Court name
Commercial Court of Uganda
Judgment date
5 March 2015

Kaaya L Enterprises Ltd v KCB Bank (Miscellaneous Application-2013/1088) [2015] UGCommC 68 (05 March 2015);

Cite this case
[2015] UGCommC 68

                                          THE REPUBLIC OF UGANDA

                           IN THE HIGH COURT OF UGANDA AT KAMPALA

                                            [COMMERCIAL DIVISION]

                                       (Miscellaneous Application 1088 OF 2013)

                                   (ARISNG FROM CIVIL SUIT No. 531 OF 2013)

KAAYA.L. ENTERPRISES LTD ::::::::::::::::::::::::::::::::::::: APPLICANT/PLAINTIFF

                                                                 VERSUS

KCB BANK ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT/DEFENDANT

                                   

                                       BEFORE HON. Mr. JUSTICE B. KAINAMURA

                                                                RULING

This application is brought under order 41 rules 2(1) and 9 of the Civil Procedures Rules and Section 98 and section 64 (c) and (e) of the Civil Procedure Act. The applicant seeks orders for; (a) a temporary injunction restraining the respondent, its agents, and representatives from auctioning and selling the property of the applicant’s director pledged as collateral comprised in  Busiro county Block 313-320 plot 1544 at Kiumi Buloba Wakiso District.  , (b) costs of the application be provided for by the respondent.

The facts briefly are that the applicant obtained a loan facility of UGX 150,000,000/= from the respondent bank. Security for the loan was a land title of Deborah Kigongo, one of the applicant’s directors comprised in Busiro county Block 313-320 plot 1544 at Kiumi Buloba Wakiso District. The applicant applied for a further loan of UGX 110,000,000/= secured by the same tile. The respondent through Roma Associates on 31st Dec 2013 advertised the property for sale by public auction. The applicant made this application seeking for grant of a temporary injunction.

The grounds of this application are set out in the affidavit in support sworn by Deborah Kigongo, a director of the applicant and include;

The applicant’s director Deborah Kigongo pledged her property comprised in Busiro county Block 313-320 plot 1544 at Kiumi Buloba Wakiso District as collateral for a loan facility obtained from the respondent.

The applicant later contested the interest charged, the subsequent charge imposed and the intended actions of advertising, auctioning and sale of the land in Civil Suit No. 531 of 2013.

The respondent despite the suit before the high court has gone ahead and advertised the property for sale in the Daily Monitor newspaper in total disregard of the mortgage deed and unlawful charges levied and their breach of fiduciary duty.

The suit land subject of auction is family land where Deborah Kigongo resides with her family and if sold, irreparable damage will be suffered which cannot be atoned by damages.

 The application is to maintain the status quo and if not granted the main suit will be rendered nugatory.

In the affidavit in reply, Mr. Samuel Lutalo Head of Credit with the respondent bank deposed that;

The applicant obtained a finance facility of UGX 150,000,000 to facilitate its contractual obligations with UNRA.

The facility was secured by the land comprised in Busiro county Block 313-320 plot 1544 at Kiumi Buloba Wakiso District.

The applicant on or about 19th June 2012 applied for another contract finance of UGX 110,000,000/=.

The respondent later learnt that the applicant was among the companies blacklisted by UNRA for tendering forged bid securities.

The respondent immediately started demanding for the monies lent to the applicant.

 The respondent has on a number of occasions demanded for payment of the above facility but the applicant has failed/or neglected to comply.

Following the failure to meet its obligations according to the agreement, the respondent advertised the security for sale by public auction.

Applicant’s submissions

Counsel submitted that the grant of an injunction is an exercise of judicial discretion and serves the purpose of preserving the status quo till disposal of the main suit. He further gave the conditions necessary which are; the applicant must show a prima facie case with a possibility of success, secondly the likelihood of suffering irreparable injury that cannot be atoned by damages and if court is in doubt, it will decide the matter on balance of convenience. (see Nasser Kiingi & Kelyesubula Winnie Vs AG, KCCA & KDLD Constitutional Appl No. 34 of 2011). Counsel urged that, there was a breach of contract, trust and fiduciary relationship between a customer and client. This led to the applicant’s business setbacks, financial losses and unwarranted legal battles in the various courts of law. Counsel cited the case of Bunjo Amos Vs Barclays Bank of Uganda Ltd Civil Suit No. 55/91 where it was held inter-alia that the purpose of an injunction is to preserve the status quo, and urged court to grant the temporary injunction. 

Counsel further submitted that there is already an advert that was placed which proves eminent danger to be occasioned. He added that the respondent’s ability to compensate the applicant does not mean that its capacity overrides the mandatory provisions of the law especially where the Respondents acts flagrantly as illustrated. Counsel cited the case of Simiyu Vs Housing Finance of Kenya [2001] 2 EA 540 at 542 and urged that it is no longer mandatory that an injunction be only granted, in cases where the applicant has shown irreparable injury because the grant of an injunction is discretionally.

Regarding the balance of convenience, it was Counsel’s submission that the applicant took the loan facility to carry out contractual obligations it had with UNRA which all stalled due to the respondent’s breach of contract. He added that now that the respondent seeks to auction the property of the applicant’s director without first sorting out the applicant’s contention of breach of contract, the balance of convenience favors the applicant who stands to lose more if the intended sell is actually done.

