LONDON, UK: A High Court in England has decided in favour of dfcu Bank, its directors and shareholders in a case filed against them by the defunct Crane Bank and six of its directors, seeking Shs816b (Pounds 170 million).
In their suit, Sudhir’s camp (the claimants) alleged that Bank of Uganda unlawfully seized its bank, grossly undervalued it and fraudulently sold some of its assets and liabilities to dfcu Bank through a sham bidding.
They also averred that directors and shareholders of dfcu Bank participated in unlawful conspiracy and provided dishonest means assistance and engaged in a corrupt scheme.
DFCU lawyers told presiding Judge Mark Pelling KC, sitting as a judge of the High Court, that the impugned transaction had no international dimension and that the central bank’s actions in takeover and disposal of Crane Bank were lawful.
They argued that as a result, the court in England had no jurisdiction over the case under the foreign act of state doctrine, which forbids courts in England from inquiring into sovereign acts by states that are lawful within their territories.
“In my judgment, the applicants (dfcu bank, directors and shareholders) are entitled to succeed on the Act of State Issue (foreign act of state rule). That means that it is not necessary for me to consider further the other issues that arise,” he ruled on October 7.
Crane Bank and its former owners had asked Judge Pelling to reject the defendants’ invocation of foreign act of state point, arguing that the principle is “one of the most difficult and most perplexing topics which, in the field of foreign affairs, may face the municipal judge in England”.
The judge overruled the objection on grounds that the claim was “over exaggerated” and the cases that the claimants cited to buttress their argument were decided prior to the Belhaj Vs Straw and Maduro case, which elucidated the foreign act of state principle.
Following the preliminary rulings, three issues were framed for determination; whether acts complained of by the claimants as done by Bank of Uganda were acts of Uganda’s executive, whether those acts were sovereign and whether any of the limitations or exceptions relied on by the claimants apply.
Judge Pelling found that the central bank was part of Uganda’s executive and its decisions sovereign under the Constitution and Bank of Uganda Act.
The judge rejected as inapplicable submissions by the claimants that BoU is not part of the government of Uganda because it is, under the country’s laws, an independent institution that is not under the control and direction of any person or institution.
BoU’s actions of taking control of Crane Bank, placing it under receivership and eventually closing and selling it off over liquidity deficit claims were found within its powers of regulating the financial sector and institutions.
“Whether such acts were unlawful according to the governing law of the dispute is neither here nor there – the acts of which complaint is made were executive acts that were and could only have been carried out by the BoU using its statutory powers,” the judge ruled.
He added: “For the reasons set out above, the applicants’ (dfcu, its directors and shareholders) applications succeed on the foreign Act of State issue. In consequence it is unnecessary for me to decide the remaining issues. Had I concluded that the foreign Act of State issue should be resolved in favour of the claimants, I would have dismissed the applications made by reference to the other issues that arise…”
Among those issues on which the judge said he would have ruled otherwise included allegations against the third defendant whose involvement, as alleged by the claimants, was beyond routine voting or limited actions.
The court held that the allegations of corrupt scheme remained unproven much less as the attempt to engage corruption claim to English public policy.
“It is clear from the statements set out above that the exception is a narrow one that must not be allowed to defeat Rule 1 (foreign act of state doctrine) and the rationale for it, which is to prevent English courts from enquiring into allegations of wrongdoing alleged to have been committed by foreign states in their own territory,” ruled Pelling who was appointed to superintend the London Circuit Commercial Court in 2019.
He added: “In my judgment, therefore, whether a claim in conspiracy could succeed would depend on the detailed facts, as would the applicability of the MCA Records Principle, assuming that it applies to conspiracy at all. So far as this last point is concerned … it is at least realistically arguable that it should not”.
The judgment by the court in England comes about five months after Uganda’s Supreme Court, on technicality, decided a similar case in favour of Mr Sudhir Ruparelia, one of the majority shareholders of Crane Bank. The matter is currently pending determination of legal costs payable by BoU to the businessman.
Recently Bank of Uganda (BoU) lost a long-running court case over the procedures it followed in placing troubled Crane Bank into receivership and subsequently selling its assets to dfcu Bank between 2016 and 2017.
Crane Bank was placed under statutory management by Bank of Uganda in September 2016 following a damning audit report that revealed insufficient capital levels, shrinking liquidity ratios, surging loan default levels and gross mismanagement.
In 2016-2017, the BoU, in exercise of its statutory and regulatory powers, took over management of CBL, then closed it and sold off some of its assets and liabilities to dfcu.
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