The High Court has ruled that Standard Chartered Bank acted unlawfully when it cancelled a mortgage facility it had already granted to a couple, Peter Victor Kwagala and Priscilla Mbabazi.

In her ruling, Justice Patricia Mutesi found that the bank breached its contractual obligations and ordered it to pay the couple UGX 60 million in damages, along with interest and legal costs.

Background of the Case

Kwagala, who had worked with Standard Chartered Bank since September 2017 as a credit analyst, applied for a staff mortgage facility in 2020 to purchase land in Kawempe Division. The property, which included rental houses, was valued at UGX 300 million. However, Kwagala was only eligible for a UGX 250 million mortgage.

To qualify for a higher loan amount, the bank advised that his wife’s income be considered. After reviewing Mbabazi’s pay slips, the bank approved a mortgage facility of UGX 312 million for the couple.

As part of the loan conditions, the bank required the couple to pay at least 20% of the property’s value—equivalent to UGX 60 million—before disbursement. To meet this requirement, the couple signed a sale agreement with the landowner and made an initial deposit of UGX 5 million. They then submitted the agreement, a copy of the land title, and other necessary documents to the bank. On July 15, 2020, the bank approved their mortgage application for UGX 240 million.

However, the bank imposed additional conditions, requiring Kwagala to clear his existing salary loan and provide proof of the UGX 60 million payment to the landowner. The couple exhausted their savings and took friendly loans to meet this condition. On August 25, 2020, they signed the mortgage facility letter and the mortgage deed, and the bank assured them that the funds would be disbursed within five working days.

Bank’s Unexpected Decision

To their shock, the funds were never disbursed. Instead, the bank informed Kwagala that its holding company had decided to phase out his department. He was later dismissed from the bank in December 2020. Standard Chartered then refused to release the mortgage funds, arguing that Kwagala was no longer an employee and that the loan had been contingent on his salary.

Feeling aggrieved, Kwagala and Mbabazi sued the bank, seeking a declaration that it had breached its contractual obligations by cancelling the approved loan.

Court’s Ruling

Justice Mutesi ruled that the bank had indeed defaulted on its obligations.

“The facility letter and mortgage deed are binding contracts under Section 10(1) of the Contracts Act, 2010. These agreements created enforceable legal obligations. The plaintiffs fulfilled all their contractual duties, yet the defendant failed to disburse the loan,” she stated.

The judge emphasized that once the facility letter and mortgage deed were signed, the loan offer had legally crystallized into a binding contract, making it unlawful for the bank to withdraw the offer.

She further noted that while the bank had the discretion to recall the loan, this discretion was governed by Clause 3.3 of the facility letter, which did not allow for cancellation due to restructuring decisions from the holding company—especially before those instructions were even implemented.

As a remedy, the court ordered Standard Chartered Bank to:

• Pay UGX 9 million in special damages, with an annual interest of 21% from 2020 until full payment.
• Pay UGX 50 million in general damages, with an annual interest of 16% until full payment.
• Cover the couple’s legal costs.

The ruling serves as a strong precedent reinforcing the enforceability of loan agreements once all contractual conditions have been met.