In conclusion, Counsel stated that all the conditions for grant of a temporary injunction are resolved in favor of the applicant and invited court to decide similarly and grant the application as prayed with costs.

Respondents’ Submissions

Counsel for the respondent cited the case of Godfrey Sekitoleko & 4 others Vs Ssezi Peer Mutabazi & 2 others (2001-2005) HCB Vo. 3 PG 80( CA) where the the Court of Appeal listed the conditions for the grant of the temporary injunction and agreed with the position as set out by Counsel for the applicant.

Counsel urged that the applicant had taken a further loan facility of UGX 110,000,000 which was secured by the suit property, but the applicant had refused/failed to settle the last loan facility thereby leading to the pending foreclosure proceedings in the exercise of the mortgagee’s powers under the Mortgage Act.

Counsel submitted that the applicant’s submission that it will suffer irrepairable damages is unfounded because the respondent is able to atone for them. He added that it is the respondent that will suffer financially in terms of making provisions for the applicant’s unpaid loan in arreas. In conclusion, Counsel for the respondent prayed for dismissal of the application and grant of all orders sought with costs.

Applicant’s Submissions in rejoinder

Counsel submitted that the purpose of the temporary injunction is to preserve status quo and not to determine the merits of the main suit. He added that Counsel for the respondent argued the evidence applicable to the main suit disregarding the law on injunctions which would render the main suit redundant. Counsel relied on the case of E.L.T Kiyimba-Kagwa Vs Haji Abdu Nasser Katende [1985] HCB 43, where court cited the decision of Lord Diplock in American Cynamid Vs Ehticon Ltd [1975] AC 396 where it was held that;

‘’…………….moreover 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……..’’

Regarding the issue of balance of convenience, counsel submitted that the suit property is the residential property and family land of the applicant’s director as laid out in paragraph 1 and 9 of the applicant’s director’s affidavit in support of the application. The sale of the property would render the applicant’s director without a place of abode. He added that the fact that the respondent concedes that it can atone for the loss suffered by the applicant effectively tilts the balance of convenience in favour of the applicant.

Counsel in conclusion prayed that the court treats the respondent’s submissions with the requisite disregard they deserve and grant the applicant a temporary injunction restraining the respondent, its agents, servants and representatives from auctioning and selling the property of the applicant’s directors pledged as collateral comprised in Busiro county Block 313-320 plot 1544 at Kiumi Buloba Wakiso District.

 

DECISION

The application before this court was brought under order 41 rules2 (1) and 9 of the CPR for the grant of a temporary injunction.  

I have carefully considered the arguments of both Counsel. The first question to be considered is whether there is any status quo that needs to be preserved. The applicant’s Director, Deborah Kigongo deposed that the land used as security is a residential home where she and other family members ordinarily reside. Therefore if the injunction is not granted to maintain the status quo, the main suit will be rendered nugatory.

 I agree with the position in E.L.T Kiyimba-Kagwa v Haji Abdu Nasser Katende (supra) that the purpose of an injunction is to preserve status quo. Court in that case laid down the conditions to consider while granting an injunction which are;

The applicant must show:-

  1. A prima facie case with a possibility of success
  2. Likelihood of suffering irreparable injury which would not be adequately compensated by award of damages and
  3. If court is in doubt, it will decide the matter on balance of convenience

On the issue of establishing a prima facie case with a possibility of success Counsel for the applicant contended that the respondent was in breach of its duties that led to the failure to meet its obligations and there is a suit pending determination where the applicant is challenging the respondent’s actions that made it fail to meet its obligations. In the respondent’s affidavit in reply it is deponed that the respondent learnt from an article dated 28th March 2013 that the applicant was among the companies that forged bid securities and consequently started demanding for its monies. In E.L.T Kiyimba-Kagwa Vs Haji Abdu Nasser Katende (supra) the court stated;

“………….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 not in dispute that two loans were advanced to the applicant. One loan was paid off and the other remains outstanding. However the applicant raises the issue of interest and breach of contract by the respondent among others which in my opinion show that there is a prima facie case with likelihood to succeed at the trial. Accordingly this application in my view meets the first rest for grant of a temporary injunction.

As for the second test, Counsel for the applicant argued that there is eminent danger proved by the fact that the respondent through its agent has already placed an advert placing the suit property up for public auction. The respondent on the other hand stated that it had capacity to compensate the applicant in event it loses the case.  In the case of Matex Commercial Supplies Ltd and Another Vs Euro Bank Limited [2003]1 EA at page 216 it was stated that any property whether a matrimonial or spiritual house offered to a bank as security for a loan is on the understanding that the property stands at a risk of being sold by the lender if default is made on the debt secured.

Accordingly anyone offering his/her property as security should bear this in mind.

In my view the applicant fails on this test.

As stated above when in doubt, the court will consider the application on a balance of convenience. Counsel for the applicant stated the applicant will suffer more inconvenience while the respondent considered it otherwise.       In the case of Gapco Ug. Ltd Vs Kaweesa & Anor Misc. App. 259 of 2013(arising out Of Civil Suit No. 133 of 2013) J Mulangira stated 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.

In my opinion the applicant is bound to suffer most if the temporary injunction is not granted. The balance of convenience therefore tilts in the applicant’s favor. Since the applicant has satisfied two conditions for the grant of the temporary injunction, this application succeeds.

Accordingly this application is granted in the terms and orders sought for.

Costs will be in the cause.

 

B. Kainamura

Judge

05.03.2015