A protracted dispute between Standard Chartered Bank (StanChart) and Galot Industries Ltd will be heard by the Supreme Court. The bank received permission from the Court of Appeal to appeal a December 2022 judgment that sparked confusion within the financial sector.
The Court of Appeal's ruling stated that new loans should be secured by fresh collateral, contradicting previous precedents. This decision has left lenders uncertain about how to discharge collateral used to obtain loans.
StanChart argues that the practice has always been to consider collateral as continuing security until it is discharged. However, the 2022 judgment held that collateral provided by Galot Industries for a 1982 loan obtained by Manchester Outfitters Ltd was discharged when the loan was converted into local currency.
StanChart's legal representative claims that the judgment created uncertainty in the financial industry and requires the intervention of the Supreme Court. They believe that the law has consistently stated that a party cannot retain money or benefits that they should not in good conscience.
The customer, represented by Philip Nyachoti, maintains that the appellate court's ruling was appropriate and that the dispute involves a private contract.
The Court of Appeal judges acknowledged the two contrasting schools of thought on the issue. One view favors discharging securities and establishing new collateral for new loans, while the other supports accommodating new credit within existing securities.
The judges determined that the Supreme Court should address this issue definitively, as it involves general public interest. They emphasized the need to resolve the matter with finality to provide clarity and guidance within the financial sector.