JUDGMENT TIB DEV BANK and AG v MSK

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA MWANZA SUB-REGISTRY

AT MWANZA CIVIL CASE NO. 11 OF 2021 TIB DEVELOPMENT BANK LIMITED……………………….………….1st PLAINTIFF ATTORNEY GENERAL…………………………………………….…….….2nd PLAINTIFF

VERSUS MSK REFINERY LTD….………..………………………………………… DEFENDANT

JUDGMENT 23rd August & 6th September, 2024 ITEMBA, J. This judgment is a result of a counter claim. Initially, parties herein had sued one another, each alleging breach of loan facility agreement. That, is, on 24/5/2021 the defendants sued the plaintiffs alleging breach of contract, among other claims. In reply, the plaintiffs filed a counter claim. On 27/9/2021 the defendant’s suit was dismissed by this court (Hon. Tiganga, J) for want of prosecution. Efforts by the defendant to restore the said suit did not bear any fruits. Hence, the present suit proceeded against the defendant. According to the plaint, business relation among the parties’ officially started on 14/7/2014 when the defendant secured a loan from the 1st plaintiff, which was in 3 parts; Structured Trade Finance (STF) worth TZS 1 Tanzanian shillings One Billion Eight Hundred Million (TZS 1,800,000,000.00), Term Loan Facility (TLF) amounting to Tanzanian shillings Six Hundred Forty-Six Million Four Hundred Thousand (TZS 646,400,000.00) and an Overdraft (OD) Loan Facility amounting to Tanzanian shillings Two Hundred Million (TZS 200,000,000.00). The loan facility was for the purpose of financing purchase of cotton and sunflower seeds for processing edible oil at the defendant’s factory located at Nyashishi Area Usagara Trading Centre, Misungwi District in Mwanza Region. The plaintiff alleges that the defendant is

in default to repay the loan amounting to TZS 4,593,155,272/= including penalty and interests as of 5th July, 2021. On her part, the defendant claims that the 1st plaintiff never disbursed the said amount to her, instead, the 1st plaintiff issued a total of TZS 645,000,000/- to Simon Group Limited knowing he was a serial defaulter, an information which the 1st plaintiff did not disclose to the defendant. The defendant pleaded that, she surrendered and guaranteed his properties locates at Plot no. 82 Block ‘A’ Nyashishi- Usagara within Misungwi District and its shares, debentures, Joint Registration over trucks and trailers which was financed by the 1st Plaintiff, Guarantee of Shareholders of MSK 2 Refinery Limited herein the Defendant in the counter claim namely Yohana Mswahili Msasa, Hamisi Andrea Kigwangala and Mohamed Shaweji Salumu, Deed of assignment of cotton and sunflower seed financed by the 1st plaintiff under collateral management arrangements (herein the mortgaged properties) as a conditional precedent but the 1st plaintiff did not issue the loan as agreed. The defendant insisted that, she failed to service the loan within the required time due to the reasons caused by the 1st plaintiff and upon being issued with a Demand Notice the defendant reacted promptly by informing the 1st plaintiff on the alleged breach. As regard the credit facility, among the terms were

that the money borrowed by the defendant was payable directly to the supplier of the seeds named Simon Group, herein referred to as the supplier. However, the defendant was to supply an invoice to the plaintiff. As mentioned above, while the 1st plaintiff boasts to have complied with her contractual obligation of issuing payment, the defendant states that the money was paid to the supplier and insist that the whole exercise was done with ill intentions. The plaintiff had prayed for the following reliefs against the defendant: i. Declaration that the Defendant in Counterclaim is in breach of the Credit Facility Agreement, Mortgage Deed, Debenture Deed as well as the Loan Guarantee Agreement. 3 ii. Payment of the outstanding loan amounting to TZS 4,593,155,272 including penalty, interests and other charges by the Defendant in the Counterclaim to the 1st Plaintiff in the Counterclaim under the Credit Facility Agreement. iii. Payment of interest at the Court rate from the date of filling this suit to the date of Judgment. iv. An order to the 1st Plaintiff in the Counterclaim to exercise its right under the debenture deed. v. An order against the Defendant for attachment and sale of guarantors’ personal properties to realize the outstanding amount. vi. Costs of this suit. vii. Any further and or other relief as this Honorable Court shall deem just to grant. Before hearing the following issues were framed for determination; 1. What were the terms of contract?

