Court name
Commercial Court of Uganda
Judgment date
2 June 2014

Kakooza v EcoBank Uganda Ltd (Miscellaneous Application-2014/40) [2014] UGCommC 69 (02 June 2014);

Cite this case
[2014] UGCommC 69

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

[COMMERCIAL COURT]

 

MISCELLANEOUS APPLICATION No. 40 OF 2014

[ARISING FROM CIVIL SUIT NO. 44 OF 2014]

 

 

JESSICA KAKOOZA

:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: APPLICANT

 

VERSUS

ECOBANK UGANDA LIMITED

 

:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT

 

 

 

BEFORE HON. JUSTICE B. KAINAMURA

 

RULING

 

This application is brought under order 41 rules 2(1) and 9 of the Civil Procedure Rules and section 98 of the Civil Procedure Act, and section 33 of the Judicature Act. The applicant seeks orders for; (a) a temporary injuction against the respondent restraining it from proceeding to sell off the respondent’s mortgaged property until the disposal of the main suit; High Court Civil suit no 44 of 2014, (b) costs of the application be provided for.

The grounds for this application are set out in the affidavit in support of a chamber summons sworn by Jessica Kakooza, the applicant.  She states that she opened a current account number 0010266100085101 under the Trade name “Kakooza Shop” with the respondent bank on the 2nd day of May 2009. That due to the good working relationship with the respondent bank and credit worthiness, the respondent extended to her an overdraft facility. This enabled her operate her business. Furthermore, that since then, she has paid interest that is over and above what she was supposed to pay in respects of the term loan.

 It is also the applicant’s contention that the respondent bank was in breach of its duty to her. She states that some of the payments made by her were either not credited onto her account or were deposited several days thereafter. That this greatly affected the interest she paid on the over draft facility because it attracts interest on a daily basis. Further, that the respondent without making any demand in writing and without any default in payment by the applicant, went ahead to deliver to her a notice of default on 29th  November 2013, claiming a sum of Shs. 629,773,996.57 as principal and interest due.

It is the applicant’s belief therefore that the respondent is threatening to realize its security by sale of her property which she used to as security for the mortgage. That unless a temporary injunction is issued against the respondent to restrain them from selling off her property, the applicant will be put at great risk of losing her property with a danger of crippling her business operations.  Additionally, that the balance of convenience lies in favor of the applicant. It is also in the interest of justice, equity and fairness that the application be granted.

In an affidavit in reply sworn by Annette Mwiriza Mukunda, the Company Secretary/ Head of Legal of the respondent, the respondent opposed the grant of a temporary injunction sought in the application herein. She set out that the respondent granted the applicant a guarantee facility for a year in the amount of Shs. 150,000,000/= as working capital for six months which kept being renewed at the instance of the applicant.  The facilities were secured by a legal mortgage over the property comprised in LRV 4317 Folio 7 Plot 5 Ssenyonga lane Kyadondo Block 15.

Additionally, by a variation offer letter dated 26th April 2012, the letter of offer dated 2nd February 2012 was varied. The respondent granted another facility of Shs. 100,000,000/= with the entire facility totaling Shs. 250,000,000/= expiring by 3rd February 2013. That by a letter of offer dated 21st September 2012 an additional facility of Shs. 100,000,000/= was granted bringing the applicants indebtenes to the respondent to Shs. 583,000,000/=.   

Later on, by letter of offer dated 20th December 2012 upon request by the applicant, the two facilities i.e. the one granted on 26th April 2011 and the one granted on 21st September 2012 were restructured. The respondent by letter of offer dated 21st march 2013, offered to renew the overdraft facility of                 Shs. 250,000,000 for a further twelve months of which at the time the applicant was indebted to it in the sum of Shs. 540, 000,000.

Further still, the respondent at the request of the applicant, advanced                  Shs. 100,000,000 as a temporary overdraft to enable her clear her stock for Easter. She defaulted in paying within the required time of 7 days.

That on the 14th of June 2013 the applicant requested the respondent to restructure her credit facilities, which the respondent declined and made a demand that the applicant settle all the monies owed. The deponent further states that on the 29th of November 2013 the monies owed by the applicant totaled to Shs. 629,773, 996.57 and consequently issued a notice in default in accordance with the Mortgage Act. That after 45 days of the notice in default lapsing the respondent is by law supposed to issue a notice of sale and advertise the property for sale.  That after receiving a Notice in Default,  the applicant demanded for reconciliation of her account on the 13th of November 2013 claiming that some deposit were never credited onto her account and further that she has paid interest over and above what she should have paid. The deponent stated that the respondent requested particulars of the deposits which the applicant failed to respond to.

