Court name
Commercial Court of Uganda
Judgment date
15 September 2017

MK Financiers Ltd v N Shah & Co Ltd (2) (HCT-00-CC-CS-2014/560) [2017] UGCommC 110 (15 September 2017);

Cite this case
[2017] UGCommC 110

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA HOLDEN AT KAMPALA

(COMMERCIAL DIVISION  HCT-00-CC-CS-0560-2014)

MK FINANCIERS LIMITED.................................... , PLIANTIFF

VERSUS

N. SHAH & CO. LIMITED....................................... DEFENDANT

BEFORE HON. JUSTICE RUGADYA ATWOKI

JUDGMENT

The plaintiff is a money lending company. Its Managing Director Male Mabirizi represented it in court and conducted all court proceedings on its behalf. The defendant company was represented in court by Ekirapa Isaac, as Counsel, and its Country Director Hetal Parikh.

The plaintiff sued the defendant for breach of contract. He sought to recover US $ 20,219 general and exemplary damages and costs of the suit.

There was a tenancy agreement entered into by the defendant for rent of its premises Room 402 A/B/C/D of the 2nd floor, (Block A) Plot 1 Portal Avenue Kampala, ‘to be occupied by Mr. Male Mabirizi K of MK Financiers Ltd.’ This was stated in the agreement to be, for a fixed period commencing November 1, 2011 and terminating on December 1, 2012’. The agreed monthly rent was US $ 900, which amount included water, electricity and one parking lot. It was also provided thus;

‘In addition to the above, the tenant shall pay US S 763 (vat exclusive) as security for deposit, the said sum to be used towards any unpaid bills and damages. Any amount due for the same shall be deducted from the security deposit and the balance will be refunded to the tenant upon expiry of the tenancy agreement without interest. ’

There were other terms in the agreement including renewal of the same upon the same or different terms. The agreement was signed by Hetal Rajendra Parikh (Director), for the Landlord, and Mr. Male H. Mabirizi MK Financiers Ltd., for the tenant.

The tenancy agreement was signed on 4/10/2011. That same day, the landlord issued Invoice No. 5046 to MK Financiers Ltd for the security deposit of US $ 763. (Annexture B to the plaint.) That same day 4/10/2011, the landlord issued receipt No. 6209 having ‘received from M/S MK Financial’, cash payment of U sh. 1,301,850= ‘being payment for security deposit Invoice No.5046’. Later, the defendant issued

another receipt No. 6351 dated 22/11/2011 for U sh. 765,000= ‘being payment for security deposit Invoice No. 5046.’ (Annexture C to the plaint).

The reference in both cash receipts was always ‘#402 A-D.’

Thereafter, the plaint has annextures of cash receipts for payment of rent for the months November 2011 up to December 2012 both inclusive, from M/s MK Financiers Ltd. All of them are issued by the landlord and they bear reference # 402 A-D. There were further payments of rent by the parties in respect of the properties herein, but I will deal with that later.

Issues for courts determination are,

  1. Whether the plaintiff is a proper party to the suit.
  2. Whether the plaintiff is entitled to a refund of the security deposit, and if so, how much.
  3. The remedies.
  4. Whether the plaintiff is a proper party to the suit.

The defendant argued that he entered into a tenancy agreement with Male H. Mabirizi and not the plaintiff company. Therefore the plaintiff had no locus standi to sue on the agreement. The background I gave above answers this rather simple issue. There was no dispute that a contract of tenancy exists. It is now trite that for a contract to be valid, it must be founded on a valid consideration. In respect of the tenant /landlord contract, this is the rental payment. In the present case, it is not disputed that the rental payments were made. Cash receipts were exhibited. Even the payment of the security deposit whose refund is the subject of this suit was paid.

Request for payment of the same was made the day the contract was executed. The demand per invoice No. 5046 was made not to Mr. Male Mabirizi,as ought to have been the case, if he was the party to the agreement. It was made to the plaintiff. The plaintiff company proceeded to effect payment which was received and acknowledged by the defendant vide receipts which were exhibited as indicated above.

None of this was denied by the defendant. The argument was that the payment in the names of the plaintiff was for tax purposes only. If by that, the defendant means he issued receipts to a party who did not pay rent so that such person would evade paying tax, that would be an illegality which this court not only abhors, but could not countenance by accepting and allowing such state of affairs to remain.

The defendant argued that the plaintiff ought not to rely on estoppels as this was not part of his pleadings. I noted that the suit was founded on contract. There was no reliance on estoppels by the plaintiff. The plaintiff only referred to pleadings elsewhere, in which the parties herein are similarly parties, and where the defendant has referred to the plaintiff as the tenant in the suit premises. That was evidence that the defendant is fully aware and recognizes the plaintiff as his tenant. But that is not the basis of the claim for refund of the security deposit.

