Johnelly TZ loses legal battle against Equity Bank Tanzania

Dar es Salaam.  Johnelly TZ (Johnelly TZ Company Limited) has lost a legal battle against Equity Bank Tanzania Limited (EBT) over allegations of breach of contract by the bank.

On August 22, 2024, the Court of Appeal, led by a three-judge panel including Lugano Mwandambo (panel leader), Issa Maige, and Amour Khamis, ruled that EBT did not breach the contract.

This decision marks the second time Johnelly TZ has lost a case against the bank concerning a loan dispute.

The Court of Appeal's ruling continues EBT's series of legal victories, along with its partner, Equity Bank Kenya Limited (EBK). Both banks have faced multiple lawsuits from various companies.

These companies, which had borrowed funds or secured guarantees from the banks to obtain substantial loans from foreign lenders, have turned against the banks.

Instead of repaying their loans, the companies defaulted, leaving the banks to cover the debts and pursue the companies for repayment.

Rather than settling their debts, these companies filed lawsuits against the banks, claiming either that they had already repaid the loans or that they had received funds without proper guarantees.

In two notable cases reviewed by The Citizen, the banks presented contracts showing that one of the conditions for securing a loan from a foreign lender was providing collateral.

Witnesses included foreign lender representatives who testified that loans were provided only after the banks offered guarantees. When the companies defaulted, the banks had to cover the debts.

However, the High Court's Commercial Division initially ruled in favour of the companies, accepting their claims that the banks had no valid claims and that the loans were obtained without the banks’ guarantees.

This ruling stemmed from a case filed by Johnelly TZ against EBT in Kinondoni District Court in 2018, involving a Sh290 million loan.

In case number 208/2018, Johnelly TZ alleged that EBT breached three loan agreements dated December 10, 2016, March 29, 2017, and August 28, 2017, for its business operations. The company had put up an oil tanker trailer, valued at Sh70 million, as collateral.

Johnelly TZ failed to repay the loan on time, prompting EBT to issue a 14-day notice before seizing the collateral. After the tanker was returned and the debt settled, Johnelly TZ sued EBT, claiming the seizure was a breach of contract and that the tanker was not collateral for the loan.

Johnelly TZ sought Sh80 million in damages for the alleged breach of contract, Sh13 million claimed to have been improperly deducted from its account, along with total losses and legal costs.

The District Court initially ruled in favour of Johnelly TZ, ordering EBT to pay Sh60 million and the Sh13 million deducted improperly.

EBT appealed this decision to the High Court in case number 39/2020. On July 21, 2021, Judge Lameck Mlacha ruled that EBT had not breached the contract, overturning the District Court's judgments and ordering Johnelly TZ to cover the bank's legal costs.

Johnelly TZ disagreed and appealed to the Court of Appeal in case number 368/2021. However, the company failed to attend the hearing, and EBT was represented by lawyer Godwin Nyaisa.

With written arguments submitted by both parties, the Court of Appeal, under its 2009 Rules, reviewed the arguments presented by Nyaisa for EBT. The Court upheld the High Court's judgment.

“The appellant (EBT) did not breach any contract or laws by seizing the collateral (the tanker) to recover its loan. Thus, this appeal is dismissed,” stated the Court after reviewing the case.

On July 23, 2024, EBT and EBK won another case involving a loan dispute totaling $8,064,807.88 filed by ZAS Investment Company Limited.

In case number 103 of 2022, ZAS contested the banks’ guarantees for a loan from a foreign company. The banks argued that they had guaranteed the loan but the company defaulted, necessitating the banks to repay the loan.

The Court also ordered ZAS’s directors to pay the banks over $7.6 million (over Sh19.97 billion) for the guaranteed amount due to their failure to meet their obligations.

Additionally, on August 16, 2024, the banks secured another victory against State Oil Tanzania Limited, which agreed to repay $13.5 million for the guarantee provided by the banks for a foreign loan.

Previously, State Oil had filed a case in the High Court Commercial Division against the banks, contesting any claims. The banks had countered with claims exceeding $26.47 million for a loan provided to the company on November 21, 2018. The High Court initially ruled in favor of the company.

The banks appealed to the Court of Appeal, which on May 16, 2024, overturned the High Court ruling due to procedural errors and ordered a retrial. The company later accepted the debt and agreed to repay it.