THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL COURT DIVISION)
MISCELLENOUS APPLICATION NO. 627 OF 2014
(Arising out of Civil Suit 483 of 2014)
M/S JOB CONNECT (U) LTD:::::::::::: APPLICANT/DEFENDANT
VERSUS
DFCU BANK LIMITED:::::::::::::::::::: RESPONDENT/PLAINTIFF
BEFORE HON. LADY JUSTICE HELLEN OBURA
RULING
This is an application for leave to appear and defend Civil Suit No. 483 of 2014
brought under Order 36 rule 3 and 4 and 0rder 52 rules 1 and 2 of the Civil
Procedure Rules, S.1.71-1 (CPR). It is supported by the affidavit of Doreen
Mwesigye, who is stated to be the director in the applicant company. The grounds
of the application as I glean from the affidavit in support and affidavit in rejoinder
are; firstly, that the respondent continued to charge interest on the loan amount
even after the applicant had instructed it not to do so due to its failure to pay the
loan which amounts to fraud and breach of contract, secondly, that the respondent
delayed for almost a year to sell the security after the applicant advised it to do so
which amounts to negligence and resulted to accumulation of a huge debt to it,
thirdly, that the respondent continued to charge interest on a non-existent debt after
the security was sold and the money recovered and lastly, that the security was
sold at an under value hence leaving an outstanding loan value.
This application was opposed by the respondent on the grounds stated in the
affidavit in reply sworn by Mr. Ruva Edmond Raphael who is stated to be working
as the Special Assets Management Executive of the respondent bank. The gists of
the grounds in so far as are relevant to the issue under contention are that the
applicant acquired an overdraft facility of Ushs. 70,000,000/= with interest which
was secured by a mortgage over property whose value the parties mutually agreed
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as at the time of the mortgage was Shs. 20,000,000/= (open market) and Shs.
15,000,000/= (forced sale). A copy of the valuation report was attached and
marked “D”. It is stated further that when the facility expired the outstanding sum
immediately became due and payable without further notice or demand but the
applicant continued the default and interest continued to accrue. A notice of default
was duly sent to the applicant with a demand that the same be rectified within 45
days. The applicant acknowledged default and on 19th September 2012 the
respondent gave the applicant 21 working days notice of sale of the mortgaged
property. It is further averred that the respondent advertised the mortgaged
property for sale three times in the Monitor Newspapers of 10th October 2012, 29th
November 2012 and 15th July 2013. Some photocopies of newspaper
advertisements were attached and marked “F”, “G” & “H”.
The deponent further contends that the respondent carried out another valuation of
the mortgaged property which put its open market value at Ushs. 40,000,000/= and
forced sale value at Ushs. 23,000,000/= but the property was sold Ushs.
35,000,000/= and the proceeds only covered recovery costs and part of the debt
owed leaving an outstanding balance of Ushs. 131,533,158/= as per the copy of the
applicant’s statement of accounts which was attached and marked “J”. The
deponent averred that the interest charged by the respondent was its contractual
rights as provided under clauses 6.1 and 6.2 of the overdraft facility agreement.
Furthermore, based on the advice of the respondent’s counsel, that sale of the
mortgaged property was conducted within the law and the realization of security
offsetting only part of a debt does not release the debtor from liability for the
outstanding part of the debt. It was therefore concluded that the respondent’s claim
is legal and the application does not disclose a bona fide triable issue of law or fact
and the applicant does not have any defence whatsoever to the respondent’s claim.
An affidavit in rejoinder was filed by Doreen Mwesigye who reiterated what was
stated in the affidavit in support with more emphasis on the continued charging of
interest. The respondent was also faulted for not responding to the applicant’s
letters at least to communicate its decision to continue charging interest.
When this application came up for hearing, the applicant was represented by Mr.
Patrick Machika Mugisha and the respondent by Mr. Robert Okalang. Both
counsels filed written submissions based on the above grounds. The applicant’s
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counsel contended that the application raises several triable issues, namely;
1. Whether the respondent/plaintiff acted negligently in going ahead to charge
interest on the overdraft facility without responding to the applicant’s
requests;
2. Whether it was proper/lawful for the respondent to go ahead and charge
interest on the overdraft facility after selling the security;
3. Whether the respondent breached its duty of care in delaying to sell as
instructed and in failing to notify the applicant of the outstanding balance on
the overdraft facility after sale.
It was argued by counsel for the applicant that his client was always willing to
settle its debt obligation after receiving notification of the outstanding balance after
sale but the respondent never did so and just continued to charge interest with
malicious intention of accumulating the debt to the detriment of the applicant. He
contended that the applicant also contests the amount claimed on the ground that it
includes penal interest and the applicant also contests the rate of interest applied.
