Court name
Commercial Court of Uganda
Case number
Miscellaneous Application 639 of 2003
Judgment date
10 December 2003

Mwesiga v The East African Development Bank & Anor (Miscellaneous Application 639 of 2003) [2003] UGCommC 22 (10 December 2003);

Cite this case
[2003] UGCommC 22



(Arising from Civil Suit No. 625 of 2003)






1.       By this application, the Applicant (Dr. Mwesiga) sought a temporary injunction against the two Respondents: the East African Development Bank (“EADB”) and the Eastern and Southern African Trade and Development Bank (“PTA Bank”). The injunction is sought to restrain the Respondent Banks from transferring to third parties Dr. Mwesiga’s six properties which he had earlier on mortgaged to both Banks, but which now appear to have been sold off to various third parties.

2.       The Applicant adduced three grounds for this application. First, that the purported sale of his properties was unlawful, null and void because he was never served the statutory notice of 30 days mandated under section 116 of the Registration of Titles Act (Cap. 230, 2000 Edition of the Laws of Uganda). Second, that any purported transfer of those properties to third parties while the matter is being investigated by the Court will irreparably prejudice him. And third, that it is in the interests of justice to preserve the status quo so as not to further prejudice the Applicant who “if given an opportunity can pay off the outstanding debt to the Respondents, thereby redeeming his property”.

3.       Dr. Mwesiga’s, application was duly supported by his own affidavit deponed on 15/10/03 which reiterates the above facts and grounds. The Respondent
Banks’ reply to the application is encapsulated in the affidavit of 3/11/03
deponed by Fulgence Mungereza, whom the Banks appointed as their
Receiver/Manager in the underlying dispute between Dr. Mwesiga and the two
Banks. The Mungereza affidavit totally denies the grounds averred by Dr.
Mwesiga for this application.

4.       The gravemen of Dr. Mwesiga’s various grounds is that upon the Borrower’s default in repaying the loan, the Respondent Banks (as Mortgagees) did not serve him (the Mortgagor) the requisite statutory notice of 30 days as stipulated by section 116 of the Registration of Titles Act. That section provides, in relevant part, as follows:

“... in case default is made in payment of the principal sum or interest secured or any part thereof respectively, or in the performance or observance of any covenant expressed in any mortgage and the default is continued for one month ..., the mortgagee or his or her transferees may serve on the mortgagor or his or her transferees notice in writing to pay the money owing on the mortgage or to perform and observe the aforesaid covenants, as the case may be.”

5.       In regard to the above, paragraph 5 of the Mungereza affidavit (supra) avers that when the principal Borrower (M.K. FLORA LTD) defaulted on the payment of its loan, the Respondent Banks started demanding payment of the outstanding amounts as far back as 22/07/03 (for the EADB), and 30/10/02 for the PTA Bank. The EADB letter of 22/07/03 demanded “immediate payment of USD408, 395.77”, and gave notice that unless payment of that sum “is received by our representative immediately, we shall appoint a Receiver/Manager of [Dr. Mwesiga’s] Company... without any further notice”. Similarly, the PTA Bank’s letter of 30/10/02 advised the loan’s outstanding balance as being US$289,920.31 and GBP 258,331.30 which together with interest and accessories “should be settled within 15 days ...failing which the Bank would commence legal action and enforce the securities subscribed in its favour”.

6.       The existence of these two letters was not at all denied by Dr. Mwesiga, nor did he challenge the clear consequences of non-payment of the amounts demanded. Not at all. Rather, Dr. Mwesiga contended, quite ingenuously I must say, that while the two letters constituted demand notices, they were served on the principal Debtor (M.K. FLORA LTD) for purposes of its Debenture with the Banks — and not on himself (as the mortgagor) for purposes of his mortgage securities with the Banks.

