The Commercial Division of the High Court has ordered Equity Bank to pay Shs126.8 million to Sanstar Bio-Polymers Limited for negligently releasing shipping documents without securing payment in a failed international trade transaction.
The dispute stems from a 2016 deal in which Mukwano Industrial Suppliers Limited ordered 72 metric tonnes of liquid glucose concentrate (food grade) from Sanstar at a cost of $31,200. The parties agreed that payment would only be made upon receipt of shipping documents.
Sanstar appointed its bankers, Karur Vysya Bank Limited, to transmit the documents to Equity Bank, which was expected to act as the collecting bank and release them to the buyer only after full payment.
However, court heard that after receiving the documents at its Kabalagala branch, Equity Bank staff released them to the buyer’s clearing agent, Unimar Logistics Limited, without first securing payment.
As a result, Sanstar never received the agreed purchase price, prompting the company to sue for recovery of the funds, damages, interest, and costs.
Equity Bank denied liability, arguing there was no contractual relationship with Sanstar and that the documents had been sent without its consent. The bank also claimed Mukwano had falsely presented it as the collecting bank.
But the court rejected this defence, holding that banks have a duty of care in handling such transactions.
“Banks cannot act as facilitators of fraud or scams,” the court ruled, noting that financial institutions must exercise diligence and professionalism when dealing with third-party transactions.
The court found that Equity Bank breached its duty by releasing the documents without payment, directly causing Sanstar’s loss.
“A reasonable banker could have anticipated the type of harm that resulted from the defendant’s actions,” Justice Stephen Mubiru observed.
The court concluded that the loss suffered by Sanstar was a natural and foreseeable consequence of the bank’s negligence.
“Equity Bank negligently released the shipping documents to Mukwano Industrial Suppliers Limited,” the ruling stated.
The court ordered the bank to pay $31,200 (about Shs117.4 million) as compensation, along with interest at 8 per cent per annum from November 8, 2016, until full payment, and costs of the suit.
