Court name
Commercial Court of Uganda
Case number
Miscellaneous Application 605 of 2012
Judgment date
15 March 2013

Busia Produce Dealers Multpurpose Cooperative Society Ltd v Stanbic Bank (U) Ltd (Miscellaneous Application 605 of 2012) [2013] UGCommC 45 (15 March 2013);

Cite this case
[2013] UGCommC 45
Coram
Obura, J

HE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL COURT DIVISION)

MISC. APPLICATION NO. 605 OF 2012

 (Arising from Civil Suit No. 452 of 2012)

BUSIA PRODUCE DEALERS MULTI-PURPOSE

CO-OPERAIVE SOCIETY LTD……………………...............APPLICANT

VERSUS

STANBIC BANK (U) LTD………………………………………RESPONDENT

 

BEFORE : HON. LADY JUSTICE HELLEN OBURA

 

RULING

The applicant brought this application under Order 41 rules 1, 2 and 3 of the Civil Procedure Rules SI 71-1(CPR) seeking for orders that a temporary injunction doth issue restraining the respondent by itself or its agents and any other person claiming title through it or acting on its behalf from selling, alienating, or in any way dealing with land comprised in FVR 606 Folio 10 Plot 222 Block 8 land at Namaubi, Samia Bugwe, Busia District measuring approximately 2.584 Hectares, until after the final disposal of the main suit. The applicant also sought an order that provision be made for costs of this application.

The grounds of this application are contained in the Chamber Summons and affidavit in support deposed by Mr. John Wabwire, the applicant’s Chairperson. The first ground is that the applicant has filed the main suit seeking for among others a permanent injunction restraining the respondent or its agents or any person claiming title through it from selling or disposing off the suit property. Secondly, that the main suit is meritorious and has a very high likelihood of success. Thirdly that the respondent has threatened to sell and/or dispose of the suit property which action will render the main suit nugatory. Fourthly, that if this application is not granted the applicant will suffer irreparable damage which cannot be adequately compensated by award of damages. Fifthly, that the balance of convenience weighs heavily in favour of granting temporary injunction restraining the respondent from the threatened sale. Lastly, that it is in the interest of justice that a temporary injunction be granted.

The respondent opposed this application and an affidavit in reply containing the grounds deposed by Mr. Jamir Mpiima Senoga was filed. In answer to it, the applicant also filed an affidavit in rejoinder.

At the hearing of the application, Mr. Richard Okalany for the applicant submitted on the issue of status quo that the applicant is still in physical occupation of the suit property and the application raises triable issues. He referred to the affidavit in support and submitted that there is a triable issue as to whether the respondent was negligent as a bank in putting in place a fair and relevant weather index policy of insurance as cover for loss of the soya bean crop due to weather changes as agreed in annexture B to the affidavit of John Wabwire. He further submitted that the second triable issue relates to failure by the bank to pursue the Insurance Company for compensation and reference was made to annexture E2 to the affidavit in reply. Counsel for the applicant argued that the third triable issue relates to the representation that the applicant acts as a special purpose vehicle to receive the agricultural production loan on behalf of the 10 farmer companies listed in paragraph 3 of the affidavit in rejoinder and the assurances that;

  1. There was a policy of insurance
  2. That the repayment of the loan was to be financed from the sale of the soya beans
  3. That there were guarantors to the loan as contained in paragraph 6 of annexture B to the affidavit in support.

According to the applicant’s counsel, the fourth issue that requires investigation is that the applicant never applied for the Agricultural Production Loan. He submitted that the applicant only applied for a vehicle asset facility and the Commodity Loan. He contended that the applicant received a total of Shs. 193,000,000/= from the respondent on account of a Commodity Loan, the crop that was harvested was sold and a sum of Shs. 326,000,000/= was passed onto the respondent. It is the applicant’s contention that the above sum settled the total sum of Shs 193,000,000/= borrowed in full and even more. He relied on Colonial Mutual General Insurance Co. Ltd v ANZ Banking Group (NewZealand) Ltd [1995] 3 All ER 987 for the purpose of insurance. He also relied on the book titled The Law of Negligence, but did not supply the particular excerpts for this court.

Additionally, the applicant’s counsel submitted that the applicant’s case is that it relied on the skills and experience of the respondent which placed a duty of care in favour of the applicant. He argued that the mortgage was signed after the respondent changed from dealing with the 10 farmer companies to dealing with the applicant.   

On irreparable loss it was submitted for the applicant that there is an advert as per annexture I to the affidavit in support and the property that is under threat of sale is a grant from USAID to help the applicant in post harvest management of the grain without which they would have nowhere to stock the dry grains. Mr. Okalany further submitted that if the property is sold off by the respondent without hearing the questions raised by the applicant they will never get such a gift again. He added that although the property has a market value capable of being compensated the activity of stocking, drying and sorting grain is ongoing hence it would be difficult to quantify by way of damages if the process is interrupted by sale of the plant.

