Court name
Commercial Court of Uganda
Judgment date
23 August 2013

Kakooza v Stanbic Bank (U) Ltd (Miscellaneous Application-2012/614) [2013] UGCommC 148 (23 August 2013);

Cite this case
[2013] UGCommC 148

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISC. APPLICATION NO 614 OF 2012

(ARISING FROM OUT OF CIVIL SUIT NO. 455 OF 2012)

KAKOOZA ABDULLAH} .......................................................................PLAINTIFF

VERSUS

STANBIC BANK (U) LTD} ....................................................................DEFENDANT

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant commenced this application under the provisions of order 41 rules 1 and 9 of the Civil Procedure Rules and section 101 (98) of the Civil Procedure Act. It is for orders that a temporary injunction is issued against the respondent, its servants, and/or against restraining them from auctioning off, advertising, for closing or in any manner disposing of Kibuga block 3 plot 772 land at Makerere and Busiro block 383 plot 5822 until the final disposal of the suit and for costs.

The grounds of the application are that the respondent, its servants or agents intend to unlawfully auction off the applicants property despite the fact that the applicant is willing to surrender one of the properties which is more than enough to settle the outstanding loan balance. Other grounds are contained in the affirmation of the applicant Mr Kakooza Abdullah. He avers that the respondents, its servants and/or agents intend to unlawfully auction off his property despite the fact that he was willing to surrender one of the properties which was more than sufficient to settle his outstanding loan balance with the respondent bank. His complaint is that the respondent has unreasonably rejected his request to reduce the monthly instalment payment to Uganda shillings 51,000,000/= as he was undergoing a financially constrained time due to turmoil in the economy. The total outstanding loan claim by the respondent was excessive and unlawful and the applicant disputes it. Thirdly the respondent advertised his property without serving him with a recall letter as required. Furthermore the respondent unlawfully re-valued property to a figure of 1.9 billion calculated to cause loss to the applicant in the event of an auction. Consequently he asserts that if the order prayed for is not granted, he would suffer irreparable damage as the property would be unjustifiably auctioned off. That the balance of convenience was that the court ought to grant the application and finally that it is in the interest of justice that the injunction is granted.

The respondents strongly opposed the application and filed an affidavit in reply. The affidavit in reply is sworn by Moses Olico, the Officer, Business Solutions and Recoveries of the respondent authorised to swear the affidavit. The respondent initially objected to the application on the ground that there was no proper service of the application and that the application ought to be struck out. The court overruled the objection on 15 February 2013 and the application proceeded on the merits. Consequently there is no need to refer to the averments as far as the question of service of the application on the respondent is concerned. On the other points of opposition, the respondent through its officer avers that the applicant has no cause of action against the respondent. Secondly it is not true that the total outstanding loan claimed by the respondent is excessive or unlawful. Thirdly it was untrue to state that the mortgaged property was advertised without giving the requisite notice. Fourthly under the Mortgage Regulations, the respondent as a mortgagee is required to cause the mortgaged property to be re-valued prior to realisation of the property. The respondent accordingly instructed Messieurs CMT Realtors Ltd to carry out the revaluation of the property and it is therefore not true that the revaluation of property was meant to cause loss to the applicant. On those grounds the applicant was not likely to suffer any irreparable damage if the auction of the property is conducted. The applicant's suit is misconceived and does not have any likelihood of success.

As far as the facts of the loan are concerned, the respondent avers that the loans the subject matter of the suit are non-performing and under the bank of Uganda requirements, the respondent had to raise provisions to the tune of Uganda shillings 1,050,000,000/= and Uganda shillings 779,928,373/= on the said loans under the account numbers 9030005880822 and 903075888181 respectively and which loans had outstanding balances of Uganda shillings 2,873,877,429/= and Uganda shillings 1,097,959,497/= as at 30th of November 2012 thereby caused financial loss to the respondent. Providing for any non-performing loan involves setting aside of funds from the respondents profits until the loan is recovered. The process entails serious loss to the respondent in that the respondent cannot claim that the money which is the subject of the said provisions. The respondent will continue to suffer inconvenience and loss by reason of the said provision if the order of temporary injunction is issued.

At the hearing of the application, the applicant was represented by Counsel Farook Kizito and the respondent was represented by counsel John Fisher Kanyemibwa. Both counsels addressed the court in written submissions.

