THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION No. 184 OF 2014

(ARISING OUT OF CIVIL SUIT NO. 75 OF 2014)

1. ZEBRA TELECOM LTD
2. SULAIMANI MAFABI       ::::::::::::::::::::::::::::::::::::::::::::::::::::: APPLICANT
3. ABDALLA JAFFER               

VERSUS

      STANBIC BANK [U] LTD ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT

BEFORE:   HON JUSTICE B. KAINAMURA

RULING

The applicants brought this application under the provisions of 0rder 36 rule 4 & 8 and Order 52 rule 1 & 3 of the CPR. The applicant seeks orders for unconditional leave to appear and defend Civil Suit No. 75 of 2014 now pending in this court and that costs of the application be in the cause.

The application was supported by the affidavit of Sulaiman Mafabi and Abdalla Jaffer, the 2^nd and 3^rd applicants respectively.

The respondent filed an affidavit to oppose the application deponed to by Jamir Mpiima Senoga the Legal Manager of the respondent. 

In the summary suit the respondent claims recovery of UGX 432,711,812 being the outstanding amount in respect of an overdraft facility granted to the 1^st applicant that remains outstanding.

The brief grounds as set out in the Notice of Motion are that the applicants have a good and tenable defence to the whole of the plaintiff’s claim, that the suit is defective and premature in law as the applicants have never been served with a default notice prescribed by the Mortgage Act, 2009, that the respondent is in the process of realising both the mortgage and the guarantees at the same time which is wrong in law as the 2^nd and 3^rd applicants are only guarantors and  not primary obligators, that the offer letter attached to the plaint has ambiguous terms and conditions and that it is in the interest of justice that the application be allowed.

The grounds of the application are set out in the affidavit sworn by Sulaiman Mafabi the 2^nd applicant and are that;

He has a good and tenable defence to the whole claim.

The amount claimed by the plaintiff is denied in total and the same should be subjected to a thorough interparty accounts reconciliation thus the suit is premature and diversionary.

The respondent is in the process of realising both the mortgage and the guarantees at the same time which is wrong as 3^rd and 2^nd applicants are guarantors and not primary obligators.

The respondent ought to first commence recovery process against the 1^st applicant as the borrower and then hold the 2^nd applicant liable as a guarantor.

The 1^st and 2^nd applicants have never been served with a default notice by the respondent.

It is in the interest of justice that the prayers in the application be granted.

The respondent filed an affidavit in reply in which the legal advisor Mr. Jamir Mpiima Senoga deposed that;

The 1^st applicant defaulted on its payment obligations as a principal debtor.

As at 14^th January 2014 a total sum of UGX 432,711,812/= being the outstanding amount as in respect of an overdraft facility granted to the 1^st applicant remained outstanding.

The 2^nd and 3^rd applicants as primary obligators executed guarantees in favor of the respondent to pay all sums due and refundable to the respondent by the 1^st applicant.

The applicants have no bonafide defence to the suit.

In rejoinder, Mr. Sulaiman Mafabi deposed that;

He denies in total the contents in the affidavit in reply.

In rejoinder to paragraphs 3 and 4 the applicants sought to reconcile the accounts with the respondent regarding the amounts unknown to them but received no co-operation from the respondent.

The applicants contest the entire sum.

The 2^nd and 3^rd applicants have never been primary obligators as they only guaranteed the 1^st applicant to secure the loan.

That respondent seeks to recover both the mortgage and guarantees at the same time yet it hasn’t exhausted its remedies against the mortgagor.

The interest sought to be recovered is speculative, uncertain, unconscionable and ambiguous which is only intended to drive the applicants out of business.

He has a good and tenable defence as disclosed in the affidavit in support of the application.

It is in the interest of justice that the application is granted and unconditional leave to appear and defend granted.

Applicant’s Submissions

Counsel for the applicants submitted that in an application for leave to appear and defend, it is trite law that the applicant shows whether he has a believable defence but not necessarily a strong one. He relied on the case of Robert Okiza and Ahimbizibwe Israel Herman No. 471 of 2006 where court held that the applicant at this stage is not bound to show a good defence but should satisfy court that there is an issue or question in dispute that ought to be tried. Counsel raised three issues;

1. Whether the suit is defective and premature for failure by the respondent to serve the applicants with a proper notice of default
2. Whether the respondent can realize both the mortgage and guarantees at the same time
3. Whether the contract is void for being unconscionable, ambiguous, and uncertain contrary to the law  

In regard to issue one, Counsel submitted that the respondent served his client with a notice of intention to sale the property in issue. He emphasized that a notice of intension to sale the property does not amount to a notice of default as required under Section 19 of the Mortgage Act. Counsel contended that the suit is premature and defective for lack of proper service.

With regard to issue two, Counsel submitted that the mortgage ought to be realized first before the guarantee is realized. He relied on Section 16 of the Mortgage Act and the case of William Sebuliba Kayongo & Another vs. Barclays Bank of Uganda HCMA NO. 325 of 2008 and stated that it does not matter whether there was a demand guarantee or not. The guarantee signed by the second applicant is an obligation collateral to a mortgage within the meaning of section 16 of the Mortgage Act. Counsel prayed court to allow the applicants unconditional leave to appear and defend the suit.

