THE REPUBLIC OF UGANDA,
IN THE HIGH COURT OF UGANDA AT KAMPALA
MISC APPLICATION NO 727 OF 2012
(ARISING FROM CIVIL SUIT NO 543 OF 2012)
- JOSIKU TECHNICAL SERVICES LTD}
- WAKEME MARERU OCTAVIOUS}
- SINGH KULUP MAAN}.......................................APPLICANTS/DEFENDANTS
FINA BANK (U) LIMITED}...............................................RESPONDENT/PLAINTIFF
BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA
The Applicants filed this application under the provisions of Order 36 rule 3 and 4 of the Civil Procedure Rules for unconditional leave to appear and defend the suit on the merits and for costs of the application.
The grounds of the application averred in the Notice of Motion are that Uganda shillings 348,000,000/= claimed by the Respondent is accumulated interest for a loan of Uganda shillings 500,000,000/= which was guaranteed by Leads Insurance and paid. Secondly the interest is illegal, harsh and unconscionable. Thirdly that there is a pending suit Vide HCCS No 13 of 2012: Leads Insurance Ltd versus Josiku Technical Services Ltd and 3 others where the Applicants are contesting liability for the principal sum and interest. The Applicants contend that the entire amount claimed in the summary suit is to be paid by Dasawihi limited, the alleged subcontractors of the project funded by the loan in issue. The first Applicant subcontracted the project to Messrs Dasawihi Ltd with all its liabilities. The Applicants aver that they have a good and valid defence to the suit which should be heard on the merits. Finally it is reasonable and in the interests of justice that the application is granted. The application is supported by the affidavit of Wakame Materu Octavious, the second Applicant. He deposes that interest of Uganda shillings 348,000,000/= claimed by the Plaintiff/Respondent is accumulated interest for a loan of Uganda shillings 500,000,000/= guaranteed by Leads Insurance Ltd and paid as averred in paragraph 4 (e), of the specially endorsed plaint. Secondly on the advice of his lawyers, he believes that the interest is illegal, harsh and unconscionable. Thirdly there is a pending suit namely HCCS No 12 of 2012 between Leads Insurance Ltd versus Josiku Technical Services and 3 Others where he and the other Applicants are contesting liability for the principal sum and interest. The entire loan is supposed to be paid by the subcontractor Messrs Dasawihi Ltd. The other depositions repeat the averments in the notice of motion.
The affidavit in reply is sworn by Pankaj Sharma, the Executive Director of the Plaintiff/Respondent and his deposition is that with the assistance of his Counsel he had read and understood the contents of the application. The first Applicant borrowed a sum of Uganda shillings 500,000,000/= from the Respondent whose repayment was personally guaranteed by the second and third Applicants on 7 January 2010. The loan facility was further secured by a financial guarantee by Leads Insurance Company which only covered payment of a maximum of the principal amount borrowed, excluding accrued interest. Upon default in repayment by the first Applicant, Leads Insurance Ltd repaid the principal amount in accordance their undertaking. However the interest accrued on the loan has not been repaid and amounts to Uganda shillings 348,000,000/=. The Executive Director of the Respondent further deposes that the interest which is the subject matter of the suit accrued in accordance with the offer letter duly signed by the first Applicant and the rates thereof are legal, unconscionable and very fair for the Respondent as a duly licensed financial institution operating within the legal regime provided for by the law and various regulations and guidelines issued by the Central Bank. The Respondent is not a party to the civil suit referred to by the Applicants. Secondly the civil suit referred to by the Applicant’s concerns repayment of the principal sum.
The Applicant’s application was dismissed for want of appearance of the Applicant under Order 9 rule 22 on 6 February 2013. Subsequently the Applicant filed miscellaneous application number 111 of 2013 to set aside the dismissal. The dismissal was set aside by consent of the parties on 19 February 2014. Counsel Samalie Kidde represented the Applicant's while Counsel Angela Kobel represented the Respondent's and they addressed court in written submissions.
