THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL COURT DIVISION)
MISCELLANEOUS APPLICATION NO. 286 OF 2013
(ARISING FROM HCCS NO. 189 OF 2013)
SCORPION HOLDING LIMITED]
GILBERT GUMA ]
ALEXANDRIA GUMA ] :::::::::::::::::::::::::::::::::::::APPLICANTS
V E R S U S
BANK OF BARODA UGANDA LTD]::::::::::::::::::::::::::::::::::::::::::RESPONDENT
BEFORE: HON. LADY JUSTICE HELLEN OBURA
This application was brought under Order 36 rule 3 of the Civil Procedure Rules (CPR) seeking for orders that the applicants be granted unconditional leave to appear and defend the suit and that costs of this application be provided for.
The grounds of this application are contained in the notice of motion and the affidavit in support deposed by Gilbert Guma, the second applicant and director of the first applicant. The first ground is that the applicants are not indebted to the respondents in the sums claimed. Secondly, that the respondent over charged interest throughout the loan period and its claim is exaggerated as interest was charged over interest. Thirdly, that the 2nd and 3rd applicant’s liability is secondary to the 1st applicant’s obligation to pay hence they deny liability. The fourth ground is that the claim is premature and ought to be subjected to a reconciliation to determine the total amount due. Lastly, that it is just and equitable that the orders sought be granted.
The respondent contested the application on the grounds contained in the affidavit in reply deposed by Sankar Kumar Sardar, the respondent’s Senior Branch Manager. The applicants filed an affidavit in rejoinder and when this matter came up for hearing, the applicants were represented by Mr. David Kaggwa while the respondent was represented by Mr. Noel Muhangi. They agreed to file written submissions which they did.
The brief background to this application is that on 5th November 2010 the respondent granted the 1st applicant a term loan of Ug. Shs. 90,000,000/= repayable in 45 equal installments of Ug. Shs. 2,000,000/= from February 2011 plus interest thereon at the rate of 2% p.a over and above the respondent’s prime lending rate from time to time. The 2nd and 3rd applicants issued personal guarantees for purposes of securing the loan. It is alleged that the 1st applicant has since defaulted on payment of the said loan leading to an outstanding payment of Ug Shs. 95,467,936/= as of 18th November 2012. The respondent’s demand to the 2nd and 3rd applicants to settle the said loan yielded no results and accordingly the respondent instituted a summary suit against the applicants jointly and severally to recover the sums due. On the other hand the applicants contest the outstanding sum claimed alleging that the interest charged was not properly ascertained and yet the applicants believe that a substantial amount of the loan has been paid.
Counsel for the applicants cited the case of Maluku Interglobal Agencies vs Bank of Uganda  HCB 65 as to the legal test for grant of an application for leave to appear and defend a suit. The applicant’s counsel submitted that having raised doubt about the mode of computation of the outstanding sum based on unknown penalties and interest rates and yet a substantial amount had been paid against the loan, the applicants had shown that there is a bona fide triable issue of fact as to whether the interest charged was contractual or not.
The applicants also relied on the case of Zzimwe Hardware & Construction Enterprises Ltd vs Barclays Bank (U) Ltd HCMA No. 114/2008 where it was held that having raised the issue of computation of interest, the penalties and deductions the applicant had raised a bona fide triable issue which necessitated trial as to whether the said computations had been correctly done. On the basis of that authority it was argued for the applicant that a bona fide triable issue regarding computation of the outstanding sum had been raised necessitating that the applicants be granted leave to file a written statement of defence so as to enable a reconciliation of the applicants’ account to determine the actual balance if any.
It was also contended for the 2nd & 3rd applicants that they cannot be liable under the personal guarantees owing to the respondent’s breach of the substantive loan facility agreement because they only guaranteed on the understanding that such guarantee was secondary to the 1st applicant’s obligation. The applicants’ counsel relied on the case of Paul Kasagga and Another vs Barclays Bank (U) HCMA No. 113 of 2008 for the meaning of a guarantee. He cited the case of John K. Kaggwa vs Stanbic Bank & Four others HCMA No. 146 of 2010 for the position that the guarantor’s liability for the non-performance of the principle debtor’s obligation is co-existent with that obligation and if the principle obligation turns out not to exist or is void or dismissed or is discharged, so is the guarantor’s obligation in that respect.