As far as balance of the convenience is concerned Mr. Okalany submitted that the property continues to appreciate in value so even if the applicant loses the main suit, the respondent will not be prejudiced or inconvenienced by the issuance of a temporary injunction.

In reply Mr. Masembe submitted that the first condition is that there must be a prima facie case with a probability of success. On the first triable issue raised by the applicant, he referred to the paragraph 1 and 6 of loan agreement showing that there were 4 facilities taken by the applicant and the securities required were listed including an insurance policy. He submitted that there were multiple securities that had included a mortgage which the bank is at liberty to choose the one to go for first. He argued that it was the applicant’s duty to provide risk insurance cover as a condition precedent before the bank could disburse the money under clause 7.

It was also submitted for the respondent that annexture A and B2 Clause 2.1 show that the facility was to the applicant for the purpose stated therein and not to the alleged 10 farmers. He added that the acceptance clause was also signed by the applicant. The respondent’s counsel denied that there were representations but submitted that even if they were made, as long as they were reduced into the terms of the agreement with no order as to priority then you can proceed on them. It was also argued that annexture A is explicit in all the facilities applied for.

On the second condition of irreparable injury, Mr. Masembe referred to the case of Pan Afric Commodities case at pg 7 paragraph 18 and submitted that the test to be applied is whether the injury cannot be monetary. He also referred to the case of Maithya v Housing Finance Co. of Kenya at page 133 and page 139. It was further submitted for the respondent that the mortgaged sum as at 2/7/2012 was Shs 1,169,791,745/= and it would be totally unacceptable for a borrower who has signed for such a colossal sum of money to argue that it passed in the money to ten farmers and so cannot pay.

With respect to the third condition, counsel for respondent submitted that what the bank lends is depositors’ funds and if the respondent does not recover such money the bank would fail and the economic consequences would be catastrophic. He submitted that the balance of convenience favors denial of this application such that the bank can recover the loan.

In rejoinder, counsel for the applicant argued that annexture A lists four facilities and paragraph 13.1 refers to conflict and that the separate terms and conditions relating to a particular facility shall prevail. He submitted that in paragraph 6, 8.1.6, 8.1.7 and 8.1.8 of annexture B2 the land in dispute is not mentioned and specifically in paragraph 8.1.7 the 10 farmers group were referred to and so the respondent cannot deny it. For the issue about who took the insurance policy, it was submitted for the applicant that the respondent deducted money from the applicant’s account to pay NIKO insurance and when the loss occurred SANTAM denied that there was any policy since the reinsures were not paid. He submitted that there are ten insurance cover notes attached to the amended plaint and the 10 farmer groups are mentioned there.

 Lastly, Mr. Okalany submitted that the damage the applicant would suffer if the injunction is not granted would go beyond the value of the property that is known. He further submitted that the 10 farmer groups and the applicant’s continuous activities of sorting, drying and storing grains will be greatly affected by loss of that property.

I have had the opportunity of reading the pleadings in this matter with the relevant documents attached. I have also given due consideration to the submissions made by both counsel. It is trite that the purpose of a temporary injunction is to preserve matters in status quo until questions to be investigated in the suit can be finally disposed of. See Kiyimba Kaggwa v Abdu Nasser Katende [1985] HCB 43.  The conditions for grant of an interlocutory injunction as set out by Spry VP in the leading case of Geilla v Cassman Brown and Co. Ltd [1973] EA 358are as follows;

 (1)    An applicant must show a prima facie case with a probability of success;

 (2)    An interlocutory injunction will not be granted unless the applicant might otherwise suffer irreparable injury which would not be adequately compensated for by damages;

(3)     If the court is in doubt, it will decide the application on a balance of convenience.

As far as the first condition is concerned, I am mindful that for purposes of grant of a temporary injunction it is sufficient for the applicant to prove that there are triable issues that merit judicial consideration. There is no requirement for the plaintiff to establish a strong prima facie case with a high probability of success. While counsel for the applicant contended that there was a prima facie case, the respondent’s counsel argued otherwise. I have had the benefit of looking at the security required for the loan facilities as stated in paragraph 6 of the offer letter. Paragraph 6.1.6 of annexture A to the affidavit in support states as follows;

“A registered legal mortgage stamped for Over Ug. Shs 1,300,000,000/= (Uganda Shillings One billion three hundred million only) over land and property comprised in Free hold Register volume 606 Folio 10 Plot 222 Samia Bugwe Block 8 land at Namaubi.”

