THE REPUBLIC OF UGANDA,
IN THE HIGH COURT OF UGANDA AT KAMPALA
MA NO. 667 OF 2013
(ARISING FROM HCCS NO 431 OF 2013)
HAJI EDIRISA KASULE}
RAJU HIRAN}......................................................................... APPLICANTS
HOUSING FINANCE BANK LTD}
LABORATORY NEEDS SOLUTIONS LTD}
LUBUULWA TONY}.............................................................. RESPONDENTS
BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA
This ruling arises out of an application commenced by the applicants under Order 41 rules 1 and 9 of the Civil Procedure Rules, to restrain the Respondents, Respondents officers, agents and or any persons deriving title or authority from the Respondents, from entering upon, evicting, selling, transferring or otherwise interfering or dealing with the suit property Kibuga block 28 plot 1122 at Makerere, Mubukira Zone in Kampala district until further orders of the court.
The grounds of the application are detailed in the affidavit of the first applicant. The first applicant's case is that he sued the Respondents seeking among other things recovery of the suit land, cancellation of the second and third Respondents title to the suit land, nullification of the mortgage registered as an encumbrance on the title of the suit land, an order directing the first Respondent to deliver up the certificate of title to the suit land to him free of all encumbrances, an injunction, general damages, costs and interest. Haji Edirisa Kasule deposes that his case is founded on the fraud which the Respondents committed at different times they dealt with the suit property as averred in the copy of the plaint attached to the application. The application is for a temporary injunction to maintain the status quo pending determination of the suit. He deposes that the suit has a high chance of success. In the meantime the Applicant deposes that he is in imminent danger of eviction of his tenants who were directed to vacate the premises within 14 days from the date of the sale of the suit property published in the New Vision newspaper on 17 July 2013. The sale of the property had been set for 19 August 2013. Consequently it is just and equitable for the temporary injunction to be issued to restrain the Respondents from evicting his tenants or going ahead with the threatened sale of the suit property until final disposal of the main suit or until further orders of the court. The applicants tenant is a businessman residing in a decent house suitable to his family status and it was difficult to find similar property in the neighbourhood at such short notice. The second Plaintiff also fully paid up rent in advance for the period up to August 2014 and it would be grossly unjust to inconvenience him. If the orders sought in the application are not granted the Applicant claims that he would suffer irreparable loss.
The third Respondent Mr Lubuulwa Tonny deposed an affidavit in opposition to the application and upon reading the contents of the chamber summons and the affidavit of the first applicant. He deposes that on or around 12 June 2008, the first Applicant voluntarily and with a sound mind in the presence of his son one Farid Kasule sold to him a portion of land known and described as Kyadondo block 28 plot 720 subdivided into plot 1121 measuring approximately 0.033 ha for an agreed consideration of Uganda shillings 40,000,000/= according to the attached sale agreement. The first Applicant executed mutation and transfer forms for the purchased portion in favour of the third Respondent who accordingly transferred the suit property into his names on 11 December 2008. Consequently the mother plot 720 gave rise to plot 1122 which formed the residue of the first applicants land. The third Respondent further deposes that six months later on 18 November 2008 the first Applicant voluntarily and in the presence of his grandson Mr Hussein Gary sold the residue forming plot 1122 of block 28 to the third Respondent at an agreed consideration of Uganda shillings 250,000,000/= according to the sale agreement attached to the affidavit. The first Applicant received an initial payment of Uganda shillings 200,000,000/= which the deponent claims were delivered at his home and upon his request. The balance of Uganda shillings 50,000,000/= was paid to the first Applicant and received on 21 November 2008 through his account 0100102985100 obtained on 11 November 2008 in Standard Chartered bank, city branch.
Upon receiving the full purchase price the first Applicant executed transfer forms in favour of the third Applicant on 2 December 2008 in the presence of Mr Barnabas Tumusingize of Sebalu and Lule Advocates. Subsequently the third Respondent sold and transferred the suit property to the second Respondent on 10 December 2010 free of any encumbrances or adverse third-party claims. The third Respondent further deposes that the applicants have inordinately commenced the application since the year 2008 without having ever lodged any caveats on the suit property to demonstrate their interest in the property. The first Applicant cannot approbate and reprobate having voluntarily sold these properties to the third Respondent cannot turn around and attempt to use the court to deny the right of the third Respondent. Furthermore on the basis of advice of his Counsel, the third Applicant deposes that the second Applicant has no locus standi in law to appear in these proceedings.
The first Respondent’s affidavit in reply is disposed to by Fred Byamukama, the Legal and Compliance Officer of the first Respondent Company. The first Respondent's case in opposition is that the second Respondent Messieurs Laboratory Needs Solutions Ltd approached the first Respondent for a loan and presented a certificate of title for plot 1122 block 28 at Makerere which was at the material time in the names of the third Respondent who was in the process of selling the same to the second Respondent. The first Respondent conducted search at the land registry which confirmed that the land belonged to the third Respondent and it also carried out a valuation of the property through its valuation surveyors which survey involved physical inspection of the property. On the basis of the investigation the first Respondent advanced to the second Respondent a loan of Uganda shillings 305,000,000/= which loan carries interest, fees and other charges. The first Respondent registered a mortgage on the title deed. The second Respondent defaulted on its loan obligations and as such the first Respondent has the right which it is exercising by selling the mortgaged property to recover bank depositor’s funds. The first Respondent is not privy to and has never been subject to any fraud and does not know the applicants whatsoever and is therefore a bona fide mortgagee. The actions of the Applicant have the effect of staying a lawful sale of the mortgaged property for which the first Respondent should be furnished within 30% security deposit according to the mortgage regulations 2012. If the order is granted, it will occasion the first Respondent further loss under the Financial Institutions Regulations because it is obliged to make financial provisions for non-performing loans. The first Respondent has already issued default notices to the second Respondent and is bound to suffer irreparable loss if the property is not sold.
