Five Justices of the Constitutional Court led by Justice Kenneth Kakuru are set to rule in a matter in which businessman Hassan Basajjabalaba was sued for allegedly using, among others, Bank of Uganda (BoU) and four commercial banks and government officials to facilitate the theft of billions of shillings from the Consolidated Fund.
In a period of just under seven months between October 2010 and April 2011, Mr Basajjabalaba and his five companies, using guarantees issued by BoU, obtained short term credit to the tune of $65m (about Shs238b) from Bank of Africa, Tropical Bank, Bank of Baroda, and Orient Bank, but defaulted on the loans.
Enter Bank of Uganda
Bank of Uganda guaranteed the loans on grounds that government owed him money in compensation for losses incurred following the revocation of contracts he had signed with then Kampala City Council (KCC) to manage and develop Nakawa, Shauriyako and Nakivubo markets and the Constitutional Square.
Following two days of hearings, June 11 and June 13, the court said it will deliver judgment on notice.
The suit was brought up against Mr Basajjabalaba, his five companies namely: Haba Group, Victoria International Trading Company, Sheila Investments, Yudaya International Limited and the First Merchant International Trading Company by Legal Brains Trust of Uganda.
Other respondents in the case include government institutions and officers who were sued in their individual capacities. They include Kampala City Council Authority (KCCA), BoU, the Attorney General, former Finance minister Syda Bbumba, former Attorney General Khiddu Makubuya, and BoU governor Emmanuel Tumusiime-Mutebile.
Also on the list of respondents is United Bank of Africa, Orient Bank, Bank of Baroda, Tropical Bank, Mr James Ssegane, Ms Ruth Kijjambu, Mr Gordon Mwesigye and Mr Wilson Tumwine.
How it played out
Between January 2000 and December 2011, Mr Basajjabalaba and his companies entered into contracts with KCC to manage, own and redevelop Owino, Nakaero and Shauliyako markets and the Constitutional Square, but the said contracts were reportedly entered into without the advice of the Attorney General.
Unrest on the part of the traders led to a cancellation of the contracts, compelling the businessman to appeal to President Museveni, who referred the matter to the Attorney General.
An interdepartmental evaluation committee was set up to review the Haba Group’s claim.
The committee recommended compensation in the region of Shs54.7b, which Mr Basajjabalaba was not satisfied with and ran back to the President.
In a Memo to the Solicitor General, then Attorney General Makubuya, proposed a payment of compensation in the region of Shs142.7b and another about Shs29.9b in respect of Nakawa Market, which had never been part of the contracted markets.
The Secretary to the Treasury wrote to the Auditor General and requested a value for money audit. An audit by international firm KPMG arrived at the conclusion that Haba Group was not entitled to any compensation.
The Auditor General adopted the report, but before it could be released, Ms Bbumba, as Finance minister, wrote to BoU requesting the central bank to help raise credit for Haba Group.
BoU then issued various letters of comfort to Bank of Africa, Tropical Bank, Bank of Baroda, and Orient Bank, which Haba Group used as security to get the loans, which it later defaulted on. The banks used the letters of comfort to recover the money from BoU.
Petitioner’s prayer to court
The petitioner wants court to grant, among others, that:
All money previously given to Mr Basajjabalaba and his firms under the authority of Kampala City Council Authority (KCCA), Bank of Uganda, the Attorney General, Ms Syda Bbumba, Prof Khiddu Makubuya and Mr Emmanuel Tumusiime-Mutebile as compensation be paid back to the Consolidated Fund with an interest of 30 per cent within a period of six months from the date of the ruling
That the commercial banks refund or repay all money paid to them as a result of Mr Basajjabalaba’s failure to pay loans he took out. Petitioner wants the banks to pay back with an interest of 30 per cent per annum within six months from the date of the ruling
An order directing Mr Basajjabalaba and his companies to pay back to the Consolidated Fund an additional Shs994m.
An order directing all the respondents to jointly or severally pay Shs189.6m to the Consolidated Fund as damages for loss caused to Ugandans for their misconduct.
