Court name
Commercial Court of Uganda
Case number
Civil Suit 848 of 2014
Judgment date
17 January 2020
Title

Dynamic Consotium Ltd v DFCU Bank Ltd (Civil Suit 848 of 2014) [2020] UGCommC 1 (17 January 2020);

Cite this case
[2020] UGCommC 1

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

CIVIL   SUIT  NO. 848 OF 2014

 

DYNAMIC CONSORTIUM LTD::::::::::::::::::::::::::::::::::::::::::::PLAINTIFF

                                               VERSUS

DFCU BANK LTD::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::DEFENDANT

 

BEFORE: THE HON.  JUSTICE DAVID WANGUTUSI

 

J U D G M E N T:

Dynamic Consortium Ltd the Plaintiff in these proceedings sued DFCU Bank Limited herein after called the Defendant for recovery EUR 90,000, an order directing the Defendant to activate the Plaintiff’s account, general damages, punitive and exemplary damages, interest and costs.

 

The background to this claim as discerned from the pleadings is that the Plaintiff was a customer with the Defendant Bank wherein she operated Bank Account No. 01273550359571 herein after referred to as the Plaintiff’s bank account.   On 13th August 2014 the Plaintiff executed an agreement with Glastech Produktions Und Verfahre nstechnik Gmbh a company in Austria to supply her with 15 containers of laminated glass at a sum of EUR 300.210,30 ExhP1.

The Supplier’s bank then sent a copy of the agreement, bill of lading and the packing list to the Defendant with instructions to hand them over to the Plaintiff on payment.

The Plaintiff who operated an account with the Defendant did not have the money. She asked for time within which to deposit the money. When she failed to raise the money she asked the Defendant to forward the documents to Equity bank whereat a prospective purchaser of the glasses had a bank account.

According to DW1 the Defendant checked with Equity bank and that they were told that Paul Makumbi did not exist. That for those reasons they concluded that the Plaintiff was a fraudster and reported the matter to the Police.

 

Evidence on record suggests that the Supplier’s banker in consultation with the Plaintiff asked the Defendant to forward the documents to Equity Bank. The Defendant however refused and wrote back to the Supplier’s banker alleging that the Plaintiff was a suspected fraudster and that the matter had been handed over to the Police and also that they were going to return the documents to them instead of Equity Bank, ExhD4. The Defendant also went ahead and closed the Plaintiff’s bank account without notification.

 

On receiving this communication the Supplier wrote to the Plaintiff terminating whatever dealings they had entered into. The Plaintiff contending that a business relationship that she had struggled to establish between herself and the Supplier had been terminated because of being referred to as a fraudster by the Defendant sued. She claimed that her business with both international and local traders had been destroyed by that reference which was made maliciously, in bad faith, irresponsibly and that as a result she had lost trust and confidence of business partners.

She further contended that because of the cancellation of her business with the Supplier she had lost profit of EUR 90,000 and future profit. That because the statement had shattered, dented and diminished her business fortunes Court should award her general, punitive and exemplary damages.

The issues agreed by the parties for resolution were;

  1. Whether there was a banker-customer relationship?
  2. Whether there was a breach of that relationship?
  3. Remedies available to the parties.

 

As to whether there was a Banker-Customer relationship between the parties it is necessary to take a close  look at the transactions between the parties. It is not disputed that the Plaintiff held an account with the Defendant. In Paragraph 4 of the Defendant’s Written Statement of Defence, the Defendant recognizes a relationship with the Plaintiff in these words;

The Defendant admits the contents of paragraph 3(a) of the Plaint. The Defendant shall add that the relationship between the Plaintiff and the Defendant is subject to the Standard Terms and Conditions.”

Section 3 of the Financial Institutions Act 2004 defines a bank to mean any company licensed to carry on financial institution business as its principal business. A person may become a customer by entering into relations or negotiations with the bank, which are considered part of the contract concluded by opening an account; Woods vs Martin’s bank [1959] 1 QB 55.

 

While the nature of the relationship between the banker and customer is fundamentally one of debtor and creditor, banks also provide other services to their customers which do not form part of a debtor-customer relationship, such as the obligation of the bank to honour cheques and payment instructions, and to collect sums paid into the customer’s account by way of cheque.   In the case of Joachimson vs Swissbank Corporation (1921) 3KB 110 Lord Atkin clearly states the duties of a bank towards its customer arising from the general contract between a customer and his/her banker. He observed that;

“The bank undertakes to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer , except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in exercising his written orders as not to mislead the bank or facilitate forgery….”