2. Who among the parties breached the contract?

3. Depending on the issue No. 2 what are the reliefs to the party which did not breach? At the hearing, the plaintiffs had the services of Ms. Subira Mwandambo, learned Principal State Attorney while the defendant were represented by Mr. Bea Outa, learned counsel. Each party had one witness; Elisante Lutula (PW1), loan recovery officer for the plaintiffs and Yohana Mswahili Masasa 4 (DW1) business co-owner for the defendant. The plaintiffs produced 10 exhibits while the defendant had none. In his testimony, PW1 testified in support of the plaint. He averred that the 1st plaintiff approved a total of TZS 2,646,400,000/=. That, the facility was in 3 parts; the first was STF amounting to TZS 1.8 billion and aimed at buying cotton and sunflower seeds. The second was an overdraft amounting to TZS 200,000,000/= million as working capital and the third was a term loan amounting to 646,400,000 for buying machines including large weighing scales, vehicles and its trailers. This was a long-term loan of 72 months and had a grace period of 3 months counting from 5/8/2014. That, failure to repay the loan attracted a penalty and charges in amount of interest charged. The interest for all three facilities was 18%. He produced the Credit Facility Agreement dated 14/7/2014 and Transfer form dated 27/8/2024 as exhibits P1 and exhibit P4 respectively. He added that the first disbursement of STF

amounting to 929,000,000/ was issued in August 2014. That, according to the written request from the defendant, part of the said money, that is, TZS 630,000,000/= was issued directly to the Simon Group, for supplying of 300 tons of cotton seeds to the defendant. That, the supplier received the money but did not supply the seeds to the defendant. 5 That, through several correspondences, the 1st plaintiff moved the defendant to follow up on the consignment without success. In support of this, he produced a letter dated 24th September 2024 from the 1st plaintiff to the defendant showing her concern in delay to deliver stock of sunflower and cotton seeds and informing the defendant that, in the absence of stock, no further funds will be issued. (Exhibit P2). PW1 averred that, in other correspondences, the defendant informed the 1st plaintiff on the challenges with accessing the seeds from the supplier. That, the defendant was not cooperating with the 1st plaintiff. That, later, the defendant moved the 1st plaintiff to issue money in favor of a different supplier named NGS Ltd. The plaintiff declined through a letter dated 15/10/2014. The 4 emails were admitted as Exhibit P. 3 collectively. In respect of the Over Draft loan (OD) PW1 told the court that, TZS 200,000,000/= was approved but only 93,000,000/= was issued to the defendant. As for the term loan only USD 180,300 was issued.

That, the 1st plaintiff stopped disbursing money in all facilities following a delay in repayment. PW1 produced several documents used as security and they were admitted as follows: A debenture issued by MSK Refinery 14.7.2014, Exhibit 6 P. P5(i). Certificate of Tittle No. 60050 LR Mwanza Plot No. 82 Block A. Nyashishi Exhibit P.5(ii), Deed of Assignment by MSK Refinery of 14/7/2014 Exhibit P.5(iii) and Shareholders personal guarantee and indemnity (Exhibit P.5 (iv). PW1 averred further that, poor performance of loan repayment by the defendant led to penalties which increased the debt and as the defendant was in breach of contract a ‘recalling notice’ was issued on 5/5/2017 and a ‘default notice’ on 14/6/2017 Exhibit P6 and P7 respectively. That, at the expiry of the notice, the 1st plaintiff attempted to sell the defendant’s mortgaged properties without success as the properties did not reach the indicative price. That, the mortgaged properties’ value was TZS 300 million while the debt was TZS 2 billion. That, up to the time this case was being filed in 2014, the defendant debt was at TZS 6.4 billion and the defendant has never paid her loan. He added that, up to March 2024 when he was testifying, the debt was TZS 7.2 billion. PW1 added that the actual loan issued was TZS 1,463,167,000 from all 3 loan facilities and that he generated all the information from the