In response, counsel for the respondent first of all raised a preliminary point of law to the effect that the affidavit in support of the application and the affidavit in rejoinder are incurably defective and cannot support the application. He relied on the case of Lena Nakalema Binaisa & 3 Others vs Mucunguzi Myers HCMA No. 460 of 2013 to support his arguments. On the merits of the application, he referred to Order 36 rule 7 of the CPR and Begumisa George vs East African Development Bank HCMA No. 451 of 2010 whose effect is that the applicants must show that they have a good defence on the merits or that there are circumstances showing reasonable grounds or a bona fide defence. The case of Paul Kasagga and Another vs Barclays Bank (U)(supra) was also relied upon by counsel for the respondent for the holding that any defence raised should be stated with sufficient particulars as to appear genuine and not generally vague statements denying liability.
On that basis, counsel for the respondent submitted that the applicants alleged that the respondent is charging unlawful and illegal interest which allegation cannot be ascertained from the affidavits. Similarly, the respondent contended that the allegation that the 1st applicant has paid a substantial amount against the loan is unsubstantiated since there are no documents attached to the application to prove that claim. It is the respondent’s contention that the applicant has failed to discharge its duty of raising a defence with sufficient particulars but rather vaguely denied liability.
Furthermore, the respondent’s counsel referred to paragraph 11 of the affidavit in support and submitted that the applicants have admitted liability for the outstanding loan amount but complain that the 1st applicant is facing cash flow problems emanating from its excavator getting burnt beyond repair. It is the respondent’s view that that is not a legal ground for granting such an application. He submitted that the 1st applicant having failed to settle the loan, the respondent is entitled to enforce the 2nd and 3rd applicants’ personal guarantees since there is no liability on the guarantor unless and until the principal has failed to perform his obligation as was held in the case of Nganda Kawesi vs R.L Jain HCMA No. 512 of 2008.
I have carefully considered the application, all the affidavits together with their attachments and the written submissions of both counsels. The issue for determination by this court is whether the orders sought should be granted. However, before delving into the principles that govern an application for leave to appear and defend the suit, I wish to first deal with the preliminary point of law raised by counsel for the respondent on the alleged incurable defect of the affidavit in support of the application and that in rejoinder.
Counsel for the respondent referred to Order 1 rule 12 (1) & (2) of CPR and the case of Lena Nakalema Binaisa & 3 Others vs Mucunguzi Myers HCMA No. 460 of 2013 to support his argument that there is no proof of authority by the 3rd applicant to the 2nd applicant to swear the affidavit on her behalf although the deponent alleges so in his affidavit in support. He submitted that consequently the affidavit in support of the application is rendered defective leaving the application unsupported as was held in the following cases: Taremwa Kamishana Tomas vs Attorney General HCMA No. 38 of 2012, Vincent Kafero & 11 Others vs Attorney General HCMA No. 48 of 2012, Mukuye & 106 Others vs Madhvani Group Ltd HCMA No 821 of 2013 (Arising out of CS No. 615 of 2012) relying on the case of Makerere University vs St. Mark Education Institute & Others High Court Civil Suit No. 378 of 1993.
Counsel for the applicants made no response to the above objection as there are no submissions in rejoinder on court record.
Order 1 rule 12 of the CPR provides;
(1) Where there are more plaintiffs than one, any one or more of them may be authorised by any other of them to appear, plead or act for that other in any proceeding, and in like manner, where there are more defendants than one, any one or more of them may be authorised by any other of them to appear, plead or act for that other in any proceeding.
(2) The authority shall be in writing signed by the party giving it and shall be filed in the case.
In the first paragraph of affidavit in support of the application, Mr. Gilbert Guma, the 2nd applicant avers that he was duly authorized by the 1st and 3rd applicants to swear the affidavit on their behalf. The same averment was made by the 2nd applicant in his affidavit in rejoinder. Perusal of both affidavits reveal that no such authority was filed with the application as required by Order 1 rule 12(2) of the CPR. Upon perusing Order 1 rule 12 of the CPR and reviewing the authorities relied upon and in the absence of proof of authority, this court is inclined to agree with the submission of counsel for the respondent that the affidavit in support of the application and that in rejoinder are both incurably defective for non compliance with the requirements of the law and they cannot therefore support the application. I would therefore uphold the preliminary objection and dismiss the application for being incompetent due to lack of a supporting affidavit. That would dispose of this application and there would be no need to consider its merits.