In rejoinder Haji Edirisa Kasule, the first applicant/Plaintiff maintains that the bank/first Respondent is not a bona fide mortgagee and was privy to the fraudulent mortgaging of the suit land by the second Respondent according to the particulars disclosed in the plaint filed in the main suit. By the time of inspection of the suit property by the first Respondent agents, it was occupied by the first applicant’s tenant. To date the suit property is occupied by the second Applicant as a tenant and the second Respondent has paid rent up to August 2014 and is entitled to protection against eviction as the court investigates the complaints of fraud against the Respondents. In rejoinder to the affidavit of the third Respondent, the Applicant maintains that he has never sold the suit property Block 28 plot 1122 of the third Respondent or any person. It was the first time for the first Applicant to see the agreement in respect of the sale of the suit property when it was showed to him by his Counsel in these proceedings. He maintains that the agreement is a forgery and he has already referred it to the police for a comprehensive investigation. Furthermore his grandson Mr Hussein Gary Kayongo denied knowledge of the agreement or of ever witnessing it. The first Applicant has never received from the Respondent a sum of Uganda shillings 200,000,000/= in cash or at all. In 2008, a sum of Uganda shillings 200,000,000/= was far above what the Applicant needed and he could not have risked receiving it in cash. The court should not believe the third Respondent because the third Respondent despite alleging that he bought the property 2008, the property remained in the possession of the Applicant who has the rented it out. The third the Respondent assisted the Applicant to obtain a loan from Standard Chartered bank. The Applicant paid off the loan and requested the third Respondent to clear the outstanding balance of the loan by depositing on the loan account monies due to him for sale to him of plot 720 now renamed plot 1121 under the agreement dated 12th of June 2008. In the alleged transfer the Applicant signed, it is stipulated that the property was bought for Uganda shillings 105,000,000/= and not Uganda shillings 250,000,000/= casting doubt on the truthfulness of the third Respondent. Furthermore the Applicant denies knowledge of the advocate by the names of Barnabas Tumusingize of Sebalu and the advocates who witnesses the agreement and denies having ever executed transfer of property to the third Respondent.
At the hearing of the application the Applicant was represented by Counsel Muzamil Kibeedi of Messrs Kibeedi and Company Advocates while the first Respondent was represented by Counsel Bwayo Richard. Counsel Abbas Bukenya represented the 2nd Respondent while Eric Kiiyingi represented the 3rd Respondent. The third Respondents advocate raised several preliminary objections to the application which were overruled on the 7th of October 2013 and the hearing of the application proceeded on the merits. The court was addressed in written submissions.
Counsel for the Applicant summarised the conditions for the grant of a temporary injunction as held in the case of Kiyimba Kaggwa versus Abdu Nasser Katende  HCB 43 which are that the purpose of a temporary injunction is to preserve the status quo until the suit is finally disposed of. Secondly the Applicant has to demonstrate a prima facie case with a probability of success. Thirdly the Applicant has to demonstrate that he or she would otherwise suffer irreparable damage that cannot be adequately compensated for by an award of damages. Fourthly where the court is in doubt, it would decide the application on the balance of convenience. These principles were emphasised by the Court of Appeal in the case of Robert Kavuma versus Hotel International SCCA No 8 of 1990.
On the question of maintenance of the status quo the applicants case is that the subject matter of the main suit and application is Kibuga block 28 plot 1122 which originally belonged to the first Applicant and was fraudulently transferred by the third Respondent to himself and later to the second Respondent and then pledged as security for a mortgage to the first Respondent by the second Respondent. The Applicant is faced with imminent eviction of his tenants who were directed to vacate the premises within 14 days from the date of the sale of the suit property published in the New Vision Newspaper of 17th of July 2013. Consequently there is a threat of selling the applicants property and the status quo would be changed. On those premises a temporary injunction ought to be issued to stop the threatened sale and eviction of the second Applicant from the suit property pending determination of Civil Suit Number 431 of 2013.
The First Respondents Counsel agrees with the law quoted by the applicants Counsel giving the grounds for the grant of a temporary injunction.
The first Applicant’s submission on the question of preservation of the status quo is as follows: According to the first applicants Counsel, the status quo which the court ought not to interfere with is the state of the property under a legally defined financial relationship namely the mortgage transaction. By virtue of the mortgage, the first Respondent maintains a charge over the property. The property is available for its use as and when the second Respondent who is the titleholder and mortgagor defaults on its loan repayments. Foreclosure proceedings commenced on account of default of the 2nd Respondent and the status quo is that there are foreclosure proceedings. Thirdly the first Respondent is a bona fide mortgagee with an interest in the suit property. Counsel prayed that the court gives spirit and force to the law envisaged under the Registration of Titles Act cap 227 and the Mortgage Act 2009.