The applicant’s submissions are that he filed the application to maintain the status quo pending determination of the suit. Counsel asserts that for the moment the court has not been presented with a full picture of each of each party. The court should not reach a conclusion on the basis of the affidavit evidence. On this point the injunction should be granted. He relied on the case of American Cyanamid versus Ethicon (1975) 1 All ER 504 for the assertion that the applicant's case is a fit and proper case for the grant of a temporary injunction. Counsel submits that the applicant has proved that he was not served with the recall letter as required before his property was advertised. The issue of recall letter should be tried before the court makes a finding conclusively. He asserted that the issuance of recall letter is a fundamental issue in cases of this nature and prayed that the status quo between the parties is maintained until the courts full determination.

Secondly the Applicant's case is that he contests the outstanding loan sum claimed by the defendant and the revaluation of the property with a view to sell them for the price of a song. The respondent has not denied the averment of the applicant. In the case of Kiyimba Kaggwa versus Hajj Nasser Katende [1995] HCB, it was held that the grant of a temporary injunction is the exercise of judicial discretion and the purpose was to preserve the status quo until the question to be investigated in the suit is finally disposed of.

Thirdly the applicant's case is that if the order of injunction is granted the respondent will suffer no injury as the property is secured by way of mortgage and can be disposed of if a finding is made in the respondents favour. The applicants counsel further relied on the case of American Cyanamid versus Ethicon (supra) for the submission that the respondent is being stopped from embarking on something he has not done before and the only effect of the interlocutory injunction in the event of the respondent succeeding at the trial is to postpone the date when it is to embark upon the course of action it had previously not undertaken. Furthermore the above decision holds that what is material for consideration is not the likelihood of success in the suit but that there are serious questions to be tried revealed by the application/plaintiffs case.

Finally the applicants counsel submits that the applicant will definitely suffer irreparable damage if his seven Storey Hostel and matrimonial home was auctioned. Displacement of his family will cause trauma to the family inclusive of shifting his children from one school to another in the mid-term. Lastly counsel submitted that the balance of convenience favoured the applicant.

In reply the respondents counsel set out the grounds for consideration in the grant of an application for a temporary injunction in the case of Kiyimba Kaggwa versus Hajji Katende [1985] HCB at page 43. The first ground is that the applicant must show a prima facie case with a probability of success; secondly an injunction would not normally be granted unless the applicant might otherwise suffer irreparable injury which would not be adequately compensated by an award of damages; and, if the court is in doubt, it will decide the application on the balance of convenience.

The respondent submits that the applicant’s application does not meet the first requirement which is whether the application discloses a prima facie case with a probability of success. Counsel submitted that High Court civil suit number 455 of 2012 between the applicant and the respondent is misconceived and discloses no cause of action against the respondent.

Firstly the plaint describes the applicant as a “sole partnership”, which creature does not exist in law since a partnership subsists between persons carrying on business with a view to profit. The plaintiff cannot be sole and a partnership at the same time and a suit brought by such an entity is bad in law and legally misconceived.

Secondly counsel submitted that a "sole partnership" cannot own land under the provisions of sections 14, 16, 20, 28, 55, 56, 57, 59, 60, 63, 64, 76, 78, 86, 91, 94, 98, 102 etc of the Registration of Titles Act it is only either natural or artificial persons can own property. Consequently the applicant cannot maintain the suit because it has no legal rights on the said land and therefore cannot suffer any legal grievance in the connection there with. On the basis of the above submission the applicant cannot maintain an application for a temporary injunction.

The respondents further contended that in paragraph 10 (b) of the plaint the applicant avers that it obtained two business loans from the respondent and he used the suit land as security. The plaintiff/applicant did not annex to the plaint a term loan letter dated 28th of September 2011 as evidence of the transaction. The letter served on the respondent did not bare any signature but in any case it exists, it was not addressed to the applicant "Kakooza Abdullah Traders" and therefore Kakooza Abdullah Traders cannot sue upon the letter.

The respondents counsel referred to paragraph 6 of the plaint where the applicant prays for an order that the court reduces the respondents claim from Uganda shillings 3.7 billion to Uganda shillings 3.1 billion. In paragraph 8 of the plaint, the applicant prays for an order to restructure the loan and reduce the monthly payments from Uganda shillings 72,000,000/= Uganda shillings 51,000,000/=. In paragraph 10 (C) of the plaint, it is averred that the applicant suffered economic turmoil and the respondent unreasonably refused to decrease the monthly instalment from Uganda shillings 72,000,000/= to Uganda shillings 51,000,000/=. The respondents counsel contends that the averments are admissions that the applicant owes money to the respondent under the signed agreements. Counsel further submitted that it is not the mandate of the court to order the respondent to accept any particular instalment amount towards any obligation owing from the applicant. In those circumstances the applicant has no cause of action to sue the respondent for an order that the respondent should reduce instalment payments.

