THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL DIVISION)
MISCELLANEOUS APPLICATION NO. 0451 OF 2010
{ARISING FROM CIVIL SUIT NO. 0258 OF 2005}
BEGUMISA GEORGE:::::::::::::::::::::::::::::::::::::::::::::::::::: APPLICANT
VERSUS
EAST AFRICAN DEVELOPMENT BANK:::::::::::::::::::::RESPONDENT
BEFORE: HON. LADY JUSTICE IRENE MULYAGONJA KAKOOZA
RULING
The applicant, George Begumisa, brought this application under the provisions of Order 36 rule 3 of the Civil Procedure Rules (CPR). He sought for an order for unconditional leave to defend HCCS No. 258 of 2010 now pending in this court and the costs of this application. The application was supported by the affidavit of the applicant dated 3/08/2010. The respondent filed two affidavits to oppose the application deposed by Lucas Messo and Kabiito Karamagi on 29/09/2010. The applicant filed an affidavit in rejoinder dated 23/03/2011.
Briefly, the facts upon which the main suit was based were that the plaintiff, a company in banking business in Uganda (also herein referred to herein as “EADB” or “the bank”) sought to recover the sum of USD 4,723,955.65 on account of loan facilities or leases that were provided to M/s Begumisa Enterprises Ltd. (hereinafter also referred to as “the company”). The loan was secured by mortgages over the applicant’s property and debentures over the company’s assets. The applicant, being the Managing Director of the company, further executed a continuing personal guarantee for the repayment of the loan contained in a deed dated 19/10/2001. The company failed to service and eventually repay the loan and in the process of the bank’s efforts to collect its dues, the company filed HCCS No. 102 of 2008 in this court, against EADB, Barclays Bank (U) Ltd., and Francis Kamulegeya and Martin Whitehead. Kamulegeya and Whitehead were Receiver/Managers whom the bank appointed to recover the debt due from the company. The company also applied for a temporary injunction in UCC M/A No. 253 of 2010, to restrain the Receiver/Managers from taking possession of the company’s assets.
Following the company’s failure to secure a temporary injunction to restrain the Receiver/Managers from taking possession of its assets, the company compromised the suit by entering into a consent judgment which was signed between the company’s and the respondent’s advocates on 4/06/2008. By the consent judgment, M/s Begumisa Enterprises Ltd. agreed to pay US$ 3,989,162 due to the respondent and another US$ 1,559,639 due to M/s Barclays Bank (U) Ltd., as at 15/04/2008. It was further agreed that interest would continue to accrue on both at the contractual lending rates. The company also agreed to begin paying the debts by depositing US$ 100,000 within 30 days of the consent judgment and to pay off the whole of the balance due within 90 days. It was further agreed that in default of such payment, the judgment creditors would foreclose upon a list of chattels held under a debenture, and the sale of land held under legal mortgages which were listed in the consent judgment.
M/s Begumisa Enterprises did not pay off the debt as agreed. The efforts to recover the debt through the debenture and mortgages also failed, allegedly because of the actions of the applicant which were calculated to defeat recovery. The respondent therefore filed HCCS 258/2010 under Order 36 CPR in an effort to recover the amount that had been agreed upon in the consent judgment with interest, by the enforcement of the personal guarantee that was signed by the applicant as collateral security for repayment of the debts of the company. The applicant now brings this application for unconditional leave to defend that suit.
In his affidavit in support of the application, the applicant averred that he has a good defence to the suit; that he is not indebted to the respondent at all because he was legally released from his personal obligations under the guarantee by the consent judgment entered into on 4/06/2008. He asserted that the effect of the consent judgment was to vary the terms of the debenture, mortgage and loan agreements between the respondent and Begumisa Enterprises. He attached a copy of the consent judgment to his affidavit as Annexure “A”. The applicant further averred that since the principle debtor discharged its obligations by the consent judgment in a previous suit, it would be just and equitable that he as guarantor be granted unconditional leave to appear and defend the instant suit.
In his affidavit in reply, Kabiito Karamagi averred that on 2/03/2010, EADB appointed him as Receiver/Manager of the assets and business of Begumisa Enterprises in place of Francis Kamulegeya and Martin Whitehead who retired from that office on 8/12/2009. A copy of the deed of appointment was attached to the affidavit as Annexure “A2.” Mr. Karamagi went on to state that on several occasions after his appointment he telephoned to the applicant who was the principal shareholder in the company and its M.D. to meet him in person and introduce himself to him but Mr. Begumisa failed to honour all appointments made. Mr Karamagi averred that in spite of that he took over the operations of the company and introduced himself to the employees but on 8/04/2010, in an effort to forcefully re-enter the premises and take possession thereof, the applicant went to the company premises with a policeman and some rowdy youth and attempted to evict Mr. Karamagi. His efforts were successfully resisted but Mr. Karamagi reported the incident to the police.