In the affidavit in rejoinder the applicant contends that the respondent issued in favour of the applicant a guarantee facility of Shs. 150,000,000/= including a cash security of Shs. 75,000,000/= deposited by the applicant with the respondent. That when the guarantee was called the respondent paid out the                        Shs. 150,000,000/= including the cash deposit of Shs. 75,000,000/= but the respondents continued to charge interest on the total amount of                             Shs. 150,000,000/=. She further deponed that as early as May 2012, she applied to the respondents to have the loan and overdraft facilities converted into a term loan. She stated that the respondent was in breach of its duty to review the overdraft facilities in accordance with her request for conversion into a term loan.  She also states that the demand and Notice of Default were made in bad faith against the background of criminal complaints raised by her against the respondents.

Additionally, that the respondent has started on the process of disposing of the applicant’s mortgaged property which ought to be halted for the ends of justice.  She also complained about the continued payment of interest over and above what was agreed upon. She added that despite the issuance of the notice of default; the respondent is still debiting her account monthly.

The applicant stated that she has a particular attachment to the property and no monetary award would adequately compensate her for it. She concluded by adding that the respondent is threatening to realize its security by sale of the mortgaged property.

At the hearing of the application, the applicant was represented by Mr. John Bosco Mudde, while Mr. Sembatya represented the respondent. Both counsel addressed the court in written submissions.

The applicant’s counsel gave the brief facts of the case that the applicant opened a current account No. 0010266100085101 under the trade name Kakooza’s Shop. That there was a good relationship between the applicant and respondent and as a result, the respondent extended to the applicant overdrafts for her business.

Counsel further stated that the applicant faced with some changes in business transactions, requested for change of the over draft facility to a medium term loan. He contended that the applicant has been paying interest that is over and above what she is supposed to pay in respect of the term loan and the same continues to be charged monthly by the respondent.  Furthermore, that the respondent is in breach of its duty to its customer as several payments made by the applicant were either not credited onto her account or deposited several days thereafter which greatly affected the interest on the overdraft facility as it attracts interest on a daily basis.

Additionally Counsel pointed out the fact that the respondent’s agents used to fill in customer deposit slip for the plaintiff contrary to the Bank of Uganda Consumer Protection Guidelines. He added that instead of the respondent bank rectifying the situation, they resorted to criminal prosecution of the applicant on the allegations that she defrauded the bank in concert with its employees. Counsel also stated that the respondent without any demand in writing and without any default by the applicant went ahead to deliver a notice of default dated 29th November 2013 claiming sum of Shs. 629,773,996.57 as principal and interest due to the respondent. That the respondent is threatening to realize its security by sale of the applicant’s property secured under the mortgage.

Counsel cited the case of Kiyimba Hajji Kagwa Vs Abdu Nasser Katende H.C.C.S No. 109 of 1984 which laid down conditions to consider before the grant of a temporary injunction;

  1. Granting a temporary injunction is an exercise of judicial discretion
  2. Applicant must show a prima facie case with a possibility of success
  3. Likelihood of suffering irreparable injury
  4. If court is in doubt, it will decide the matter on balance of convenience.

On the question of whether there is a prima facie case, Counsel submitted that the respondent was in breach of its duty which the applicant wishes to prove in the main suit. That the several deposits made by her or her agents were never credited on her account.  Counsel also submitted that the applicant will seek to prove that even the instances where the deposits were credited, it was done after several days had elapsed which imputed either fraud or negligence on the part of the respondent and greatly impacted both the interest rate of the overdraft and credit facility. It was Counsel’s submission that the applicant had a prima facie case with a high probability of success in the main suit.

On the question of irreparable injury, Counsel referred to the affidavit in support of the application and also in rejoinder stating that the applicant mortgaged two properties to the respondent as security. He added that the applicant has personal attachment to the property and struggled to acquire it and if lost, it will be difficult to re-possess. Further still, that no compensation would ameliorate the applicant.

On the ground of balance of convenience Counsel submitted that the balance of convenience favors preservation of the applicant’s property until the disposal of the main suit. He added that if the property is sold at this stage, the applicant’s prayers in the main suit will be rendered nugatory.

He thus prayed that in the premises, court should use its discretion and preserve the status quo. He also invited court to use its inherent power to stop the continued charging of interest on the facility on a monthly basis by the respondent.

Counsel for the respondent in reply also cited the case of Kiyimba Kagwa (supra) which sets out the grounds to be considered by court before granting an injunction.

Counsel submitting on the ground of establishing a prima facie case stated that the gist of the application is based on grounds 3 and 4 in the Chamber Summons which are;

That the applicant has since paid interest that is over and above what she is supposed to pay in respect of the term loan and the facility. Secondly that the respondent in breach of its duty to the applicant failed to credit onto the applicants account several payments or deposited them several days after, which greatly affected the interest on the overdraft facility which attracts interest on a daily basis.

