THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO. 677 OF 2014

JOASH BBALLAH KATURAMU & 2 OTHERS::::::::::::::::::::::::::::APPLICANTS

VERSUS

STANDARD CHARTERED BANK (U) LTD:::::::::::::::::::::::::::::::::RESPONDENT

BEFORE THE HON. MR. JUSTICE HENRY PETER ADONYO

RULING

1. Back ground:

This is an application brought by way of Notice of Motion under Order 36 rule 4 and order 52 rules 1 and 3 of the Civil Procedure Rules for orders that;

1. The applicants be granted unconditional leave to appear and defend the suit.
2. The costs of this application be provided for.

It is supported by the affidavits of the applicants all deponed to on the 4^th day of August, 2014.

The main grounds of the application are contained in the aforementioned affidavit and are that;-

1. The respondent has varied the original terms of the contract by releasing part of the collateral security without their notice and consent contrary to the law and has withheld and hidden from the applicants some of the information relating to the principle debt.
2. The applicants executed the guarantees under mistake and are thus not liable on the same.
3. The applicants intend to file a counter claim against the applicant by which they shall seek to be released from the guarantees in question.
4. Based on the above the applicants have a defence that raises definite triable issues of law and fact that warrant this court to grant them leave to appear and defend the suit.
5. It is fair and in the interest of justice that this application be granted.

2. The position of the Law:

Time and again, it has been held by the courts that an applicant for leave to appear and defend must show that there is triable bonafide issue.  This is the sum interpretation of Order 36 rule 4 of the Civil Procedure Rules and the celebrated case  of Maluku Inter global Trade Agency Limited versus Bank of Uganda [1985] HCB 65 is educative in this respect and such an applicant is , however, is not required, at this stage,  to show that he has a good defence on the merits but must satisfy the court that there is  in issue or question  matters in dispute which ought to be tried between the parties for the court to resolve all matters in dispute between the parties. The court is not obliged to try at that moment.

3. The Merits and demerits of this Application:

Relating this to the instant matter, the Applicants, in my view raised two substantial grounds in support of their application and theses are that Respondent in its action had varied the original terms of the contract when it released part releasing part of the security for the loan in question without notice and consent to the guarantors of the loan and that this was contrary to the law. This fact is as seen from the Applicants in all their paragraphs 3 of the affidavits that a loan of Ug. Shs. 1,650,000,000= (Shillings One Billion six Hundred Fifty Million only was granted to Ms. J.B.K Excel Enterprises Ltd by the Respondent and they stood  sureties to the same and at the same time provided securities in that respect but deposes again in all their paragraph 6 of their affidavits in support of the application and which is confirmed by paragraph 7 of the affidavit in support  that  the respondent released the core security of the loan i.e. Block 244 plot 4062 Muyenga to M/s Mary Major Company Ltd without consulting them. Interestingly, paragraphs 11(P), 11(q) and 11(V) of the Affidavit in reply confirm this position.

Additionally, the Applicants state that the respondent was not truthful to the court in that while it is now claiming that an amount of Shs. 749,536,283= (Shillings Seven Hundred Forty Nine Million Five Hundred Thirty Six Thousand Two Hundred Eighty Three only) was outstanding, the affidavit in support of the plaint shows that current debt of the applicant was Ug. Shs. 1,650,000,000= (Shillings One Billion Six Hundred Fifty Million only).

The Applicants therefore submits that since there was a material modification of the terms of the loan agreement with the principal debtor when Ms Mary Major Company Ltd was allowed to withdraw its security without their consent, then that unilateral action of the respondent discharged them guarantors on the basis of the holding in the case of Patel versus National & Grindlays Bank Ltd 1968 3 ALR Comm 249,  since there was alteration of the dealing giving rise to different debt from that which was guaranteed making the guarantor to be discharged. The Applicant then suggests that on this one ground alone the court ought to investigate the issues between the parties by granting the applicant’s leave to appear and defend the suit.

The other ground raised by the Applicants as seen in their  paragraph 4 of the affidavit in support of this application is that their  signing of the guarantee was made under mistake in that the respondent delayed in processing the loan with the applicants being hurriedly called  to sign the loan facility letter and other documents of which they had not comprehended their  legal import since they had not been given time to read the said documents thoroughly and understand with even the option to seek independent legal advice hence rendering the contract voidable making it one of the main reason why the applicants would wish to file a counterclaim in that respect for an order to have to be released from their obligations as sureties .