Mr. Karamagi further averred that again on 9/04/2010, the applicant went to the company premises with a large group of armed men and demanded that he (Mr. Karamagi) withdraw his guards and agents from the premises. He was later joined by the District Police Commander, Old Kampala Police Station, who also demanded that the Receiver/Manager leave the premises. The incidents were reported to the Inspector General of Police, Major General Kale Kayihura who summoned the applicant and Mr. Karamagi to his office. On 10/04/2010, a meeting was held between Mr. Karamagi and the applicant before the Inspector General of Police at which the applicant informed those present that he had applied to the Government of Uganda to bail his company out and settle its debts, including those with the respondent bank. The parties then agreed that by 30/04/2010 Mr. Begumisa would supply a written commitment from the Ministry of Finance that Government would pay the debt due and that Mr. Karamagi would continue in occupation of the premises of the company, but on condition that the applicant would also be allowed to access the premises.
The applicant failed to obtain the commitment of Government to pay the debt and instead he filed HCCS No. 136 of 2010, Begumisa Enterprises Ltd. v. EADB & Another, challenging the appointment of Mr. Karamagi as a Receiver/Manager, and M/A 253/2010 for a temporary injunction to restrain him from taking possession of the company’s assets. The application was dismissed and the appointment of the receiver upheld.
Mr. Karamagi further averred that the company owed the respondent and other creditors amounts that are in excess of UD$ 5,000,000 which have not been realised since 2008 because of the applicant’s manoeuvres. That in spite of the company’s admission of its debt in HCCS No. 102 of 2008 and its undertaking to settle the debt within a prescribed period of time, the applicant frustrated all means of the company settling its debt by use of armed personnel, intimidation of purchasers, lodging caveats and frivolous suits in the Land Division of the High Court.
In his affidavit in reply, Mr. Lucas Meso, the Lead Specialist in the Work-Out Unit of the respondent averred that by 15/09/2010, the company was indebted to the respondent in the sum of US$ 3,988,162. That the debt was secured by a legal mortgage over lands listed in the affidavit and a debenture over the company’s assets. Further that the company defaulted in repayment of the loan and failed to honour several promises to pay upon which the respondent appointed Mr. Kamulegeya and Mr. Whitehead as Receiver/Managers and they took possession of the company’s premises. That on 19/04/2008 the applicant with the aid of armed guards from Saracen forcefully re-entered the premises and dispossessed the Receiver/Managers. The company then filed HCCS 102/2008 which was compromised by a consent judgment in favour of the respondent.
Mr. Meso further averred that the company failed to honour the consent judgment to pay the debt and in addition to that the applicant barred the Receiver/Managers from taking possession of the company’s assets and the mortgaged property. That on 19/08/2008, the respondent applied for a warrant for delivery of the land comprised in the mortgaged property which was granted to Festus Katerega, a court bailiff, directing that possession be given to the Receivers but the applicant frustrated all efforts by the respondents and the receivers to dispose of the securities. That subsequently, the parties hereto appeared before the Registrar of this court and a warrant for delivery of the land was recorded by consent. A copy of the record of proceedings for that day was attached to the affidavit as Annexure “E”.
Mr. Meso went on to aver that subsequent to the order of 19/08/2008, the court bailiff advertised the property for sale on several occasions but no sale has taken place because the applicant obstructed potential buyers, entangled the property in various suits filed by the applicant and members of his family and lodged caveats on some of them. Mr. Meso repeated the contents of the affidavit of Kabiito Karamagi regarding what transpired between him and the applicant since he was appointed the receiver/manager by the respondent. He then concluded by reason of the conduct of the applicant, the respondent has no other alternative but to resort to the personal guarantee for repayment of the debt due to it from M/s Begumisa Enterprises.
Mr. Meso finally averred that M/s Begumisa Enterprises filed another suit against the respondent in which it challenged the appointment of Kabiito Karamagi (HCCS No. 258/2010). It was there contended that the debenture pursuant to which Kabiito Karamagi was appointed had been overtaken and/or varied by the consent judgment. That in a ruling on an application for an injunction, Arach Amoko, J., ruled that the consent judgment did not vary the terms of the debenture and she thereby upheld the appointment of the receiver. A Photostat copy of the ruling in M/A 253/2010 arising from the suit was attached to Mr. Meso’s affidavit as Annexure “H”.
In his affidavit in rejoinder, the applicant averred that because they were contracts, the consent judgment which came after them varied the terms of loan, mortgage and debenture agreements between the parties in several respects, including the time of payment of the debt and the mode of enforcement. That the said variations released the applicant from his obligations as a guarantor and that as a result, there is a bona fide triable issue as to whether the applicant was released from his obligations as a guarantor or not.
When the application came up for hearing on 13/04/2011, Mr. Davis Guma for the applicant submitted that the applicant here has a good defence upon which unconditional leave should be granted to him to defend the suit. He argued that paragraphs 8 and 10 of the affidavit in reply filed by Lucas Meso and paragraphs 9, 11 and 19 of the affidavit of Kabiito Karamagi raise issues that cannot be decided in this application. He submitted that the said paragraphs of the affidavits in reply which were an effort to prove that the applicant frustrated the respondent’s efforts to recover the sums owed from M/s Begumisa Enterprises could not be decided upon at this point and they justified the grant of leave to defend the suit to enable a settlement thereof.