 

In this case the operating document which further confirms that there existed a banker-customer relationship between the parties is ExhD1. It states in part;

We send to you the below mentioned documentary –collection.

Drawee :                           Dynamic Consortium

                                         Plot 1110 Entebbe Rd

                                         Kampala

                                         Uganda/ East Africa

Amount:                            EUR 300.210,30

Security:                            SIGHT

DOCUMENTS

1st Mail              2nd Mail        documents

2/4                   2/4               Faktura/Invoice

15x2/4            15x2/4          Packliste/ Packing List

2/3 + 2NNC    1/3+2NNC   Konnossement/ Bill of Lading

 

COLLECTION INSTRUCTIONS:

Deliver documents against payment.

Account No. 0122100476

Goods dispatched at your disposal and may be delivered as per above mentioned collection instructions only.

In case of dishonour of collection instructions please advise us by SWIFT with reasons.

Your charges are for drawee’s account….”

 

ExhD1 a communication from UniCredit Bank Austria the Remitting bank as well as the Supplier’s bank further instructed the Defendant in these words;

“Please remit the proceeds to our account with

 DEUTSCHE BANK AG

TAUNUS –ZENTRUM- ESCHBORN

POSTFACH 5223

D- 65727 ESCHBORN( DEUTDEFF)

quoting our reference number. Request the reimbursing bank to credit our account under SWIFT advice. Your advice of payment sent to us SWIFT quoting value date.

Please acknowledge receipt under your and our reference 881311451024.

This order is to be executed in accordance with the “Uniform Rules for Collection” issued by the International Chamber of Commerce, Paris, in so far as these are applicable.”

It is clear from evidence of both the Plaintiff and Defendant that the latter recognized the Plaintiff as its customer and was willing to execute the instructions of the supplier’s banker as required if the Plaintiff deposited money on his account.

The foregoing in my view clearly spells out a banker-customer relationship which was not denied by the Defendant.

It is therefore my finding that a banker-customer relationship between the Plaintiff and Defendant existed.

Turning to whether there was a breach of the banker-customer relationship, the Plaintiff contends that the Defendant committed breach under three heads namely; that the Defendant closed the Plaintiff’s account without notice or justification, that the bank went ahead to disclose the Plaintiff’s account information to third parties and thirdly, that the Defendant maliciously by way of a swift message wrote to the Plaintiff’s supplier alleging that the Plaintiff was  a suspected fraudster without justification which caused the Plaintiff’s contract and relationship with her Supplier to be terminated.

To properly resolve this issue, I shall begin with the relationship between the Defendant, the Plaintiff and the Remitting bank that issued the payment instructions. Counsel for the Defendant submitted that the Defendant did not have any obligation in regard to the transaction between the Plaintiff and the Supplier’s banker. He grounded his assertion on Pagets Law of Banking at page 660 which states;

Nomination of a bank does not constitute an undertaking for it to pay, except where expressly agreed by the nominated bank and so communicated to the beneficiary, the nominated bank’s receipt of and examination or forwarding of the document does not make that bank liable to incur a differed payment or to accept drafts or to negotiate.”

I respectfully agree with the above position because a bank is obliged to perform the ordinary services of banking arising out of the “general contract” at times even without the request of the customer however a bank will not be obliged to perform the services arising out of such special contract unless specifically agreed between the bank and the customer. Such special contracts in my view include documentary letters of credit as in this instant case; M. Hapgood, Paget’s Law of Banking, 13th ed, Lexis Nexis Butterworths, 2007 pg 145.

Having received instructions from the Supplier’s bank on 23rd October 2014 and received the documents on 27th October 2014 as stated by DW1 the Defendant’s Financial Crime Manager, the correspondences between the Defendant and the Supplier’s bank shows that the Defendant intended to comply with the instructions stated in ExhD1.

This is clearly seen in the evidence that the Defendant called the Plaintiff and asked her to deposit the money so that the importation would be processed.  

On whether the Defendant closed the Plaintiff’s account without  justification PW1 stated that when they asked the Defendant to forward the shipping documents to Equity bank they proceeded to call them fraudsters and closed their bank account and wrote to the Supplier’s bankers in Austria calling her a fraudster.

DW1 in return stated that when they were asked by the Plaintiff to forward the shipping documents to Equity bank they called Equity bank to find out whether the person referred to existed and that having been told that there was no Makumbi in the bank, they closed the account and informed the Supplier’s bank that the Directors of the Plaintiff were suspected fraudsters.