On the third issue, Counsel stated that the offer letter of July 2012 contained ambiguous terms and conditions especially in regard to interest which is contrary to the Contracts Act and the Bank of Uganda Financial Consumer Protection Guidelines, 2011. He submitted that the sum total of all the interest and fees to be paid by the applicants was more than 60% of the whole amount which was harsh and unfair.

In conclusion, Counsel contended that the applicants have a strong and tenable defence to the whole claim and prayed that court grant the application.

Counsel for the respondent opposed the application and stated that the 1^st applicant was served a default notice on the 18^th of October 2013 which it ignored. The respondent accordingly filed in High Court Civil Suit 75 of 2014 on 7^th February 2014.

Counsel for the respondent relying on the case of Geoffrey Gatete and Another Vs William Kyobe Supreme Court Civil Appeal No.7 of 2005 submitted that in an application for leave to appear and defend court has to determine whether the defendant has shown good cause to be given leave to defend.

Regarding issue one raised by Counsel for the applicant, Counsel submitted that as rightly put by applicants’ Counsel, Section 19(1) of the Mortgage Act, 2009 which is to the effect that where the money is secured by mortgage, a demand in writing shall create a default in payment. He further cited Section 21(1) of the Mortgage Act, 2009 which is to the effect that no action shall be commenced until the time for complying with the notice has expired. He stated that on the 18^th of October 2013, a notice of default was served on the 1^st applicant through its registered postal address P.O.Box 2529, Mbale. The suit was filed on the 7^th of February 2014 which is more than four months later.

On the second issue, Counsel submitted that a guarantee is defined according to Paget’s Law on Banking 11^th Edition as a promise to be liable for the debt or failure to perform some other legal obligation of another. He cited Halsbury’s Laws of England 4^th Edition, Volume 20, paragraph 215 which is to the effect that the plaintiff may join as defendants to the action on a guarantee all or any of the persons liable under it, whether their liability is joint and several. He submitted that under the guarantee deed which was executed between the respondent and the 2^nd and 3^rd applicants, it was agreed that the guarantee agreement was in addition and without prejudice to any other existing remedy.

On issue three, Counsel submitted that the respondent is a financial institution duly registered and regulated by the Bank of Uganda and the interest it charges is based on the prevailing Central Bank rate. He submitted that the applicants are estopped from challenging interest they agreed to having already taken benefit from the loan.

In conclusion, Counsel submitted that the applicants have failed to discharge the evidential burden placed on them to show reason why court should grant them leave to appear and defend. He added that the applicants neither denied indebtness nor the guarantee deeds executed by the 2^nd and 3^rd applicants. He prayed that the application be dismissed with costs to the respondent.

In rejoinder, Counsel for the applicants reiterated the earlier submissions stating that court is not overly concerned with the strength of the applicants’ defence but whether there is a prima facie defence set out by the applicant and whether the suit discloses triable issues.

Regarding issue one, Counsel submitted that the respondent alleged service of a default demand notice was not proved. He submitted further that Section 101 of the Evidence Act places the burden of proof on him that alleges a certain fact. He thus stated that the suit was prematurely brought and therefore be dismissed or at the very least, the applicants be afforded unconditional leave to appear and defend the suit.

On issue two, Counsel submitted that the guarantee is just an obligation collateral to a mortgage, which in no way stands on its own and cannot therefore be greater than the obligation of the mortgagor. He added that punishing the guarantors without exhaustion of all options against the mortgagor will not only be arbitrary in nature but against both justice and equity.

Finally, on the issue of interest Counsel submitted that the Central Bank interest rate has not gone beyond 30% since last year. He submitted that courts have refused to sanction excessive interest rates whether the same were negotiated between competent persons or not.

In conclusion, Counsel submitted that for justice to be served, court should be pleased to allow the application and orders sought.

Decision of Court

I have considered the application as well as the supporting affidavits and Counsel’s submissions. The principles applied by court under Order 36 rule 4 CPR in considering an application for leave to defend a suit now are well settled.

In the case of Maluku Interglobal Trade Agency Vs Bank of Uganda [1985] HCB 63 J Odoki (as he then was) held that;

“Before leave to appear and defend is granted, the defendant must show by affidavit or otherwise that there is a bonafide triable issue of fact or law. When there is a reasonable ground of defence to the claim the plaintiff is not entitled to a 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 court should not enter upon the trial of the issues disclosed at this stage.”

The applicants in this case raised issues which include;

1. Whether the suit is defective and premature for failure by the respondent to serve the applicants with a proper notice of default
2. Whether the respondent can realize both the mortgage and guarantees at the same time
3. Whether the contract is void for being unconscionable, ambiguous, and uncertain contrary to the law 

I have read through the submissions of both Counsel regarding the issues raised. In my view the issues raised touch both on fact and law. In my opinion, this requires further evidence since affidavit evidence cannot adequately address them. For instance looking at issue one, while Counsel for the applicants denies service of a default notice, Counsel for the respondent contends that it was served but no evidence was given to prove that fact.

 Additionally, there is already a dispute that relates to the interest charged by the respondent which the applicant argues to be unconscionable. My view is that court should be enabled to look at this in greater detail.

It is the duty of court at this level to establish whether there is a plausible defence.

It is my considered opinion that the issues raised constitute a required proof of plausible defence. Accordingly the applicant is granted leave to appear and defend the suit. The applicants shall file a written statement of defence within 7 days from the date of this ruling.

Costs of the application shall be in the cause.

I so order.

B. Kainamura

Judge

12.06.2015