I do not intend to go any further into that matter as it was rather obvious that the one who paid the rent, and to whom demand for the security deposit was made could not, at a later stage be denied being the tenant. The 1st issue is answered in the affirmative.

  1. Whether the plaintiff is entitled to a refund of the security deposit and if so, how much.

This was the crux of the matter. The plaintiff in submissions argued first that the demand for a security deposit was illegal as it offended provisions of S. 2(2) of the Rent Restrictions Act.

Secondly, he submitted that the tenancy agreement was for a fixed period only. It ran from 1st November

  1. to 31st December 2012. Once the tenancy expired, the security deposit automatically became due. It was demanded, but not paid hence this suit. It was not denied that the security deposit was paid and received.

In reply, it was submitted that the plaintiff was not entitled to the refund of the security deposit. By the tenancy agreement which was exhibited by both parties, it was stated that the purpose of the security deposit was to cater for any unpaid balances on the rental bills, which according to the tenancy agreement included water and electricity. It was submitted that since the plaintiff admitted that by the time he vacated the defendants suit property, he had unpaid rent for May, June, July and September, the security deposit would be used to offset part of the unpaid rental bill.

The tenancy agreement which is annexture A to the plaint, and also annexture A to the WSD in paragraph 3 reads,

‘YIELDING AND PAYING therefore, from and thereafter a sum at the rate (inclusive VAT 18%, water supplied by NWSC, electricity supplied by Umeme Ltd., & one unreserved parking) of US $ 900 = (US Dollars Nine Hundred Only) per month without any deduction whatsoever with one month rent being paid in advance. ’

The agreement was clear. Rent payable of US$ 900 was inclusive of water and electricity. The purpose of the security deposit was to clear such unpaid balances. Such balances had to be only those relevant to the agreement, and these were rent which included water supplied by NWSC and electricity supplied by Umeme Ltd. On top of any unpaid bills, the security deposit was to be used on damages. There was no argument that there was any damage to the suit property at the time when the plaintiff vacated the same.

Therefore the only item oil which the security deposit could be applied in terms of the agreement was to settle any unpaid balances ‘upon expiration of the agreement’ So when did the agreement expire. According to the plaintiff, this was a fixed term tenancy whose provisions were clear. It commenced on 1st November 2011 and terminated on 31st December 2012. Once that date came, the agreement expired automatically. The amended plaint was filed in court on 3rd July 2015. Therefore the agreement had long expired making the security for deposit not only due, but long overdue.

The defendant submitted that the tenancy had not expired, as it was, by mutual consent extended to February 2014. He submitted that the plaintiff acknowledged the extension of the tenancy in various correspondences including exhibit D3 paragraph 7, and Mr. Male’s response during cross examination.

The tenancy agreement was indeed for a fixed term initially. It contained provision for extension of the tenancy, in paragraph 4 ( c) which reads thus;

‘(c) That the tenant paying the rent hereby reserved and performing and observing the terms and conditions on their part therein contained or implied the same period may be extended by the mutual agreement of the parties hereto upon the same or such other terms and conditions as may be agreed upon by the parties hereto. ’

On 18th October 2012, the plaintiff wrote to the defendant a letter titled, ‘Need for Clarification About our Demands', exhibit D2. That letter set out new terms which they sought agreement from the defendant before they could commit themselves to renewal of the tenancy. The defendant responded on 20th October

  1. in effect accepting the new terms save for the reduction of the rent, exhibit PI 1.

The defendant later wrote to the plaintiff a letter dated 15th December 2013 headed, ‘Tenancy Renewal for Is’ January - 31s1 December 2014. ’ In this correspondence, the defendant offered the plaintiff a renewal of the tenancy at an increased rent of US$ 1,000 with effect from 1st January to 31st December 2014, while maintaining the other conditions intact. Exhibit P12.

The plaintiff responded the next day 16th December 2013 in exhibit D3 headed ‘Rent Increase Offer,’’ reminding the defendant that the tenancy was, by mutual consent renewed on 20th October 2012, for a further period of 14 months. Therefore the renewed tenancy would expire on 14th February 2014. In paragraph 7 of that letter, the plaintiff stated thus,

‘It therefore follows that the extension made by our written communication between 18lh - 20lh October 2012 was for 14 months expiring on 28'h February 2014 and not 31s' December 2013.. ’

Mr. Male Mabirizi writing on behalf of the plaintiff company summarized the plaintiffs position in the said above letter thus;

a) The initial contract period ended in 31s' December 2012 and mutually extended for more 14 months such expiring on 28'h February 2014. ’

The plaintiff therefore is stopped from denying the extension of the tenancy contract period. The tenancy therefore did not terminate on 31st December 2012.