The third Respondents submission is that the third Respondent purchased the property from the first Applicant on 18 November 2008 for a consideration of Uganda shillings 250,000,000/=. He subsequently sold and transferred the property to the second Respondent on 10 December 2010 relinquishing all his legal interests in the property. Order sought by the applicants as against the third Respondent cannot be sustained in law and would be academic.
Counsel for the third Respondent submitted that the fact of the tenancy agreement between the Applicant and the second Applicant expiring in 2014 does not affect the third Respondent. This is because the third Respondent sold his interests in this suit property in the year 2010.
In rejoinder the applicants Counsel submitted that as far as the status quo is concerned, it is that the second Applicant as the tenant of the first Applicant who is in occupation of Kibuga block 28 plot 1122. Secondly the applicants deposited security in court on 13 September 2013 in the form of a land title for block 323 plot 613 in the first applicant's personal names. Consequently the sale of the suit property and eviction of the first applicant's tenant was stayed by way of an interim order of this court maintaining the status quo.
Whether the Applicant has a prima facie case with probability of success?
The applicant’s Counsel’s submission is that the applicants with the Respondents seeking recovery of this property and cancellation of the second and third Respondents title, nullification of the mortgage registered as an encumbrance on the title and an order directing the first Respondent to deliver up the certificate of title to him free of all encumbrances, an injunction, damages, costs and interest. Consequently on the basis of perusal of the plaint attached to the affidavit in support of the application, there is a prima facie case with a probability of success. Moreover, despite transfer of this property in 2008, the first Applicant has been in possession of the property and has been collecting rent from the second Applicant who is the Defendant and his physical possession of the property.
On whether there is a prima facie case with probability of success? The first Respondents Counsel submits that all the first Respondent had to do when it was presented with title to this property was to conduct a search, value the property and proceed with the mortgage. And this is what it did and the first Respondent is therefore a bona fide purchaser without any notice of fraud. Even if fraud is proved against the second and third Respondents, the bona fide's of the first Respondent’s title to the property would still remain implying that the applicants did not have a prima facie case against the first Respondent.
On the submission that the second Applicant is a tenant of the first applicant, ironically the Plaintiff also avers that the third Respondent is also a resident of the first applicant’s estate. This factor points to the previous good relationship which existed between the parties. If the relationship went bad, it should not be visited on the first Respondent. In any case the first Respondents Counsel submits that the applicants cannot have a prima facie case against all the Respondents as the Respondents interests are competing. Under section 176 of the Registration of Titles Act, the Plaintiffs/applicants can only have a prima facie case on the ground of fraud against one party and that is certainly not against the first Respondent/Defendant. Consequently the court should find that there is no prima facie case with a probability of success disclosed against the first Respondent.
On whether there is a prima facie case with a probability of success, Counsel for the third Respondent submits that the applicants have not demonstrated a prima facie case with a probability of success as against the third Respondent. This is because the first Applicant voluntarily sold the property to the third Respondent on 18 November 2008 for a consideration of Uganda shillings 250,000,000/=. The third Respondent subsequently on 10 December 2010 transferred the property to the second Respondent divesting himself of all legal interests in the property. None of the applicants is the registered proprietor of the suit property. Consequently no prima facie case has been made out against the third Respondent. In the case of Kenya Commercial Finance Company Ltd versus Afraha Education Society  1 EA 86 the Court of Appeal of Kenya denied an injunction to the Applicant who did not have a proprietary interest in the suit property.
Thirdly Counsel for the third Respondent, it is submitted that the orders sought would be in vain. Firstly the application as against the third Respondent is to restrain him from evicting, selling, transferring or otherwise interfering or dealing with the suit property known and described as Kibuga block 28 plot 1122, pending further orders of this court. The third Respondent purchased this property from the first Applicant on 18 November 2008 in the presence of his grandson. The first Applicant received initial part payment of Uganda shillings 200,000,000/= in cash on 18th of November 2008. The outstanding balance of Uganda shillings 50,000,000/= was paid on the account of the first Applicant in Standard Chartered Bank, City Branch, Kampala. The property was transferred to the second Respondent free of any encumbrances. In those circumstances the orders sought would be passed in vain against the third Respondent. In the case of East African Foundry Works (K) Ltd versus Kenya Commercial Bank Ltd  2 EA, the court declined to grant a temporary injunction against the Respondent bank on the ground that the bank had sold the property to third parties. Similarly in Uganda Electricity Board versus Charles Kabagambe High Court civil appeal number 58 of 2000, it was held that the appeal had been overtaken by events. In the Kenyan Court of Appeal case of Gusii Mwalimu Investment Company Ltd and Another versus Mwalimu Hotel Kisii Ltd [1995 – 1998] 2 EA 100 it was held that an application for a restraining interlocutory injunction after repossession had been taken by the first appellant cannot be granted because the acts sought to be restrained had already occurred. In the Court of Appeal case of Uganda Corporation Creameries Ltd and Another versus Reamation Ltd reference number 11 of 1999 it was held that courts adjudicate on issues which actually exist between litigants and not academic issues. Any restraining order would be in vain.
Furthermore the second Applicant has a non-existent cause of action against the third Respondent. The applicants cannot suffer any irreparable injury as a result of the third Respondent’s alleged actions. It was not necessary to join the third Respondent to the application. In those circumstances the application is frivolous and vexatious and should be rejected and accordingly struck out with costs against the first applicant.
