Court orders logistics firm to pay steel company sh1.6b

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The Commercial Court has ordered a logistics company to pay Uganda Baati Ltd shillings 1.6 billion for construction materials supplied on credit.

The court also directed Stanbic Bank Uganda Ltd to pay Uganda Baati shillings five million in general damages for breach of contract. The amount will attract an interest rate of 6% per annum from the date of the judgment until payment in full.

In a judgment dated March 9, 2026, Justice Stephen Mubiru ruled that there was a contract between Uganda Baati, Zimba Logistics and Hardware Limited and the company’s managing director, Ali Teko Awazi, for the delivery of construction materials.

Court records indicate that between August 8 and August 23, 2019, Uganda Baati supplied construction materials worth shillings 1.6 billion to Zimba Logistics and Hardware on credit.

During the same period, Awazi issued 24 personal cheques as payment for the supplies, which Uganda Baati deposited with Stanbic Bank.

However, during a reconciliation exercise on August 28, 2019, Uganda Baati discovered that the cheques had not been given same-day value, contrary to an agreement it [Uganda Baati] had with the bank.

According to court documents, when the company sought clarification from the bank, all the cheques were instead dishonoured.

Uganda Baati argued that the bank’s failure to ascertain whether Awazi had sufficient funds in his account and its failure to honour the same-day value arrangement induced it to supply goods worth shillings 1.2 billion on credit to the logistic company, which it would otherwise not have provided.

The company further contended that the bank acted fraudulently and negligently and breached duties owed to it.

Accordingly, Justice Mubiru agreed with Uganda Baati that Stanbic Bank breached its contractual duty when it failed to give it (Uganda Baati) timely notice of dishonour of the 24 cheques.

“When a bank holds onto a dishonoured cheque, causing delay that prevents the customer from exercising legal rights against the drawer, the bank is liable for negligence and failure to provide professional service,” he ruled.

Uganda Baati also alleged that the logistics company and its managing director Awazi engaged in fraudulent trade practices by obtaining goods on credit through connivance with the bank.

However, the judge ruled that there was no evidence proving fraudulent connivance among the defendants.

Dishonest act

Justice Mubiru also ruled that Uganda Baati presented circumstantial evidence showing that between July and August 2019, Awazi knowingly participated in wrongful and fraudulent trading with the intention of defrauding it [Uganda Baati].

He noted that Awazi issued multiple personal cheques to settle company debts without a genuine intention of ensuring that there were funds in the account to honour them.

According to the judge, when a managing director issues personal cheques to settle a company’s debt without ensuring there are sufficient funds to clear them, it amounts to a dishonest act intended to mislead the creditor about the company’s ability to pay.

“If on the date of presentation of the cheque the liability to pay exists, it is irrelevant that the cheque was issued as security,” Mubiru ruled. 

The judge added that it was the responsibility of the company’s managing director, Awazi, to ensure there were sufficient funds in the account to honour the cheques when they were presented for payment at Stanbic Bank.

“The corporate structure was used purposely to avoid or conceal the managing director’s liability,” the judge noted.

Justice Mubiru noted that although Awazi paid shillings 349 million following Uganda Baati’s discovery that the 24 cheques had never been credited to its account, there has never been a reconciliation of accounts between Uganda Baati and the defendants.

Court documents indicate that Awazi commingled personal funds with those of the company.

“Awazi failed to keep the company’s assets separate from his personal assets and did not follow proper corporate procedures when borrowing funds from the company directors or shareholders,” the judge noted.

Justice Mubiru said as a result, the legal protection that ordinarily shields shareholders from personal liability is effectively waived, making it possible for claimants to pursue the personal assets of the owners.

He said in such circumstances, the court is justified in piercing the corporate veil and looking beyond the legal façade of the company to the economic realities behind it.

“One of the tell-tale signs of using the corporate status for a fraudulent purpose is operating the business as if it doesn’t exist separately,” he noted.