Banks And The Courts: The Case For Alternative Dispute Resolution (ADR) In Uganda’s Banking Sector

The sinking weight on the Commercial Court

Uganda’s Commercial Court Division carries a burden that no amount of judicial efficiency can resolve alone. Currently, 623 cases involving banks are pending before the court, with the aggregate value in dispute estimated at UGX 2 trillion. These are not merely statistics. Behind each file typically is a borrower whose property is frozen in litigation, a business on the brink, a bank whose capital is tied up in provisioning and an economy thirsty for credit. The Commercial Court was designed to be the engine room of Uganda’s commercial justice system. Instead, it has become a holding bay and the banking sector is one of its heaviest contributors.

This matter was a key topic at last week's Gumzo La ADR forum, which convened stakeholders from the banking and justice sectors to explore mechanisms for expediting the resolution of banking disputes and releasing encumbered capital.

The dynamics that produce this case congestion are well known. It is not banks that lead the rush to court, it is borrowers. When a bank issues a statutory notice of sale of mortgaged property, borrowers typically respond by filing temporary injunction applications alleging loan miscalculation, irregular interest charges, breach of banker’s duties procedural defects (such as lack of spousal consent), challenging the bank's lending capacity or seeking to enforce the debunked consumer protection guidelines. Courts routinely grant these applications ex parte. Inter partes hearings are then repeatedly adjourned, for long periods, during which the bank's enforcement rights remain suspended, the borrower retains occupation and the dispute remains unresolved.

Perhaps our local traditions contribute to this in part. Local wisdom has it that “a case which delays gives you a way out”. Often counsel for the borrower in distress is willing to take his chances to “battle it out in court.”

Banks, for their part, are not driven by appetite for litigation. They are driven by regulatory necessity. Under the central bank’s prudential framework, a non-performing loan triggers mandatory provisioning the moment a borrower defaults, classified as substandard, then doubtful, then a loss, with corresponding charges against the bank’s capital. This is not a choice; it is a supervisory obligation. Banks must begin covering losses as soon as borrowers default, which means they are under constant pressure to realise security, clean their books, and free up capital often based on depositors’ funds. The courtroom is not the preferred forum for banks. They often end up there only because no structured alternative exists.

The stakes extend well beyond individual disputes. Uganda’s Vision 2040, and the more ambitious 10x growth agenda that underpins it, requires a central role to the banking sector as the engine of capital mobilisation and private sector credit expansion. A banking sector whose capital is perpetually tied up in provisioning against frozen loans, and whose management bandwidth is consumed by litigation, cannot play that role. Every shilling locked in a disputed loan is a shilling not deployed into productive credit. Every month of litigation delay is a month in which the cost of credit rises to compensate for the risk. The connection between dispute resolution reform and Uganda’s development ambitions is direct and measurable.

This is also, emphatically, a matter of government interest. The current litigation environment, characterised by prolonged enforcement delays, unpredictable injunction practice, and no structured pre-litigation pathway, is a structural contributor to the high cost of credit in Uganda. Banks price litigation risk into their lending rates. Borrowers pay that premium whether or not they ever default. Reform of the dispute resolution framework is therefore not simply a justice sector concern; it is a direct lever on the affordability and accessibility of credit for Ugandan businesses and households. Government has both the interest and the authority to act.

Why ADR is the answer

The solution to court congestion in banking disputes lies not in increasing judicial capacity or accelerating trial timelines, but in establishing a fundamentally different forum. Alternative Dispute Resolution-encompassing mediation, arbitration, and structured ombudsman mechanisms-offers a more expeditious, cost-effective, and less adversarial pathway to resolution. Critically, ADR addresses the root cause of the problem: borrowers with legitimate grievances concerning loan computation or bank conduct currently have no recourse outside the courts. The establishment of a credible, independent alternative would substantially reduce the incentive to weaponise injunctions as a dilatory tactic.