DW1 further stated that they reported the matter to the Police and sent the shipping documents to the Police station. He relied on ExhD12 a statement he allegedly made at the Police station.

I have gone through the evidence on record and one wonders whether this matter was ever reported to the Police. The reason for this uncertainty was because when the Plaintiff’s advocate asked the Defendant to tell them which Police station she had reported the matter, the Defendant refused to tell them.

The query as to the Police station reported to is clearly seen in ExhP7. The Plaintiff’s Advocate wrote in part;

That our client’s directors are ready to assist police in whatever manner their assistance is required. We therefore demand that you avail our client with adequate information about the alleged investigations that you refer to in your letter i.e the police reference, police station/post at which the investigations are being handled and if possible the investigating police officer. We stress that our client is ready to go to police IMMEDIATELY upon receipt of that information.”

The Defendant refused to avail the Plaintiff the information sought. In fact even in Court they did not state to which police station they had reported. The Police statement ExhD12 said to have been recorded on 6th November 2014 does not show where it was recorded. It did not have a CRB Number or anything to show in respect of which case it was made. DW1 stated that they made the report to the Police in 2014 and that they checked for progress from CID in 2015. That since 2015 they had not checked again.

He testified in this court on 18th June 2019 indicating that for four years the Defendant had not checked for progress in respect of the investigations. All these deficiencies coupled with the Defendant’s refusal to reveal which Police station they reported creates doubt as to whether a report was indeed made to the Police.

Furthermore the Defendant did not behave as expected of a bank that was almost defrauded. Because if it had done so, it would have consistently checked on the findings of the Police to which it had reported the matter. The basis for suspicion that the Plaintiff was a fraudster is vitiated by the laxity of the Defendant in pursuing the crime of fraud she allegedly reported.

It should be noted that the Plaintiff’s directors were never summoned to the Police station and at the time of hearing this suit, they did not know where the report against them had been lodged. The end result is that ExhD4 written by the Defendant had no foundation pointing to fraud. In ExhD4 the Defendant wrote to the Supplier’s banker a communication which reads in part;

“THIS IS TO BRING TO YOUR ATTENTION THAT WE ARE UNABLE TO FORWARD DOCUMENTS TO EQUITY BANK UGANDA LIMITED AS PER YOUR REQUEST BECAUSE THE MESSAGE TYPE USED IS NOT AUTHENTICATED.

WE WILL INSTEAD PROCEED TO RETURN THE DOCUMENTS TO YOURSELVES ONE WEEK FROM THE RECEIPT DATE AND WE NOW INSTRUCT YOU TO NOT FORWARD US ANY MORE DOCUMENTS FOR THE ABOVE CUSTOMERS BECAUSE HE IS A SUSPECTED FRAUDSTER.”

DW1 stated that one of the reasons the Defendant concluded that the Plaintiff was a fraudster was because she asked the Defendant to forward the documents to Equity Bank Uganda Limited. He further stated that when he inquired at Equity Bank they told him they did not know Makumbi who had been referred to in the letter asking for the forwarding of documents to Equity Bank.

The Defendant did not call any body from Equity bank to show that Makumbi was not a customer or a staff.  Because of that the Defendant failed to explain how the request to forward documents to Equity Bank was an act supporting fraud.

Furthermore, it was not even the Plaintiff who wrote the instructions. The instructions came from Unicredit Bank of Austria am sure in consultation with the Plaintiff. ExhD3 which carried the instructions was written by Unicredit bank Austria which in part reads;

“UPON INSTRUCTIONS OF DRAWER WE HEREWITH ASK YOU TO DELIVER DOCUMENTS AND OUR COLLECTION INSTRUCTIONS/COVERING LETTER UNDER OUR A.M DOC COLLECTION TO

EQUITY BANK UGANDA LIMITED

PLOT 390, MUTEESA 1 ROAD, KATWE

10184 KAMPALA, UGANDA

ATTN. MR MAKUMBI PAUL….”

The subsequent communication between the Supplier’s bank and the Defendant as shown in Exhibits D4, D5,D6,D7 and D8 show that the Defendant really knew that the communication to forward documents to Equity bank came from the Supplier’s banker. That being the case the Defendant had no reason to suspect the Plaintiff of fraud simply because of the instructions to forward the shipping documents to Equity bank.