The first applicant's affidavits in support of the application affirmed on 2 August 2013 is tainted with deliberate falsehoods. It was affirmed without authority from the second Applicant thereby offending Order 19 rule 3 of the Civil Procedure Rules. The third Defendant’s Counsel further submitted that paragraph 1 of the applicant’s affidavit does not state in what capacity or authority he affirmed paragraphs 11 and 12 of the affidavit on behalf of the second applicant. He relied on the case of Makerere University versus Saint Mark Education Institute Ltd and others HCCS number 378 of 1993. In that case the application was grounded on an affidavit sworn on behalf of others and the deponent of the affidavit did not show that he had authority to swear the affidavit on their behalf. It was held that the application was untenable with regard to the other applicants. Counsel also relied on the case of Yunusu Ismail t/a Bombo City vs. Annexed Kamukama and others T/a OK Bazaar Civil Appeal Number 7 of 1987. It is the third Respondent’s case that the deliberate falsehoods of the first Applicant relate to the assertion laying a claim to the suit property when the affidavit in reply clearly shows that there was an outright sale of the suit property by the Applicant to the third Respondent.
The third Defendant's Counsel further relied on judicial precedents to the effect that an application that is supported by a false affidavit ought to fail.
As far as the prima facie case is concerned, the rejoinder of the Applicant’s Counsel is that physical possession of the suit property constitutes notice to any intending transferee or mortgagee or other dealer with the suit property according to the case of John Busuulwa vs. John Kityo Civil Appeal Number 112 of 2003. Physical possession denies all the Respondents their claim of being bona fide transferees and mortgagees.
Whether the Applicant might otherwise suffer irreparable damage that could not be adequately compensated by an award of damages?
On this ground, the applicants Counsel submitted that the applicants tenant is a businessman and decent houses to suit his status and family demands are difficult to find in the neighbourhood. Secondly the second Applicant has fully paid-up rent in advance up to August 2014 if the orders sought are not granted, he would suffer irreparable damage. Counsel relied on the case of Jane Francis Mpungu versus DFCU Bank HCMA number 41 of 2003 were an injunction was granted on the basis of the threatened sale of matrimonial property.
Balance of convenience
The Applicants Counsel's submission is that the third Respondent alleges to have brought the suit property from the first Applicant and then transferred it to the second Respondent also mortgaged it to the first Respondent. The second Applicant is the tenant of the first Applicant and has been staying on this property and paying rent to the first Applicant even though the third Respondent alleged to have bought the property in 2008. In the case of Jane Francis Mpungu versus DFCU Bank Ltd (supra), the court held that the balance of convenience and the in the applicants favour because the evidence showed that the Applicant was in possession of the suit property. Following the above decision, the first Applicant is currently in possession of this property and the balance of convenience is in the applicants favour. In the premises, the applicants Counsel maintains that the temporary injunction ought to be granted with costs payable by the Respondents.
In reply on the question of whether the Applicants will suffer irreparable loss that cannot be atoned for by an award of damages? The first Respondents Counsel submits that the contention of the Applicant is that the second Applicant is a businessman and cannot find a decent house in the neighbourhood. The circumstances of the case of Jane Francis Mpungu versus DFCU bank limited are different. In that case the court was dealing with matrimonial property which is naturally a sentimental issue. In the applicants case it is clear that the real complainant is the tenant who fears that he will not find alternative accommodation if evicted. There is however no evidence that the second Applicant cannot find accommodation. The position of the spouse, particularly a lady who faces imminent eviction is drastically different from a tenant who stays in the house on the basis of a contract that can be ended at any time. In any case it is not the first applicant's responsibility to find decent accommodation for the second applicant. The second applicants claim is monetary in nature and can always be atoned by an award of damages. Lastly the first Applicant has not adduced evidence in support of the claim of irreparable loss. Therefore irreparable injury would not be occasioned to the applicants.
In reply on the balance of convenience, 1st Respondents Counsel submits that in considering granting injunctions on this basis, the burden of proving such inconvenience if the injunction is denied is on the applicant. The Applicant in the affidavit evidence has not discharged the burden. Counsel relied on Halsbury's laws of England, third edition volume 21 at page 366 and paragraph 766 to the effect that the balance of convenience is considered where any doubt exists as to the Plaintiffs right, or if his right is not disputed, but its violation is denied, the court, in determining whether a temporary injunction should be granted, takes into consideration the balance of convenience to the parties and the nature of the injury which the Defendant, on the one hand, would suffer if the injunction was granted and he should ultimately turn out to be right, and that which the Plaintiff, on the other hand, might sustain if the injunction was refused and he should ultimately turn out to be right. The burden of proof lies on the Plaintiff.