7.       Given all the circumstances of this case and the state of our substantive law, this Court is not at all impressed by the ingenuity of this flimsy contention of Dr. Mwesiga’s. It is an adventure (or perhaps misadventure) into nothing more than casuistry and sophistry and the splitting of hairs. True, the letters in question were addressed to M.K. FLORA LTD — namely one letter to that Company’s “Directors”, and the other letter to the “Managing Director”. However, Dr. Mwesiga was the owner and Managing Director of that Company. Even more importantly, both letters were expressly and categorically addressed to the “Attention of Dr. E.B. Mwesiga”. It is he who received the two notices. He read them. And he completely understood the nature and contents of the two demand notices. This is evidenced by his own responses to these two notices. By letter of 14/11/02, Dr. Mwesiga acknowledged receipt of the PTA Bank’s demand notice of 30/10/02; stated that that letter’s “contents have been noted”; and then requested for “more time to pay arrears on the account.” Furthermore, he promised “weekly
payments direct from our flower buyers M/S Roto Flowers, BV who have already started the remittance.”

In identical fashion, on 29/07/03, Dr. Mwesiga acknowledged receipt of EADB’s demand notice PS/16F/354 of 22/07/03; and requested to pay $200,000 as a one time settlement of alt the company’s outstanding loan obligations.

In particular, Dr. Mwesiga’s above letter emphasized that the $200,000 would be a final settlement to cover both the “debt as well as the collateral assets”. Moreover, he also pleaded with EADB to accept his proposed arrangement “instead of resorting to foreclosure”.

8.       The above responses put the matter beyond any scintilla of doubt that Dr. Mwesiga was fully possessed of the information and knowledge concerning (I) the Debtor’s default; (ii) the Respondent Banks’ demand for prompt payment of the outstanding amounts; and (iii) the Banks’ intention, nay decision, to enforce their securities in the event of non-payment of the sums demanded in their respective notices. Indeed, by his own references to “collateral assets” and to “foreclosure” to the Banks’ demands, Dr. Mwesiga proves that he was under no illusions whatsoever as to what the Banks intended to do with, inter a/,, the six properties that he himself had mortgaged to the two Banks to secure the principal Debtor’s loan obligation. His properties risked foreclosure in the event of the principal Debtor’s failure to pay the outstanding arrears. Even more importantly, Dr. Mwesiga was on notice as to the threat of foreclosure for no less than 9 months (i.e. between PTA Bank’s notice of October 2002, and EADB’s notice of July 2003).
9.       It is immaterial that Dr. Mwesiga knew all this in his capacity as the Managing Director of M.K. FLORA. True, the information initially reached him in that corporate capacity. But once possessed of that information, he had knowledge of all these matters in his personal capacity as well. Indeed, he pleaded with the Banks to accept the Company’s settlement arrangement, instead of resorting to “foreclosure” of his own personal properties that were mortgaged to the Banks.

10.      To contend as the Applicant laboured to do that the Banks’ notices were served only on the Company, but not on Dr. Mwesiga (the Mortgagor), is to put form over substance. Yet in matters such as these, the law clearly holds substance over form. For a lucid exposition of this doctrine see the recent case of Placer Dome Inc v Canada [1992] 2 CTC 98 at 109 in which the Supreme Court of Canada held that:

“It is the substance of a transaction that must be looked at in order to determine the true legal rights and obligations of the parties. Similarly, it is the commercial and practical nature of the transaction, the true legal rights and obligations flowing from it that must be looked at to determine its tax implications

The same sentiments were expressed by the same Canadian Supreme Court case: Dominion Taxi Cab Association v MNR [1954] SCR 82. It is no doubt for this reason that our own Constitution articulates the principle contained in Article 126(2)(e) to the effect that in adjudicating cases, courts of this land are to administer substantive justice without undue regard to technicalities.

11.      In the instant application, the form and technicalities of the matter would, no doubt, tend to suggest that Dr. Mwesiga was not notified as a private individual and that therefore he had no knowledge at all, as such individual, of the principal Debtor’s loan default and the Respondent Banks’ demand notices for payment. Yet the substance and practical realities of the matter leave no doubt in anybody’s mind - least of all Dr. Mwesiga’s own mind as evidenced by his own above responses - but that Dr. Mwesiga as an individual was fully and effectually seized of all this information, via his corporate capacity as Managing Director of his company and indeed as the one individual in that Company to whom the Banks’ notices specifically drew their attention.