This is not theoretical. Uganda already has the legal architecture for ADR. The Arbitration and Conciliation Act provides a legislative foundation. The arbitration centres like International Centre for Arbitration and Mediation in Kampala (“ICAMEK”) that was partly founded by banks, offer institutional infrastructure. What is missing is a sector-specific mechanism tailored to the realities of bank-customer disputes, disputes that are typically high value and asymmetrical in the bargaining power of the parties. Standard bank facility letters, loan agreements and mortgage deeds in Uganda contain no ADR clauses. This is not an oversight but a deliberate drafting choice reflecting that power asymmetry. Correcting it requires not just contractual reform, but institutional architecture.

A statutory banking ombudsman

The centrepiece of any meaningful reform must be a statutory banking ombudsman, an independent, impartial office empowered by legislation to receive, investigate and determine disputes between customers and their financial institutions. The critical features of such an office are well established from global practice: free access for consumers; mandatory participation by all licensed lenders; jurisdiction over loan disputes, unauthorised transactions, interest complaints and credit reference bureau grievances; and determinations that are binding on banks but not on customers, who retain the right to reject a finding and proceed to court.

In the insurance sector, the Insurance Disputes Tribunal offers much faster and expert resolution to insurance disputes. Similarly, the Electricity Disputes Tribunal play their part in electricity sector disputes. South Africa’s Ombudsman for Banking Services is the most mature model on the continent and illustrates the impact such an office can have. Kenya is also advancing a Financial Markets Conduct Bill that proposes a formal financial ombudsman scheme. Uganda need not wait for its neighbours to complete the journey before beginning its own.

What reform requires

Three reforms are immediately actionable. First, Parliament should enact a Financial Ombudsman Act or amend the Financial Institutions Act, to establish a statutory banking ombudsman with a defined financial jurisdiction, mandatory institutional participation and a free consumer access model funded by industry levies. Second, Bank of Uganda should issue prudential guidelines requiring robust internal complaint-handling mechanisms as a condition of licensing, ensuring that disputes are resolved at the institution level before they ever reach an external forum. Third, the banks should be directed to adopt model ADR clauses for standard facility agreements, ending the current practice of omitting dispute resolution mechanisms from loan documentation entirely.

In the medium term, Uganda should introduce mandatory pre-litigation mediation for banking disputes, with strict and non-extendable time limits designed to run concurrently with a bank’s statutory notice period, not to suspend enforcement, but to run alongside it. And reform of injunction practice in mortgage enforcement is overdue: courts should require substantive evidence of irregularity before freezing a statutory sale, not merely a dispute over the amounts owed. Accounting issues do not suffice to stay a sale.

One further procedural reform deserves thoughtful consideration: requiring parties to demonstrate, at the pleadings stage, that they made a genuine attempt to engage and resolve the dispute before filing as is done in Namibia. This obligation should apply at every stage of litigation, not merely at first instance, but before any interlocutory application, and before any appeal. Evidence of prior engagement would filter out disputes filed without any attempt at resolution and create a formal record of what was discussed, what was offered, and why agreement failed. It would also shift the culture of banking litigation away from court as a first resort and toward court as a last resort, which is where it belongs.

Beyond ADR

While steps towards ADR in banking are certainly welcome, there are worrying signs on that front as well. Two high value cases demonstrate that winning an arbitral award is not the end of the story. International Development Corporation v Aya has seen some 18 odd court applications to prevent enforcement of an arbitral award. Simba v Vantage Mezzanine is another case of a delayed enforcement of an arbitral award that has miraculously found its way to the Supreme Court despite all the principles on finality of arbitral awards.

Conclusion

The 623 banking cases pending before Uganda’s Commercial Court, representing two trillion shillings in disputed value, are a symptom of a structural gap, not a judicial failure. Banks are trapped by provisioning obligations; borrowers are trapped by a lack of any credible alternative to court; and the Commercial Court is trapped between them. The consequences ripple outward: higher credit costs, constrained lending, and a banking sector unable to play its full role in Uganda’s 10x growth ambitions. ADR reform is not merely a justice sector project. It is a macroeconomic imperative. With the right institutional architecture, a statutory ombudsman, mandatory pre-litigation engagement, a proof-of-attempt requirement at every stage of proceedings and a reformed injunction practice, Uganda can build a dispute resolution framework worthy of the economy it is determined to become.

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