The Applicant’s case is that for an Applicant to obtain leave to defend the suit under Order 36 rule 4 of the CRR, he or she must show by affidavit firstly that there are bona fide triable issues of fact or law and secondly that there is a reasonable ground of defence to the claim (See Ruling of her Lordship Lady Justice Stella Arach Amoko in the British American Tobacco (U) Ltd versus Pioneer Construction Ltd miscellaneous application number 452 of 2008 arising from HCCS number 209 of 2008.) Additionally it was held that the Defendant is not bound to show a good defence on the merits but should satisfy court that there is an issue or question in dispute which ought to be tried and the court should not try the issues disclosed at this stage. Counsel further relied on Bitagase Moses and M&B Engineers Ltd vs. Kenneth Mugambe M.A. No. 470 of 2012 arising from HCCS 312 of 2012. The issues for determination are whether the Applicant has disclosed any triable issues of law or fact and secondly whether there is a reasonable ground of defence to the claim.
The gist of the Applicant's evidence in the application is that the interest charged is illegal, harsh and unconscionable. Secondly the Applicants contest the liability for the principal sum and interest on the loan. The facility was acquired to fund Amolat town water supply project and the project was later subcontracted to Messieurs Dasawihi Ltd whose managing directors are Winnie Okidi the fourth Defendant in the main suit and Anthony Ahimbisibwe. The Plaintiff was at all material times aware of these developments and that the subcontractor Messieurs Dasawihi Ltd undertook to take over the project with all its liabilities inclusive of the Applicant's loan obligation. Consequently the monies claimed by the Respondents should be settled by Dasawihi Ltd and not the Applicants.
Secondly according to the bank statement annexure "E" to the plaint and affidavit in reply interest of Uganda shillings 144,890,411/= was deducted from the money deposited by Leads Insurance Ltd and the balance of Uganda shillings 348,753,739/= towards the principal amount which is not claimed by the Plaintiff. According to the bank statement the interest on the loan has already been cleared and is not due or owing. The Applicants Counsel contends that the triable issues which arise are:
- Whether the interest claimed by the Respondents was harsh and unconscionable?
- Whether according to the bank statement interests on claim is due and owing?
- Whether the Applicant is liable for the said default despite subcontract of the project for which purpose the facility was acquired to Messieurs Dasawihi Ltd?
- Whether the Applicant's liabilities were duly settled when the Respondents entered into a consent agreement with the 4th Defendant a director of Dasawihi Ltd.
According to judicial precedents cited the Applicants all that the Applicant has to establish is that it the application discloses triable issues for the court to grant the Applicant leave to defend the suit.
On the second question of whether there is a reasonable ground of defence to the claim, the loan was acquired to fund the said water supply project and the fact is known to the Respondent. Secondly all project proceeds were to be channelled through the Respondent as a condition for the grant of the loan facility. After acquiring the facility the project was subcontracted to Dasawihi Ltd which company took over all the liabilities of the Applicants. Despite these facts the Respondent entered into a separate consent agreement with the fourth Defendant and managing director of Messieurs Dasawihi Ltd where it was agreed that she would pays a total of Uganda shillings 80,000,000/= in full and final settlement of the interest that had accrued before the principal sum was settled by Leads Insurance Ltd. The Applicants intent to demonstrate in their defence that the Respondents intention in filing the summary suit is to extort money from them when the project was subcontracted to the fourth Defendant with whom a consent agreement to pay had been executed. The Applicants in their intended defence shall aver that the bank statement marked as annexure "E" to the plaint indicates that the interest of Uganda shillings 144,890,411/= from balance owing and in accordance with the bank statement the interest on the loan has already been cleared and is nothing due and owing.