Concerning the prayer of the plaintiff in paragraph 7 of the plaint for an order restraining the respondent from carrying out a revaluation of the property, counsel relies on regulation 11 of the Mortgage Regulations which prescribes revaluation of the mortgaged property to ascertain the current market value and current forced sale value before selling of property. Under the rules the valuation surveyor’s duty is to determine the value and unless the plaintiff can show that the valuation surveyor arrived at the valuation negligently or otherwise, the applicant has no cause of action.

The plaintiff avers that he offered to surrender the defendant Kibuga block 383 plot 772 so that Busiro block 383 plot 5822 is released to him and the respondent rejected the offer and unlawfully advertised his property for sale. Counsel contends that the respondent has no obligation to surrender any part of the security until the money owing to the respondent have been fully settled. In the circumstances the applicant has no cause of action to demand for release of any part of the security held by the respondent unless the dues of the respondent are fully settled. Finally the averment in paragraph 10 (f) of the plaint is misconceived. The applicants application has failed to disclose a prima facie case and should be dismissed.

Furthermore counsel submits that the application for a temporary injunction should also fail because it is supported by an affidavit which is incurably defective. Order 19 rules 3 of the Civil Procedure Rules provide that the affidavit in support of interlocutory applications may be based on belief; it also provides that the grounds of such belief must be disclosed in the affidavit. Paragraph 11 of the affidavit in support of the application was based on belief without setting out the grounds for the alleged relief. Furthermore counsel prayed that the court makes an inference from the contents of paragraph 11 that the averment in paragraphs 1 up to paragraph 10 of the affidavit are not factual but entirely premised on belief without any grounds whatsoever. The affidavit is incurably defective and ought to be struck off and accordingly the application should be dismissed for having no supporting evidence.

As far as the applicants submissions are concerned, the respondents counsel submits that the plaintiff in the main suit and applicant in the application before the court is Kakooza Abdulla Traders. However counsel for the applicant submitted for one "Kakooza Abdulla" who is not a party to the suit or the application. He prayed that the application for a temporary injunction should fail. Since the application has failed the prima facie test, the legal principles enunciated in the case of American Cyanamid versus Ethicon [1975] All ER 504 on the preservation of the status quo are not applicable to the applicant’s application.

In rejoinder the applicants counsel submits that the fact that the plaintiff describes itself as a sole partnership instead of a sole proprietorship cannot be of such fundamental significance to render the suit a nullity. At worst it can amount to a misnomer. The term sole partnership is used in the common lexicon referred to sole proprietorship's. It may be a misnomer to refer to a one-man owned business as a partnership but the usage exists.

As far as sole proprietorship is concerned, a suit can either be brought in the individual names of the owners of the business or the names of the partnership.

As far as the submission on a cause of action is concerned, although the applicant admits owing some money to the respondents, he contests the amount claimed by the respondent and also the fact that he was not served with a recall letter as required. Concerning the revaluation downwards of the property, the court needs to investigate the matter before trial and after evidence has been adduced by both sides to enable the court arrive at a decision. Whereas the respondent can carry out the revaluation of the property, it does not have to do it in a manner that would cause unjust loss to the applicant.

Counsel contends that the respondent has failed to rebut the applicant submissions in respect of disclosure of a prima facie case with a likelihood of success.

On the preliminary objections to the suit counsel submitted that the court should not go into the merits of the application. Concerning the submission that the affidavit in support of the application is incurably defective, counsel advises the court not to dwell much on the aspect as it would be a mere technicality which should not be relied upon to defeat justice.

Ruling

I have duly considered the applicants application and the affidavit evidence for and against the application for an order of a temporary injunction. I have duly set out the submissions of counsel and need not repeat the same in the ruling.

The respondents counsel raised a preliminary point of law premised on the broad principle that an application for a temporary injunction must disclose a prima facie case with a possibility of success.