Contrary to the applicant’s contention, the above paragraph clearly shows that the suit land was included as security. The applicant signed annexture A well aware that a legal mortgage was due to be created on the land comprised in FVR 606 Folio 10 Plot 222 Block 8 land at Namaubi, Samia Bugwe, Busia District. Indeed the farmers were mentioned in annexture A but they were not the borrowers therein. Clearly the applicant was the borrower and was given four facilities as listed in annexture A for which security was taken.

In any event, I have not come across any evidence showing that the applicant agreed to be used as a special purpose vehicle to receive the agricultural production loan on behalf of the 10 farmer companies listed as contended by the applicant.

I have also noted that under clause 7.3 of annexture A the bank was also under duty to arrange Insurance cover of the property with an insurance company of its choice and to debit the borrowers account with any expenses incurred. It is the applicant’s evidence that indeed the respondent transferred Shs. 58,277,368/=from the applicant’s account No.  0140041469301 to NIKO Insurance account No. 0240065400701 on the 29th day of July 2011as insurance premium. The respondent also signed the insurance cover notes with NIKO Insurance Company covering the 10 farmer companies. The question that comes to mind is why did the respondent go ahead to directly credit the applicant’s account if it was the applicant’s duty to obtain insurance cover?

I have had the benefit of seeing the cover notes as attached to the amended plaint and I have also looked at annexture D to the affidavit in rejoinder being an email exchanged between the respondent’s officer, the insurer and reinsurer. It is clear that the respondent was the insured party and not the 10 farmer groups or the applicant. It was also the respondent that took it upon itself to obtain an insurance cover to its satisfaction. The respondent cannot at this stage fault the applicant for whatever went wrong with the policy.

In the circumstances, it is my firm view that the question as to whether or not the policy taken gave satisfactory or valid cover raises a triable issue. This is more so because the respondent gave the applicant confidence that the loan would be covered by an insurance policy for which its account was even debited. While I appreciate the respondent’s argument that it had the option to go for any of the securities, I do find that the issue as to whether or not the security taken was satisfactory or even valid cannot be ignored.  The respondent, as a bank in my view, owes a duty of care to its customers. It cannot mislead the applicant to believe that its loan was covered by an insurance policy then when things go wrong just chooses to go for the mortgage being the softest spot. I may not entirely agree with the applicant’s line of argument but I believe this is a matter that court needs to investigate and for that purpose the status quo needs to be preserved.

As regards the argument that the applicant never applied for the Agricultural Production Loan, I do not agree. This is because annexture A to the affidavit in support lists the four facilities that the applicant obtained as a borrower. These include an Overdraft Facility, a Commodity Loan Facility, Agricultural Production Loan Facility and a Vehicle Asset Finance Facility. The respondent conceded that it did not provide the Vehicle Asset Finance Facility but was clear that it provided the other facilities. Mr. Wabwire John, the applicant’s chairman accepted the terms of the facility offer letter by appending his signature thereto. It is unbelievable that the applicant now denies receipt of the agricultural Production Loan.

I also do not agree with the applicant’s argument that the loan was for the ten farmer groups and so it cannot be held liable for its repayment. The applicant signed the loan in its own rights and so it cannot shift liability.

All in all, I do find that the only triable issue that would warrant granting this application relates to the insurance policy. I am therefore satisfied that the applicant has met the first condition.

In regard to the second condition, it was the case for the applicant that there is a threat of selling the suit property and although it has a market value capable of being compensated the activity of stocking, drying and sorting grain is ongoing hence it would be difficult to quantify by way of damages if the process is interrupted by sale of the plant. For the respondent it was submitted that the applicant must have contemplated sale of the property and secondly the respondent is a regulated financial institution that is in a position to pay the damages assessed if the applicant wins the main suit.

The test that is applied for this condition was laid down by Lord Diplock in American Cyanamid Co. v Ethicon Ltd (supra) and the principles were followed by the High Court of Uganda in the case of Pan African Commodities Ltd & Another v Barclays Bank Plc HCMA No. 385 of 2007 to the effect that if damages in the measure recoverable at common law would be an adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted however strong the plaintiff’s case appears at this stage.

While I agree with the respondent that this court may be capable of assessing and awarding the applicant damages for the loss of the suit property in case the main suit succeeds, I feel the loss of business activity by the applicant and its many rural partners would have far reaching economic effect that cannot be adequately compensated in monetary terms.

For the above reason and the fact that there is a triable issue, the balance of convenience favours granting this application since the respondent will still be at liberty to sell the property and recover its money in the event that it becomes the successful party in the main suit.

In the result, this application is allowed and the orders prayed for granted. Costs shall be in the main cause.

 

I so order.

 

Dated this 14th day of March 2013

 

Hellen obura

JUDGE

Delivered in chambers at 3.00 pm in the presence of Mr. Richard Okalany for the applicant and Mr. Ssemakula Mukiibi for the respondent.

 

JUDGE

15/03/2013