Mr. Guma went on to submit that the suit was wrongly brought under Order 36 CPR because one of the claims therein is interest. He relied on the decision in E. M. Cornwell & Co. Ltd. v. Shantaguari Dahyabhai Desai (1941) 6 ULR 103 for the submission that interest cannot be claimed in a suit under Order 33 (now 36), unless it is based on an agreement for interest in the document sued on, or on a statute. He also drew the court’s attention to the decision in Haji Arjabu Kasule v. F. T. Kawesa [1957] EA 611 as authority for the same submission.
Mr. Guma went on to argue that the company entered into a consent judgment with the respondent in which it agreed to pay the debt in a specified time. That it was also agreed that the applicant’s properties named in the consent judgment would be sold. He concluded that the consent judgment varied the terms of the guarantee upon which the respondent sued the applicant in the instant suit and that the applicant was thereby discharged from his obligations under the guarantee. Mr. Guma relied on the decision in Moschi v. Lep Air Services Ltd & Others [1973] AC 331 for the submission that the obligation of a guarantor is to see that the debtor performs his obligations. That in the event that the guarantor fails to perform his obligations voluntarily the debtor can then recover from him but such recovery would be in the way of general damages. He went on to argue that because of that, a suit under Order 36 could not be brought against a guarantor because the claim against him/her would be in the nature of general damages, and such claims are excluded from the operation of O.36.
He further argued that the deed of guarantee did not show that it was for a debt arising out of the consent judgment; that given the consent judgment, it was not necessary for the respondent to file a new suit because she could have simply levied execution against the applicant given that he had surrendered all his properties to the respondent, some of which had even been sold. Mr. Guma then concluded that the applicant had raised triable issues that entitled him to unconditional leave to defend the suit. He urged that the court should not “suffocate” the rights of the applicant by denying him leave to defend in those circumstances.
In reply, Mr. Walukaga submitted that interest continued to accrue on the debt because clause 1 of the consent judgment provide for it. Further that the applicant did not contest the fact it accrued in any of his affidavits. He went on to state that if interest has been agreed upon between the parties, then one can sue over it under Order 33 CPR. Further that the guarantor guaranteed repayment of the debt and the principle debtor agreed that a debt was due in the consent judgment. That since the consent judgment also provided that interest would continue to accrue on the debt according to the contractual rates agreed between the principle debtor and the respondent, the guarantor was bound to settle the debt with such interest.
He further submitted that the consent judgment did not vary the terms of the guarantee and the question was decided by Arach Amoko, J. in M/A 253/2010 where she ruled that the terms of the borrowing were not altered by the consent judgment. He therefore prayed that judgment be entered for the respondent because the applicant had failed to raise a triable issue by his application.
In rejoinder, Mr. Guma submitted that while the applicant guaranteed the repayment of a lease, the consent judgment was about a loan. He charged that the two terms were different and therefore the deed of guarantee could not apply to the loan whose repayment was sought by the respondent.
From the facts stated above, it is apparent that Begumisa Enterprises Ltd. owes the respondent a hefty sum of money, and it seems interest continues to accumulate on the debt. There have been a lot of skirmishes in court but the respondent continues to go unpaid. In desperation, the respondent brought a suit under Order 36 CPR against the applicant based on a guarantee, apparently as a last resort.
In normal circumstances, a defendant who honestly believes that he does not owe the plaintiff the claim made against him will come forward with a genuine defence by which he hopes to defeat the claim without being cajoled into stating it. In some cases, however, the object of the defendant is not necessarily to defeat the claim, but to gain time unfairly and work grave injustice to the claimant. In the absence of a legal rule such as Order 36, it would be possible for a defendant sued in the plainest of plain cases like for the price of goods or a dishonoured cheque, merely to put on record some plea, no matter how spurious and devoid of merits or remote from the actual facts, and the case would have to go for trial with all the delay and expense necessarily involved, only for the defendant to either admit or not attend, or appear only to have little or nothing of substance in his defence in the face of stark truth and an impenetrable case of the plaintiff against him (R. Kuloba, Judge Emeritus of the High Court of Kenya Summary Judgment, Orders 35 of Kenya & Tanzania, and Order 33 of Uganda Law Africa Publishing, Kenya (2010)).
The rationale of Order 36 was succinctly stated in Zola & Another v. Ralli Brothers Ltd. & Another [1969] EA 691 at 694, a decision about the Kenya equivalent of our then Order 33 CPR as follows:-
“Order 35 is intended to enable a plaintiff with a liquidated claim, to which there is clearly no good defence, to obtain a quick and summary judgment without being unnecessarily kept from what is due to him by the delaying tactics of the defendant. If the judge to whom the application is made considers that there is any reasonable ground of defence to the claim the plaintiff is not entitled to summary judgment. … Normally a defendant who wishes to resist the entry of summary judgment should place evidence by way of affidavit before the judge showing some reasonable ground of defence.”
The order is draconian. Instead of trial first and then judgment, there is never a protracted trial but judgment, once and for all at once, and without the defendant having his day in court on fully explored merits. The high cost of litigation and the premium of holding cash when interest rates are high greatly increase the attractiveness of procedural shortcuts such as Order 35 (our Order 36) to commercial plaintiffs for “It is more advantageous to win with a technical knockout in the first round than to win on points in round twelve.” (R. Kuloba, supra).