Be that as it may, it is my firm view that this application would also fail on its merits. This is because the applicants have not demonstrated that there any bona fide triable issues that merit judicial consideration. It is now settled that in an application like this one, the applicant must prove that there is a bona fide triable issue of fact or law that he will advance in defence of the suit. In Churanjilal & Co. v. A. H. Adam (1950) 17 EACA 92, the Court of Appeal for East Africa held that a defendant who has a stateable and arguable defence must be given the opportunity to state and argue it before court. That decision was followed by the High Court of Uganda in the case of Maluku Interglobal Trade Agency v. Bank of Uganda (supra) where the principle was concisely stated as follows:-
“Before leave to appear and defend is granted the defendant must show by affidavit or otherwise that there is a bona fide triable issue of fact or law. When there is a reasonable ground of defence to the claim, the defendant is not entitled to summary judgment. The defendant is not bound to show a good defence on the merits but should satisfy the court that there was an issue or question in dispute which ought to be tried and the court should not enter upon the trial of the issues disclosed at this stage.”
The above principles were also followed and applied in the case of Maria Odido vs Barclays Bank of Uganda Ltd HC Misc. Application No. 645 of 2008 wherein the trial judge observed that at this stage the court is not required to inquire into the merits of the issues raised, however the issue so raised should be real and not a sham. Court must be certain that if the fact alleged by the applicant were established there would be a plausible defence and if the applicant has a plausible defence he should be allowed to defend the suit unconditionally.
It is my considered opinion that the applicants have not stated any issues of law or fact that would justify the grant of leave to defend the suit. Firstly, the 2nd applicant merely alleges that the respondent charged interest which was illegal and unlawful. He does not take time to analyse the letter of loan offer, annexture A to the affidavit in support, which states the agreed rate of interest that was applied to the loan so as to come to that conclusion. However, this court’s careful analysis of the letter of offer whose terms and conditions the 1st applicant accepted by endorsing the same gives a contrary view that the parties agreed on an interest rate of 20% p.a.with monthly rests clause (2% over PLR) revisable from time to time at the bank’s discretion. This court cannot therefore be convinced that the respondent charged interest which was illegal and unlawful unless the applicants demonstrate so in the affidavit in support of the application. Unfortunately, the 2nd applicant merely made a blanket allegation without any elaboration.
Secondly, the applicants’ claim that the 1st applicant has paid a substantial amount against the loan is unsupported. The 1st applicant has not furnished this court with sufficient particulars to challenge the 1st applicant’s bank statement, which is attached to the affidavit in reply as annexture BOB-2. The 2nd applicant merely alleges payment of substantial amount without indicating the sums paid and furnishing proof of payment. It is therefore not convincing that any payments were made over and above what is captured in the 1st applicant’s bank statement. Whereas I agree with the principles of law on guarantees as stated in the case of John K. Kaggwa vs Stanbic Bank & Four others (supra) relied upon by the applicants, I nonetheless wish to observe that the above case is distinguishable from the facts at hand because in that case the respondent had not provided the applicant’s loan account statement and the court was unable to establish the repayments made, interest, penalty deductions and the rates and basis of the deductions. That is not so in the instant case.
It is therefore my considered view that the affidavit evidence presented before this court cannot lead to a conclusion that there are bona fide triable issues that would merit granting this application. Rather, to my mind the defence raised is a mere sham intended to delay justice and abuse the court process. In the result, the application must fail both on the preliminary point of law and on its merits. It is accordingly dismissed with costs and judgment is hereby entered for the respondent as prayed.
I so order.
Dated this 11th day of February 2014.
Ruling delivered in chambers at 3.00 pm in the presence of Ms. Carol Luwaga who was holding brief for Mr. Noel Muhangi for the respondent. The applicants and their counsel were absent.