Mambasa v Ibalu Associates Limited & Another (Civil Suit 61 of 2024) [2024] UGHC 657 (25 June 2024)

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KASESE

HCT-25-CV-CS-0061-2024

(FORMERLY FORT PORTAL HCT-01-CV-CS-0067-2022)

MAMBASA SWAIBU ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: PLAINTIFF

VERSUS

1. IBALU ASSOCIATES LIMITED

2. KALEMERA ADAM ISAAC BWAMBALE:::::::::::::::::::::::::::::::::::::::::: DEFENDANTS

BEFORE HON. JUSTICE DAVID L. MAKUMBI

RULING

REPRESENTATION:

Plaintiff represented by Sibendire, Tayebwa & Co. Advocates

Defendants represented by Bagyenda & Co. Advocates.

BACKGROUND:

This is a ruling on preliminary objections raised by the Defendants.

The preliminary objections arose out of a suit brought by way of Plaint before this Court challenging the sale of property put up as security for money borrowed by the Plaintiff from the 1^st Defendant. In the same suit the Plaintiff sued the 2^nd Defendant on the grounds that the 2^nd Defendant had fraudulently purchased the suit property from the 1^st Defendant.

Prior to commencement of the trial the defendants raised two preliminary points of law.

1. The Suit was filed by way of Plaint contrary to Regulation 26 of Tier 4 (Money Lending) Regulations SI No. 8 of 2018.

2. The suit is frivolous and vexatious and the plaint in this matter does not establish a reasonable cause of action against the defendants.

DETERMINATION OF THE OBJECTIONS:

In the case of Mukisa Biscuits Manufucturing Ltd v Westend Distributors Ltd (1969) 1 EA 696, Sir Charles Newbold JA held at Page 701 that,

“A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion.”

Objection 1:

Counsel for the Defendants argued that by virtue of the Plaintiff’s own pleadings, it was clear that he sought to cause Court to re-open a money lending transaction in line with Section 89 of the Tier 4 Microfinance Institutions and Money Lenders Act. Counsel therefore contended that Regulation 26 being couched in mandatory terms bound the Plaintiff and to that extent the Plaintiff’s pleadings were an abuse of court process and ought to be struck out.

Counsel for the Plaintiff argued in response that the provisions raised by the Defendants in the preliminary objection did not apply as the provisions of the aforementioned Regulations did not apply to the 1^st Defendant as he did not hold a Money Lender’s licence. He further argued that the Plaint had further issues like the fact that the 1^st Defendant lacking a Money Lender’s licence meant he could not sell the security without court order. He further argued that there were other illegalities in the transaction unrelated to re-opening of the transaction. Counsel also argued that Section 89 of the Act did not make it mandatory to proceed by way of Notice of Motion in order to move Court to re-open a transaction.

Counsel cited the cases of Kagumaho Kakuyo v Shilla Ninsiima – HCCS No 531 of 2019; Leo’s Investments Ltd v Turyakira Christine and Another – HCCS (Kabale) No. 8 of 2020; and Clessy Barya Kiiza v Jomo Robert Kasaijja and 3 Others – HCCS No. 894 of 2019 all in support of the position that the suit was properly filed and was not subject to the Money Lenders’ Regulations.

Counsel for the Defendants reiterated his arguments in support of the first preliminary objection and emphasized that Counsel for the Plaintiff had gone into arguing of the merits.

Having considered the arguments of both Counsel concerning the first preliminary objection alongside the standard established in the Mukisa case cited above, I specifically observed from Paragraph 4(a) of the Plaint in this matter that the Plaintiff’s cause of action is stated in part as follows,

“The Plaintiff brings this suit against the defendants jointly and severally seeking … a declaration that the agreement of borrowing money dated the 19^th day of January 2021 between the 1^st Defendant and the Plaintiff offends the law for charging excessive interest, being harsh and unconscionable and the fact that the 1^st Defendant lacked a valid Money Lenders’ Licence at the time.”

When I consider the pleading above, there is no doubt in my mind that the Plaintiff’s case as plainly stated above is first and foremost on the ground that the agreement he is contesting was offensive to the law to the extent that it charged excessive interest and was harsh and unconscionable. Secondly and flowing from the same paragraph the Plaintiff contested the agreement on the basis that the 1^st Defendant lacked a Money Lender’s Licence.

The primary legislation in respect of money lending transactions of the sort outlined in this suit is the Tier 4 Microfinance Institutions and Money Lenders Act. According to the long title of the Act it is established to provide for the management and control of money-lending business.

Section 89(1) of the aforementioned Act provides that,

“Where a borrower or a money lender applies to court for the recovery of money lent or the enforcement of a money lending agreement or security made or taken respect of money lent, the court may re-open a transaction if it is satisfied that,

1. the interest charged in respect of the sum actually lent is excessive;

2. the amount charged for expenses, inquiries, fines, bonus, premium, renewals or any other charges is excessive;

3. the transaction is harsh and unconscionable; or

4. the transaction is such that a court of equity would give relief.”