12.      As fully discussed in paragraphs 6, 7 and 8 above, Dr. Mwesiga was totally appraised of the matter in all its ramifications. He cannot and must not be allowed to disown the knowledge of which he became seized. In this regard, the legal definition of what is a “notice’ is extremely instructive. Black’s Law Dictionary (6th Edn., 1990), p.1061 defines that term as follows:

“Notice in its legal sense is information concerning a fact, actually communicated to a person by an authorised person, or actually
derived by him from a proper source, and is regarded as ‘actual’ when the person sought to be affected by it knows thereby of the existence of the particular fact in question
US v Tateur, CA ILL, 215 F2d 415. It is knowledge of facts which would naturally lead an honest and prudent person to make inquiry, and does not necessarily mean knowledge of all the facts - Wayne Bldg. & Loan Co. of Wooster v Yarborough, 11 Ohio St. 2d .195, 228 N.E. 2d 841.”

Furthermore, the term “actual notice” is defined as:

“…embracing two classes, express and implied, the former includes all knowledge which depends upon collateral inference, or which imposes upon the party the further duty of inquiry; the latter imputes knowledge to the party because he is shown to be conscious of having the means of knowledge. In this sense actual notice is... such as he is presumed to have received personally because the evidence within his knowledge was sufficient to put him upon inquiry.”
[emphasis added]

13.      Similarly, Jowitt’s Dictionary of English Law (21st Edn.), Vol. 2, p. 1253 defines “notice” (in its three manifestations — namely, actual, constructive, and implied) as follows:

“To give notice of a fact to a person is to bring it to his knowledge:
when the circumstances are such that he is either actually aware of the fact, or might or ought to be aware of it, he is said to have notice of it.”
Notice is either actual (express), constructive, or imputed.
Actual or express notice is that given in plain words from one person to another, either orally or in writing.
Constructive notice is where knowledge of the fact is presumed from the circumstances of the case: a person is held to have constructive notice of facts to a knowledge of which he would have been led by inquiry such as men of business under similar circumstances would reasonably have made.
Imputed notice, sometimes classified as constructive notice, is notice to an agent, solicitor, etc, on the presumption that the agent did his duty by communicating the notice to his principal.”

14.      From all the foregoing, it is quite evident that in the instant case, Dr. Mwesiga as Managing Director of M.K. FLORA LTD had actual notice of the Respondent Banks’ demands for payment of the defaulted loan. And then, deriving from that information, he in his private personal capacity, had at the very least constructive or implied notice in as much as knowing what he now knew in his official capacity, he must be held to have had sufficient evidence within his knowledge to put him upon inquiry — the kind of inquiry which an honest and prudent man of business (such as Dr. Mwesiga) would have naturally made in the circumstances.

15.      The Applicant relied heavily on the case of Simiyu v Housing Finance Company of Kenya [2000] 2 EA 541 in which a flagrant violation of the requirement for a statutory notice to a mortgagor was held to be fatal to the Respondent/Mortgagee’s case. Learned counsel for the Applicant in this instant application argued that Simiyu’s case was on all fours with the instant application. However, with due respect, that assertion is completely misconceived. On the contrary, Simiyu’s case is entirely distinguishable in a number of key elements. First, in Simiyu’s case, the mortgagor was never notified at all. Instead, the Plaintiff:

“swore that she came to know of the sale when [her] tenant
failed to vacate her premises as earlier agreed and also failed to pay the rent for the month of June 2001 and she subsequently discovered that t
he premises had been sold to him.”

In these circumstances, the Court held that there was no proper statutory notice or notification of sale to the Plaintiff/Mortgagor because the Mortgagees addressed the notice to the wrong post office box number.