automated system based on the defendant’s report. PW1 gave a detailed explanation to the effect that there was migration at the 1st plaintiff’s bank because TIB 7 Development Bank was split into two Banks TIB Corporate and TIB Development Bank. The loans of STF and overdraft which were one year they remained at TIB Corporate while the STF was managed by TIB Development Bank that according to BOT regulations, the STF was taken off balance sheet because it was not performing well. He produced Three statements of Account of the defendant before migration, after migration and after charge off which were admittedly jointly as Exhibit P 8, the account statement of overdraft facilities for the defendant before migration, after migration and after charge off were admitted as exhibit P. 9 and Term Loan Statement and statement of MSK Refinery after charge off as Exhibit P.

10. In cross examination among others, PW1 stated that, the first breach was on 31/12/2014 and the counter claim was filed on 24/5/2021, which is 7 years later and that the debentures were not registered with Business Registration Licensing Agency (BRELA). Also, that the contract does not indicate time for payment but it was supposed to be immediate after the raw materials reaching the factory and the defendant would pay from production’s revenue. That marked the end of the plaintiff’s case. 8 In her defence, the defendant paraded Yohana Mswahili Masasa (DW1) who did not succumb. His testimony started by him telling the court that, he does business through the defendant. He first agreed with the plaintiff on the fact that they entered an agreement of a credit facility (exhibit P1) and the defendant secured the same through the mortgaged properties (Exhibit P 5(i), P6 and P7). DW1 added that, the 1st plaintiff disbursed the money only in August and September then the loan stopped because the supplier did not deliver the raw material. He explained that the supplier gave the reasons that she had just started the factory and there was a challenge because the government through the Cotton Board required the supplier to first produce 500 tons of seeds for specific for planting and then they can proceed to produce more seeds for selling. That, the defendant informed the 1st plaintiff

of the said challenging situation through email but the 1st plaintiff decided to cease disbursing money. That, in trying to rescue the situation and in order to proceed running the business, the defendant found a different supplier named NGS Ltd who had enough raw material and was the client of the 1st plaintiff, however, the 1st plaintiff stated they will not issue money to a different supplier until they recover their money from Simon Group. That, due to the slow delivery of seed, the 1st plaintiff sued Simon Group but a few months later, the 1st defendant put Simon group under 9 receivership and the said case ceased for a while. It was when Simon Group objected the same and the commercial court in Dar es salaam decided that each side (Simon group and TIB Bank) should maintain their status quo. That, in 2017, the case against the supplier ended in the defendant’s favour but they could not execute the TZS 1.2 billion award because the 1st plaintiff filed objection proceedings thereof. He acceded that, up to September 2014 the defendant had received from the 1st plaintiff TZS 1.4 billion and the production was low they only produced the products valued at TZS 258,000,000/=. That, within the defendant’s factory there was a Vision Control Super intendent who had a duty to report daily to the 1st plaintiff on all the products which comes in and out of the factory. Thus, the 1st

plaintiff ought to have known the situation at the factory. DW1 insisted that, the defendant did not have a duty to register the debentures at BRELA. Either, DW1 did not acknowledge the debt of TZS 7.2 billion stating that each loan is based on business agreement. That, because the 1st plaintiff did not issue the defendant money as agreed, there was no longer business agreement between them. He insisted that, they are not the one who breach the contract but the 1st plaintiff because they did not receive 10 the agreed amount of money and the 1st plaintiff interfered with their management as it was the defendant’s duty to find the suppliers; and that, the 1st plaintiff issued the defendants money to Simon Group while they knew that Simon Group is the defaulter in the Bank, thus the 1st plaintiff exposed the defendant to risk. DW1 finalised his defence by praying that, the 1st plaintiff should compensate the defendant by paying them not less than TZS 800,000,000/= and return their mortgage properties which they are still holding. In cross examination he agreed to have sourced both suppliers, the first, Simon Group who could not deliver the seeds timely and the NGS Ltd whom the 1st plaintiff denied to do business with. At the end of the hearing, both parties filed their final submissions respectively. In the said submissions, the defendant raised two issues in a way of objections.

