Court name
Commercial Court of Uganda
Judgment date
16 May 2014

Kiwanuka v Orient Bank (Miscellaneous Application-2013/553) [2014] UGCommC 55 (16 May 2014);

Cite this case
[2014] UGCommC 55

THE REPUBLIC OF UGANDA

 

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

 

MISC APPLICATION NO. 553 OF 2013

 

KIWANUKA EDWARD …………………. APPLICANT

 

VERSUS

 

ORIENT BANK ……………………………… RESPONDENT

 

BEFORE LADY JUSTICE FLAVIA SENOGA ANGLIN

 

RULING

 

This application was made under 0.41 rules 1 (a), 2, 8 and 9 C.P.R and S. 98 C.P.A.

 

The Applicant seeks orders of court granting a temporary injunction to restrain the Respondent, its agents or servants from selling the property comprised in Block 252 Kyadondo, LRV 2496, Folio 18, Plot 139 at Gaba, until the substantive application in the main suit.

 

The grounds for the application are that:-

 

  • The Applicant as a guarantor mortgaged the property already above described for a 30% performance bond issued to Eliana Agencies Ltd.
  • Shs. 2,480,071,262 was issued and a debenture created by the Defendant.
  • Eliana Agencies together with another Company formed a joint venture under which the Applicant was authorized to sign the agreements with the Ministry of Education; to supply and deliver Primary School furniture to 12 Districts in Northern Uganda.
  • On 17.12.12, the Respondent advertised the Property of the Applicant in the New Vision Newspaper, but instead showed the 2 former registered owners as owners, instead of the Applicant.
  • The Applicant contends that he was never served with any legal notice/demand at all, prior to the advertisement.
  • The Applicant has filed C.S.No. 361/13 which is still pending determination and he states that the suit has high chances of success.
  • That therefore if the Respondent is not restrained from selling the suit land that was mortgaged as security to the Respondent before the suit is determined, the Applicant will suffer irreparable loss and the suit will be rendered nugatory.

 

The application is supported by the affidavit of the Applicant.

 

In their affidavit in reply, the Respondent opposed the application on the following grounds:-

 

 

  • The Applicant mortgaged the property to the Respondent for the facility granted to Eliana Agencies Ltd and the performance and advanced payment guarantee issued on behalf of the same Company.
  • At all materials times, the Applicant remained and still remains the guarantor and mortgagor of the Respondent for the sums due under the facility.
  • The Respondent has since advertised the property of the mortgagor and wishes to recover the sums due to it from the securities mortgaged in its favor, in exercise of its rights.
  • The Principal debtor was duly informed of the notice to recover the sums due but it neglected or ignored to pay.
  • The valuation of the property carried out by the Respondent shows the value of the property ranges between 1,500,000,000/- with forced sale value of shs. 900,000,000/-
  • The Respondent has every right to recover under the guarantee and mortgage provided to it as security.
  • It would be an injustice to stop the recovery of the sums due yet substantial amounts were advanced to the Principal Debtor Eliana Agencies Ltd.

 

 Court now proceeds to determine whether this is a proper case for the grant of a temporary injunction.

 

In determining this issue, I bear in mind the principles established by decided cases that “injunctions are largely equitable remedies, which are given at the discretion of the court.  In so granting the injunction, the court must have regard to the law in question and exercise its discretion judicially…” – See UG. Performing Rights Society Ltd Vs Mukubira [2004] IEA 345 (HCU).

 

Under 0.41 rule 1 C.P.R. where the application was made “court may grant a Temporary Injunction where the property in dispute is in danger of being wasted, damaged or alienated by any party to the suit, or wrongfully sold in execution of a decree”.  The injunction may be granted 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 Principles for grant temporary injunctions have been the subject of discussion in many cases.  And it has been generally accepted that court must be satisfied that:-

 

  • The Applicant has a prima facie case with a probability of success, which in Uganda courts have decided to only consider whether there are serious questions to be tried – See Francis Kayanja Vs Diamond Trust Bank Uganda Ltd H.C. MA 0300/2008.
  • That the Applicant might otherwise suffer irreparable damage that may not be adequately compensated by way of damages.
  • And if the court is in doubt, then it will decide the application on a balance of convenience. – See Robert Kavuma vs. Hotel International Ltd SC C.A 08/90.

The principles are sequential

 

In determining whether there is a prima facie case with a probability of success, the court ought to be satisfied that the claim is not frivolous or vexatious and that there is a serious question to be tried.  – See America Cynamide Co. Ltd vs. Ethicon [1975] ALL ER 504.

 

In this respect, Counsel for the Applicant submitted that the Applicant was a guarantor for the 30% performance and bond issued to Eliana Agencies.  He is the registered proprietor of the suit land. A debenture was created by the Respondent.  Further that there are substantive issues to be determined in the main suit, for example as no legal demand notice was given to the Applicant.  Counsel argued that the bank entered into a contractual relationship with Eliana Agencies Ltd and that the Applicant is neither a director nor an agent of Eliana Agencies.  Also that, the Respondent has not exhausted all ways of recovering the debt from the principal debtor. – The case of Kiyimba Kaggwa vs. Abdu Nasser Katende [1985] HCB 43, was cited in support.

 

 Counsel also insisted that the suit 361/13 instituted by the Applicant has a high probability of success.