The first objection is on the competence of the application itself. It is the contention that the affidavit in support of the application was affirmed on the basis of belief. Under order 19 rules 3 of the Civil Procedure Rules, affidavits shall be confined to such facts as the deponent is of his or her own knowledge able to prove, except on interlocutory applications on which statements of his or her belief may be admitted provided the grounds thereof are stated. The conclusion that the affidavit is based on belief is based on paragraph 11 which avers that: "what is stated here in is true to the best of my belief." However a perusal of the affidavit shows that the applicant in several paragraphs makes assertions of fact which are deemed to be within his knowledge. This conclusion is based on the wording of order 19 rule 3 of the Civil Procedure Rules. Order 19 rule 3 (1) as far as is relevant provides as follows:

Affidavits shall be confined to such facts as the deponent is able of his or her own knowledge to prove, except on interlocutory applications, on which statements of his or her belief may be admitted, provided that the grounds thereof are stated”

The question to be asked is whether the deponent is able of his or her own knowledge to prove the averments in the affidavit. If the answer to the question is in the affirmative, then there is no need to consider the exception which applies to interlocutory applications for the admission of statements based on belief provided the grounds are stated. As far as the question about the ability of the deponent to prove the averments in the affidavit is concerned, the deponent is the primary player in the transaction between the applicant and the respondent. This is evident from his assertions to the effect that he was willing to surrender one of the properties, that the respondent rejected his request to reduce the monthly instalment to Uganda shillings 51,000,000/= per month. The assertion that the respondent re- valued the properties at Uganda shillings 1.9 billion. The fact that the applicant disputes the outstanding loan amount, the contention that the applicant thinks he would suffer irreparable damage if the property is auctioned, the contention that the respondent did not serve the applicant with a recall letter and the fact that the respondent intends to auction the property mortgaged under the mortgage deed. All the above averments are within the knowledge of the deponent though it is not stated to be so in the last paragraph which states that what is stated in the affidavit is true to the best of the deponent's belief. That omission is obviously a problem of drafting by the applicant's counsels and must be deemed to be within the professional competence of the applicant counsel and not the applicant or deponent himself. The other matters which are supported by the belief of the deponent is the likelihood of success of the suit and the assertion that it is in the interest of justice that the application ought to be granted. The fact that the grounds of the belief are not stated in that respect does not render the affidavit defective. Possibly it renders the paragraphs objectionable. On the above basis, the affidavit is not incompetent on the basis of an affidavit that does not indicate specifically which paragraph is based on belief and which paragraph is based on knowledge. The objection on that ground is therefore overruled.

I have further carefully considered the other submissions outlined above and the response of the applicants counsel. The second objection is actually an objection to the plaint itself in the description of the plaintiff in paragraph 1 thereof as a sole partnership. The plaintiff is described as Kakooza Abdullah Traders, a sole partnership. The application itself is filed by the same entity. The loan account is in the names of the same entity according to the bank statements attached to the affidavit in reply by one Moses Olico. Consequently it is the description of the plaintiff in paragraph 1 that forms the basis of the respondents objection to the plaint and therefore to the application for disclosing no prima facie case. Secondly the respondent submits that the applicant is described as the registered proprietor of the suit property. However, no copy of the registered title is attached to the affidavit in reply. The respondent’s second objection relates to the provisions of the Registration of Titles Act to the effect that a proprietor has to be a natural or artificial person that can own land and be registered. The registered title is attached to the written statement of defence of the respondent. It shows that the property is registered in the names of Kakooza Abdallah. Even if the applicant were a partnership, registered title would still be in the names of all or one of the partners. Because the loan documents have not been attached, it cannot be concluded that the registered proprietor did not give a power of attorney to the applicant entity. Secondly, the respondent bank was apparently satisfied by the security given hence the entitlement of the loan in the names of the applicant.

Again, the second objection relates to whether the suit discloses a cause of action. It further contests the fact of whether the applicant is the registered proprietor of the suit property or whether the registration thereof is illegal. The other submissions in opposition relate to whether the plaint discloses a cause of action against the respondent. These include submissions on whether the court has got the mandate to order the respondent to reduce instalment payments. Counsel also complains about the suit in so far as it against the revaluation of the property as prescribed by regulation 11 of the Mortgage Regulations. Lastly there is contention as to whether the applicant was served with a recall letter prior to the advertisement of the applicant's property. In any case the property does not have to be called the applicants property but the security provided for in the loan agreement. The question of the recall letter is a factual matter which requires evidence and cannot be tackled as a preliminary point of law. Secondly the question of revaluation requires objective assessment of the value based on professional opinion and would require evidence either way.