The submissions of the Respondents Counsel in reply is premised on the assertion that the Applicant borrowed Uganda shillings 500,000,000/= from the Respondent at a rate of 20% interest per annum. The Respondents offer was accepted by the first Applicant and monies were disbursed and deposited on the first Applicant’s account. The second and third Applicants by personally guaranteed to pay the total sum and became liable in case of default by the first Applicant. The first Applicant defaulted on repayment of the sums borrowed. The loan amount of Uganda shillings 500,000,000/= was settled by Messrs Leads Insurance Ltd. The second and third Respondents failed to pay the accrued interest thereon of Uganda shillings 348,735,739/=. Thereafter the Respondent filed the summary suit for payment of the interest accruing on the loan facility.
It is an admitted fact that the first Applicant borrowed a sum of Uganda shillings 500,000,000/= from the Respondent and the second and third Applicants personally guaranteed to pay the total sum in case of default at an interest rate of 20% per annum. With reference to the cases of Sembule Investments Ltd versus Uganda Baati Ltd miscellaneous application number 664 of 2009, A judgment of Honourable Lady Justice Irene Mulyagonja held that the rationale for Order 36 of the Civil Procedure Rules is to enable a Plaintiff with a liquidated demand to which there is no defence to obtain a quick and summary judgment without delays by the Defendant (See Zola and another versus Rali Brothers Ltd  EA 691 at 694 where it was held that where a reasonable ground of defence to the claim is disclosed, the Plaintiff is not entitled to summary judgment). A Defendant who wishes to resist a summary judgment should disclose through evidence that there is a reasonable ground of defence (See Chiranjilala and Co versus A.H. Adam  17 EACA at 92). The time of the court should not be wasted by investigations of bogus defences. On whether the Applicant's application discloses triable issues of law or fact, the case of Begumisa George versus East African Development Bank High Court miscellaneous application number 451 of 2010 defines a triable issue as an issue in the suit which merits judicial consideration.
On the submission that the loan was to be paid by Dasawihi Ltd, Dasawihi Ltd is not a party to the contract between the Applicant and the Respondent and at no particular time was the Respondent aware that liability under the loan facility had been transferred to it. The memorandum of understanding with that Dasawihi Ltd does not mention that it would take over the loan obligations of the first Applicant with the Respondent. According to Osborn's Concise Law Dictionary 9th edition at page 302, a contract cannot usually give rights or impose obligations on anyone who is not a party. Other authorities on the enforceability of contract between parties privy only include Francis Xavier Muhoozi t/a Kabale Kobil Station versus National Bank of Commerce (U) Ltd HCCS number 0303 of 2006 and Kayanja versus New India Assurance Company Ltd  EA 295.
On the question of whether interest was paid for the money deposited by Leads Insurance Company Ltd, the affidavit in reply of the Respondents executive director paragraph 4 thereof shows that the loan facility was secured by a financial guarantee by Leads Insurance Company Ltd which only covers the repayment of a maximum of the principal borrowed, excluding accrued interest. The claim for accrued interest is due and owing and the Applicants are jointly liable to pay the same. There was an express agreement between the parties to pay interest at the rate of 20% per annum.
On the question of whether the interest charged is illegal, harsh and unconscionable, the contract between the Applicant and the Respondent is for a loan facility at an interest rate of 20% per annum, 1% above the Bank of Uganda lending rate was then at 19%. The Applicant defaulted and accrued interest owing is Uganda shillings 348,753,739/=. The interest rates are legal, fair and conscionable. The Respondent is a duly licensed financial institution operating within guidelines issued by the Central Bank. The allegations of unfair interest rates are an attempt by the Applicant to deny its contractual obligations.
In the premises no triable issues that merit consideration are disclosed. The allegation that a consent agreement was executed between the Respondent and Winnie Okidi as a guarantor is evidence from the bar and not contained in the Applicant’s affidavit nor any proposed written statement of defence. Te court record however shows that a default judgment was issued against Winnie Okidi on 26th of February 2014.
Whether there is a reasonable ground of defence to the claim?