 

The Respondents’ Counsel reiterated the conditions for grant of a temporary injunction already set out in this ruling.  He relied upon the case of Francis Kayanja Vs Diamond Trust (U) Ltd HCMA 300/2008.  Counsel contended that the main suit against the Respondents is for breach of contract, damages and failure to issue legal notice.  Yet the connection between the Applicant and the Respondent is that of mortgagor and mortgagee.

 

The Applicant executed a third party mortgage where he expressly agreed that in event of default by Eliana Agencies, his land would be sold to recover the sums due and this is clearly indicated in supporting affidavit.  That in the circumstances therefore, there are no questions to be tried as regards the mortgage.

 

It was further submitted that failure to serve legal notice is a new ground that is not mentioned in the supporting affidavit.  Counsel asserted that there was no breach of contract and the Respondent can proceed to foreclose since the Applicant has failed to establish a prima facie case.

 

Upon giving the submissions of both Counsel, the best consideration I can in the circumstances and applying on the established principles of law to the circumstances of the present case, I find that I am more persuaded by the submissions of Counsel for the Respondent.  The Applicant was the guarantor of the loan given to Eliana Agencies.  Eliana Agencies defaulted in payment and the Applicant’s liability arose as soon as there was default in payment.  – See case of Uganda Development Bank Ltd Vs G. Begumisa C.S. 171/2008.

 

I accordingly find that no serious triable issues or prima facie case has been established by the Applicant.

 

As to whether the Applicant will suffer irreparable injury, Counsel for the Applicant submitted that the Applicant’s property was advertised in the New Vision and subsequently there was a buyer given a letter of offer by the Respondent worth 1,300,000,000/-.  However, it is Counsel’s contention that the property is worth more and that unless the Respondent is restrained from selling the property, the Applicant will suffer immensely as the property is the residence of the family.

 

On the other hand, Counsel for Respondent while admitting that the Respondent wishes to sell the property for shs. 1,300,000,000/-;  pointed out that a valuation was carried out – Annexture “D” and the property was valued at 1,500,000,000/- with a forced sale market value of shs. 900,000,000/-.  He argued that, it is not enough for the Applicant to merely state that he will suffer irreparable damage, but should prove that indeed that will be so.  – The case of Giella vs. Cassman Brown & Co. Ltd [1973] EA 358 was relied upon to support the argument.

 

It is true that decided cases have established that “ once the Applicant succeeds in showing that he is likely to suffer substantial loss or irreparable damage, he is entitled to be granted the order of injunction” See National Housing & Construction Corporation Vs. Kampala District Land Board & Another C.A C.A 87/2001.

 

That the property in dispute has been advertised for sale is not disputed and an offer to buy it at shs. 1,300,000,000/- has been made.  However, while the Applicants contend that it ought to fetch a higher value, his statement is not backed by any concrete evidence like a valuation report.  The Respondent on the other hand has a report that indicates that forced market value would be shs. 900,000,000/-; and the property is valued at shs 1,500,000,000/-.

 

With the contentions in the Applicants’ supporting affidavit being of a general nature, court is not convinced that the Applicant is likely to suffer substantial loss.  It seems more like that he will suffer mere inconveniences.

 

Though it is not disputed that the premises are used for residential purposes, Court is also not convinced that damages would not be an adequate remedy.  I am persuaded in my decision by the principles of law laid down in a number of cases to the effect that “any property whether it is a matrimonial home or otherwise… which is offered as security for a loan/overdraft is offered on the understanding that the property stands at the risk of being sold by the lender if default is made on the payment of the debt secured.” 

 

Courts have emphasized that “ where a party agrees that a particular property is suitable for purposes of security, it cannot plead that the property has sentimental or spiritual value or something”See Matex Commercial Supplies Ltd and Another vs. Euro Bank Ltd (in Liquidation) [2008] EA Page 216.

Applying the principles in those cases to the present case, I find that the Applicant, having given the property as security,  must have anticipated the risk of its being sold in case of default and cannot turn around to claim that it is the home of his family, as he well knew it to be by the time he gave it in as security.

 

Am further fortified in my decision by the case of Maithya vs. Housing Finance Co of Kenya & Another [2003] IEA Page 133 where court held that “Securities are valued before lending and loss of property by a sale is contemplated by the parties even before the security is formalized. In such cases damages would be an adequate remedy”.

 

It can be noted from the present case that the Applicant is seeking general damages and interest in the main suit.  And that the Respondent clearly states that it is in a position to compensate the Applicant by way of damages if he wins the case.

 

I accordingly find for all those reasons that the Applicant has failed to prove that he will suffer substantial loss or irreparable injury.  The injunction cannot therefore issue.

 

As already pointed out earlier in this ruling, “where the loan is secured by a mortgage, the special property in the mortgaged property passes to the bank in order that it may sell the property when its right to sell arises.  The guarantor’s liability becomes effective as soon as there is default on the loan. See the case of UDB Ltd Vs G. Begumisa (supra)

 

The property was advertised for sale and the Applicant thereby duly informed of the intention of the bank to sell.  Advertisement in News Papers is notice to the whole world.  While there was an error as to registered owner in the first advertisement, the error was corrected by the bank in a subsequent advertisement of Monday 12th August, 2013, in the New Vision.

 

All in all, Court finds that the Applicant has failed to satisfy the requirements of O. 41r.1 CPR and the established principles for grant of an injunction.

 

The application is accordingly dismissed with costs to the Respondent.

 

 

Flavia Senoga Anglin

JUDGE

16.05.14