Zimba Logistics & Hardware has been ordered by the High Court to pay Uganda Baati Shs1.66 billion for construction materials supplied on credit.
Justice Stephen Mubiru ruled that Zimba Logistics and its managing director, Ali Teko Awazi, are jointly responsible for the unpaid debt.
He also found that Stanbic Bank breached its banking duty to Uganda Baati but awarded only damages of Shs 5 million against the bank.
According to court records, Zimba Logistics and Uganda Baati entered into an agreement in July 2018 under which the hardware would order goods using local purchase orders.
Uganda Baati would then deliver the materials and issue an invoice, with payment expected within 30 days.
However, in August 2019, Uganda Baati supplied goods worth more than Shs1.66 billion to Zimba Logistics. As payment, Awazi, the managing director of Zimba Logistics, issued 24 personal cheques, which Uganda Baati deposited in its account at Stanbic Bank.
Uganda Baati had a special banking arrangement with Stanbic Bank for what is known as “same day value” for cheques deposited in accounts held at the same bank.
Under this arrangement, the money would be credited to Uganda Baati’s account immediately if the cheque was deposited before the bank’s daily cut-off time, which was 5.00 pm.
But things did not go as expected.
Uganda Baati discovered during a reconciliation exercise on August 28, 2019, that the 24 cheques had not been credited to its account in Stanbic Bank.
Instead, Stanbic Bank later dishonoured the cheques after it was discovered that there were insufficient funds in the account.
Uganda Baati argued in court that if the bank had informed it earlier that the cheques had bounced, it would have immediately stopped supplying more goods to Zimba Logistics.
The company accused the bank of negligence and breach of its duty to promptly notify customers when cheques are dishonoured.
Uganda Baati told the court that the bank held onto the cheques for several days before notifying the company that they had failed.
“The cheques were banked on 10th, 20th, and 27th August, 2019, yet the 1st defendant held onto them and did not give the plaintiff notice of the dishonour until 28th August, 2019,” Uganda Baati said.
But Stanbic Bank rejected the accusations.
It argued that it acted properly and was not responsible for the business transactions between Uganda Baati and Zimba Logistics.
The bank said it was simply performing its normal role as a banker and was not a guarantor of the payments owed by Zimba Logistics.
The bank also said the dishonour of the cheques did not cause Uganda Baati any loss because the supply agreement allowed Zimba Logistics 30 days to pay for the goods.
Justice Mubiru ruled that Stanbic Bank had a legal duty to promptly inform Uganda Baati when the cheques were dishonoured.
However, he said the bank could not be held responsible for the entire commercial loss suffered by Uganda Baati because that loss arose mainly from the supply contract between it and Zimba Logistics.
Justice Mubiru explained that although the bank breached its duty, the main debt still lay with Zimba Logistics and its director.
The court also found that Awazi personally issued cheques without ensuring that there was money in the account.
Justice Mubiru said issuing such cheques amounted to dishonest conduct.
“When a managing director… issues personal cheques in payment of a corporate debt without a real intention of providing funds… it constitutes a fraudulent or dishonest act,” Justice Mubiru said.
Because of this, the court held Awazi personally responsible together with the company and ordered that they pay Shs 1.6 billion to Uganda Baati.
Stanbic Bank, on the other hand, was ordered to pay only Shs5 million in nominal damages for breaching its duty to promptly notify Uganda Baati about the dishonoured cheques.