According to Lord Esher, M.R in Roberts v. Plant [1895] 1 QB 597:
“It is a strong thing to give such a power to a judge, and this court and all the courts have said therefore, that they would watch strictly the exercise of that power. But they did not mean by that that they would give effect to every pettifogging objection which the ingenuity of a defendant could raise.”
For that reason, rules have evolved upon which the court makes the determination as to whether the defendant who seeks leave to defend a suit under summary procedure should be allowed to do so or not. The first and paramount consideration has to be had to the rules wherein Order 36 rule 7 provides:
“If it appears to the court that any defendant has a good defence to or ought to be permitted to appear and defend the suit, and that any other defendant has not such defence and ought not to be permitted to defend, the former may be permitted to appear and defend, and the plaintiff shall be entitled to issue a decree against the latter, …”
{My Emphasis}
One of the earliest decisions that is often cited on this point in East Africa and which states the test is the decision in Hasmani v. Banque du Congo Belge (1938) 5 EACA 89 at 89, where Sheridan, CJ, in the Court of Appeal for Eastern Africa ruled that if there is one triable issue contained in the affidavit supporting the application for leave to appear and defend then the defendant is entitled to have leave to appear and defend unconditionally. This was followed by another notable decision in Churanjilal & Co. v. A. H. Adam (1950) 17 EACA, 92. Graham Paul, V-P stated the test thus:
“There is no difficulty about the principles to be applied in deciding this appeal. The law on the point is clear and only its application to the facts gives any trouble. It is desirable and important that the time of creditors and of courts should not be wasted by the investigation of bogus defences. That is one important matter but it is a matter of adjectival law only, embodied in Rules of Court, and cannot be allowed to prevail over the fundamental principle that a defendant who has a stateable and argueable defence must be given an opportunity to state it and argue it before the court. All the defendant has to show is that there is a definite triable issue of fact or law.”
The test has evolved over the years. In Uganda, the decision in Maluku Interglobal Trade Agency Ltd. v. Bank of Uganda [1985] HCB 65, is favoured and it states the test at page 66 of the Bulletin 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 plaintiff is not entitled to summary judgment. The defendant is not bound to show a good defence on the merits but should satisfy 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 issue disclosed at this stage.”
It is also the position, according to the same decision, that the defence must be stated with sufficient particularity to appear genuine; general or vague statements denying liability will not suffice. The principle was re-stated in Abubakar Kato Kasule v. Tomson Muhwezi [1992-1993] HCB 212 where Kireju, J, (RIP) ruled that under Order 33 rule 4 (now O.36 rule 4) a defendant who seeks leave to appear and defend is required to show by affidavit or otherwise that there is a bona fide triable issue of fact or law. That the applicant is not bound at this stage to show that he has a good defence on the merits of the case, but ought to satisfy court that there is a prima facie triable issue in dispute which the court ought to determine between the parties. The court further ruled that at this stage it was not entitled to enquire into the merits of the issue raised. In spite of this the court went on to hold:-
“In all applications for leave to appear and defend under Order 33 rules 3 and 4, the court must study the grounds raised to ascertain whether they raised a real issue and not a sham one, i.e. the court must be certain that if the facts alleged by the applicant/defendant were established, there would be a plausible defence; if the applicant/defendant has a plausible defence he should be allowed to defend the suit unconditionally.”
About 6 years later, in Photo Focus (U) Ltd. v. Group Four Security Ltd. C/A Civil Appeal No. 30 of 2000, (unreported), the Justices of the Court of Appeal seemed to lower the standard required of a defendant who applies for leave to defend which is stated in Order 36 rule 3 CPR. It was held, Engwau and Kitumba, JJA, with Okello, J.A (as he then was) dissenting, that a denial of indebtedness, per se, was a defence that was good enough for purposes of obtaining leave to appear and defend a suit under summary procedure. The decision of the court in a suit where the applicant simply denied that he owed the amount claimed in the plaint was that leave to defend ought to have been granted to him by the High Court. The court further observed that it was not incumbent upon the defendant at that stage to show how it is not indebted to the plaintiff because to do so would have shifted the burden of proof upon it prematurely. Engwau, JA, was of the view that the burden of proof was upon the plaintiff to show how it arrived at the figure being claimed. He therefore ruled as follows:-
“It is trite that it is not a requirement of law that the applicant must establish a genuine defence before leave to appear and defend could be granted. In the instant case, the applicant had clearly denied being indebted to the respondent in the sum claimed or at all. In my view, this was a perfectly good and genuine defence for the appellant to raise against the respondent’s claim. It raised a triable issue of law or fact and it was not incumbent upon the appellant at that stage to show how it was not indebted to the respondent.”
Similarly, Kitumba, JA, (as she then was) found and ruled as follows:
“I would like to observe that the appellant categorically denied that it owed to the respondent the sum of money claimed or at all. I cannot envisage in what clearer terms other than in such a denial that the appellant would have put its defence.”