A simple reading of Paragraph 4(a) of the Plaint as quoted above, clearly demonstrates that the Plaintiff has founded a cause of action primarily on excessive interest and the harsh and unconscionable nature of the agreement. This is also consistent with Paragraph 6 consisting of the facts giving rise to the cause of action.

Section 112 of the Act also provides for the power of the responsible Minister to make Regulations for the better carrying into effect of the provisions of the Act and more specifically for money lending among others. In exercise of the powers specified under Section 112 the Minister put in place the Tier 4 Microfinance Institutions and Money Lenders (Money Lenders) Regulations.

Regulation 26 of the abovementioned Regulations provides that,

“An application to reopen a moneylending transaction under Section 88 and 89 of the Act shall be by way of Notice of Motion filed in accordance with the Civil Procedure Act, and the Civil Procedure Rules.”

Counsel for the Plaintiff argued that the aforementioned provision was not applicable as the 1^st Defendant lacked a Money Lender’s Licence and that to that extent the transaction in issue was not governed by the aforementioned law and regulations governing money lending. However, this argument is counter-intuitive because in order for this Court to be able to determine the issues raised by the Plaintiff, this court would still need to take into account the laws governing Money Lending. It is therefore not open to the Plaintiff to argue on one hand that the procedure specified under Regulation 26 above for re-opening of a money lending transaction is not applicable and yet it is established by virtue of the same law by which this Court would be expected to adjudicate this matter.

The long title of the Tier 4 Act described above states inter alia that it is an Act to provide for management and control of money lending business. Furthermore, Section 2(1)(b) of the said Act provides that the Act applies to money lenders. It was Counsel for the Plaintiff’s argument that due to the fact that the 1^st Defendant was not licenced then it fell outside the definition of a Money Lender under the Act and the procedure for reopening a transaction could therefore not apply. He further cited cases where the High Court had entertained matters involving Money Lenders by way of plaint.

I have had the benefit of looking at the authorities and I found that they are all distinguishable from this particular case. In Kamugaho Kakuyo v Shilla Ninsiima and Clessy Barya Kiiza v Jomo Robert Kasaija and 3 Others, the cases involved individual money lenders and not companies. The definition of a Money Lender under Section 3 of the Act means a COMPANY licenced under Section 79 of the Act. In those cases the High Court properly adjudicated the matters in the context of individuals engaged in money lending transactions. The Court was not bound in those cases to follow Regulation 26 because the moneylender was not a company but to the extent that the individual(s) lending the money engaged in an activity governed by the Money Lending law the Court was bound to adjudicate on the suit in accordance with the relevant law.

Furthermore, I find also that despite the case of Leo’s Investments Ltd v Turyahike Christine and Another cited by Counsel for the Plaintiff relating to an actual money lending company within the meaning of Section 3 of the Act, that case was also distinguishable from the instant case before this court. This is because the cause of action related to a summary suit for recovery of a liquidated sum. The Court subsequently fell back to the Money Lending law for the purpose of ascertaining whether the agreement against which the liquidated sum was being claimed. The cause of action in the Leo case did directly not relate to a ground for re-opening a money lending transaction in the terms that the instant case does.

Bearing the above in mind, I am fully in agreement with Counsel for the Defendants that in as much as the Plaintiff’s cause of action is founded in significant respects on grounds that are covered squarely by Section 89(1) above and Regulation 26 above, the Plaintiff was bound to bring this matter by way of Notice of Motion. The question of the lack of a licence is a matter of evidence that cannot be entertained as an argument in response to a preliminary objection.

Regulation 26 is couched in mandatory terms and the moment the Plaintiff contested the agreement on the basis of excessive interest as well as the agreement being harsh and unconscionable he came bound to proceed by way of Notice of Motion.

When it comes to questions of procedure of filing suits, it must be understood that the rules relating to the same exist for a reason. Concerning the parent Act and Regulation 26 related to re-opening of a Money Lending Agreement, it would appear to me that given that Money Lending transactions are largely founded on documentary evidence, the framers of the law related to Money Lending felt that suits related to the same ought to be handled by Notice of Motion. The Notice of Motion procedure primarily involves presentation of evidence by affidavit with supporting documents and such a procedure presupposes that the Court will be able to adjudicate the issue without having to go the lengthy route of listening to witness testimony in a regular suit. In other words, the assumption is that the documents related to the transaction, once explained by way of affidavit, should speak for themselves without Court having to engage witnesses directly.