Without prejudice the balance of convenience favours the first Respondent because the first Respondent is a bona fide mortgagee whose transaction is clearly based on a certificate of title recognised under the Registration of Titles Act and section 59 thereof. The first Respondent did not only take possession of the title but went ahead to do acceptable due diligence by conducting a search in the land registry. The property earns rental income and is fundamentally different from matrimonial property. The first Respondent is furthermore a financial institution regulated under various legal instruments by the Central Bank. It is required to file and maintain certain stipulated minimum capital requirements. The grant and performance of loans by the first Respondent carries the potential of affecting such minimum capital requirements especially where they are non-performing or doubtful loans. Where a loan such as the second Respondent’s is classified as non-performing or doubtful under regulation 10 of the Financial Institutions (Credit Classification and Provision) Regulations No 43 of 2005, it requires the affected financial institution to make specified financial provisions for them under regulation 11 thereof. It would therefore affect the minimum capital standing of the first Respondents. The first Respondent would like to take remedial action under the Mortgage Act, 2009 and Regulations 2012 by sale of the mortgaged property. A temporary injunction is likely to inconvenience the first Respondent. The second Applicant is a mere tenant. The first Applicant is interested in the title deed. The right of transfer was exercised more than five years ago and the inconvenience the Applicant is likely to suffer is remote.
Alternatively if the court deems it fit to grant a temporary injunction, the first Respondent prays that the applicants deposit security in court. Under regulation 13 (1) of the Mortgage Regulations, the security deposited of 30% of the forced sale value of the mortgaged property or the outstanding amount. Secondly Counsel contended that the security deposit should be a cash payment or a monetary payment.
In rejoinder the first Applicant’s Counsel submitted that as far as irreparable injury is concerned, the first Applicant who is about 77 years old is being threatened with the sale of a housing constructed in his youthful days.
As far as balance of convenience is concerned, the applicants Counsel reiterated earlier submissions. On the question of security deposit, it would be double jeopardy to order the Applicant to pay cash of Uganda shillings 100,000,000/= after depositing his title deed.
On the question of whether order sought against the third Respondent are in vain, the overriding interest of the applicants in joining the third Respondent in the above application was because his presence was necessary as the central player in the fraud pleaded in the above cases. He has residual liability in case the suit is lost against the other Defendants. The advertisement of the intended sale an eviction clearly shows that the third Respondent was the registered owner of the land. It was therefore prudent to have the third Defendant as a party to the instant application.
I have duly considered the pleadings in this application, the affidavit evidence, the submissions of Counsels for all the parties and the authorities cited.
The Court of Appeal has laid down principles for consideration in applications for a temporary injunction in the case of Giella v Cassman Brown & Co Ltd  1 EA 358 where Spry VP spelt out the settled conditions for the grant of a temporary injunction at page 360 when he held:
“The conditions for the grant of an interlocutory injunction are now. I think, well settled in East Africa. First, an Applicant must show a prima facie case with a probability of success. Secondly, an interlocutory 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. Thirdly, if the court is in doubt, it will decide an application on the balance of convenience.”
A prima facie case in many ways can be established firstly on the same basis as establishing whether a plaint discloses a cause of action. Secondly affidavit evidence is taken into account. However where affidavit evidence is contested, the court cannot reach a conclusion on questions of fact and should not determine factual points in controversy without testing the facts through trial proceedings. Since Giella v Cassman Brown & Co Ltd  1 EA 358 was decided, the condition for establishing a prima facie case has been further refined. In the case of American Cyanamid Co v Ethicon Ltd  1 All ER 504 (followed in Uganda in Kiyimba Kaggwa vs. Hajj Katende  HCB (Supra)), Lord Diplock formulated the condition of disclosure of an arguable case or serious questions to be tried rather than a prima facie case with a probability of success. He held that the court must no doubt establish or be satisfied that the case is not frivolous or vexatious and that there are serious questions to be tried. Where serious questions have been established for trial, the court will venture to consider the balance of convenience. At page 510 Lord Diplock held as follows:
“It is no part of the court’s function at this stage of the 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 considerations. These are matters to be dealt with at the trial. ... So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the Plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.” (Emphasis added)
This principle was applied in the subsequent case of British Broadcasting Corporation v Hearn and others  1 All ER 111 where Lord Denning at page 118 held that:
“if we apply the principles laid down by the House of Lords in American Cyanamid Co v Ethicon Ltd... It seems to me, at the very least, that there is a serious question to be tried, and we have to consider the balance of convenience.” (Emphasis added)
I am persuaded that where there are serious questions to be tried established by the application, the question of whether irreparable loss would be occasioned any of the parties can be considered when dealing with the balance of convenience. Consequently the first question to be considered is whether there are serious questions to be tried in the applicant’s case.
There is no controversy about the conditions to be established for the grant of a temporary injunction. I have accordingly considered the affidavit evidence in its totality. They indicate firstly that the first Applicant sued the Respondents for recovery of Mailo Register Kibuga Block 28 Plot 1122 at Makerere and for cancellation of the second and third Respondents title to the said land and nullification of the mortgage registered as an encumbrance on the title. In the affidavit in support of the application, the first Applicant purport to attach the plaint as NEK1 but actually attaches a sale agreement between the first Applicant and the third Respondent. It is in respect of private Mailo land Block 28 Plot 720. It indicates that the sale price was Uganda shillings 40,000,000/=. The agreement was executed on 12 June 2008. The applicants grievance is based on an advertisement of sale by public auction of block 28 plot 1122 measuring 0.34 acres.