A permanent injunction restraining government or any other organs, including Bank of Uganda, from giving any money or loans without obtaining the approval of both the Auditor General and Parliament in accordance with the law
An order directing that Mr Basajjabalaba, Ms Bbumba, Prof Makubuya, Mr Tumusiime-Mutebile, Mr Ssegane, Ms Kijjambu, Mr Mwesigye and Mr Tumwine be dismissed or removed from political or public offices they hold and an order that they be barred from holding any political or public offices for five years from the date of judgment.
An order prohibiting the respondents from participating in public procurement and disposal processes, functions or like businesses.
Issues for determination
Constitutionality. Whether the management contracts, subleases and joint venture agreements entered into by the businessman and his companies on one hand and KCC, Mr James Ssegane, Ms Ruth Kijjambu, Mr Gordon Mwesigye and William Tumwine were not in violation of the Constitution.
Legality. Whether the letters of comfort that BoU and Mr Tumusiime-Mutebile issued to United Bank of Africa, Orient Bank, Tropical Bank and Bank of Baroda violated the provisions of Articles 159, 160, 164 and 119(5) of the Constitution and Sections of both the Public Finance and Accountability Act and the Bank of Uganda Act.
Article 159 (2) provides that “Government shall not borrow, guarantee, or raise a loan on behalf of itself or any other public institution, authority or person except as authorised by or under an Act of Parliament”.
Article 159(3) provides that “An Act of Parliament made under clause (2) of this article shall provide-(a) that the terms and conditions of the loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of Parliament; and (b) that any money received in respect of that loan shall be paid into the Consolidated Fund and form part of that Fund or into some other public fund which is existing or is created for the purpose of the loan”.
Article 159(4) provides that “The President shall, at such times as Parliament may determine, cause to be presented to Parliament such information concerning any loan as is necessary to show- (a) the extent of the total indebtedness by way of principal and accumulated interest; (b) the provision made for servicing or repayment of the loan; and (c) the utilisation and performance of the loan”.
Article 159 (5) provides that, “Parliament may, by resolution, authorise the government to enter into an agreement for the giving of a loan or a grant out of any public fund or public account.
Article 159(6) says “An agreement entered into under clause (5) of this article shall be laid before Parliament and shall not come into operation unless it has been approved by Parliament by resolution,” and Article 159 (7) says “For the purposes of this article, the expression “loan” includes any money lent or given to or by the Government on condition of return or repayment and any other form of borrowing or lending in respect of which- (a) money from the Consolidated Fund or any other public fund may be used for payment or repayment; or (b) money from any fund by whatever name called, established for the purposes of payment or repayment whether in whole or in part and whether directly or indirectly, may be used for payment or repayment.
Article 160 provides that “The Public Debt of Uganda shall be charged on the Consolidated Fund and other public funds of Uganda. (2) For the purposes of this article, the Public Debt includes the interest on that debt, sinking fund payments in respect of that debt and the costs, charges and expenses incidental to the management of that debt.
Article 164 says “The Permanent Secretary or the accounting officer in charge of a ministry or department shall be accountable to Parliament for the funds in that ministry or department. (2) Any person holding a political or public office who directs or concurs in the use of public funds contrary to existing instructions shall be accountable for any loss arising from that use and shall be required to make good the loss even if he or she has ceased to hold that office. (3) Parliament shall monitor all expenditure of public funds.
Article 119 (5) says “subject to the provisions of this Constitution, agreement, contract, treaty, convention or document by whatever name called, to which the government is a party or in respect which the government has an interest, shall be concluded with legal advice from the Attorney-General, except in such cases subject to such conditions as Parliament may by law prescribe”.
Culpability. Whether Mr Basajjabalaba, his companies and the four banks were knowing recipients of unauthorised public funds and were, therefore, unjustly enriched.