By suggesting that a cause of action directly related to re-opening of a Money Lending Agreement should be entertained by way of Plaint, the Plaintiff not only defeats the purpose of the Money Lending law but also unduly lengthens what ought to be a shorter avenue of resolving the dispute. It also creates inconsistency in court procedures, to which this Court will not be party. I am also alive to the need to administer substantive justice without undue regard to technicalities but in this case, I hold the view that Regulation 26 is not a mere technicality. It is a specific procedural requirement established for the expeditious disposal of disputes related to Money Lending. If it is not respected it may very well lead to Courts being inundated with unnecessary protracted trials over what should be very straightforward disputes of the sort characterized by Money Lending transactions. This in turn could lead to adverse economic implications. In this regard, I also draw from the case of Mulindwa George William v Kisibuka Joseph – Supreme Court Civil Appeal No. 12 of 2014 where the Court held regarding the application of Article 126(2)(e) of the Constitution that,

“This contention is, in our opinion, erroneous and unsupported by the pronouncements of the Supreme Court in several cases involving application of Article 126 of the Constitution by the courts. According to these authorities, the settled position is that Article 126(2)(e) has not done away with the requirement that litigants must comply with the Rules of procedure in litigation. The Article merely gives Constitutional force to the well settled common law principle that rules of procedure act as handmaidens of justice. The framers of the Constitution were alive to this fact. That is why they provided that the principles in Article 126 including administering substantive justice without undue regard to technicalities, must be applied ‘subject to the law’. Such laws include the Rules of Procedure.

A host of cases such as Utex Industries v Attorney General – SCCA No. 52 of 1997; Kasirye, Byaruhanga and Co Advocates v Uganda Development Bank – SCCA No. 2 of 1997 and Horizon Coaches v Edward Rugumayo – SCCA No. 18 of 2009 drove this point home.”

It is therefore my finding that the Plaintiff’s cause of action, being primarily founded on excessive interest as well as the harsh and unconscionable terms of the Money Lending Agreement, ought to have been brought by way of Notice of Motion in line with Regulation 26 of the Tier 4 Microfinance Institutions and Money Lenders (Money Lenders) Regulations. The question of the absence of a lack of a Money Lending Licence pleaded by the Plaintiff is not only a matter of evidence but was also brought as part and parcel of the same cause of action raising the question of excessive interest and the harsh and unconscionable terms. By the framing of the Plaintiff’s own pleadings, the plea of the absence of the Money Lending Licence is made in pari materia with the plea of excessive interest and harsh and unconscionable terms. It cannot therefore stand on its own once pleaded alongside the other issues related to Section 89(1) and Regulation 26 above. Once the Plaintiff raised it with issues directly linked to the re-opening of Money Lending transactions he was bound to proceed by Notice of Motion.

The first preliminary objection therefore succeeds.

Having decided that the first preliminary objection succeeds I find it unnecessary to traverse the merits of the second preliminary objection as the entire suit was filed wrongly before this Court.

This matter also involved a counterclaim by the 2^nd Defendant which 2^nd Defendant was also jointly associated with the 1^st Defendant concerning the preliminary objections in this matter. Ordinarily the counterclaim should not be affected by the preliminary objection, as it is a suit in its own right.

However, the current situation poses a unique challenge. By the 2^nd Defendant associating themselves with the preliminary objections and more especially the succeeding objection, the 2^nd Defendant impliedly concedes that the foundation of his counterclaim is contentious. The 2^nd Defendant proceeds by counterclaim seeking vacant possession from the Plaintiff but is also party to preliminary objections to a suit by which the 1^st Defendant’s legal capacity to transfer the property in issue is put into question. It would appear to me that it is improper to proceed with the counterclaim without the central issue of the 1^st Defendant’s capacity to lend the money being resolved as this would ultimately have a bearing on whether there is a genuine cause of action in the counterclaim.

In light of the above, I therefore also find that there is no proper cause of action in the counterclaim as the counterclaimant’s claim is inextricably linked to the original suit. The counterclaimant cannot pursue his rights against the counter-defendant without the re-opening of the Money Lending transaction between the 1^st Defendant and the Plaintiff to establish the legality of the sale. This cannot be done in the counterclaim as there would automatically be a risk of making an adverse finding against the 1^st Defendant when he is not party to the proceedings.

As an alternative, the counterclaimant may consider a separate suit against the 1^st Defendant for specific performance and adding the Plaintiff in this matter. This would ensure that the legality of the sale can be traversed by Court with the re-opening of the Money Lending agreement being an issue secondary to the enforcement of the sale agreement.

ORDERS:

For the reasons I have laid out above I do hereby order as follows.

1. Fort Portal HCT-01-CV-CS No. 0067 of 2022 is hereby struck out for improper filing contrary to Section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Act and Regulation 26 of the Tier 4 Microfinance Institutions and Money Lenders (Money Lenders) Regulations.

2. The counterclaim in Fort Portal HCT-01-CV-CS No. 0067 of 2022 is also struck out as the cause of action therein is inextricably linked to the main suit and cannot stand without resolution of the foundation suit.

3. Costs in this matter are awarded to the 1^st and 2^nd Defendants.

4. Costs in the counterclaim are awarded to the counter-defendant.

So ordered.

David S.L. Makumbi

JUDGE

25/06/24