The plaint in HCCS No 431 of 2013 is for nullification of the mortgage registered as an encumbrance on the title in Mailo Register Kibuga block 28 plot 1122 at Makerere and for cancellation of the second Defendant's title and an order directing the first Defendant to deliver up the certificate of title of the suit land to the first Plaintiff free of all encumbrance, an injunction, general damages, costs and interests. The Applicant in paragraph 10 avers that he got registered in June 1977 as the Proprietor of approximately 0.17 ha of Mailo land described as Kibuga block 28 plot 720. The Applicant developed the plot together with several other neighbouring plots into a housing estate consisting of 15 residential houses. In paragraph 12 it is averred that upon the request of the third Defendant/Respondent and in the year 2008 the first Applicant agreed to sell to the third Defendant/Respondent part of Kibuga block 28 plot 720 covering the servants quarters on the said plot. At the material time the third Defendant was one of the tenants in the housing estate. Under the subject matter of the agreement executed on 12 June 2008, the first Applicant and the third Applicant agreed that the specific measurements constituting the portion to be sold were to be determined after signing the agreement. The vendor was required to hand over signed transfer forms to the purchaser after payment of the first instalment of the purchase price. Obviously without plot numbers, the executed transfer forms had to be blank and would be filled in after mutation of plot 720.
The purchaser was free to survey and mutate the land sold from the mother title and transfer it into his names after the handover of the signed transfer forms. The first Applicant avers in the plaint that after receiving payment of the first instalment from the third Defendant, he handed over to him a blank signed transfer and mutation forms together with the duplicate certificate of title to Kibuga block 28 plot 720 and the third Defendant was supposed to survey and mutate off and transfer into his names the portion of land that he had purchased from him.
It is averred in the plaint that the third Defendant/Respondent caused the subdivision of plot 720 into plots renamed as plots 1121 and 1122. Upon the subdivision of plot 720 into plots 1121 and 1122 the third Defendant/Respondent failed to return the certificate of title of the Plaintiff relating to the unsold portion renamed as plot 1122 despite several demands for him to do so. Instead of transferring into his names the portion falling under plot 1121, the third Defendant used the already signed transfer forms given to him by the first Plaintiff to allegedly fraudulently transfer into his names plot 1122. The Plaintiff/applicants also give the particulars of fraud in paragraph 21 of the Plaint. At the material time of the transfer of the plot into his names, the third Respondent/Defendant never had possession of the same. Secondly after transfer of the property into the names of the second Defendant, the second Defendant never exercised any proprietary rights by demanding rent from the second Plaintiff who had physical possession of the suit property. Secondly the second Defendant/Respondent ought to have been put on notice by the occupation of the second Plaintiff of the suit property. The second Respondent/Defendant never introduced himself as the new landlord.
As far as the first Respondent/Defendant is concerned, it is averred in the plaint that the mortgage deed made between the first Defendant and the second Defendant in or about December 2010 occurred when the second Defendant pledged certificate of title to the first Defendant as security for repayment of a loan facility of Uganda shillings 305,000,000/= according to the attached mortgage deed. The first Defendant took possession of the certificate of title to this suit land as security for the loan facility. The first Defendant/Respondent registered an encumbrance on the certificate of title in 2011. The Plaintiffs contend that the mortgage is void for fraud notice of which the first Defendant had and always party or privy to. The first Defendant failed to exercise the very basic due diligence of identifying the actual bona fide proprietor of the suit land. Secondly at the time of the mortgage, the mortgagor was not in possession which the first Respondent ought to have noticed. At the time of the mortgage, the second Plaintiff/Applicant was a tenant in occupation of the suit premises. Lastly as far as is material, the Plaintiffs aver that they did not discover the fraudulent acts of the Defendants until after seeing the advertisement in the New Vision Newspaper of 17th of July 2013 offering the property for sale by public auction or private treaty on account of default on the part of the mortgagor in the repayments of a loan. The first Plaintiff lodged a complaint against the third Defendant with the police.
On the other hand the third Defendant does not deny having bought property from the first Applicant around 12th of June 2008. It is therefore established according to the agreement which is commonly admitted by both parties the first Applicant did sell to the third Respondent land out of block 28 plot 720 with measurements to be determined after signing the agreement. Secondly as far as transfer is concerned it is provided therein that after payment of the first instalment of the purchase price, the purchaser shall be free to survey off the land sold and transfer it into his name after the handover. The vendor was to hand over vacant possession of the land after payment of the first instalment of the purchase price. It is further established that after the sale agreement, the property was surveyed and subdivided into plots 1121 measuring approximately 0.033 acres and plots 1122 measuring approximately 0.137 of an acre being the balance after the survey according to annexure "B" to the affidavit of the third Respondent.
As far as the first Applicant and the third Applicant is concerned, the serious question to be investigated is whether the agreement of sale dated 12th of June 2008 relates to plots 1121 measuring approximately 0.0 33 acres or plot 1122 measuring approximately 0.137 acres. In other words the Applicant contends that the third Respondent fraudulently appropriated to himself plot 1122 after survey in which the second Plaintiff is a tenant instead of plot 1121 which has servant’s quarters. In other words it is alleged that the third Respondent fraudulently used or executed transfer forms to fill in the wrong plot numbers so as to make the appropriation to him of another piece of land which the first Plaintiff had not sold to him. On the other hand in paragraph 8 of the affidavit in reply by the third Respondent it is averred that on 18 November 2008, the first Applicant voluntarily sold plot 1122 measuring 0.137 acres to the third Respondent according to a certified copy of agreement annexure "F". The agreement is dated 18th of November 2008 and has the subject matter as block 28 plot 1122. It shows that the Applicant sold the property for a consideration of Uganda shillings 250,000,000/= to the third Respondent. The Applicant denies having sold the property block 28 plot 1122 to the third Respondent or any other person. And that it is the first time for him to see the agreement annexed to the affidavit in reply to the application for an interim order in miscellaneous application number 668 of 2013. He further avers that the agreement is not genuine. In other words the question of whether the agreement is genuine or not cannot be determined preliminarily in an interlocutory application based on affidavit evidence. In the applicants favour is the fact that the Applicants retained possession of the suit property after the alleged November 2008 sale and this application is inter alia to prevent eviction of his tenant. There are therefore serious questions to be tried as between the first Applicant and the third Respondent.