The Respondents Counsel reiterated earlier submissions and added that it is a rule of law held in Robert Mwesigwa and another versus Bank of Uganda HCCS 0588 of 2003 that liabilities under contract cannot be assigned unless the consent of the other party to the contract is first sought. It is the Respondent’s submission that the liabilities under the facility letter were not transferred or assigned by the memorandum of understanding.
In the premises the application should be dismissed and judgment entered for the Respondent for Uganda shillings 348,725,739/= together with penalty interest at 30% on the amount and interest on the decretal sum of 30% per annum from the date of judgment till payment in full and costs of the suit. Alternatively if leave to defend is granted, it should be conditional upon the Applicant depositing the contested sums or its equivalent value in the court as security.
I have carefully considered the Applicants application together with the affidavit evidence for and in support of the application as well as the written submissions of Counsel and authorities cited by them.
The Plaintiff/Respondent filed a summary suit against the first, second and third Applicants as well as Winnie Okidi for recovery of Uganda shillings 348,753,739/= as interest accruing on a loan facility advanced by the Plaintiff to the first Defendant. Loan repayment was personally guaranteed by the second, third and fourth Defendants. The Plaintiff claim against the Applicants is that by an offer letter dated 7th of January 2010 it offered a loan facility up to a maximum of Uganda shillings 500,000,000/= to the first Applicant at an interest rate of 20% per annum. Leads Insurance Ltd guaranteed the loan up to a maximum of Uganda shillings 500,000,000/=. Upon default of the first Applicant, Leads Insurance Company Ltd honoured its guarantee. The Plaintiff/Respondent averments in the plaint inter alia are that first Defendant/Applicant defaulted in the payment of the interest that accrued on the loan which at the time of filing the suit was Uganda shillings 348,753,739/=. Secondly the Defendants/Applicants have no reasonable defence to the Plaintiff’s/Respondent’s claim.
The summary suit is supported by the affidavit of Charles Nalyaali the Chief Executive Officer of the Respondent bank. The guarantee agreements by the second, third and fourth Defendants to the summary suit or the second and third Applicants to this application are attached to the said affidavit. The first Defendant/first Applicant failed to fulfil its obligations to pay the instalments accruing from the loan facility for a period of 12 months.
The first ground of the application for leave to defend the summary suit is that the interest charged is illegal, harsh and unconscionable. In the written submissions of the Applicant’s Counsel this ground is not substantiated. The Applicant further included the issue of whether the interest claimed by the Respondents was unconscionable as one of the triable issues. There is no controversy about the rate of interest charged being 20% per annum. It is a term in paragraph 6 of the offer letter which is endorsed by the borrower that the interest rate would be 20% per annum. However illegality must relate to breach of law but no laws breached were cited for the court to arrive at a conclusion that a triable issue arises. The statement of the law is contained in the holding of Honourable Lady Justice Stella Arach Amoko in British American Tobacco (U) Ltd versus Pioneer Construction Ltd Miscellaneous Application Number 452 of 2008 arising from HCCS number 209 of 2008 that before leave to defend a summary suit is granted, the Defendant must show by affidavit that there is a bona fide triable issue of fact or law. For there to be a determination whether a defence is bona fide, it should be shown prima facie that there are triable issues of fact or law. It is not sufficient to make a blank assertion unsupported by affidavit evidence, except by averments on points of law, that the interest charged is illegal. In the case of Zola and another v Ralli Brothers Limited and another  1 EA 691 Sir Charles Newbold P held at page 694 of the East African Court of Appeal Judgment sitting in Nairobi that:
“Normally a defendant who wishes to resist the entry of summary judgment should place evidence by way of affidavit before the judge showing some reasonable ground of defence.”
I am not satisfied that the assertion of the Applicants on illegality and harshness of interest unsupported by evidence or submissions on which law has been breached gives rise to a bona fide triable issue. The bare assertion that the interest rate of 20% per annum is harsh, illegal or unconscionable is not a bona fide triable issue.