I have carefully considered the implications of the submissions. They amount to a preliminary objection to the suit. The objections deal with the merits of the suit. As far as the registered proprietorship is concerned, no registered title has been attached to the application are there is one attached to the written statement of defence. Registered title has to be proved for the court to reach a conclusion on the locus standi of the applicant. Moreover, any registered proprietor can grant a power of attorney to the applicant to secure the loan. Secondly such a conclusion would be on the merits of the suit. As to the names of the applicant, the applicant is entitled in the application as in the plaint. It is the description in the plaint of "sole partnership" which is objected to. Because the entitlement of the application and the plaint is the same as entitlement in the loan account, the issue should not be resolved until after evidence has been adduced. The court will not even conclude whether the description was an error. It has to be established whether the applicant is a registered entity under the Business Names Registration Act cap 109 and therefore a firm, or a sole proprietorship. It has to be established by evidence. The court would not be dealing with a case of misnomer but that of wrong description. The subject matter of the suit is the loan and the entitlement of the loan is in the names of the plaintiff and applicant. On that basis the court should not dismiss the application on the ground that it does not disclose a prima facie case. Further evidence is definitely required before a conclusion can be reached on the issue. The same argument goes for the question of locus standi of the applicant vis-a-vis who is the registered proprietor of the land and for a conclusion on the other points raised by the respondents counsel. Last but not least, the objections of the respondents counsel are best determined not only after evidence has been adduced, but also during the main trial and not in this application. If it were to be determined in this application, it would be on the basis of perusal of the plaint for determination of whether the plaint discloses a cause of action. I refrain from determining whether the plaint discloses a cause of action for the reasons given above. This is based on the best practice as held by the East African Court of Appeal in the case of NAS Airport Services Limited v The Attorney-General of Kenya [1959] 1 EA 53. Windham JA held at page 58 that:

"..the point of law must be one which can be decided fairly and squarely, one way or the other, on facts agreed or not in issue on the pleadings, and not one which will not arise if some fact or facts in issue should be proved; for in such a case the short-cut, as is so often the way with short-cuts, would prove longer in the end."

Furthermore, the respondents counsel never submitted that the plaint did not disclose a cause of action. His submission was interspersed with affidavit evidence. I would therefore deal with the principles for the grant of temporary injunctions on other grounds.

Basically, there is no controversy about the principles applied by courts in arriving at a decision on whether or not to grant a temporary injunction application. For purposes of this ruling, I would refer to my ruling in miscellaneous application number 202 of 2012 arising from civil suit number 152 of 2012 between David Luyiga and Messrs Stanbic Bank (U) Ltd in which a similar application for a temporary injunction had been made.

In the above decision, I summarised from the previous authorities and precedents the principles applied by the courts in applications of this nature. First of all, the grant of a temporary injunction is the exercise by the court of its discretionary powers. Secondly an injunction is granted for purposes of maintaining the status quo. This is so as to safeguard the interest of the plaintiff so that the suit or the appeal whichever is applicable is not rendered nugatory. More so, it is granted to prevent property the subject matter of the suit from being altered or disposed of as intended by Order 41 rule 1 of the Civil Procedure Rules. The Applicant's application was made under order 41 rules 1 of the Civil Procedure Rules. Rule 1 (a) provides that where it is proved by affidavit or otherwise that “any property in dispute in a suit is in danger of being wasted, damaged, or alienated by any party to the suit, or wrongfully sold in execution of a decree; or”,  the court may grant an injunction to maintain the status quo.

The first question generated by the rule is therefore whether the applicant’s property is in danger of being alienated. There is no controversy about the fact that the respondent would like to exercise its powers as a mortgagee to foreclose the right of the applicant to redeem the property so that it can realise the security and offset monies owing to it.  From this principle, the evidence is that there is controversy about how much instalment payments should be made by the Applicant each month. I must first of all set out the difference/controversy between the parties. The applicant asserts that the monthly instalment is Uganda shillings 72,000,000/= and the respondent refused to reduce it to Uganda shillings 51,000,000/=. The difference between the two figures is Uganda shillings 21,000,000/= which may rightly be called the issue in controversy. In other words the sum of Uganda shillings 51,000,000/=, is not in controversy and also not the subject matter of the suit. Secondly as rightly submitted by the respondents counsel the question is whether the court has jurisdiction to reduce any instalment payment if it is the subject of a contract. The respondent's submissions amount to a contention that there is no arguable controversy on that issue and therefore a prima facie case with a probability of success.

