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Tanzania: The power of injunctions in banking litigation—24

2019-02-02 07:42:00

By Paul Kibuuka @tzpaulkibuuka

Not so many people in the Tanzanian business community understand that injunctions can operate as a powerful intervention strategy in banking and finance litigation. In the Tanzanian legal system, the timing and efficacy of injunctions makes them really distinctive; moreover, the speed with which courts grant certain injunctions startles corporate borrowers and lending banks.

The impact of injunctions can be hard-hitting; they could restrain a financial institution from exercising its contractual rights and enforcing its security or prevent a borrower from disposing of, or otherwise dealing with, the secured assets.

A demonstrative instance of the power of injunctions can be seen in the famous cases involving IPTL, PAP and VIP Engineering against certain Standard Chartered bank groups.

Stated differently, injunctions are high-risk proceedings. They can bring about a positive resolution of a banking dispute. On the other hand, imprudent applications for injunctive relief can boomerang and, if the relief sought is denied, uncover flaws in the main case filed by the plaintiff.

Therefore, in this twenty-fourth part of our series, we bring you a high-level discussion of the injunctive reliefs that may be available to a borrower or financial institution; the timing issues in injunctive applications; and the special features of ex-parte and temporary injunctions.

Temporary injunctions, declaratory orders and interlocutory orders are regulated by Order XXXVII of the Tanzanian Civil Procedure Code, Cap 33.

Injunctive relief available is either mandatory (compelling the performance of certain acts which the court is capable of enforcing) or prohibitory (stopping the doing of something). The relief that the court might grant must be specific, practically well-matched to prevent the feared injury and capable of enforcement.

In terms of timing, undue delay in seeking an injunction tends to negate the contention that the feared injury will truly be irreparable. What amounts to “undue delay” will differ from case to case.

When the feared injury is very immediate so that issuing notice to and hearing the other party is impracticable, an ex-parte injunction may be suitable. The party seeking an ex-parte injunction has a huge burden of persuading the court that its predicament merits this drastic intervention.

Some Tanzanian banking industry voices call for the imposition of a monetary bond obligation on borrowers seeking ex-parte injunctions which the court deems sufficient to compensate the financial institution if it is later discovered that such injunctions should not have been granted.

The party seeking injunctive relief has to make a request for such relief in its chamber application and it is prudent to do so only if it is really crucial.

A temporary injunction is the most popular form of injunction in the Tanzanian legal system. It is different from an ex-parte injunction in which there’s no involvement of or notice to the other party. In a temporary injunction proceeding, that party is given notice and an opportunity to be heard at a hearing in the judge’s or magistrate’s chamber.

In the case of Abdi Ally Salehe vs. Asac Care Unit Limited, Ayoub Salehe Chamshama and Kenya Commercial Bank Limited Civil Revision No. 3 of 2012, Tanzania’s highest court, the Court of Appeal, observed that the grant of a temporary injunction is an exercise in judicial discretion and held that the party seeking the injunction has to prove the existence of a prima facie case, immediate irreparable harm and balance of convenience.

It is not difficult for a financial institution to contend that sufficient evidence on one or more of the above elements has not been produced to support temporary injunctive relief.

Besides ex-parte and temporary injunctions, there are also permanent injunctions which are made upon merits of the suit.

Many court orders are not appealable, but injunctive court orders are the exception to this rule as confirmed by the Court of Appeal in its decision in the case of Tanzania Union of Industrial and Commercial Workers and Another vs. Tanzania and Italian Petroleum Refining Company Ltd [2001] TLR 332.   

In practice, overturning a lower court’s decision granting an injunctive relief is not easy since the judiciary knows that such decisions entail a tinge of subjectivity and that the lower court is in the best position to evaluate the injunction application brought before it.

Injunctions are a powerful intervention strategy in banking and finance litigation which can have a substantial impact on the bank customer or financial institution. It is advisable to engage legal counsel capable of navigating the complexities of stay orders and injunction applications.

Paul Kibuuka is the managing partner of Isidora & Company Advocates, a corporate, commercial and financial law firm. This article was published in The Citizen on Saturday, 2 February 2019

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