As to the second Respondent, the question is whether it is a bona fide purchaser without notice of the fraud alleged to have been committed by the third Respondent. The question of whether the second Respondent ought to have had the notice of the tenancy of the second Plaintiff/Applicant is also a serious question to be tried and involves an issue of whether it is a bona fide purchaser for value without notice of any alleged fraud that may be established in the trial as against the third Respondent.
Lastly the question for trial between the first Applicant and the first Respondent relates to the question of whether the Respondent was under obligation beyond perusal of the land title and a search at the land registry to establish whether the property was occupied by the mortgagor/second Respondent/Defendant. That is the point of law that cannot be determined at this stage. The question is whether from the jurisprudence on the issue it is necessary for the bank/financial institution to establish who the actual occupants of the property are before granting of a loan on the basis of the title deed which may have no encumbrances. From my assessment of the submissions, the first Respondent would like this court to rely on the provisions of section 59 of the Registration of Titles Act and other provisions of law to hold that the first Respondent was under no obligation to inquire about the antecedents of the registered proprietor/second Respondent/Defendant in order to establish who is in actual occupation of the suit property. There is definitely a question of law to be investigated as well as a question of fact as to how the transaction proceeded. The Plaintiffs claim against the bank is for nullification of the mortgage. Should that dispute be resolved at the interlocutory stage? It is inappropriate as held in the case of American Cyanamid versus Ethicon Ltd (supra) for the court to finally determine those questions in an interlocutory application. Their determination should await the determination of this suit.
Following the principles laid out in the case of American Cyanamid Company Ltd versus Ethicon Ltd (supra) the task of the court is to assess the balance of convenience.
As far as the third Respondent is concerned, it has been argued that there is nothing to restrain as the third Respondent has already made the transfer of the suit property. On the other hand the applicants submit that the third Respondent is a necessary party. This is clearly a concession that a temporary injunction restraining the third Respondent cannot be granted because it would be in vain. The third Respondent has already sold and transferred the property and the purchaser used the property as security. On the submission that the third Respondent is a necessary party, I do not agree. The only necessary parties for purposes of injunction are the parties against whom the injunction ought to be issued if the application is successful. The application as against the third Respondent is incompetent.
As far as the second Respondent is concerned, it is a party to the mortgage agreement as the mortgagor. It has already obtained a loan from the first Respondent and has nothing to lose. Consequently the second Respondent has clearly nothing much to do as far as the acts of the first Respondent are concerned because the first Respondent seeks to recover the outstanding amount on the loan advanced to the second Respondent. Consequently as far as the second Respondent is concerned, the balance of convenience favours the applicants who stand to lose if the injunction is not granted than the second Respondent who has already obtained a loan and recovery measures have been taken against it. The second Respondent is a necessary party to any order involving the title to the suit property.
It is clearly the case which is against the third Respondent that if it is proven that the wrong plot had been transferred to the second Respondent and the mortgage was based on that, it is a question to be determined at the trial. The interest of the bank is to secure its money. On the other hand the Applicant stands to lose the property in its entirety. The applicants Counsel submits that the Applicant is 77 years old and cannot lose the property in his old age and it is property which he developed in his youth.
As far as the first Respondent is concerned, the interest of the first Respondent bank is in realising its property through sale of the mortgaged property and this interest has to be weighed against the Applicant losing the property through sale by public auction to anybody. The right of the first Respondent bank is also tied to the rights of the second Respondent. If the second Respondent is not a bona fide purchaser for value, then it had no right to pledge the title deeds as security for a loan. Furthermore the first Respondent’s case is based on the legality and conclusiveness of a certificate of title under section 59 of the Registration of Titles Act. The property is in the names of the second Respondent. The title deed annexed to the affidavit of Fred Byamukama in opposition to the application shows that plot 1122 was originally registered in the names of the first Applicant on 20 June 1977. On 11 December 2008, it was registered by way of transfer into the names of the third Respondent. On 13 January 2011, it was registered by way of transfer into the names of the second Respondent. The first Respondent carried out a search of the suit property namely plot 1122 and the letter of the Commissioner for land registration dated 10th of December 2012 indicates that by that time it was registered in the names of the third Respondent.
The Mortgage Regulations 2012 regulation 13 thereof provides that the court may upon the application of the mortgagor, spouse, agent of the mortgagee or any other interested party and for reasonable cause, adjourn a sale by public auction to a specified date and time upon payment of a security deposit of 30% of the forced sale value of the mortgaged property or outstanding amount.
The Applicant deposited security in accordance with Regulation 13 (1) of The Mortgage Regulations 2012 and there was stoppage of the sale. However the applicants seek the stoppage of issuance of a fresh notice for sale of the property. That has the effect of an application for a temporary injunction pending determination of the main suit. This is because under Regulation 13 (7) where a sale is adjourned for a period longer than 14 days, a fresh public notice has to be given in accordance with Regulation 8.