Okello, JA, on the other hand, was of the view that the correct position was that which was stated in Maluku Interglobal (above), so he ruled:-
“I agree with the test, set out in Maluku Integlobal Trade Agency Ltd v Bank of Uganda [1985] HCB 65 that ‘the defence must be stated with sufficient particularity to appear genuine. General or vague statements denying liability will not suffice.’ Though this is a High Court decision, it is sound and I respect it. The question is, does the appellant’s defence that ‘the defendant/applicant is not indebted in the sum claimed or at all’ pass the above test? My answer is that it does not because it is lacking in particularity. The affidavit of the appellant’s Managing Director should have contained sufficient particularity to show why the appellant denies indebtedness to the respondent. … That is not shifting the burden of proof to the appellant to prove its defence. It is merely raising not only a clear triable issue but also coating it with sufficient particularity to make the defence appear genuine. To merely assert a general, evasive and vague denial as shown above is insufficient. That insufficiency rendered that defence general, ambiguous, vague and evasive.”
The Court of Appeal seems to have rethought its decision in Photo Focus because 2 years later in Kotecha v. Mohammed [2002] 1 EA 112, Berko, JA, ruled (Okello and Engwau, JJA, concurring) that:-
“The summary procedure on specially endorsed plaint under Order 33 of our Civil Procedure Rules is similar to a writ specially endorsed under Order 3, rule 6 (Order 14, rule 1) of the English Rules of the Supreme Court. Therefore English authorities on that rule are of persuasive authority and provide (a) useful guide. Under the English Rule the Defendant is granted leave to appear and defend if he is able to show that he has a good defence on the merit(s); or that a difficult point of law is involved; or a dispute as to the facts which ought to be tried; or a real dispute as to the amount claimed which requires taking an account to determine; or any other circumstances showing reasonable grounds of a bona fide defence. See Saw v Hakim 5 TLR 72; Ray v Barker 4 Ex DI 279.”
{My Emphasis}
It is therefore still the position of the law in Uganda that an applicant who comes to court seeking for leave to defend a suit under Order 36 CPR must show that he/she has a good defence on the merits or that there are circumstances showing reasonable grounds or a bona fide defence. The defence raised must not be a sham.
The questions that have to be decided in this application therefore are whether the suit was properly brought under Order 36 CPR and if so whether the applicant’s affidavit raises a good defence to the suit and therefore bona fide triable issues for the determination of the court at a later stage.
Regarding the 1st issue, the point of attack was to do with the interest sought as one of the prayers in the plaint. I reviewed the authorities cited by Mr. Guma, i.e. the decisions in Arjabu Kasule v. F. T. Kawesa [1957] EA 611 and E. M. Cornwell & Co. Ltd. v. Shantaguari Dahyabhai Desai (1941) 6 ULR 103. It is true that they reflect the position that a claim under O.36 should not include interest, except where the document sued upon includes an agreement on interest. However, the decision in Arjabu Kasule discusses the question further. Relying on the decision in Uganda Transport Co. Ltd. v. Count de la Pasture (3) (1954), 21 EACA 163, it was held that:
“… where a plaint endorsed for summary procedure contains claims correctly endorsed and other claims, the court may, by O.33 rule 3 to rule 7 and 10, deal with the claims correctly specially endorsed as if no other claim had been included therein and allow the action to proceed as respects the residue of the claim, the court having no power under O.33 to strike out any part of the claim but being unable to give summary judgment for any relief not within the scope of O.33 rule 2 aforesaid.”
The ratio that a claim including interest cannot be brought under summary procedure is therefore not applicable to every suit. It will be necessary here to first establish whether the rest of the respondent’s claim was validly brought under O.36 rule 2 CPR before I come to a decision that the suit was wrongly endorsed under Order 36 because of a claim for interest.
Order 36 rule 2 provides that “All suits where the plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant with or without interest may at the option of the plaintiff be instituted by presenting a plaint under summary procedure. Examples of the nature of claims that may be instituted by summary procedure are given in rule 2 (b) and include contracts, express or implied, guarantees, bonds and trusts.
There are various interpretations of what amounts to a “liquidated demand. In “The Annual Practice” (1966, Sweet & Maxwell, London) it was stated that a liquidated demand is in the nature of a debt, a specific sum of money due and payable under or by virtue of a contract which is either already ascertained or capable of being ascertained as a mere matter of arithmetic. In “The Supreme Court Practice” (Ed. Jack I. H. Jacobs, 1966, Sweet & Maxwell, London) a liquidated demand is said to be in the nature of a debt, and that if ascertainment of a sum of money even though it be specified or named as a definite figure, requires investigation beyond mere calculations, then the sum is not a debt or liquidated demand but constitutes damages. I will next deal with the question whether the debt claimed from the applicant amounts to a liquidated demand within the terms of O.36 CPR.
The respondent brought the main suit on the basis of a guarantee that was executed by the applicant in favour of the respondent as security for repayment of a debt that was owed to her by Begumisa Enterprises. In HCCS No. 102/2010 Begumisa Enterprises admitted that it owed the respondent UD$ 3,989,162 and that interest would continue to accrue on the debt at the contractual lending rates. In the suit, the respondent claims US$ 4,723,995.69, which to me appears to be the sum admitted in the consent judgment together with the interest that by the same agreement continued to accrue, per contract.
