By Musisi Lwanga
The ongoing legal battle between Crane Bank, its shareholders and DFCU Bank in the London Commercial Court has entered its second week, with the parties having collected nearly 11 million documents, reviewed more than 250,000 for relevance and disclosed over 17,000 documents to the claimants.
The figures, highlighted in the defendants’ overview of the case, underscore the scale of the 16-week trial, which centres on allegations that DFCU Bank acquired Crane Bank’s assets and liabilities at a gross undervalue after an alleged scheme involving the Bank of Uganda and China Energy Fund Committee (CEFC China Energy) collapsed.
According to the defendants, the extensive documentary record contains no evidence of conspiracy, dishonesty or bribery involving them. The claimants, however, maintain that the circumstances surrounding the transaction raise serious questions about DFCU Bank’s role in the acquisition.
Nile Post, which is providing periodic public-interest coverage of the proceedings, says its reports will focus on the facts presented in court and the legal questions the trial judge must resolve.
Dispute over alleged conspiracy
The defendants’ overview states that the claimants acknowledge DFCU Bank was not involved in the alleged conspiracy between the Bank of Uganda and CEFC China Energy over a proposed sale of Crane Bank to the Chinese conglomerate.
The claimants’ case is that after CEFC withdrew from the proposed transaction, DFCU Bank stepped in to acquire Crane Bank’s assets and liabilities at a substantial undervalue in exchange for allegedly turning a blind eye to wrongdoing by the central bank.
However, the Bank of Uganda, which the claimants identify as the alleged primary wrongdoer, is not a party to the proceedings.
The defendants argue that the claimants do not accuse them of participating in any alleged wrongdoing by the central bank before Crane Bank was placed under statutory management on October 20, 2016.
According to the defendants, the claimants’ own case is that DFCU Bank became involved in the alleged conspiracy only after Crane Bank had already been placed under statutory management.
Crane Bank’s financial position
In their account of events, the defendants trace Crane Bank’s difficulties to examinations conducted by the Bank of Uganda between 2014 and 2016.
They say the central bank conducted annual on-site examinations, each lasting approximately six weeks. The 2014 examination reportedly raised Crane Bank’s overall risk rating from “Moderate” to “High”, citing weaknesses in credit underwriting controls and insider lending.
In 2015, the bank’s CAMELS rating was downgraded to “Marginal”.
By July 1, 2016, the Bank of Uganda had assessed Crane Bank’s core capital at negative Shs16.10 billion, with a core capital ratio of minus 1.28 per cent, according to the defendants’ account.
In August 2016, Crane Bank signed a memorandum of understanding with the central bank, acknowledging what the defendants describe as significant undercapitalisation and agreeing to secure a capital injection of Shs88 billion by October 31, 2016.
The following month, Crane Bank reportedly applied for emergency liquidity assistance of $115 million after experiencing a bank run.
The Bank of Uganda declined the request but offered Shs79.2 billion, subject to third-party collateral.
On October 20, 2016, the central bank placed Crane Bank under statutory management.
DFCU acquisition timeline disputed
The defendants also contest the claimants’ account of the process through which DFCU Bank acquired Crane Bank’s assets and liabilities.
According to their chronology, DFCU submitted its bid on December 20, 2016, as part of what they describe as a competitive and urgent auction process.
They argue that DFCU was not selected until January 6, 2017, disputing the claimants’ allegation that the bank was selected only three days after submitting its bid.
The Purchase of Assets and Assumption of Liabilities Agreement was signed on January 25, 2017, while the Bank of Uganda announced the transaction two days later, on January 27.
The defendants maintain that the transaction followed an acquisition process undertaken amid the urgency surrounding Crane Bank’s financial position.
Defendants reject bribery allegations
The defendants have also challenged the claimants’ allegations of a sham bidding process and an alleged Shs100 billion bribe.
On the bidding process, they point to an email dated December 23, 2016, from Willem Cramer, a DFCU Bank director, who reportedly asked: “Am I right in sensing that we are the preferred bidder?”
The defendants argue that the email contradicts the suggestion that DFCU already knew it had been guaranteed the transaction through a fraudulent process.
They contend that the message instead reflected a bidder seeking confirmation of its position following the bidding process.
The defendants have also addressed the recognition of a Shs119.3 billion bargain purchase in DFCU Bank’s 2017 financial statements.
They argue that “bargain purchase” is an accounting term describing a situation in which the fair value of acquired net assets exceeds the consideration paid, rather than evidence of wrongdoing.
To illustrate their argument, they cite UBS’s 2023 acquisition of Credit Suisse, which resulted in negative goodwill of $27.8 billion.
On the alleged Shs100 billion bribery, the defendants describe the claim as wholly implausible.
They argue that the assets allegedly involved comprised written-off loans that Crane Bank itself considered to have no recoverable value.
They further contend that the alleged arrangement was discussed openly in a presentation to the Arise Supervisory Board.
The defendants question why an alleged bribe would be paid through assets considered to have little or no recoverable value, using traceable mechanisms and in circumstances where the arrangement was discussed openly.
The claimants’ allegations remain contested and are among the issues the court is expected to examine during the trial.
Dispute over PwC forensic reports
Another issue concerns the forensic review reports prepared by PwC and the claimants’ argument that the work was unlawfully produced because PwC Ltd was not licensed to practise accountancy in Uganda.
The defendants rely on the opinion of their Ugandan law expert, Arnold Sekiwano, who argues that preparing the PwC forensic review reports did not amount to practising accountancy within the meaning of Section 34 of the Accountants Act.
Sekiwano also maintains that the Bank of Uganda had the authority to commission a forensic investigation.
The court will have to consider the competing arguments and the applicable Ugandan legal framework as part of its assessment of the evidence.
Foreign act of state doctrine at the centre of dispute
A central legal question is whether the English court can adjudicate on the legality of the Bank of Uganda’s actions in managing and disposing of Crane Bank.
The defendants argue that the claimants cannot succeed without first establishing that the Bank of Uganda acted wrongfully.
They further contend that the foreign act of state doctrine prevents the English court from ruling on the legality of executive acts carried out by a foreign state entity within its own territory.
In 2023, the Court of Appeal allowed the case to proceed, finding that the doctrine did not bar the claims at the jurisdictional stage. However, the question was left open for determination at trial after the parties presented their evidence.
The claimants argue that the Bank of Uganda’s entry into the Purchase of Assets and Assumption of Liabilities Agreement was a commercial act rather than a sovereign act.
The defendants counter that the central bank was exercising statutory powers of sale while pursuing public welfare objectives, rather than engaging in an ordinary commercial transaction.
The trial judge will therefore have to consider whether the doctrine applies to the central bank’s conduct before and during the transaction.
Witnesses expected as trial progresses
As the 16-week proceedings continue, witness testimony is expected to become a major part of the case.
The claimants have lined up several witnesses, while the defendants intend to call 19 witnesses, including each of the individual directors named as defendants.
The defence also plans to call experts from the PwC global network to respond to allegations concerning PwC’s engagement in the matter.
Expert testimony is expected to cover central banking practices, accountancy, valuation and Ugandan law.
The proceedings are expected to examine the circumstances surrounding Crane Bank’s financial difficulties, its placement under statutory management, the subsequent acquisition by DFCU Bank and whether the evidence supports the allegations made by the claimants.
With millions of documents collected and thousands disclosed, the central question remains whether the evidence presented in court will establish the alleged wrongdoing or support the defendants’ position that the transaction was conducted lawfully.