Counsel submitted that under Section 102 of the Evidence Act, the Applicant is duty bound to furnish court with evidence for it to weigh the genuiness of her claim. He further stated that the applicant did not indicate what she was supposed to pay and what she paid for the court to determine whether or not there is a prima facie case with a probability of success.

He stated that similarly even in the affidavit in rejoinder, the applicant does not state any facts which can establish a prima facie case when she depones in paragraph 16 that she has continued to pay interest over and above what was agreed upon, and that despite issuing her with a notice of default, the respondent is still debiting her account.

Counsel further submitted that the applicant has shown no evidence by way of deposit slips to prove these payments. He thus concluded by submitting that no prima facie case with a probability of success has been made out to warrant the grant of a temporary injunction.

On the ground of irreparable damage, Counsel submitted that the applicant does not state what nature of attachment she has to the property that was mortgaged. He argued that it was in the applicant’s knowledge before she decided to mortgage the property and should have been aware the consequence of losing it in case of default. He cited the case of Kakooza Abdulla Vs Stanbic Bank Uganda Limited Misc Application No. 614 of 2012 (arising out of Civil Suit No. 455 of 2012) in which Hon. Justice Madrama Izama stated that as a general rule, sale of property which is pledged as security in a loan agreement or mortgage cannot lead to irreparable loss per se. It was counsel’s argument that 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.

Further Learned Counsel for the respondent stated that the respondent is a licensed and regulated entity under the Financial Institutions Act 2004 and is in a position to settle any damages award that may in the unlikely event be made in the applicant’s favor.

On the last ground of balance of convenience, Counsel submitted that this is only considered if the court is in doubt on the first two tests. It was his submission that no evidence has been adduced by the applicant for a determination of the balance of convenience in her favor.

It was Counsel’s argument that the applicant’s averment that unless a temporary injunction is issued against the respondent restraining them from selling her property under the credit facility, she will be put at a great risk of crippling her business operations, only confirms that her business operations were already impaired.  He added that the disposal of the security will not make the business operations worse than they already are.

Additionally, Counsel was of the view that the essence of the security is something to have recourse to in the event that the applicant failed to pay. He therefore stated that the balance of convenience is in favor of the respondent.

Counsel relying on Regulation 13(1) of the Mortgage Regulations , prayed that in the unlikely event that court is inclined to grant the temporary injunction, the applicant should be ordered to deposit a security of 30% of the amounts owed. Counsel prayed that the application be dismissed with costs.

In rejoinder, Counsel for the applicant submitted that the applicant had established that there is a prima facie case with serious triable issues. That it should be noted that at the application stage the law does not require court to delve into the merits of the main suit. All that is required to be proved is that there is a serious issue to be tried by court and that the issue is neither frivolous nor vexatious. Counsel relied on the case of American Cyanamide Vs Ethicon [1975] ALER 504, which was quoted with approval in the case of Gapco U Ltd Vs Kaweesa & Anor HCMA 29 of 2013. Counsel for the applicant argued that the issue of whether or not the respondent acted negligently and in breach of its duty in failing to credit deposits made by the applicant onto her account with the respondent bank is a serious and triable issue.  In conclusion Counsel stated that the case has a high probability of success, and at the trial, the applicant will be able to demonstrate that the interest charged on the mortgage is more than what was agreed upon between the parties.

On the issue on irreparable injury, Counsel maintained that there is no form of award that will adequately compensate the applicant. He submitted that the case of Kakooza Abdulla Vs Stanbic Bank (U) Ltd (supra) is distinguishable. He stated that the trial judge stated that order 41 rule 1 of the Civil Procedure Rules is wide enough for court to make other orders for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal and disposition of property as the court thinks fit. Much as that case also involved an application for an injunction stopping the sale of property secured under the mortgage, Court went ahead to grant the temporary injunction until the final disposal of the suit. He thus invited court to grant the temporary injunction sought by the applicant.

On regulation 13 (1) of the Mortgage Regulations cited by Counsel for the respondent, it was Counsel for the Applicants interpretation that the regulation cited is in respect of an application for adjournment of sale, and not an application for a temporary injunction as is in this case. He thus stated that the provisions cited do not apply to this application and the same should be disregarded by court. On this point I agree with Counsel for the respondent and I will accordingly disregard this alternative prayer. Counsel prayed that court goes ahead to grant the temporary injunction.

DECISION

I have carefully considered the application and arguments of both Counsel. The application is in no doubt one where the applicant seeks a grant of a temporary injunction pending the disposal of the main suit. It is not in dispute that there is a relationship between the applicant and the respondent. It is also not in dispute that credit facilities were offered to the applicant in form of overdrafts secured by a property that is at risk of disposal by the respondent for the alleged default of payment by the applicant.

