KAMPALA — A Shs17.8 billion financing deal that collapsed at the height of the COVID-19 pandemic has ended in a costly courtroom defeat for Equity Bank (U) Ltd, with the High Court Commercial Division finding that the bank breached its contractual obligations and ordering it to pay Gombe Educational Services Limited Shs233.748 million, plus interest and legal costs.
In a judgment delivered on August 27, 2026, Justice Patience T.E. Rubagumya rejected the bank’s attempt to rely on the pandemic, force majeure, frustration and alleged missing guarantees to justify its decision not to disburse the massive loan facility.
The court’s decision effectively turned the spotlight on a critical question in commercial lending: Can a bank walk away from an accepted loan agreement after a borrower has relied on the financing commitment and incurred substantial expenses?
In this case, the court’s answer was no.
Justice Rubagumya found that a binding agreement existed between Gombe Educational Services and Equity Bank and that the lender breached that agreement when it failed to make the facility available and later rescinded the contract.
The judge stated: “Consequently, I find that the Defendant breached the contract when it failed to avail the facility to the Plaintiff and when it arbitrary rescinded the contract.”
The ruling gives Gombe Educational Services a substantial victory, although the company fell far short of recovering the Shs2.423 billion it had initially claimed.
HOW THE SHS17.8BN DEAL COLLAPSED
The dispute began with Gombe Educational Services seeking Shs18.5 billion from Equity Bank to expand its education business.
Following due diligence, Equity Bank offered a combined facility of Shs17.8 billion in a letter dated February 21, 2020.
The offer was subsequently varied on March 19, 2020 and accepted by the parties.
The financing consisted of a Shs17.2 billion term loan and Shs600 million for termly overheads.
The term loan was intended to finance the acquisition of East High School Ntinda, refinance existing obligations owed to KCB Bank Uganda and Tropical Bank, and support renovation of school facilities.
Then COVID-19 struck.
On March 31, 2020, schools operated by Gombe Educational Services were closed as Uganda implemented measures to contain the pandemic.
Equity Bank halted disbursement of the facility.
What followed was a prolonged dispute over whether the bank remained bound by its financing commitment.
Gombe Educational Services maintained that it had fulfilled the requirements necessary for the facility to proceed and demanded that the money be released.
The bank took a different position, arguing that the pandemic had fundamentally altered the operating environment and affected the company’s ability to generate revenue.
On March 25, 2021, Equity Bank rescinded the agreement, citing the unfavourable environment in the education sector.
That decision ultimately landed the bank in court.
COURT: ACCEPTED LOAN OFFER CREATED A BINDING CONTRACT
Equity Bank’s defence faced a major setback when the court determined that the accepted loan offer created binding contractual obligations.
Justice Rubagumya observed that once the offer had been accepted, the parties were bound by the agreement and the conditions imposed on the borrower were to be fulfilled during the life of the contract.
The judgment states: “In light of the above, I take the view that a binding contract existed between the parties and the conditions the Plaintiff was obligated to fulfil were to be performed during the pendency of the contract.”
That finding was central to the case.
The court rejected the suggestion that the bank could simply treat the accepted financing commitment as though no contractual relationship had arisen.
MISSING GUARANTEES ARGUMENT BACKFIRES
Equity Bank also attempted to rely on alleged missing personal guarantees from directors of companies connected to the facility.
The court acknowledged that the guarantees formed part of the securities required under the financing arrangement.
But there was a problem.
The bank had not cited the missing guarantees as the reason for rescinding the agreement.
Instead, its March 25, 2021 rescission letter pointed to the unfavourable operating environment in the education sector.
During cross-examination, the bank’s witness confirmed that the alleged missing guarantees had not been communicated to the borrower as the reason for withholding the facility.
The judge therefore rejected the bank’s later reliance on the guarantees as justification for its decision.
The discrepancy weakened the bank’s defence and became another significant factor in the court’s finding that the contract had been breached.
COVID-19 FAILS TO SAVE THE BANK
The pandemic was arguably Equity Bank’s biggest line of defence.
The bank sought to rely on force majeure, frustration and material adverse change, arguing that COVID-19 had fundamentally transformed the circumstances surrounding the transaction.
But the court demanded more than a reference to the unprecedented nature of the pandemic.
Equity Bank had to demonstrate that COVID-19 or government restrictions actually prevented it from performing its particular contractual obligation.