The second issue asserted as a triable issue is whether according to the bank statement the interest claimed is a debt due and owing? Several matters have to be laid out to resolve this ground. The first one is that there is an admission that there was a loan agreement. The second one is that the loan agreed to carries contractual interest. It is an admitted fact that the loan was for Uganda shillings 500,000,000/= and Leads Insurance Company Ltd settled that amount as disclosed in the plaint. What is asserted as being due and owing in the plaint is a claim for interest only. In paragraph 2 of the affidavit in support of the application it is admitted that Uganda shillings 500,000,000/= was paid by Leads Insurance Ltd as contained in paragraph 4 (e) of the specially endorsed plaint. Paragraph 4 (e) of the plaint avers as follows:
"As an additional Security for This Loan, Leads Insurance Ltd financially guaranteed to become liable to the Plaintiff to a maximum of Uganda shillings 500,000,000/=… And upon the Defendant’s default, Leads Insurance honoured its guarantee. (A copy of the financial guarantee is attached hereto and marked "D")
The guarantee document relied on is written on the letterhead of Leads Insurance Ltd and is dated 6th of February 2011. It is a performance bond guaranteeing payment in the event the first Applicant failed to meet the obligations of proper and faithful performance of the contract between the Respondent bank and becomes liable to pay the whole or part of the amount of total liability in respect of the loan of Uganda shillings 500,000,000/= granted to the Applicant. It further stipulates that the amount of payment will be automatically reduced by the amount already paid by the debtor to the principal under the guarantee. The guarantee was to expire on 5 September 2011.
The affidavit of the Chief Executive officer in support of the summary plaint is that Uganda shillings 348,753, 739/= was the outstanding interest that had accumulated. In paragraph 9 of the affidavit he deposes that Uganda shillings 500,000,000/= had been paid by Leads Insurance Ltd in accordance with the financial guarantee. From the affidavit in support of the application and paragraph 2 thereof the payment of Uganda shillings 500,000,000/= is not in dispute. It is the assertion in the Applicant’s application that Uganda shillings 348,000,000/= had also been settled or paid off which is controversial and secondly whether it comprises of interest only and not the principal sum. Mr. Wakame Materu Octavious in his affidavit in support of the application asserts that all the money owing to the Respondent was paid. However it is clear by reference to paragraph 4 (e) of the specially endorsed plaint that he admits the paragraph which asserts that Uganda shillings 500,000,000/= was paid. The assertion that the amount of money claimed by the Plaintiff/Respondent has been paid by Leads Insurance Ltd is not supported by any documentary evidence attached to the affidavit. Secondly no proposed written statement of defence is attached to the Applicant’s application.
On the question of whether the Applicants are contesting their liability in a separate suit namely HCCS No 13 of 2012, Leads Insurance Ltd versus Josiku Technical Services Ltd and three others, no pleadings thereof have been attached. At the very least a suit filed prior in time would have the effect of staying a suit filed thereafter under section 6 of the Civil Procedure Act. Even then the suit has to be between the same parties litigating under the same title. In this case the Respondent is not a party to HCCS No 13 of 2012 between Leads Insurance Ltd and the Applicants. It is possible that Leads Insurance Ltd is litigating under a derived title derived from having insured the risk of failure to pay the loan and this gives rise to some administrative concern on the risk of duplication of claims. However this is not the Applicant's case in the application and no evidence or submissions have been directed on this point.