I have considered the provisions of the Financial Institutions (Credit Classification and Provisioning) Regulations, 2005. The first Respondents Counsel relied on Regulation 5 thereof for the rationale of the regulations. It provides that financial institutions need to recognise problem credit facilities using a qualitative and quantitative definition of non-performing assets and to properly treat the assets with regard to accrual of interest, classify them according to ultimate collectability and make adequate provisions based on that classification. Recognition of non-performing assets stimulates collection efforts helping to reduce the possibility of loss on the assets. Furthermore the first Respondents Counsel relies on regulation 11 which deals with classified credit facilities. It is provided therein that credit facilities are classified as substandard, doubtful or loss. Substandard assets require a provision of 20% of the outstanding balance of the credit facility. Doubtful assets are maintained with a provision of not less than 50% of the outstanding balance of the credit facility. Lastly assets classified as loss are to be maintained with a provision of 100% of the outstanding balance of the credit facility.
In accordance with the above provisions, it is the first Respondent's case that it has to make provision for the outstanding loan amount owed by the second Respondent who has defaulted. The submissions stopped short of classifying the kind of assets or category of assets plot 1122 belongs to, whether as substandard, doubtful or loss. Nonetheless, the asset is non-performing because the second Respondent stopped or failed to service the loan and there is an application for foreclosure by the first Respondent bank. In the application for an interim order, the first Applicant had to furnish security equivalent to or sufficient to cater for at least 30% of the outstanding amount for purposes of stoppage of the sale under the Mortgage Regulations 2012. This did not only indicates the seriousness of the Applicant in proving the case against the Respondents but also gives an equitable remedy to the Respondent bank for purposes of security in case the order is issued stopping the sale pending final disposal of the suit. I wholeheartedly embrace the decision of Lord Diplock in the case of American Cyanamid Co v Ethicon Ltd  1 All ER 504 at 510 on the remedy of security deposit when he said:
“One of the reasons for the introduction of the practice of requiring an undertaking as to damages on the grant of an interlocutory injunction was that ‘it aided the court in doing that which was its great object, viz abstaining from expressing any opinion upon the merits of the case until the hearing’...”
In other words the court does not have to express any opinion on the merits of the case if the Applicant can deposit security for the assurance of the first Respondent. The first respondent would like the court to express an opinion about its legal rights under the RTA. I do not see any need for the Applicant to deposit cash security as prayed for by the first Respondents Counsel. The obligations of the first Respondent under the Financial Institutions (Credit Classification and Provisioning) Regulations, 2005, are to have sufficient security according to the classification of the assets. Consequently in the circumstances, the balance of convenience would be that the bank obtains good security pending determination of this suit on the merits. This would enable the serious questions raised in the Plaintiff’s suit to be addressed while maintaining the status quo and at the same time ensuring that the first Respondent bank is not prejudiced. In the premises, I have considered the security furnished for purposes of stoppage of sale, the fact that if the Applicant is not protected, he stands to lose the property when there is a serious question as to whether the Applicant did sell plot 1122 to the third Respondent. Last but not least, because the third Respondent alleges that the first Applicant sold plot 1122 to him, and produced a sale agreement to that effect, that question can be tried through the use of forensic experts and the period of trial can be shortened dramatically. The Applicant alleged that there was a forgery. Lastly the right of the first Applicant to bring the action is based on alleged proprietary right and a right of covenant to give his tenant the second Applicant quiet possession of the suit property.
On the basis of the above considerations, the balance of convenience is in favour of granting the applicants application subject to the condition of furnishing security for purposes of the first Respondent by deposit of security in court. Secondly the court directs that the question of whether the first Applicant executed a sale agreement for plot 1122 will be submitted for examination of forensic experts. This would be without prejudice to admitting evidence on what actually happened from the parties and their witnesses. The suit would be fixed for a preliminary hearing/scheduling conference to consider expeditious resolution of the issue of sale of plot 1122 and a near date given for hearing.
In the premises, the applicant’s application is granted as against the first and second Respondents. As against the third Respondent, the application is disallowed with costs to abide the outcome of the main suit. Furthermore on the 4th of September 2013, the interim order issued by the registrar of this court was extended subject to the deposit of security for 30% of the forced sale value of the property into court. The security deposit was supposed to be in the form to a security to the satisfaction of the Registrar of the Commercial Court Division. In a letter dated 13th of September 2013 and filed on 13 September 2013 by the first applicant's Counsels, the first Applicant deposited Buddu block 323 plot 613 allegedly having a value of Uganda shillings 146,000,000/=. The original title was received by the registrar as security under the mortgage regulations 2012.
The above security shall remain deposited as security in favour of the first Respondent pending determination of the suit. The costs of this application with regard to the first and second Respondents shall be costs in the cause.
Ruling delivered the 28th day of November 2013.
Christopher Madrama Izama
Judgment/Ruling delivered in the presence of:
Arthur Kirumira for the 2rd Respondent
Bwayo Richard for the first respondent
Faith Atukunda and Kimanze Nsibambi for the Applicants
Second Respondent withdrew instructions from Abbas Bukenya and is not in attendance
Christopher Madrama Izama