That, based on the defendant’s testimony, this court has no jurisdiction to entertain the suit for being time barred. Secondly, he challenged the validity of the debentures stating that they were not registered with BRELA hence, illegal. Following these objections, the plaintiffs were also given an opportunity to reply on the final submissions where the learned principal state attorney stressed that the suit was filed 11 timely because under item 23 of part I of the schedule to the Law of Limitation Act, the time limitation to sue on behalf of the government is 60 years. I will start with the 2 objections raised. It is trite law that preliminary objections save for objection with regards to jurisdiction, need be raised at earliest opportunity before hearing otherwise it will be an afterthought. See the case of Ms. Devota Kiwori and 2 another vs. Cetawico limited, Misc. Commercial Cause No. 20 of 2019 (unreported). That said, this court takes note of a second issue regarding debenture, however, because the same was raised after the case was closed and it is not touching this court’s jurisdiction. I find that the objection was brought through the back door and for that reason it will not be entertained. It goes therefore, this court move to determine on the issue of jurisdiction. It was submitted by the defendant that, the suit is filed 7 years after the alleged breach hence out

of time. Evidence show that the breach was on 31/12/2014, however the plaintiff filed a suit in form of a counter claim on 24/5/2021. I have gone through both section 45 and item 23 of part I of the schedule to the Law of Limitation Act (Cap 89). Section 45 states that; 12 ‘Subject to the provisions of this Act or any other written law to the contrary, this Act shall apply to proceedings by or against the Government as it applies to proceedings between private persons.’ While item 23 of part of the schedule to the Act, states that; the period of time limitation for suit by or on behalf of the Government is sixty years. Now, without using many words, section 45 of Cap 89, is applicable, subject to any other written laws and this includes item 23 of part I of the schedules. Therefore, as rightly submitted by the learned principal state attorney, suit by or on behalf of the government has a time limitation of 60 years and since it is only 7 years which has lapsed since the breach, the defendant is within time. Moving to the three issues raised, the first seek to determine which exactly were the terms of the Credit Facility Agreement. From the evidence, there is no dispute that parties entered into the facility agreement and it is binding them. I will therefore albeit in brief, underline important terms of the Credit Facility Agreement (exhibit P1). The contractual terms were

that the 1st plaintiff had the duty to issue money to the defendant for processing of sunflower and cotton seeds. Part of the said money was to be issued to the supplier for buying the said seeds. The defendant had a duty to process the seeds and repay the loan to the 1st plaintiff through the revenue collected 13 from the said products. The money was to be issued by instalments and the repayment ought to be immediately after the production have started. Further, parties are not in dispute that, the credit facility included one, the structured Trade Finance of TZS. 1,800,000,000/=whose purpose was to finance purchase of cotton and sunflower seeds for processing to edible oil at the defendant’s factory; two, the Overdraft Facility of TZS. 200,000,000/= with the purpose of financing general working capital requirements of borrower including production costs associated with cotton and sunflower seeds processing to edible oil and seed cake; and three, the Term Loan of Tshs. 646,400,000/= which has the purpose of financing factory expansion by acquiring of refinery machines, purchase of Weigh Bridge and Procurement of Trucks and Trailers. In aggregate, the amount of three loan was TZS. 2,646,400,000/=. It was other terms of loan agreement that, the defendant will repay the STF and Overdraft Facility monthly within 12 months effective from the first date of utilization with 18%

interest per annum in each loan. The Term loan was for 72 months with a grace period of 3 months from 9/8/2014. Therefore, the 1st instalment of payment was to be from 31st December, 2014. According to the Loan Facility Agreement (exhibit P1) the defendant 14 was supposed to repay the principal amount and the 18% per annum of the outstanding amount concurrently in six instalments in a year during the months of August, September, October, November and January of each year on peak production. There is also no dispute that the defendant secured the same with the mortgaged properties. These were the terms of the facility agreement which stipulated the rights and duties of the parties and it answers the 1st issue. The second issue is which party was in breach of the credit facility agreement. Despite the allegation by the plaintiff that the defendant is the one who breached the credit facility agreement by failing to repay the loan, the defendant insists that it was the 1st plaintiff who was in breach. Here the question is, did the 1st plaintiff issue the money to the defendant accordingly? According to the fund transfer (exhibit P4) money was issued to the defendant and part of it was issued to the supplier. The defendant does not dispute receiving part of the money directly from the 1st plaintiff. I have carefully read the loan facility agreements (P1). I have not come across