On the question of assignment of the rights and liabilities of the first Applicant to Dasawihi Ltd, the submission that the loan is to be repaid by Dasawihi Ltd is not supported by any evidence. It is just an averment without the necessary materials adduced by affidavit evidence. Secondly it cannot be ascertained whether the Respondent is a party bound by such an agreement. From the submissions of Counsel not based on evidence what was assigned was not the loan but the project funded by the loan. Order 36 rule 4 of the Civil Procedure Rules envisages an affidavit in support of an application for leave to defend a summary suit. The affidavit evidence must be of sufficient material for the court to reach the conclusion that triable issues which merit judicial consideration have been disclosed. It is not sufficient to make an averment without evidence. If that were the case, it would have been unnecessary to file an affidavit in support of the application since the notice of motion itself would contain the averments of the defence. The affidavit in support ensures that materials are provided for the court to reach a conclusion that there are triable issues or that there is a bona fide defence to the Plaintiffs claim in the summary suit. I respectfully follow the judgment of Sir Charles Newbold P in Zola and another v Ralli Brothers Limited and another  1 EA 691 that a defendant who wishes to resist the entry of summary judgment should place evidence by way of affidavit before the judge showing some reasonable ground of defence.
The Plaintiffs claim in the summary suit is founded on an alleged failure of the first Applicant to fulfil its obligation under the loan facility. The alleged failure is in relation to the payment of interest accruing on the principal sum. Secondly the claim against the other Applicants is based on guarantee documents attached to the affidavit in reply as annexure "C" and "D". Annexure "C" is a guarantee and indemnity agreement between Wakame Materu Octavious, the second Applicant and the Respondent. It stipulates that the principal borrower is Josiku Technical Services Ltd. The guarantee was executed on 8 January 2011. The guarantee is between the guarantor and the Respondent bank guaranteeing repayment of the loan by Josiku Technical Services Ltd (the first Applicant). As far as payment of interest accruing from the loan is concerned, the first paragraph of the guarantee instrument and the proviso thereof is relevant and provides as follows:
"PROVIDED THAT the total amount recoverable under this Guarantee shall not exceed that Guaranteed Maximum Sum if such a sum shall be inserted in particulars but otherwise this Guarantee shall be without limit as to amount and to the payment of interest on the foregoing day by day from demand until full discharge such interest shall be chargeable at the rate of interest payable or deemed to be payable by the Principal (whether before or after judgment) as calculated at such rate or rates as may from time to time be charged to or payable by the Principal and any arrangements from time to time in force between the principal and the bank."
Secondly paragraph 3 of the guarantee instrument provides that the guarantee shall be a continuing security and shall remain in force notwithstanding any settlement of account in the following words:
"This Guarantee shall be a continuing security and shall remain in force notwithstanding any settlement of account or other matter or thing or any disability or the death of the Guarantor until determined by three months notice in writing from Guarantor or the personal representatives of the Guarantor but such determination shall not be affect the liability of the Guarantor for the amount recoverable at the date of the expiration of the notice."
In paragraph 8 it is provided that the guarantor shall as between the Respondent bank on the one part and the guarantor on the other be deemed to be a sole or principal debtor in respect of the guarantors obligations and not merely as surety and the guarantee may be enforced without the bank first taking any steps or proceedings against the principal or having recourse to any such securities or guarantors. A similar guarantee was executed by the third Applicant Mr Singh Kuldip Maan with the same terms. The guarantors are directors of Josiku technical services Ltd together with Mrs Winnie Okidi. The effect of the guarantee document is that settlement of the principal amount or any settlement by the principal borrower of the loan would not bar the bank/Respondent from proceeding against the guarantor if there is any outstanding liability. The only controversy would be whether there was such a liability outstanding and how much?
On 23 January 2014 a default judgment was entered against the fourth Defendant/Mrs Winnie Okidi for a sum of Uganda shillings 348,753,739/=.
In paragraph 6 of the affidavit in reply of the Respondent’s Chief Executive Officer the Respondent’s officer deposes that the accrued interest on the loan that was outstanding is an amount to Uganda shillings 348,000,000/= according to the statement of account marked annexure "D".