Corruption. Whether all the respondents in the case acted corruptly and in contravention of National Objective XXVI and several provisions of the Constitution. The National Objective XXVI states: “All public offices shall be held in trust for the people,” (ii) All persons placed in positions of leadership and responsibility shall, in their work, be answerable to the people” and (iii) that “All lawful measures shall be taken to expose, combat and eradicate corruption and abuse or misuse of power by those holding political and other public offices.
Violation of law. Whether the respondents acted in contravention of Article 162(2) of the Constitution.
Article 162(2) provides that “In performing its functions, Bank of Uganda shall conform to this Constitution but shall not be subject to the direction or control of any person or authority”.
Named banks speak out
Here are excerpts of written statements the implicated banks submitted to court regarding the allegations:
United Bank of Africa.
“If the said letters of comfort amounted to guarantees from Bank of Uganda to secure Haba Group’s borrowing, then the said letters were lawfully issued to United Bank of Africa by BoU.
It is further denied that the approvals and or authorisation of Parliament and the Attorney General were required before the alleged letters of comfort were issued by BoU to United Bank of Africa.
Alternatively and without prejudice to the foregoing, United Bank of Africa contends that if such approvals and or authorisation were required before or after the issue of the said letters of comfort (which is denied) then:- United Bank of Africa not being privy to the internal workings of government and BoU and, or Parliament, cannot be held liable in law to the petitioners for the alleged failure to procure the said approvals as such duty is not vested upon United Bank of Africa by the Constitution under the law.”
“The provision of credit or other banker/customer facilities to Haba Group is part and parcel of the business of the bank as a financial institution. The bank makes financial accommodation to its customers on the basis of various considerations, including security and in performing this function and in conducting its business, the bank does not require the advice of the Attorney General and did not contravene the Constitution.
Orient Bank does not control and has no influence over the drawings from the Consolidated Fund and did not contravene the Constitution.
The bank did not commit any arbitrary acts or contravene the Constitution. At all material times, the business of the bank has been conducted in accordance with the law and following the internal management and business policies and procedures, which are not unconstitutional.”
“Haba Group submitted a loan application for $10m for a period of two years. The loan was secured by a guarantee by Bank of Uganda. The bank carried out a credit risk evaluation of Haba Group and the group scored 65 per cent, which is a fair and acceptable risk limit as per the bank’s internal rating on borrowers. Besides the evaluation, the bank also accessed the Credit Reference Bureau data base of Haba Group, which showed the group’s borrowing history.
The bank acted honestly in the course of its business as a financial institution. There was nothing suspicious with Haba Group’s application to warrant a change of course by the bank. The bank did not collude with Haba Group or any other person or body when it dealt with Haba Group and ultimately granted the loans facility.”
Bank of Baroda
“The credit facility granted by the bank to Haba Group was made after the bank obtained the express and unequivocal confirmation from Bank of Uganda that Haba Group’s payments due from government were approved by the authorised offices. In the circumstances, Bank of Baroda denies liability for any alleged loss to the petitioner and or to the country arising out of alleged failure to obtain the said alleged approvals and authorisations.
The alleged failure by the relevant authorities to procure the said approvals (which is not admitted) does not in law make the said letter of comfort and any payments made thereunder illegal and or unconstitutional as is contended in the petition.
Bank of Baroda shall in the alternative seek an order of indemnity against Haba Group and Bank of Uganda in respect of the petitioner’s claim for the refund of sums paid by Bank of Uganda to Bank of Baroda on Haba Group’s behalf.”
The letters of comfort
October 28, 2010. Letter issued to Orient Bank guaranteeing a short term loan of $10m (about Shs37b)
November 25, 2010. Letter issued to Tropical Bank guaranteeing a short term loan of $10m.
December 3, 2010. Letter issued to Bank of Baroda guaranteeing a short term loan of $1m (about Shs3.7b)
January 15, 2011. Letter issued to Orient Bank guaranteeing a short term loan of $24,350,000 (about Shs89b).
January 15, 2011. Letter issued to United Bank of Africa guaranteeing a short term loan of $10m.
April 6, 2011. Letter issued to United Bank of Africa guaranteeing a short term loan of $10m.