In his affidavit in support of this application the applicant stated that he was not indebted to the respondent at all because he was released from the debt by the consent judgment. However, he did not deny that Begumisa Enterprises owes the sum of US$ 4,723,995.69 stated in the plaint. The sum claimed from Begumisa Enterprises in the plaint is therefore not in dispute in this application. If anything, the applicant seems to be saying that Begumisa Enterprises discharged its obligations to pay the debt when he (the applicant as M.D) signed the consent judgment. I therefore find that the sum of US$ 4,723,995.69 is a liquidated demand and that the plaint was properly endorsed under summary procedure.
That being the case, are there any triable issues that would justify leave to appear and defend the suit? Mr. Guma advanced the following as triable issues:
i)
Whether the company discharged its obligations by entering into the consent judgment;
ii) Whether the consent judgment varied the guarantee that was executed by the applicant in favour of the respondent and discharged the applicant from his personal obligations;
iii) Whether the applicant here frustrated the respondent’s efforts to recover the debt from the company as agreed upon in the consent judgment;
iv)
Whether the interest claimed in the plaint as 9.1% of the amount claimed from 11/12/2009 till payment in full is due to the respondent.
It is apparent the while the first two issues are legal issues, the 2nd and 3rd issues are of fact. What then needs to be decided now is whether the issues above add up to a good defence, and/or whether they are bona fide triable issues. It is the general assumption at law that once triable issues are raised on an application for leave to defend, the applicant must be given unconditional leave to appear and defend the suit, if those issues are genuine and not a sham. It is also the generally accepted view that the court should not enter upon a trial on any of the issues raised at this point.
However, in that regard, in Corporate Insurance Co. Ltd. v. Nyali Beach Hotel Ltd. [1995-1998] EA 7, the Court of Appeal of Kenya ruled that leave to defend will not be given merely because there are several allegations of fact or of law made in the defendant’s affidavit. The allegations are investigated in order to decide whether leave should be given. As a result of the investigation even if a single defence is identified or found to be bona fide, unconditional leave should be granted to the defendant. The court went on to rely on the decision of Madan, JA, in Gupta v. Continental Builders [1978] KLR 83 at 87, and Pall, JA, observed that the merits of the issues are investigated to decide whether leave to defend should be given. Sometimes the prima facie issues which are preferred are rejected as unfit to go to trial being by their very nature, as disclosed to the court, incapable of resisting the claim. The court does not thereby shut out any genuine defences but what happens is that the court does not accept the prima facie issues as genuine. The court concluded that this is exactly the task which the court is required to perform on an application for summary judgment. It therefore behoves this court to investigate the issues that have been raised above to establish whether they are bona fide or genuine triable issues that will stand trial.
Starting with the 2 issue of law, it is now accepted that where the trial of an issue depends on the law, if the judge is satisfied that there are no issues of fact between the parties, it would be pointless for him/her to give leave to defend on the basis that there is a triable issue of law. In Corporate Insurance Co. Ltd. v. Nyali Beach Hotel Ltd. (above) the court relied on the decision in Home & Overseas Insurance Co. Ltd. v. Mentor Insurance (UK) (In Liquidation) [1990] WLR 153 at 158 for the following proposition relating to the purpose of summary judgment:
“The purpose of Ord 14 is to enable a plaintiff to obtain a quick judgment where there is plainly no defence to the claim. If the defendant’s only suggested defence is a point of law and the court can see at once that the point is misconceived the plaintiff is entitled to judgment. If at first sight the point appears to be arguable but with a relatively short argument can be shown to be plainly unsustainable the plaintiff is also entitled to judgment. But Ord 14 proceedings should not in my view be allowed to become a means for obtaining, in effect, an immediate trial of an action, which will be the case if the court lends itself to determining on Ord 14 applications points of law which may take hours or even days and the citation of many authorities before the court is in a position to arrive at a final decision.”
I think that the documents relied on in the main suit are short and to the point and the exercise of establishing whether the company discharged its obligations when it entered into the consent judgment as well as whether the applicant was indeed discharged from his obligations under the deed of guarantee will not require mature arguments as would be unbefitting on an application such as this one.
In this application, the applicant relied on the consent judgment (Annexure “B” to his affidavit in support) and the deed of guarantee (Annexure “B” to the plaint) which was brought into the proceedings by consent of counsel for the applicant who extensively relied on it in his submissions. The relevant terms of the consent judgment by which the applicant claims the company discharged its obligations were as follows:-
i)
The plaintiff acknowledges its indebtedness to the 1st and 2nd defendants in the sum of US$ 3,989,261 (United States Dollars Three Million Nine Hundred Nine Thousand One Hundred Sixty Two) and US$ 1,559,639 (United States Dollars One Million Five Hundred Fifty Nine Thousand Six Hundred Thirty Nine) respective as at 15th April 2008, and it is agreed that interest continues to accrue on these sums at the contractual lending rates.
