Absa Bank Uganda has suffered a major legal setback after the Court of Appeal dismantled key portions of its financial claim against transport firm Kawa Distributors and Suppliers Ltd, ruling that the bank could not repossess leased trucks and still demand millions of shillings in future rental payments.
In a judgment delivered on June 10, 2026, the appellate court partially allowed Kawa Distributors’ appeal, overturning a High Court award of Shs65 million that Absa had claimed as accrued rental arrears after terminating a lease arrangement and repossessing two tractor heads.
The ruling not only stripped the bank of a substantial portion of its claim but also raised troubling questions about the manner in which the debt was calculated, the handling of account statements presented in court, and the conduct of agents who impounded a trailer that was not covered by the financing arrangement.
The dispute traces its roots back to 2008 when Kawa Distributors entered into a financing arrangement with what was then Barclays Bank Uganda, now Absa Bank Uganda, for the acquisition of two tractor heads.
At the centre of the legal battle was a critical question: Was the transaction a hire-purchase agreement intended to transfer ownership to Kawa, or was it a finance lease under which the bank retained ownership of the vehicles?
Kawa argued that the arrangement was effectively a hire-purchase agreement and that the bank’s remedies should therefore be limited. Absa insisted that the transaction was a lease financing arrangement in which legal ownership of the vehicles remained with the bank throughout the lease period.
The Court of Appeal sided with the bank on this issue.
The judges found that all contractual documents, including the Flexi Lease Agreement and Master Flexi Lease Agreement, clearly provided that ownership of the tractor heads remained with the bank while Kawa merely enjoyed the right to use them upon payment of rentals.
The court held that the legal structure of the transaction bore all the hallmarks of a finance lease rather than a hire-purchase arrangement.
Under the agreements, the bank acquired the trucks, retained legal title and leased them to Kawa. Although Kawa had the option of purchasing the vehicles at the end of the lease period for a nominal amount, the court ruled that this did not convert the arrangement into hire purchase.
According to the judges, ownership remained firmly with the financier unless and until the option was exercised.
However, while Absa won that battle, it suffered a devastating defeat on what ultimately mattered most — money.
The appellate court found that once the bank repossessed the tractor heads and terminated the lease, it lost the legal basis for continuing to charge rental payments.
The judges held that rentals were consideration for the use and possession of the vehicles.
Once the trucks were taken away by the bank, Kawa could no longer be charged for using assets that were no longer in its possession.
The court stated that the lease agreement did not contain any clause expressly authorising the recovery of future rentals after termination.
Absa had argued that the disputed Shs65,016,480 represented losses arising from Kawa’s breach of contract and was therefore recoverable under compensation provisions in the lease documents.
The judges rejected that argument.
They found that the compensation clauses relied upon by the bank referred to losses and damages, not continued rental obligations after termination.
In one of the most significant findings of the judgment, the court declared that the bank’s claim for future rentals contradicted established legal principles governing lease agreements.
The judges emphasized that termination of a contract generally brings future obligations to an end, leaving only accrued liabilities and legitimate claims for damages.
The ruling means that Absa cannot recover the Shs65 million that had been awarded by the High Court as rental arrears accruing after repossession of the vehicles.
The court also took issue with the manner in which the bank terminated the agreement.
Evidence showed that in November 2008, the bank had written to Kawa inviting the company either to clear its arrears or propose a restructuring arrangement.
Kawa responded with a proposal to consolidate and spread payments over three years.
Instead of responding to that proposal, the bank proceeded to instruct agents to impound the trucks.
The judges noted that no fresh termination notice was issued before repossession.
According to the court, this conduct potentially amounted to a breach of the very agreement the bank sought to enforce.
The ruling became even more uncomfortable for Absa when the court turned its attention to the bank’s accounting records.
At trial, the bank had claimed that Kawa owed more than Shs85 million in accrued rentals.
Its principal witness explained that special coded accounts linked to Kawa’s current account reflected outstanding balances amounting to Shs65 million.
However, Kawa produced evidence of a payment made in November 2008 and challenged the accuracy of the figures.
The Court of Appeal found serious weaknesses in the bank’s evidence.
Judges noted that some account statements produced by the bank were marked “settled,” yet the bank simultaneously insisted that huge outstanding debts remained unpaid.
The court found that the bank’s witness failed to satisfactorily explain the contradiction.
Equally damaging was the failure to account for a payment of more than Shs5.5 million made by Kawa.
The judges held that the trial court had wrongly shifted the burden of proof onto Kawa by criticising the company for not producing alternative account statements.
In a stern reminder of the law of evidence, the Court of Appeal ruled that the burden rested squarely on the bank, as the party making the financial claim, to prove the debt.
“The law does not require a debtor to reconstruct the creditor’s accounts in order to challenge a claim,” the judges effectively held.
That finding dealt another significant blow to Absa’s position and strengthened Kawa’s challenge to the alleged indebtedness.
Yet perhaps the most dramatic aspect of the judgment involved a trailer that was not even part of the financing agreement.
The trailer, registration number UAB 433C, had been attached to one of the tractor heads when the bank’s recovery agents seized the vehicle.
Although the bank argued that it never intended to impound the trailer and repeatedly invited Kawa to collect it, the Court of Appeal was not persuaded.
The judges found that the trailer was physically seized, transported to Shumuk Bond and registered under the name of the bank’s agents.
That, the court ruled, amounted to impounding.
The judgment held that the bank could not escape responsibility for the actions of its agents.
The court observed that the agents acted on the bank’s instructions and therefore bound the bank through their conduct.
The judges noted that registration of the trailer at the bonded warehouse in the name of the bank’s agents was a clear assertion of control and dominion over the property.
As a result, the Court of Appeal upheld the lower court’s finding that the trailer had been wrongfully impounded.
The bank also failed in its attempt to argue that Kawa should simply have collected the trailer.
Evidence showed that substantial storage and parking fees had accumulated at the bonded warehouse, creating a major obstacle to recovery.
The court accepted that these costs became the central issue preventing collection and found no basis for blaming Kawa for failing to retrieve the trailer.
The judgment represents one of the most significant appellate decisions in recent years on lease financing arrangements in Uganda.
For banks and financial institutions, it sends a strong warning that repossession does not automatically entitle lenders to continue charging rentals as if the lease were still running.
For borrowers and businesses, the decision reinforces the principle that financiers must strictly comply with contractual procedures and prove every shilling claimed in court.
While the Court of Appeal agreed that the transaction between Kawa and Absa was indeed a finance lease, it firmly rejected the bank’s attempt to recover rental payments after repossessing the trucks and questioned the credibility of the financial records relied upon to justify the claim.
In the end, Absa succeeded in defending the legal character of the lease but lost the financial war.
The Shs65 million claim collapsed, questions lingered over the bank’s accounting evidence, and the finding of wrongful impounding remained intact — leaving Kawa Distributors with a significant appellate victory nearly eighteen years after the dispute first erupted.
