed was disbursed to the accounts of borrowers and that the amount given was the same as was in the facility letter. “Not only that but also, the defendant who alleged breach was to prove it and none of the borrowers was called to testify that he/she was not given the money as agreed to justify the allegations by the defendant..

“The only plausible defence which has been taken care of was that, some of the claims were claimed out of time of the validity if the bonds and I have carefully considered them to the letter as I have done on each claim.

“Apart from claims that were made out of time, the rest of the claims, I find them proved to the required standard. The plaintiff is entitled to be paid by the defendant Sh1.6 billion and $44,172,” said the judge. The bank was also awarded Sh5 million in general damages