There is however evidence on record to indicate that the documents were returned because of the Plaintiff’s failure to raise the money that would pay for the glasses. This is seen in ExhD9 which gives the reasons of return of the shipping documents in these words;

The reason of returning these is because the customer was unable to raise this payment since payment was at sight we could not hand over the documents to the customer without receiving cash from them.”

The communication was signed by very senior managers of the Defendant namely; Arthur K. Nayebare who was a Senior Banking officer, Trade Finance and Simon Bazzenkya Trade Finance Operations Manager. The reason therefore for sending the documents back was not fraud but failure to remit the requisite sums of money to pay for the glasses.

Taking all these into consideration it is my finding that the closure of the Plaintiff’s account based on acts of fraud which never existed was unjustified and a breach of the banker-customer relationship.

Worse still the closure was done without the requisite notice. It is a well established principle of law that a bank cannot terminate the relationship with her customer without giving reasonable notice to the customer. The purpose of this notice in my opinion is to avail the customer with time to make such arrangements that are required to protect his or her credit; Buckingham & Co. vs London and Midland Bank Ltd (1895) 12 TLR 70.

It is also the evidence of DW1 that they disclosed the Plaintiff’s financial situation to Equity Bank and to the Supplier’s bank. While the Defendant had a duty to report the matter to Police for investigations where she had grounds of suspicion of fraud, Guideline 7(3) (1) of the Bank of Uganda Consumer Protection Guidelines 2011 prohibited the Defendant from disclosing any information about the Plaintiff to third parties except where they were compelled by law or allowed by the Plaintiff herself.

In the present circumstances I have already found herein above that there were no grounds for suspecting the Plaintiff as a fraudster. Furthermore, there was no compulsion by the law to disclose the status of the Plaintiff’s account.

The Defendant therefore breached the governing guidelines when it went about discussing the Plaintiff’s bank status.

Lastly it is this Court’s finding that referring to the Plaintiff as a fraudster and sending swift messages to her business partners was malicious and heavily dented the Plaintiff in the eyes of the Supplier leading to the cancellation of their relationship.

That being my finding, the conclusion is that there was a breach of the banker-customer relationship.

Turning to the remedies, the Plaintiff prayed for an order directing the Bank to activate the Plaintiff’s Bank Account No. 01273550359571.

Having found herein above that the Defendant closed the Plaintiff’s account without   justification it is ordered that the Defendant pay to the Plaintiff all the money if any that was on her account.

The Plaintiff prayed for recovery of EUR 90,000 being the sum she would have earned as gross profit from 15 containers of laminated glass as each container would have earned a profit of EUR 6,000.

This is clearly a claim of prospective earnings. In order to prove prospective loss of earnings one must prove actual income that he was earning at the time of the injury. In Robert Cuossens vs Attorney General SCCA No. 8 of 1999 Court observed that an estimate of prospective loss must be based in the first instance on a foundation of solid facts. One of the solid facts that must be proved to enable Court to access prospective loss of earnings is the actual income which the Plaintiff was earning at the time.

One method of assessing such loss was clearly illustrated in Mcgregor on Damages’14th  Edn. in paragraph 1164 (page 797)  as follows:

“The Courts have evolved a particular method of assessing loss of earning capacity, for arriving at the amount which the plaintiff has been prevented by the injury from earning in the future. This amount is calculated by taking the figure of the plaintiffs present annual earnings less the amount if any, which he can now earn annually and multiply this by a figure which, while based upon the number of years during which the loss of earning power will last, is discounted so as to allow for the fact that a lump sum is being given now instead of periodic payments over the years. This figure has long been called the multiplier; the former figure has now come to be referred to as the multiplicand. Further adjustment however, may have to be made to the multiplicand or multiplier on account of a variety of factors; viz, the probability of future increase or decrease in the annual earnings the so called contingencies of life and the incidence of inflation and taxation.”

In this case, there is no evidence to indicate that the Plaintiff would have made a profit of EUR 90, 000.  No document was presented to Court to show that at the time of the Defendant’s breach the Plaintiff was working on similar contracts in which she would have earned such amount.  She did not produce evidence either documentary or call other witnesses who were known to deal in the glass business to prove her claim. Moreover she did not even have the money to pay for the goods. This in my opinion leaves the EUR 90,000 as a mere speculation on the part of the Plaintiff.

For those reasons the prayer for EUR 90,000 is hereby denied.

