Appeal court overturns State Oil victory in loan dispute with Equity Bank

Dar es Salaam. The Court of Appeal has overturned a ruling granting victory to State Oil Tanzania in a case relating to the repayment of a $18.64 million (over Sh47 billion) loan against Equity Bank Tanzania Limited (EBT) and Equity Bank Kenya Limited (EBK).

Instead, the court ordered a rehearing of the commercial case number 105 of 2020 filed by State Oil in the Commercial Division of the High Court of Tanzania against Equity Bank Tanzania.

The decision was made by a panel of three judges – Rehema Mkuye (chief judge), Abraham Mwampashi and Zainabu Muruke – on May 16 following an appeal by the EBT and the EBK.

The court reached the decision after identifying flaws in the process, which is why it realized that the court continued to hear and resolve the case without modifying the statement of claim after the defendants increased from one to two.

Therefore, the court found it to be a significant and incorrigible error, arguing that it violated the mandatory provisions of Order 1, Rule 10(4) of the Code of Civil Procedure (CPC) and affected the trial and subsequent sentencing.

Therefore, in exercise of its review authority under Section 4(2) of the Appellate Jurisdiction Act (as amended in 2019), the court set aside part of the order of the High Court dated December 10, 2020, which ordered EBK to present written defenses.

“We also set aside all proceedings emanating from that order,” the Court of Appeal stated in its decision written by Justice Mwampashi on behalf of the panel, concluding: “Furthermore, we set aside the judgment and remand the case file commercial number 105 of 2020. , Commercial Division of the High Court, for fresh hearing after complying with the requirements of Order 1, Rule 10(4) of the CPC.”

State Oil initially brought the case against EBT, as agent of EBK, following a dispute over the repayment of a $18,640,000 loan owed by State Oil to EBK.

Before the case began, EBT’s lawyers asked the court to join EBK as a second defendant, arguing that EBK also had an interest in the case.

The court granted this request and on December 10, 2020 ordered EBK to join the case and present its written defenses.

Consequently, the number of plaintiffs in the case increased from two to three, with one plaintiff being State Oil and two defendants EBT and EBK.

However, the High Court did not order an amendment to the statement of claim to reflect these changes, but instead proceeded with the hearing using the two plaintiffs’ original statement of claim. State Oil was declared the winner, prompting EBT and EBK to appeal the ruling.

The appeal was scheduled for April 13, 2024, but before the hearing began, the Court of Appeals raised the aforementioned procedural defect.

He questioned the legality of the High Court’s decision to continue with the hearing and ultimately deliver judgment without first ordering an amendment to the statement of claim following the addition of a defendant.

The case dates back to 2018, when State Oil obtained a $18.64 million loan from a third-party lender, Lamar Commodity Trading DMMC of Dubai, with EBK as guarantor. State Oil also provided its guarantee to EBK under the supervision of EBT.

When State Oil defaulted on the loan, its guarantor, EBK, had to pay. Consequently, EBK became a creditor and State Oil owed EBK the loan amount.

After the repayment period expired without State Oil paying, EBT, acting as its agent, demanded payment from State Oil on behalf of EBK. State Oil then took the matter to court.

In the lawsuit, State Oil asked the court to order EBT to return collateral assets it had pledged to secure EBK’s loan. State Oil claimed it owed nothing to the banks, arguing that EBK did not guarantee its loan.

During the trial, Lamar’s representative, the lender who made the loan, testified that they had made the loan to State Oil after EBK guaranteed it. Therefore, when State Oil failed to pay, its guarantor, EBK, paid the debt.

However, in its judgment delivered by Justice Stephen Magoiga on October 1, 2021, the court agreed with State Oil’s claims. He declared that State Oil had already paid its debt and therefore the banks had no claim against it.

Thus, Judge Magoiga ordered the return to the company of all collateral assets pledged by State Oil.