Parliament — Bank of Uganda (BoU) signed an agreement with an offshore company for a financial deal worth about Shs19b, but included a clause which stipulated that in case of a dispute between the two parties, it would be resolved under the UK laws, a parliamentary inquiry heard yesterday.
Nile River Acquisition Company was contracted at $5.2m (about Shs19b) to take over and sell loans worth Shs135b of the banks which BoU closed.
The loans had valid, legal or equitable mortgage and the deal was based on UK laws that would shield the company from Uganda's legal jurisdiction.
The MPs on the Committee on Commissions, Statutory Authorities and State Enterprises (Cosase) warned BoU that by stipulating that any dispute in the agreement would be resolved using UK laws, the central bank "toppled Uganda's Constitution" and engaged in "racketeering."
The MPs are investigating alleged irregularities in the closure of seven commercial banks some of which were shut 20 years ago.
Clause 9(10) of the Debt and Purchase and Transfer Agreement between BoU and Nile River Acquisition Company states: "This agreement shall be governed by and construed in accordance with the laws of England without giving effect to the choice of law principles that may require application of any other laws."
The company, now defunct, was registered in Mauritius. It sold the loans at 93 per cent discount. It also sold assets worth Shs64b of five closed banks.
The Debt and Purchase and Transfer Agreement between BoU and the company also had a waiver of immunity, a clause that MPs also questioned.
BoU could not prove that the firm had a licence to do money lending business in Uganda.
The committee chairperson, Mr Abdu Katuntu, questioned why BoU chose to be bound by the UK laws potentially exposing the country to an unfair legal jurisdiction.
Defending the use of the UK law, Ms Margaret Kaggwa Kasule, BoU's legal counsel, said agreements with foreign entities are mostly governed by the neutral legal jurisdictions.
"When you are drafting an agreement and you say that the law applicable to this agreement shall be the laws of another. That provision is intended to manage issues in case there are disputes. The person who purchased debt was a neutral person and he opted for a neutral place should there be dispute," Ms Kasule said.