ii)
The plaintiff agrees to pay the sums in (i) above as follows:
a)
A sum of US$ 100,000 (United States Dollars One Hundred Thousand only) to be paid within 30 days from the date hereof.
b) The balance within ninety (90) days from the date hereof.
iii)
Should the Plaintiff default in payment of the sums mentioned in (ii) (a) above for sixty days from the date hereof or default in payment of the balance in (ii) (b) above, then the 1st and 2nd defendants shall be at liberty to foreclose on the securities held and accordingly the 3rd and 4th defendant as receivers shall be at liberty to sell the chattels held under the Debentures and take possession of and sell the land held in the legal mortgages being:
While counsel for the applicant argued that the company was discharged from its obligations under the mortgage and the debenture because the terms of the consent judgment varied how satisfaction of the debt would be achieved, he did not persuade me that such was the effect of the consent judgment. I say so because it is clear from clause (iii) thereof that the consent judgment simply reinforced the respondent’s rights which flowed from the mortgages and the debenture. A mortgagor under a mortgage or debenture can only be discharged in satisfaction of the debt.
I therefore agree with Mr. Walukaga’s submission that the same question was decided by Arach Amoko, J. (as she then was) in M/A No. 253/2010 when she ruled that the appointment of Mr. Karamagi as a new receiver after Messrs Kamulegaya and Whitehead vacated that office was not premature. The defence also flies in the face of the fact that after the consent judgment was entered into, on 4/06/2008, on 20/08/2008, Begumisa Enterprises’ advocate, Mr. Kavuma Kabenge consented to an order before the Registrar of this court over a warrant for delivery of the mortgaged property to the receiver. It was there agreed that it would be delivered to bailiffs so that they could sell it pursuant to the mortgage and the debenture. The company cannot now turn round and claim that it discharged its obligations because no sale has taken place since the signing of the consent judgment almost 3 years ago. The defence that M/s Begumisa Enterprises was discharged from its obligations by the consent judgment was therefore, prima facie, unsustainable.
Turning to the terms of the guarantee from which the applicant claims to have been discharged by the consent judgment above, it would be useful to reproduce the relevant provisions thereof which were as follows:-
“Section 2.01. Save as hereinafter provided, the Guarantor irrevocably, absolutely and unconditionally guarantees as primary obligor and not merely as surety, the due and punctual payment of the rentals, deposits, interest, commission, premium and all other payments in connection with the Lease Facility as the same shall become due and payable by the company to EADB under the terms of the lease agreement, upon default and receipt by the Guarantor of EADB’s demand.
Section 2.02..………………………………………………………………
Section 2.03. The Guarantee shall be a continuing guarantee and shall remain in full force and effect until all payments due from the company in connection with the lease facility have been paid in accordance with the provisions of the lease agreement.
Accordingly, the obligations of the Guarantor hereunder shall not be discharged except by performance and then only to the extent of such performance.
Section 2.04. Such obligations shall not be affected or impaired by the following:
(a)
Any extension of time, forbearance or concession given to the Company or any other party;
(b) Any assertion of, or failure to assert, or delay asserting, any right power or remedy against the Company, or in respect of security for the Lease Facility;
(c) Any modification or amplification of the provisions of the Lease Agreement or any other agreement between EADB and the Company contemplated by the terms thereof;
(d) Any failure by the Company to comply with the requirements of any law, regulation or order;
(e)
Any failure by EADB to send any notices as provided for under Section 3.01 hereof.
Section 3.01. ……………………………………………………………..”
It is important to note that though the deed of guarantee was signed on 19/10/2001 for a lease facility of US$ 152,000, it was a continuing guarantee and it was to remain in force and effect until all payments due from the company to EADB in connection with the lease facility had been fully paid in accordance with the lease agreement.
The terms of the guarantee were no doubt absolute, unconditional and irrevocable as the document stated in Section 2.01 thereof. The guarantor therefore could not be discharged by the consent judgment because according to Section 2.04 (a) thereof, the terms of the guarantee were not to be affected by any extension of time, forbearance, or concession given to the company. Any modification or amplification of the lease agreement or any of the agreements with EADB contemplated by the guarantee also could not affect the continuity of the guarantee.
Mr. Guma tried to distinguish between a loan and a lease when he submitted that though the deed of guarantee referred to a lease agreement, the consent judgment referred to a loan. He submitted that a lease is between a lessor and a lessee and in respect of land, while a loan is an obligation relating to securing of money from a bank which one is obligated to pay. I was unable to find the specific term “loan” in the consent judgment. But for the sake of clarity, it is important that the confusion be done away with. Black’s Law Dictionary (9th Edition) defines a finance lease, which there is no doubt is the subject of the debt claimed by the respondent, as “A fixed-term lease used by a business to finance capital equipment.” It is further explained that the lessor’s service is usually limited to financing the asset and the lessee pays maintenance costs, taxes and has an option of purchasing the asset at lease end for a nominal price. Finance leases strongly resemble security agreements and are written exclusively by financial institutions as a way to help a commercial customer obtain an expensive capital item that the customer might not otherwise be able to afford.