The account marked annexure "D" is entitled "Principal and Interest Calculation for Josiku Technical Services Ltd." I have tried to scrutinise annexure "D" but I am unable to come to a conclusion that the entire amount thereof comprises of interest only. The way the amount is calculated comprises of interest amounts and the principal amount outstanding. Possibly interest keeps on accumulating on the principal but as I shall show I need not conclude this issue. The last entry is dated Monday, September 24, 2012 and indicated as a loan write-off and the figure stipulated therein is Uganda shillings 348,753,739/=. Ordinarily what constitutes payment of the principal sum and payment with respect to the accrued interest is a question of fact and partly a question of how each transaction is attributed in the accounting system.
Whereas prima facie it would be easy for the Respondent to establish what the claimed amount is composed of in terms of whether it is the principal amount or interest or both, the Applicant has not made the task of the court any easier in advancing ground one of the notice of motion. The Applicant clearly avers therein that Uganda shillings 348,000,000/= claimed by the Respondent is accumulated interest accruing from a loan of Uganda shillings 500,000,000/=. The only assertion that the Applicant makes in relation to the interest amount is that it was an amount guaranteed by Leads Insurance Ltd and paid. Did Leads Insurance Ltd only pay off the principal amount and leaving accrued interest? Did the payment include accumulated interest? Either question can be answered by a perusal of the performance bond issued by Leads Insurance and particularly paragraph 2 thereof. The financial guarantee/performance bond is annexure "D" to the affidavit in support of the summary suit. It guarantees payment without cavil or argument upon the first written demand of the bank/Respondent in event of the Applicants default any amount up to a maximum of Uganda shillings 500,000,000/=. The amount of guarantee is to be reduced automatically by any amounts paid by the debtor to the Respondent of the amounts guaranteed.
The financial guarantee/performance bond amount has already paid. The bond amount does not distinguish between principal or interest and guarantees any outstanding amount in default of payment by the first Applicant up to a maximum of Uganda shillings 500,000,000/=. The debate as to whether what was paid was the principal or accumulated interest and whether what is now outstanding is only interest is academic and does not reduce any liability since the amount of money owing remains the same and the obligation to pay remains the same. The question of whether it is the principal amount owing or accumulated interest does not raise a bona fide triable question for investigation or trial since it does not affect the question of liability to pay any outstanding amount on the loan. So long as there is no question of whether the calculation of the outstanding amount is inaccurate, the matter does not raise any ground of defence to the outstanding amount.
Any Uganda shillings 500,000,000/= paid could cover the principal amount and any accrued interest if there was no other payment originally made by the debtor so as to reduce indebtedness to below this amount. In the circumstances the only issue I see is to establish what constitutes the sum claimed in the plaint and whether it has been paid off. If the Respondent can establish the amount that owes, the guarantors would be liable in accordance with the guarantee documents/instruments executed between the guarantors and the bank. In other words it is a question of how much money has been paid so far to the Respondent either by Leads Insurance Ltd or Mrs Winnie Okidi or the first Defendant/Applicant itself before establishing the outstanding claim in the summary suit.
Finally there was a submission by the Applicant’s Counsel that the liability of the Applicants in the loan agreement for the first Applicant and under the guarantee for the other Applicants had been assigned to Messieurs Dasawihi Ltd. This assertion amounts to a concession that there is some liability of the Applicants which were purportedly transferred to a third party who thereafter became liable to the Respondent. However the particulars of the assigned liability for instance under the guarantee contracts affecting the 2nd and 3rd Applicants has not been specified or particularised. The Applicants cannot submit on assignment of liability under a loan without being subject to the determination of whether such an assignment is effectual to establish whether a plausible defence or triable issue arises. Secondly it opens the Applicants up to the conclusion that what needs to be established is how much money owes if any under the liability which was transferred to a third party Messieurs Dasawihi Ltd. I agree with the Respondent’s submission that an assignment of liability for the debt by the principal borrower or guarantors cannot be made without consent of the Respondent bank. The assignment or contract thereof is affected by the doctrine that only parties to a contract can enforce it. This elementary principle of common law was held not to be a mere technicality but a fundamental principle by Hon Justice Yorokamu Bamwine in Francis Xavier Muhoozi t/a Kabale Kobil Station vs. National Bank of Commerce HCCS No. 0303 of 2006. In that case the Hon judge upheld that common law that a stranger to a contract cannot take advantage of the provisions of a contract even if some provision clearly benefitted him.