The other principles are that the Applicant must show a prima facie case with a probability of success. This principle has often been refined by stating that the applicant does not have to show a prima facie case with a strong probability of success but only that there is an arguable case which merits judicial consideration before a final conclusion can be made on the facts (The case of American Cyanamid Co Ltd versus Ethicon [1975] 1 All ER at page 504 refers). In the context of the applicant’s case, the controversy must relate to the assertion that the respondent refused to reduce instalment payments. I would in due cause apply the principles to the facts of the case. For the moment it suffices to note that the respondent objects to the claim of the Applicant on the ground that it discloses no cause of action. The respondent’s submission is that the court does not have the mandate to order it to reduce interest rates or instalment payments. The only remedy that the applicant might be seeking in the context of the controversy of whether the instalment payments should be Uganda shillings 51,000,000/= suggested by the applicant or Uganda shillings 72,000,000/= enforced by the respondent is whether the court should or can reduce the monthly instalment payment. It is quite doubtful whether the facts and assertions in the affidavits in support of the application and in opposition thereof are sufficient to reach a conclusion as to the basis of the monthly instalment payment. For the moment therefore, it remains in controversy upon which the court cannot reach a conclusion about the basis of the instalment payments other than the existence of a loan agreement between the parties. The applicant's complaint is contained in paragraph 3 of the affidavit in support is that the respondent unreasonably rejected his request to reduce the monthly instalment to Uganda shillings 51,000,000/=. The loan agreement is not attached to the application. In paragraph 8 of the plaint however, the plaintiff prays that the court issues an order to restructure the loan and reduce the monthly payments from 72,000,000/= to 51,000,000/= Uganda shillings. Again the plaint on the court record does not attach the loan agreement. The question therefore of whether the prayer of the plaintiff discloses a cause of action, cannot be concluded without there being an objection to the plaint itself. According to the submissions of the parties, the principle applied by the courts following the holding of Lord Diplock in the case of American Cyanamid Co Ltd versus Ethicon (supra) is that at this stage of the proceedings, and on the basis of the inconclusive affidavit evidence, the court should not make final conclusions on questions of fact.

Notwithstanding the above assertion, the question is whether the applicant's application discloses an arguable case which merits judicial consideration. The court cannot reach a conclusion on the issue because of the insufficiency of the pleadings by failure to attach the basis of the instalment payments. The same conclusion can be made on the issue of whether there was an under valuation of the property and whether the applicant was served with a recall letter.

The court will therefore consider the issue of whether the applicant would suffer irreparable loss if the injunction is not granted. The second principle is also set out in the case of Kiyimba Kaggwa vs. Katende [1985] HCB at page 43. The question of irreparable loss pleaded by the applicant relates to the loss of its security namely the land the subject matter of the injunction and whose description has been outlined at the beginning of this ruling. The respondent bank intends to sell the property. The general rule is that sale of property which is pledged as security in a loan agreement or mortgage cannot lead to irreparable loss per se. In the case of David Luyiga (supra) the court agreed with two Kenyan cases namely the cases of Matex Commercial Supplies Ltd and another vs.  Euro Bank Ltd (in liquidation) [2008] 1 EA at PP 216 that any property whether a matrimonial home or a spiritual house offered to a bank as security for a loan is made on the understanding that the property stands the risk of being sold by the lender if default is made on the payment of the debt secured.  Where a party agrees that a particular property is suitable as security, it cannot plead that the property has sentimental or spirituality value or sanctity.  The second case is that of Maithya vs. Housing Finance Company of Kenya and another [2003] 1 EA 133.  In that case it was held that securities are valued before lending and loss of property by a sale is contemplated by the parties even before signing the mortgage.

Both cases bring out an important contractual principle that security pledged to a financial institution or bank stands the risk of being sold and the intended sale is within the contemplation of the parties to the loan agreement. In other words, the sale of property by the mortgagee cannot lead to irreparable loss since it is the contractual arrangement or intention of the parties and expressly provided for in the loan agreement or mortgage deed. Exceptions to the general rule must relate to issues like whether the mortgagor is in default and specifically whether the conditions under the mortgage deed for the financial institution or bank to sell the property arise. The question of how much money specifically owes does not necessarily dealt with the issue of default unless the applicant has duly been servicing the loan. Where the agreed amount has not been paid and the borrower is still in default on the agreed amount, the right of the bank to sell is established and what the court can do is to cause the ascertainment of the right value for forced sale of the property.