And though counsel for the applicant complained that the lease agreement was not one of the documents relied upon in the present suit, I found no substance in that argument. The questions to do with the lease agreement were conclusively dealt with, or laid to rest when it was agreed between the respondent and Begumisa Enterprises that the amount owed on account of that facility was by the 4/06/2008, and on which interest would continue to accrue till payment in full. I therefore was not persuaded that the absence of the lease document was an issue which would necessitate the grant of leave to defend the suit against the applicant. If this was meant to be one of the triable issues raised by the applicant, then I am afraid it could not by any stretch of the imagination be sustained.
Mr. Guma correctly stated the law relating to the obligations of a guarantor as it was stated in Moschi v. Lep Air Services (above) that the analysis of a contract of guarantee is that the guarantor will perform the contract if the principal debtor does not. And in the same case, it was held of the obligations of a guarantor (per Lord Reid at page 345) that:
“… He might undertake that the principal debtor will carry out his contract. The if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principle debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principle debtor having failed to do what the guarantor undertook that he would do.”
It was therefore not correct for Counsel for the applicant to state that the respondent could not bring an action against the guarantor because such an action would be one for damages which are excluded from claims under summary procedure. I came to that conclusion because the damages sought in the event of breach of the contract of guarantee would be the exact amount that the principle debtor failed to pay to the creditor. It is also not wholly true that an action for damages cannot be sustained under summary procedure because damages are either liquidated or general damages.
Given the description of the obligations of the guarantor above, I take it that the damages envisaged in the event of breach of a contract of guarantee are to be liquidated damages. And it is not impossible for judgment to pass for such a claim where the defendant does not disclose a plausible defence, as was found in Dummer v. Brown [1953] 1 All ER 1158, where the claim was for damages for negligence under the Fatal Accidents Act.
In addition, Order 36 rule 2 (a) (iii) CPR specifically provides that one of the categories of suits for which a plaint will be endorsed under summary procedure is that for money payable on a guaranty where the claim against the principle is in respect of a debt or liquidated demand. It is therefore clear that the defence that the suit was for damages for breach of a guaranty which cannot be brought under Order 36 therefore also cannot be sustained for it clearly flies in the face of the provisions of Order 36 CPR.
As to whether the applicant here frustrated the respondent’s efforts to recover the debt from the company as agreed upon in the consent judgment; the question was already decided in M/A No. 253/2008, whose facts were similar to those stated by Mr. Karamagi and supported by Mr. Meso in this application. I will therefore simply reproduce the finding of my sister Arach Amoko, J. at page 10 of her ruling:
“Regarding the seriousness of the issues raised, however, I am in no doubt as to how serious they are. According to the unchallenged evidence of Mr. Ogwal and Mr. Kabiito, the applicant is not only still indebted to the 1st respondent to the tune of USD 5m but he has since resorted to all sorts of trick to avoid paying the debt which includes the use of police personnel to forcefully remove the receivers from the properties, intimidation and obstruction of potential buyers of the properties advertised for sale by the bailiff, lodging a caveat on the properties, as well as several legal suits to challenge the sale including an objector proceedings which is still pending before this court. Annexure “H” to Mr. Ogwal’s affidavit is a letter dated 26th November 2006 from Mr. Begumisa to the respondent’s bank manager which I have reproduced verbatim …”
In the said letter, the applicant here had admitted that caveats were lodged on the properties mortgaged for the sole purpose of buying time, so that they could plead with the President of the Republic of Uganda to step in and have Government pay off the debt. Mr. Begumisa also admitted that they filed suits not to deny the amounts they owed to Barclays Bank and EADB, but to lessen the speed at which the two institutions were selling the plant (the subject of the lease) while they waited for assistance from Government. It is clear from this application that the applicant continues to try and defeat the efforts of the respondent to recover the debt from the company. It is for that reason that he is now being held personally liable since it is he that is hindering the recovery from the company being achieved. The applicant has only himself to blame for the current state of affairs for had he not stood in the way, perhaps the respondent would not have had to rely on this last security for repayment of its monies.
I also have no doubt that the facts stated by Mr. Meso in paragraphs 8 and 10 of his affidavit are not in dispute for I have dealt with them above. Neither are the facts in paragraphs 9 and 11 of Mr. Kabiito Karamagi’s affidavit in dispute for they were dealt with in M/A 253/2008. Paragraph 19 of Mr. Karamagi’s affidavit was nonexistent. There is therefore no plausible triable issue on the facts stated in those paragraphs of the affidavits in reply which would warrant the grant of unconditional leave to defend the entire suit.
Finally, as to whether the interest claimed in the plaint as 9.1% of the amount claimed from 11/12/2009 till payment in full is due to the respondent, I agree that that could not be decided on the basis of the evidence in the affidavits filed in this application and it would be necessary to have evidence on it before the question is decided. It is a triable issue and for it leave is granted to defend the suit.
In conclusion, judgment is hereby entered for the plaintiff/respondent for the sum of US$ 4,723,995.69. The costs of this application and the suit shall abide the result of the trial of the issue on interest.
Irene Mulyagonja Kakooza
JUDGE
21/04/2011