This doctrine applies with equal force on the question of whether it is a defence to a claim for enforcement of obligation under a loan agreement against the principal borrower or under a guarantee contract against the guarantor for defaults under the loan agreement. This is especially so considering that liability is based on a guarantee executed to the satisfaction of the Respondent bank and under which particular persons made undertakings to the bank. The Respondent bank cannot move against Dasawihi Ltd to enforce payment under an assignment of liability to which it is not a party. However the Applicants can move against Dasawihi Ltd without imposing any obligations against the Respondent bank. On the same principles the Respondent can only enforce obligations against the Applicants on the basis of contracts to which they are privy.
In this case what needs to be established is whether there is any outstanding liability in the circumstances and if so how much. What is triable is a question of fact as to how much money is owing to the Respondent from the loan facility. Once the exact amount is established, the Applicants do not have a plausible defence having executed written agreements imposing obligations to pay. Such an issue is not a defence to liability. In fact the Applicants admitted paragraph 4 (e) of the summary plaint and amounts therein but only asserted that the money was paid. In the case of Zola and another v Ralli Brothers Limited and another  1 EA 691 Sir Charles Newbold P held at page 694 of the Court of Appeal Judgment that:
“The mere right of the defendant to be indemnified by, or to have a claim over against, a third party in respect of the defendant’s liability to the plaintiff, or to recover from a third party or from the plaintiff by way of counterclaim, a sum of money which does not directly reduce the liability of the defendant to the plaintiff, does not entitle the defendant to prevent the plaintiff from obtaining a summary judgment.”
However the suit between Leads Insurance Ltd and the Applicants is allegedly based on the same subject matter and the same loan transaction. There is a danger that conflicting judgments may be issued where common questions of fact and law are involved and for different parties. Some claims may be made twice to the prejudice of the Applicant. The summary suit when determined without a defence will have the effect of determining liability of the Applicants when other parties involved such as Leads Insurance Ltd are in court allegedly over the same transaction.
Order 36 rules 8 of the CPR provides that leave to appear and defend a suit may be given unconditionally or subject to such terms as to payment of monies into court, giving security, or time or mode of trial or otherwise as the court may think fit.
In the premises conditional leave is granted for the Applicant to file a defence as follows:
- The Applicants will file a defence to the summary suit within 14 days from the date of this ruling.
- The trial shall be confined to trial for purposes of determining the quantum of liability under the guarantee or loan agreements to which there is no defence and trial will be for reconciliation of accounts to establish how much monies owe.
- The Parties are given 30 days within which to agree to and appoint an independent auditor to establish what is outstanding failure for which the court will appoint one. Upon establishing what monies owe under the loan facility after offsetting any other monies which may have been paid so far to the Respondent, the amount shall be recorded by the court as money owing to the Respondent.
- Copies of pleadings in HCCS No 13 of 2012 between Leads Insurance Ltd vs. Josiku Technical Services Ltd and 3 Others shall be produced in this court and shall be considered together with the audit report for further management of the suit and final judgment in the summary suit is stayed until the first two conditions are fulfilled namely an audit exercise report filed and pleadings availed to court.
- Costs of this application shall abide the outcome of the suit.
Ruling delivered in open court this 17th day of April 2014
Christopher Madrama Izama
Ruling delivered in the presence of:
Samalie Nsubuga for the applicant
Counsel for the respondent is absent
Charles Okuni: Court Clerk
Christopher Madrama Izama
17 April 2014