In examining the plaintiffs/applicants case, the assertion is that the property was being undervalued. Of course where property is being undervalued, the remedy is to seek a proper valuation of the property or even conduct a proper valuation through an independent valuation process. Such a controversy whatever its merits, is strong enough to reach the conclusion that there may be a case that merits limited intervention by a court of law even if the final valuation of the property is made by an independent person or a third party. The question of irreparable loss is therefore related to the alleged undervaluation of the property. The applicant would not be able to recover what has not been valued and is not within the knowledge of both parties. If the property is already valued, the difference between the market value and the alleged undervalue is a loss that can be compensated by an award of damages. Secondly it is related to the assertion that one of the securities is sufficient to meet the applicant’s obligations to the respondent. No concrete evidence has been adduced by the applicant. The fact that matrimonial property has been pledged as security falls within the principle stated in the Kenyan cases of Matex Commercial Supplies Ltd and another vs.  Euro Bank Ltd (in liquidation) [2008] 1 EA at PP 216 and Maithya vs. Housing Finance Company of Kenya and another [2003] 1 EA 133 that a matrimonial home offered to a bank as security for a loan is made on the understanding that the property may be sold by the Bank upon default payment of loan repayment instalments. The loss of property through sale contemplated by the parties upon the occurrence of default by the borrower cannot lead to irreparable loss. Property that cannot be sold cannot be termed or considered as security by the parties. It is only property that has the potential of been sold in the market to recover the money claimed from the borrower which should form security that makes economic sense to a Financial Institution. On the other hand, loss of value can be atoned for by an award of damages. There is therefore a limited arguable case about the valuation of the plaintiff’s property but a doubt as to whether the sale would lead to irreparable loss which cannot be atoned for by an award of damages.

Following the principles set out in the case of Kiyimba Kaggwa (supra), where the court is in doubt on any of the first two principles, it will decide the case on the balance of convenience which in any case is the basic principle that takes into account the interests of the bank as well as the borrower. The principle of balance of convenience is highly commended as the basic tool of equity in the case of American Cyanamid Co Ltd versus Ethicon (supra). The court exercises jurisdiction as a court of equity to assess the balance of convenience and follow the dictates of justice to reach a fair decision.

The respondent has averred in the affidavit in reply that due to the default of the applicant and the fact that the subject matter of the suit is a non-performing loan facility, the respondent had to make provisions to the tune of Uganda shillings 1,050,000,000/= and Uganda shillings 779,928,373/= by 30th of November 2012 thereby causing financial loss to the respondent (paragraph 11 of the affidavit of Moses Olico refers). Furthermore under paragraph 12 of the affidavit in reply, the respondent avers that providing for a non-performing loan involves the setting aside of funds from the respondents profits until the loan is recovered. The respondent cannot lend money the subject of the provision.

On the other hand the applicant avers that he would have to move his family from the matrimonial home and his children have to move schools in mid-term. It is doubtful whether the applicant can compensate the bank if the injunction is not granted and the bank continues to lose profits because of the colossal amounts of money involved. As far as financial loss is concerned, the balance of convenience favours a refusal of the injunction to enable the bank realise its securities. On the other hand, the applicant only loses the right to a hearing on its allegations. In other words, the suit of the applicant would be rendered nugatory. An important point that arises from the applicants pleadings is the admission of liability to the tune of Uganda shillings 51,000,000/= per month as a reasonable instalment payment. The indebtedness of the applicant to the tune of Uganda shillings 2,873,877,429/= and Uganda shillings 1,097,959,497/= by 30 November 2012 as contained in paragraph 11 of the affidavit of Moses Olico is supported by the attachment “SBU2” which proves the outstanding amount.