a term describing the timing within which the loan money will be disbursed by the 1st plaintiff. The agreement being silent it cannot be complemented by word of mouth. See: Simon Kichete v Aveline M. Kilawe, Civ. App. No. 15 160 of 2018. Further, it is not the duty of the court to make a reasonable contract between the parties but the court is required to imply reasonable terms. See Court of Appeal decision in the case of Merali Hirji and Sons vs General Tyre (EA) Ltd [1983] TLR 175. Therefore, in the absence of the specific term which describe the terms for disbursement date, so long as payment were done to the defendant, the allegations that the loan amounts were delayed to the defendant are unsubstantiated. Consequently, payments made by the 1st plaintiff in August 2014, do not constitute breach of the credit facility agreement. Moving to the defendant’s part, the question is whether she repaid the loan. According to the overdraft statement accounts and term loan statement accounts (Exhibit P9 and P10) the repayments were less contrary to the facility agreement. The defendant is also not disputing on the less repayment but she is blaming the 1st plaintiff for maliciously paying money to the supplier while knowing they were serial defaulters. The defendant is also complaining of the 1st plaintiff interfering with their administration for denying to issue money to the

alternative supplier hence the 1st plaintiff contributed to the default. I disagree with the defendant for the following reasons; it should be noted that there are two agreements here which are 16 totally separate from one another. The first agreement is between the 1st plaintiff (Exhibit P1) and the defendant and the second is between the defendant and the supplier and in this, the 1st plaintiff is not a party. The 1st plaintiff was not the creditor to the supplier but to the defendant. The agreement was that the 1st plaintiff will not issue cash to the defendant this is according to Article II section 2:0:1 facility 3(d) of the credit facility (Exhibit P1). The supplier was just a conduit of the money. That is why the supplier is not even mentioned in the Exhibit P1. The 1st plaintiff is not privy to the contract between the defendant and the supplier. Reading exhibit P1, it does not give the 1st plaintiff any duty to oversee the transaction between the defendant and the supplier. The 1st plaintiff had no duty to oversee issues of whether the seeds were delivered or not, the quality of seeds and the like. The 1st plaintiff being the lender, as well had no duty to advice the borrower on the best supplier. This was not like a triangle or tripartite agreement among the 1st plaintiff, the defendant and the supplier, but between the 1st plaintiff and the supplier. Therefore, by

the 1st plaintiff disbursing money to the supplier, she already performed her part and technically, the defendant is considered to have received the money because the disbursement was done in the defendant’s favor. I find that the defendant breached the credit 17 facility agreement and the 1st plaintiff is not involved in the said breach as claimed by the defendant. The defendant is trying to allege that the contract was frustrated by the supplier, I find that this argument will survive only if the agreement before the court was between the defendant and the supplier. It is noted that the supplier has been successfully sued by the defendant before. It is worth noting that, the said supplier was neither impleaded nor called as a witness in the present suit. On the issue of breach, as there is no dispute that the 1st instalment of money was disbursed by the 1st plaintiff, according to the agreement. Having said that the defendant who is the borrower is a defaulter, regardless of how the money reached her, upon default of even a single instalment the 1st plaintiff was in position to recover its money. The issue of finding an alternative supplier was a good idea but by then, the borrower was already in default. Therefore, second issue is answered that the defendant was in breach of credit facility. Lastly are the reliefs to the parties. I should first point out that, I will

