Uganda Development Bank ordered to pay after court rules it sabotaged its own loan deal
The judges emphasised that the conduct of both UDB and Afro-Kai, particularly the payment of fees, acceptance of the offer, and ongoing engagement with Bank of Uganda, demonstrated a clear intention to be bound. The court clarified that the conditions attached to the loan were obligations to be fulfilled during the contract's performance, not prerequisites for a contract to exist at all.
Uganda’s Court of Appeal has dealt a significant blow to Uganda Development Bank (UDB), upholding a ruling that the state-owned lender breached a financing agreement with grain processing firm Afro-Kai Ltd when it abruptly pulled out of a UGX 4.7 billion loan deal. Court ordered the bank to pay UGX 50 million in damages.
The appellate court dismissed most of UDB’s appeal against a 2016 High Court decision, which had found the development finance institution liable for breach of contract after it failed to disburse a loan intended to support Afro-Kai’s expansion.
The dispute traces back to August 2012, when Afro-Kai Ltd applied to UDB for a credit facility of approximately UGX 4.7 billion to modernise and scale its grain processing and trading operations. The bank’s board approved the request, restructuring it into a term loan of UGX 3.73 billion and a working capital component of UGX 660 million.
Afro-Kai paid the required application and appraisal fees and accepted the offer. However, the term loan component was subject to a key condition, which was approval of refinancing under the Bank of Uganda’s Agricultural Credit Facility (ACF).
In April 2013, UDB informed Afro-Kai that it would not proceed with the term loan, citing the absence of approval from the central bank, and the offer was subsequently revoked. This prompted Afro-Kai to sue for breach of contract.
UDB argued on appeal that no binding contract had existed given the conditional nature of the offer, and that the loan could not be disbursed without Bank of Uganda’s sign-off. The Court of Appeal was unconvinced.
The judges emphasised that the conduct of both UDB and Afro-Kai, particularly the payment of fees, acceptance of the offer, and ongoing engagement with Bank of Uganda, demonstrated a clear intention to be bound. The court clarified that the conditions attached to the loan were obligations to be fulfilled during the contract’s performance, not prerequisites for a contract to exist at all.
Critically, the court found that Bank of Uganda had never formally rejected the refinancing application. Rather than wait for a final determination, UDB prematurely withdrew its own application; effectively causing the very condition it then cited as justification for cancelling the loan.
The court concluded that the revocation of the conditional offer was not justified and amounted to breach of contract.
While the appellate court upheld an earlier award of UGX 11.3 million in special damages, covering costs directly incurred by Afro-Kai, it reduced the general damages from UGX 150 million to UGX 50 million.
The judges noted that the inconvenience suffered stemmed largely from delayed communication and uncertainty over a relatively short period of approximately four months, and that Afro-Kai’s expectation of securing the loan remained contingent on meeting outstanding conditions. Afro-Kai was also awarded 50% of the costs of the appeal.