It would be unjust for the applicant not to pay the respondent a bare minimum instalment payment of Uganda shillings 51,000,000/= which amount he concedes is a reasonable instalment payment in the circumstances of the applicants case. If a temporary injunction is to be granted it can only be under a condition that the applicant would deposit and keep on depositing on a monthly basis what he asserts in his application as a reasonable amount pending determination of the suit on merits. Secondly the plaintiff prays for the lowering of his instalment payment from Uganda shillings 3.7 billion to Uganda shillings 3.1 billion, a difference of Uganda shillings 600,000,000/= as far as the claim in the suit is concerned. It is therefore a proper assumption to make that the plaintiff is able to meet his obligation for the moment to the tune of Uganda shillings 3.1 billion and is comfortable with making instalment payments of Uganda shillings 51,000,000/= per month. The ability of the applicant/plaintiff to meet his obligation is disproved by the fact that the assets are non-performing. The applicant has not demonstrated in any positive and practical way that he is willing to meet his obligations to the bank. The applicant's case hangs only on one thread which is the right to be heard. It is a contention that the applicant should be heard before the court makes a final decision on the matter. The jurisdiction of the court is provided for by order 41 rule 1 of the Civil Procedure Rules which provides after setting out the grounds that:

"the court may by order grant a temporary injunction to restrain such act, or make such other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal or disposition of the property as the court thinks fit until the disposal of the suit or until further orders."

The rule is wide enough for the court to make any other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal or disposition of property as the court thinks fit. If the right of hearing of the applicant is to be preserved, the applicant must demonstrate that he is willing to clear the portion of the loan that he admits. The admission of the applicant also operates as an estoppel against opposition to an order requesting him to pay what is due and owing to the respondent bank calculated on the basis of his own admissions. For purposes of ease of reference paragraph 8 of the plaint avers as follows:

"… The plaintiff shall pray for an order to restructure the loan and reduce the monthly payments from 72,000,000/= to 51,000,000/=."

Furthermore paragraph 6 of the plaint avers as follows:

"The Plaintiff shall also pray for an order lowering the defendants claim from 3.7 billion shillings to 3.1 billion shillings."

In both paragraphs, the applicant admits that he is indebted to the respondent to the extent of Uganda shillings 51,000,000/= as monthly instalment payment and Uganda shillings 3.1 billion for the entire loan amount. If these obligations are met, the issue of failure to issue or serve the applicant with a recall letter does not arise if the injunction is granted subject to payment of what is agreeable.

In the circumstances of this case therefore, the balance of convenience favours a conditional temporary injunction that imposes on the applicant/plaintiff his admitted obligations before maintenance of the status quo. This is because what is in controversy in the suit relates to the difference between the sum of Uganda shillings 72,000,000/= instalment payment and Uganda shillings 51,000,000/= monthly instalment payment. As noted earlier on, this amounts to Uganda shillings 21,000,000/= that is the only subject matter of the controversy on the question of monthly instalment payments. Secondly on the question of the principal amount, the amount in controversy is Uganda shillings 600,000,000/= which constitutes the only subject matter for resolution in the main suit. Any injunction can only deal with the remaining subject matter of the suit, which subject matter may be resolved at the trial. It follows that the following orders as dictated by equity shall issue:

  1. The Respondent Bank will compute all the monies owing to it at the rate of Uganda shillings 51,000,000/= which the Applicant has admitted as the monthly instalment agreeable up to the date of this decision.

 

  1. The instalment monies so calculated and which are in arrears shall be paid by the applicant to the respondent bank within a period of one month from the date of this decision.

 

  1. The applicant shall continue servicing its loan at the rate of Uganda shillings 51,000,000/= up to and until he has paid Uganda shillings 3 .1 billion which he has admitted unless or until the suit is determined earlier.

 

  1. A temporary injunction issues, subject to the compliance of the applicant with the first three conditions restraining the respondent, its servants, and/or agents from auctioning off, advertising, foreclosing or in any manner disposing off Kibuga block 3 plot 772 land at the Makerere and Busiro Block 383 plot 5822 being land at Kitende until the final disposal of the suit or until further orders of this court.

 

  1. Should the applicant fail to comply with the conditions number 1 to 3 of this order, the respondent shall be at liberty to utilise any lawful procedure for realisation of the security under the mortgage to recover its monies and temporary injunction granted herein shall be deemed to have lapsed.

 

  1. Costs of this application shall abide the outcome of the main suit.

 

Ruling delivered this 23rd day of August 2013

 

Christopher Madrama Izama

Judge

 

 

Ruling delivered in the presence of:

John Fisher Kanyemibwa for the respondent

Geoffrey Kibirige for the Applicant not in court

Applicant not in court

Respondent not in court

 

Charles Okuni: Court Clerk

 

Christopher Madrama Izama

Judge

23rd August 2013