In the instant case, the notice was properly addressed and duly received - let alone responded to - by Dr. Mwesigwa himself. Second, an overwhelming consideration in Simiyu’s case was the fact that:

“the notices were tainted with fraud in that the requisite notices were addressed to the wrong addresses, the notices had been deliberately served on a tenant who was interested in the suit premises and failed to hand them over to her, and . . . the sale was advertised in a paper with limited readership, thereby excluding potential buyers.”

All the complaints of fraud and other impropriety quoted above are not at all present in the instant application. Accordingly, Simiyu’s case is entirely distinguishable from the instant application.

16.      In paragraph 3 of his Chamber Summons, Dr. Mwesiga states that in the interests of justice, the status quo should be preserved:

“so as not to prejudice the Applicant who if given an opportunity can pay off the outstanding debt to the Respondent/Defendants thereby redeeming his property.”

However, the Applicant has not demonstrated any seriousness - let alone ability - to pay off the outstanding debt. For over 14 months now (ever since the first demand notice by the PTA Bank in October 2002), he has had all the opportunities to pay off the debt and redeem his mortgaged properties, but to no avail. He has proposed one settlement arrangement after another, but without any actual payments made. All these were opportunities he could have exploited. He cannot now, in desperation, cry out for yet another opportunity. It is quite evident to this Court that all these pious expressions of Dr. Mwesiga’s willingness to pay off the outstanding debt are but sheer delaying tactics, wrapped in a series of well crafted strategems to delay the day of reckoning.

17.      As regards the Applicant’s third ground (i.e. irreparable injury not adequately compensable in damages), it is this Court’s considered view that the sale of a mortgaged property does not amount to irreparable injury that cannot be adequately compensated in damages. Indeed, in Simiyu’s case (which was cited and heavily relied on by the Applicant himself) RINGERA J held the exact opposite proposition to that canvassed by the Applicant. His Lordship stated that:

“As I have often held, once property has been charged to secure financial accommodation, it, ipso facto becomes a commodity for sale and there is no commodity for sale whose loss cannot be compensated/n damages. Indeed, the chargor is put on notice when he executes a charge that default in payment of the charge debt or any part thereof on due date(s) would result in the security being sold. When he subsequently defaults and the security L5 sought to be realized or is realized, he cannot properly be heard to complain that he has been exposed to an injury which cannot be adequately compensated in damages. I also accept that HFCK is in a position to pay any such damages as the Plaintiff may be entitled to in the action.”

18.      I am in full agreement with the above quoted view of the learned Judge. Any loss that Dr. Mwesiga might suffer in the instant case would be adequately compensated in damages; and the two Respondent Banks EADB and PTA Bank are of such a financial stature as to be able even singly (let alone jointly) to pay any such damages as may be occasioned by Dr. Mwesiga’s loss.

19.      Learned counsel for the PTA Bank expressed the view that for the Court to grant the injunction now prayed would be merely to invite the Respondent Banks to serve the Applicant/Mortgagor with a fresh statutory notice; and, therefore, to start the whole process all over again. I agree. Any such vain scenario would be no less than a mockery - nay, an abuse - of this Court’s process. As is well known and well accepted, equity will not do anything in vain. No injunction should be granted in these circumstances. I am fortified in this view especially by the philosophy and provision of section 117 of the Registration of Titles Act. That section clearly supplements and clarifies the
requirement of the statutory notice mandated under section 116 of the same Act. Section 117 provides that:

“Where money secured by a mortgage under this Act is made payable on demand, a demand in writing pursuant to the mortgage shall be equivalent to the notice in writing to pay the money owing provided for by section 1.16; and no other notice shall be required to create the default in payment’

20.      In light of all the foregoing, the balance of convenience in this case is decidedly in favour of the Respondent Banks. Accordingly, the application for a temporary injunction is hereby denied; with costs awarded to the Respondents.

Ordered accordingly.

James Ogoola

Augustine Kibuka-Musoke, Esq - Counsel for the Applicant/Plaintiff
Cornelius Mukiibi, Esq - Counsel for the Respondent/Defendants
J.M. Egetu - Court Clerk

James Ogoola