This application was brought under order 41 rules 2(1) and 9 of the Civil Procedure Rules.

The question to be considered is whether there is any status quo that needs to be preserved. The applicant in her affidavit in support of the application deponed that unless the injunction is granted, the respondents shall sell off her property which if lost shall cripple her business. In the case of E. L. T Kiyimba - Kagwa Vs Haji Abdu Nasser Katende Civil Suit No. 2109 of 1984, among others it was held that the granting of a temporary injunction is an exercise of judicial discretion and the purpose of granting it is to preserve matters in the status quo until the question to be investigated in the suit can be finally disposed of. The court went ahead to lay down the conditions for grant of the interlocutory injunction as:-

  1. Firstly that the application must show a prime facie case with a probability of success.
  2. Secondly such injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury which would not adequately be compensated by an award of damages.
  3. Thirdly if the court is in doubt it would decide an application on the balance of convenience.    

It is a fact that this application arises from Civil Suit No. 44 of 2014 in which the applicant/plaintiff alleges breach/negligence of the respondent/ defendant for failure to credit deposits made on her account. Additionally, it is her claim that the respondent was charging her interest above what she was meant to pay. It is trite that court cannot determine these issues at this stage. However, at this stage, the applicant has to establish a prima facie case with a likelihood of success as a ground for the grant of a temporary injunction. The respondent contends that the applicant did not indicate what she was supposed to be paying as opposed to what she was paying. The respondent adds that what the applicant misconstrued as payments are actual interest charges on her account. I clearly need not delve a lot into this, and I would like to borrow the words of the trial Judge in the case of L. T Kiyimba - Kagwa Vs Haji Abdu Nasser Katende, (supra) where he stated that;

‘’…however it is not part of court’s function at this stage of litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend, nor to decide difficult questions of law which call for detailed argument and mature consideration . These are matters to be dealt with at the trial, and it is therefore wrong in principle to require the court to undertake such considerations which may be necessary in order for it to find a prima facie case or probability of success in favour of the plaintiff……..’’

It is a fundamental right that both parties to a dispute have a right to be heard in order to arrive at a decision which meets the ends of justice.

It is not in contention that monies were advanced to the applicant and that there was once a good relationship between the applicant and respondent. The respondent claims an amount of Shs. 629,773,996.57 while the applicant says she has been paying more than she should pay, and she alleges that some of the payments made towards offsetting the credit facility were not credited on the account or when done, it was several days late which led to the escalation of interest.

To my mind this raises triable issues which are not frivolous or vexatious which need to be looked at during the trial of the main suit and accordingly the applicant has shown that there are serious questions to be tried with real prospects to succeed at the trial.

I so hold.

I will now address the second condition of the application which is that the applicant will suffer irreparable injury if the application is not granted. The applicant stated that she had a personal attachment to the property which she struggled to acquire. In response to this, Counsel for the respondent referred to the decision in the case of Kakooza Abdulla Vs Stanbic Bank Uganda Limited (supra) where the Learned Judge stated that as a general rule, sale of property which is pledged as security in a loan agreement or mortgage cannot lead to irreparable loss per se. It was Counsel’s argument that the sale of property by the mortgagee cannot lead to irreparable loss since it was the contractual arrangement and intention of the parties and was expressly provided for in the loan agreement or mortgage.

I agree with Counsel for the respondent’s submission on the issue. Both parties were aware of terms of the contract and its consequences. Ideally that is the reason why a security is provided as a guarantee in case of default. However, I need to point to the fact that the intention of the recipient of the loan was to, in time redeem their property. On the other hand the respondent is a profit -making entity that should not operate at a loss and expects profit at the end. Accordingly, the applicants noble intentions notwithstanding, she was aware of the consequences of default and in my view fails to satisfy this condition.  

 The third condition of balance of convenience is considered when court is in doubt on the first two conditions or any of them. In the case of Gapco Ug. Ltd Vs Kaweesa & Anor Misc. App. 259 of 2013(arising out of civil suit No. 133 of 2013) court opined that if the risk of doing an injustice is going to make the applicants suffer then the balance of convenience is favorable to him/her and court would most likely be inclined to grant him/her the application for a temporary injunction. I agree with this position.

Based on the pleadings and submissions above, I am of the opinion that not granting this temporary injunction may lead to an injustice against the applicant and accordingly the balance of convenience in her fevour. Consequently the applicant has established two of the conditions necessary for the grant of temporary injunction, the application therefore ought to succeed.

Accordingly this application is granted in the terms and orders sought with costs in the cause.  

 

B. Kainamura

Judge

2.06.2014