The Respondent on the other hand submits that its case was  based on a summary suit for recovery of money arising out of personal guarantees executed by the applicants who in its view  were attempting to stop the enforcement of personal guarantees yet all of them were directors of the principal debtor to the respondent which had  applied for and got a loan facility upon which certain terms were agreed upon, including that the fact of the main security being a  legal mortgage over land known as Block 244 plot 4062 in the names of Mary Major and also another similar legal encumbrance over plot 26 Alexandria Street in the names of Gladys Mwaguhya and over plots 31 and 29 Kogere Road Kasese and a debenture over all the assets of JBK Excel Enterprises Ltd. That these were the reasons why the respondent gave the loan facility and with that the Applicants encumbered themselves as guarantors when they bound themselves jointly and severally to pay and satisfy the bank on demand for all sums of money which the principal debtor would be liable to in the sum of UGX 1,650,000,000/= (Uganda Shillings One Billion, Six Hundred and Fifty Million) yet when applicants were called upon as guarantees to redeem the default by the principal debtor only Mary Major Company approached the Respondent and agreed to the sale of the property mortgage to the Respondent in order to reduce the outstanding liabilities of the principal debtor so as to extinguish its obligations and other liabilities.

The position of the law in regard to an application of this nature is contained in Order 36 Rule 4 of the Civil Procedure Rules SI 71-1 which provides that;

Order 36 Rule 4

“An application by a defendant served with a summons in Form 4 of Appendix A for leave to appear and defend the suit shall be supported by affidavit, which shall state whether the defence alleged goes to whole, or to part only, and if so, to what part of the plaintiff’s claim, and the court also may allow the defendant making the application to be examined on oath. For this purpose the court may order the defendant, or in the case of a corporation, any officer of the corporation, to attend and be examined upon oath, or to produce any lease, deeds, books or documents, or copies of or extracts from them. The plaintiff shall be served with notice of the application and with a copy of the affidavit filed by a defendant.”

The criteria to be considered by a court entertaining an application for such was clearly laid down by Court of Appeal of Uganda in Kotecha versus Mohammed [2002] 1 EA 112 and cited by Justice Irene Mulyagonja [as she then was] in the case of Sembule Investments Ltd versus Uganda Baati Ltd HCMA 0664 of 2009 that a defendant who has an arguable defence must be given the opportunity by the court to state when such an applicant discloses a good defence.

In the instant matter, the respondent states that the Applicants had no such good defence since they do not disclose triable issues. I would beg to differ from this contention by the respondent. It is clear to me that parties to a contract are bound by the terms of such a contract and where there is manifestly any variation in the implementation of such a contract, the parties must either agree to such variations or show by their actions that they signify to such variation. It is evident to me that the applicants through their affidavits raise issues which require inquiry into for they aver that when the loan was being processed, a delay did occur and when subsequently it matured, the applicants were hurried to signify their guaranteeing of the loan giving them no time to not only read thoroughly the loan facility documents but also to seek other  legal advice to get the import of the documents they were signing to be matters which goes to the root of the matter requiring an inquiry into the same by the court to establish the truth or not of the Applicants assertions. This is even made more relevant by the assertion that material terms of the contract were changed without notice and hence giving more weight to the need for inquiry into the whole matter.

While it may be true or not that it was within the respondent’s discretion of whether or not to release the Mary Major Company Limited from the obligations under the guarantee without releasing the other guarantors, it is clear to me that the court ought to give parties the opportunity where dispute arise as to what terms of contract they entered into so that they parties concerned are able to prove to the satisfaction of the court the veracity of such undertakings. In the instant matter, the applicants are stated to have been guarantors to the obligations of JBK Excel Enterprises Ltd which got a loan facility from the respondent and the legal position is that a person who issues a guarantee must of necessity honor it according to the terms of such a guarantee but where such a party disputes as to the terms, then it becomes a dispute which requires the court to make a judicial inquiry into in order to arrive at the truth of the assertions.

The instant matter is such a case as the applicants clearly have shown that there are triable issues which require investigations.

In the premises therefore, I am satisfied that the Applicants have made a case for leave to appear to defend this matter.

4. Order:

Leave is therefore granted for the Applicants to appear and defend this matter with costs to be in the cause.

I do so order accordingly.

Henry Peter Adonyo

Judge

3^rd December, 2014