The court found that it had failed to do so.
Justice Rubagumya was unequivocal: “Therefore, I find that the Defendant has not adduced sufficient evidence to invoke the defence of force majeure.”
The court noted that there was no evidence of a government directive prohibiting banks from issuing new loans during the pandemic.
COVID-19, therefore, could not automatically operate as a blanket excuse for abandoning contractual commitments.
The ruling establishes an important commercial principle: extraordinary circumstances do not, by themselves, erase contractual obligations.
A party seeking to rely on force majeure must demonstrate the actual effect of the event on its contractual performance.
SHS2.1BN EAST HIGH SCHOOL CLAIM THROWN OUT
Although Gombe Educational Services succeeded on the central breach-of-contract issue, the company suffered a major setback on its demand for special damages.
The company had sought Shs2.423 billion, including approximately Shs2.1 billion described as a commitment fee connected to the purchase of East High School Ntinda.
The court rejected the claim.
Justice Rubagumya found that the company had not provided sufficient evidence to establish the alleged expenditure.
Several other claims relating to construction materials, painting and labour at East High School Ntinda were also dismissed.
Some of the receipts relied upon by the company predated Equity Bank’s loan offer.
The court found that expenses incurred before the financing arrangement could not properly be attributed to reliance on the facility.
In another instance, contractors admitted during cross-examination that some of the alleged works had never been carried out.
The court consequently declined to award those amounts.
The decision demonstrates that even where a breach of contract is established, special damages must still be strictly proved.
BUT COURT AWARDS SHS153.7M IN ACTUAL EXPENSES
Two categories of expenditure survived the court’s scrutiny.
The first was Shs122.248 million in valuation fees.
Gombe Educational Services had incurred the money obtaining valuation reports relating to securities offered for the proposed facility.
Equity Bank did not dispute receiving the valuation reports.
The court therefore awarded the full amount.
The second was Shs31.5 million in audit fees incurred in preparing financial statements, cash-flow projections and other documents required for the financing process.
The judge found that this expenditure had also been sufficiently proved.
The court stated: “In the premises, I find that the Plaintiff is also entitled to the sum of UGX 31,500,000/= being the auditor’s fees incurred.”
Together, the valuation and audit expenses amounted to Shs153.748 million.
COURT ADDS SHS80M GENERAL DAMAGES
The financial blow to Gombe Educational Services did not end there.
Justice Rubagumya awarded the company an additional Shs80 million in general damages.
The company had argued that the bank’s conduct caused financial loss and inconvenience, denied it business opportunities and affected its ability to secure alternative financing.
The judge agreed that compensation was warranted.
“Having considered the financial loss and inconvenience occasioned to the Plaintiff, I hereby award the Plaintiff general damages of UGX 80,000,000/=.”
That brought the total principal award to Shs233.748 million.
HOW MUCH EQUITY BANK MUST PAY
Under the final orders, Equity Bank was directed to pay:
Shs122.248 million — valuation fees;
Shs31.5 million — audit fees;
Shs80 million — general damages;
10 per cent annual interest on the Shs153.748 million special damages from the date of judgment until full payment;
6 per cent annual interest on the Shs80 million general damages from the date of judgment until full payment; and
Costs of the suit.
The principal award alone totals Shs233.748 million, before interest and costs.
A WARNING TO BANKS AND BORROWERS
Beyond the money involved, the judgment could have wider implications for commercial lending disputes in Uganda.
The court drew a clear distinction between conditions attached to a loan before disbursement and an accepted financing commitment that has already created contractual obligations.
The judgment also sends a warning against relying on broad claims of force majeure without demonstrating precisely how an extraordinary event prevented contractual performance.
For Gombe Educational Services, the judgment offers compensation for expenses incurred in preparation for a financing arrangement that ultimately collapsed.
But the court stopped short of accepting the company’s much larger claims where the evidence did not meet the required standard.
For Equity Bank, however, the ruling represents a clear judicial finding that its decision to withhold the Shs17.8 billion facility and subsequently rescind the agreement amounted to a breach of contract.
The case therefore leaves behind a significant question for Uganda’s banking and business community:
When a bank accepts a major financing commitment, how far can it go in withdrawing from that commitment when economic circumstances suddenly change?
In the Gombe Educational Services case, the Commercial Court has made its position clear: a bank cannot simply walk away from a binding contractual commitment without establishing a legally sufficient basis for doing so.
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