not deal with the issues of debentures, attachment and sale of defendants’ properties because this is not the right platform. I find that, the prayer is 18 made pre maturely before the court because there is no evidence on the scope of mortgage and the order sought will be moving the court to deal with execution proceedings. In support of this pronouncement, I will let the words of my brother (Hon. Morris J,) in STANBIC Bank Tanzania Limited v Boaz Saimon Ilomo and Boaz Saimon Ilomo counter claimant v STANBIC Bank Tanzania Limited 1st counter defendant Yella Hawonga 2nd counter defendant Commercial Case no. 68 of 2023 High Court Commercial Division Dar es salaam speak for itself: ‘Interestingly, the plaintiff-counter defendant presented a separate prayer in alternative. He states that, should the defendant-counter claimant fail to pay the amount adjudged herein; the Court should order sale of the mortgaged property for recovery of the decretal sum. I am loath to consider such prayer on a number of reasons. To begin with, parties did not litigate on mortgage transactions and allied rights and obligations. Further, the scope of mortgage has not been established. For instance, the Court is unsure of existence or otherwise of other incumbrances such as second or third mortgages. Moreover, there are contractual aspects therein which did not feature in any of the previous issues

above. Furthermore, the prayer is technical infusion of execution proceedings in this matter. Its couching grips it all. That is, the phraseology itself suggests that the alternate order being sought here should only be engaged only after the would-be judgment debtor's default to 19 satisfy the decree. To me, such approach fits well in the ambits of the executing court. Hence, I decline this prayer.’ (Emphasis supplied). Still on the reliefs, starting with the amount of loan to be repaid, the plaintiff is claiming TZS 4,593,155,272/= because the loan has accrued interest for 7 years. I disagree with the plaintiff in this amount. The reason is, first; the plaintiff did not advance evidence as to how the amount accrued to TZS 4,593,155,272/= neither in the pleadings nor in the evidence itself. Apart from the print outs of the system attached, PW1 in his whole testimony did not explain as to how the amount has accrued to TZS 4,593,155,272/=. These claims are special damages and they should be specifically pleaded and proved as a matter of principle. See the cases of Zuberi Augustino v. Anicet Mugabe [1992] TLR 137; Director Moshi Municipal Council v. Stanlenard Mnesi and Another, Civil Appeal No. 246 of 2012 and Charles Christopher Humprey Richard Kombe t/a Humphrey Building Materials v. Kinondoni Municipal Council, Civil Appeal No. 125 of 2016 (all unreported). Without evidence

proving specific damages, the court cannot grant such reliefs. Secondly, it is alleged that the amount has raised to TZS 4,593,155,272/= due to the time which has passed since the default. In this, I find that the plaintiffs have contributed to the said amount by choosing to 20 sue the defendant 7 years later, knowing that time is an essential ground in computation. Where was the plaintiffs all this time? Much as time limitation in suit by or on behalf of the government is fixed at 60 years, parties need to be timely and diligent in pursuing their rights unless there are valid ground for not doing so. Time limitation was set for a reason. The plaintiff did not mention any valid ground for waiting 7 years. In fact, the plaintiff, as mentioned hereinabove, brought this suit as a counter claim. Prior to that, it is not known whether she still had interest with these claims or not. Therefore, the plaintiff will only be entitled to the principle sum which is proved and undisputed that is TZS 1,466,177,900/=. I have noted that the general damages were not pleaded, proved or prayed for. I will not touch on that aspect. In conclusion, it is decided that: i. The defendant is declared in breach of the credit facility agreement. ii. The defendant shall repay the 1st plaintiff an outstanding loan of TZS. 1,466,177,900/= advanced in all three loan facilities. iii. The defendant is to pay the plaintiff 18% interest from the day of filing of this case to the date of this judgment; and interest at 7% from the day of this judgment to full settlement of the decree. iv. As the suit is partly allowed, each party to bear its own costs. 21 It is so ordered, right to appeal explained. DATED at Mwanza this 6th day of September, 2024. L.K.J. ITEMBA

JUDGE 6/9/2024 Judgment delivered this 6th day of September 2024 in the presence of Mr. Yohana Mswahili officer of the defendant, Mr. Felician Daniel State Attorney for the plaintiffs, Mr. Angelo James counsel for the defendant and Ms. G. Mnjari, RMA 22