Mr. Male Mabirizi was the only witness for the plaintiff. During cross examination, he told court that he stopped paying rent for suit property on a date he could not recall. However, the plaintiff paid rent through 2013 and partly into 2014 meaning that indeed, he was in cognizant of the extended period of rent. The evidence of Mr. Hetal Parikh who was also the sole witness for the defendant was that the plaintiff remained in suit property up to September 2014, and that there was still unpaid rent for the months of May, June, July and September 2014.

That was further evidence of rent being in arrears. He however could not recall the amount of rent which he owed by the time the plaintiff vacated the suit property sometime in November 2014. But owing it W«

I was therefore not able to conclude that the plaintiff was entitled to refund of the security deposit. Having said so, it would be academic to deal with the 2nd leg of this issue, i.e to ascertain how much the plaintiff would be entitled to recover. But in case I am wrong in my conclusion, I will deal with that aspect of the issue also.

The plaintiff asked for refund of not, US$ 763 which he paid as the security deposit, but he sought to get US$ 20,219.5 being the sum which accumulated due to interest of 30% per week. He told court in cross examination that he agreed with one Onyanya Joseph the defendant’s Estate Manager, and later with the country Director that the continued holding of the security deposit illegally would attract a 30% per week interest.

Mr. Male conceded that such agreement was oral. But that it was enforceable, only because Mr.Onyanya Joseph did not testify to controvert his assertion. But Onyanya’s boss, the Country Director Hatal Parikh who was also referred to as having approved the imposition of 30% interest on the security deposit denied any such agreement.

The plaintiff in his plaint annexed the tenancy agreement, the subject from which the security deposit arises. Paragraph 4 reproduced above stated that the security deposit or any balance thereof would refunded to the plaintiff ‘upon the expiration of the tenancy agreement without interest ’

I have already held that the tenancy agreement didn’t expire on 31s1 December 2012, but was extended by mutual consent. More so, and even more important, the agreement clearly stated that any refund would be without interest. S. 92 of the Evidence Act excludes oral evidence from the alteration of a written contract. There are exemptions but the tenancy agreement did not fall in any of them. There was no evidence to prove that the parties agreed that the security deposit should attract 30% per week interest.

Mr. Male told court that the 30% interest was used because him as a money lender, that is one of the rates of interest he imposes on his clients, and this security deposit would have been applied for the same purpose of money lending. That was rather surprising that a money lender would impose a rate of interest which S. 12 of the Money Lenders Act declares to be harsh and unconscionable. While this was not a money lending transaction, if the other terms of refund of the security deposit were satisfied, I would have found the rate of interest of 30% per week harsh and unconscionable, and therefore unenforceable.

Mr. Male argued in submissions that the demand by the defendant of security deposit was illegal as it contravened S. 2(2) of the Rent Restrictions Act. That was a misinterpretation of that provision. It reads in part thus;

(2) Any person, whether the owner of property or not, who in consideration of the letting or subletting of a dwelling house or premises to a person asks for, solicits or receives any sum of

money other than rent................... commits an offence... ’

The provision prohibits monies as part of the consideration in a tenancy contract not being rent. In other words, the consideration in respect of a tenancy contact is restricted to rent only. The security deposit was not a consideration for the grant of the tenancy contract. It was part of the tenancy contract. There was no illegality in asking for the same.

In the final analysis in respect of this leg of the issue, I would have allowed such balance, if any of the US$763 to be refunded to the plaintiff, subject of course to the limitations embedded therein, i.e. after ascertaining and deducting the unpaid bills including rent.

  1. Remedies

I have found that the plaintiff was a party to the suit. I have found in the 2nd issue that he was not entitled to refund of the security deposit as the tenancy agreement was still subsisting after 31st December 2012. I have found that the plaintiff would only have a refund of the balance, if any, of the security deposit of US$ 763, after taking into account any unpaid bills as set out in the tenancy agreement.

In the end therefore, the suit is dismissed. The plaintiff was successful in one of the issues. He shall therefore meet only 2/3rds of the costs.

 

RUGADYA ATWOOKI

JUDGE

15/09/2017

 

Court: The Registrar of the Commercial Division shall read this judgment to the parties.

 

RUGADYA ATWOOKI

JUDGE

15/09/2017

 

 

 

 

 

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