The Plaintiff prayed for general damages. The award of these form of damages is in the discretion of the court and will be presumed to be the natural and probable consequence of the Defendant’s act or omission; James Fredrick Nsubuga vs Attorney General HCCS No. 13 of 1993.

It follows that a Plaintiff who has suffered damage due to the wrongful act of the Defendant must be put in a position as near as he should have been in had he or she not suffered the wrong. In assessing the quantum of damages, courts are mainly guided by the value of the subject matter, and the economic inconvenience that a party may have been put through; Kibimba Rice Limited vs Umar Salim SCCA No. 17 of 1992.

In the instant case it is this Court’s finding that the communication to the Supplier’s banker of fraud by the Plaintiff completely broke down the business relationship between the Plaintiff and her Suppliers depriving her of future dealings in trade of buying and selling glasses that she said she had been negotiating for a long time.

While there is no evidence of exactly how much she would profit or how long this business relationship would continue it is clear that the Plaintiff suffered damage because of the Defendant’s allegation that she was a suspected fraudster. This business relationship could have taken very long or a short time.

Taking all circumstances into consideration plus looking at the sums of money involved, EUR 300,000 as the volume of business I find an award of UGX. 50,000,000/= as general damages appropriate. In the circumstances it is so awarded.

The Plaintiff also sought punitive damages.  These damages focus on the Defendant’s misconduct and not the injury or loss suffered by the Defendant’s high handed malicious and vindictive conduct; Uganda Revenue Authority vs Wanume David Kitamirike CACA 43/2020, Technologies ( Pty) Ltd vs Attorney General, Uganda Bureau of Standards.  The objective of punitive damages is to deter and warn the public that similar conduct will always be frowned upon by Court.

Taking into account the fact that the Defendant’s communication to the Supplier’s banker caused the Supplier to terminate her business with the Plaintiff on the basis of allegations of fraud that remained unproved and the closure of the Plaintiff’s account with the Defendant, this Court is of the view that these actions paint the Defendant as being vindictive and high handed towards the Plaintiff.

As a move to deter similar behavior I find it necessary to award punitive damages as prayed and in the circumstances I find UGX. 10,000,000/= appropriate. It is so awarded.

The Plaintiff further prayed for exemplary damages. These form of damages may be awarded, where there has been oppressive, arbitrary, or unconstitutional actions by the Defendant, where the Defendant's conduct was calculated by him to make a profit which may well exceed the compensation payable to the Plaintiff, or where some law for the time being in force authorizes the award of exemplary damages; Rookes vs Barnard [1964] ALL ER 367.

It is my view that in an action where an outrage has been committed against the Plaintiff by the Defendant and the court forms the opinion that it should give exemplary damages to register its disapproval of the wanton and willful disregard of the law, it is entirely proper to award exemplary damages.

Having awarded punitive damages I do not find it necessary to award exemplary damages.

As for interest, the Plaintiff prayed for interest on the EUR 90,000, general damages, punitive damages and exemplary damages at a commercial rate of 30% per annum from August 2014 till payment in full.

It is a settled position of law that interest is awarded at the discretion of court, but like all discretions it must be exercised judiciously taking into account all circumstances of the case; Uganda Revenue Authority vs Stephen Mabosi SCCA No.1 of 1996.

It is important to note that an award of interest is discretionary and its basis is that the Plaintiff has kept the Defendant out of his money, had use of it himself, so he ought to compensate the Defendant accordingly; Harbutts Plasticine Ltd vs Wyne Tank & Pump Co Ltd [1970] 1 ChB447.

Neither Counsel nor the Plaintiff convinced Court on why the Plaintiff should be awarded interest of 30%. Court was therefore left with nothing but   her discretion to award interest.

Considering the circumstances of the case, I find interest at a rate of   10% per annum on general and punitive damages justifiable. This interest shall accrue from date of judgment till payment in full. It is so awarded.  The Defendant will also bear costs of the suit.

In conclusion judgment is entered in favour of the Plaintiff against the Defendant in the following terms;

  • The Defendant having closed the Plaintiff’s account pays the Plaintiff all money if any that was on her account.
  • Defendant to pay general damages of UGX. 50,000,000/=
  • Defendant to pay punitive damages of UGX. 10,000,000/=
  • Interest on b) and c) at a rate of 10% per annum from date of judgmenttill payment in full.
  • Costs of the suit.

Dated at Kampala this 17th day of  January  2020

 

HON. JUSTICE DAVID WANGUTUSI

JUDGE