The applicant’s counsel concluded his submission by praying that the application
be granted since it raises issues of law and of fact which must be submitted to a
full trial.
I must point out at this point that the submission of counsel for the applicant that
the applicant contests the amount claimed on the ground that it includes penal
interest and the contention that the applicant also contests the rate of interests came
from the bar because it is not supported by the applicant’s evidence as contained in
both the affidavit in support and that in rejoinder. I will therefore disregard those
submissions because they prejudice the respondent’s case and are against the
general principle that evidence cannot be given from the bar.
In reply to the applicant’s submissions, counsel for the respondent raised two
issues namely;
1) Whether the applicant's application for leave to defend is competent.
2) If the application is competent, whether the applicant discloses a bona
fide triable issue of law or fact.
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On the first issue, counsel submitted on a point of law regarding the validity of the
affidavit in support of the application. He pointed out that 0.36 r 4 of the C.P.R
clearly provides that when the Defendant is served with summons, such defendant
shall make an Application for leave to appear and defend that suit and that
application shall be supported by an affidavit. He submitted that the legal and
mandatory requirement is that there must be an application which must be
supported by an affidavit. The affidavit must not therefore be defective and if it is
defective, then there is no application and judgment is thus entered.
He argued that the instant application is supported by a defective affidavit and as
such the application is incompetent and ought to be struck out and judgment
entered under 0.36 r 3 of the CPR for lack of an application for leave to appear and
defend. His ground for stating so is that the supporting affidavit was commissioned
on the 22/7/2014 purportedly by a Commissioner of Oaths called Augustine
Ssemakula who as at that date was by law not a Commissioner for Oaths for reason
that he had been suspended from legal practice for two years by the Law Council
Disciplinary Committee in the case of Ssemakula Augustine vs. The Disciplinary
Committee of Law Council, H.C. M.C No. 356 of 2013 and as such that
"affidavit" is fundamentally defective and is not an affidavit in law and ought to be
struck out.
Counsel for the applicant argued that it is trite law that an affidavit must be sworn
before a Commissioner for Oaths. He submitted that a Commissioner for Oaths is
defined under section l of the Commissioner for Oaths (Advocate) Act as an
appointed practising advocate and section l (4) thereof clearly states that every
commission shall immediately terminate on the holder ceasing to practice as an
advocate. He supported his argument by the case of Professor Syed Hug vs. The
Islamic University of Uganda S.C.C.A No. 47/1995, where the Supreme Court
held that when an advocate is suspended from practice, his commission to practice
as Commissioner for Oaths is terminated.
He argued that, therefore, this means that by 22/7/2014, when Mr. Ssemakula
purported to commission the affidavit in the instant case, he was under suspension
and as such his commission had got terminated and he could not therefore
competently commission any affidavit. He concluded that in the circumstances, the
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affidavit in support is illegal and once illegally is brought to the attention of court
it overrides all factors, pleadings and even consents and court cannot sanction
and/or condone an illegally. (See the case of Makula International vs. His
Eminence Cardinal Nsubuga (1982) HCBII). He argued that consequently,
this application is not supported by a valid affidavit as required by law and it
collapses and ought to be dismissed with costs and judgment as prayed for in the
plaint be entered in favor of the Plaintiff.
On the second issue, counsel submitted that it's a settled principle of law that
before leave to appear and defend is granted, the applicant / defendant must show
by affidavit that there is a bona fide triable issue of fact or law as was held in
Maluku Interglobal vs Bank of Uganda (1985) HCB 65. He argued that the
applicant in this case does not disclose any triable issue pointing out that the
respondent’s continued charging of contractual interest on the outstanding balance,
does not raise a triable issue because interest is a contractual obligation.
Counsel also argued that it is a well settled principle of law that a party to a
contract cannot unilaterally vary it. He submitted that the applicant, at
paragraph 3 of its affidavit in support, admits to executing the overdraft facility
agreement attached to the respondent's plaint and taking the money thereafter.
He quoted clauses 6.1 and 6.2 of the said facility agreement which provide for
charging of interest on the amount owed until it is paid in full and argued that the
applicant could not therefore unilaterally vary its contractual obligation to pay
interest on the amount outstanding as it had no legal basis to instruct the
respondent not to charge interest. Furthermore, that the respondent was not obliged
to comply with that instruction.
On the applicant’s claim that the respondent was wrong to go ahead and charge
interest after realizing the security, counsel maintained that the realization of
security does not absolve the debtor of the obligation to settle the balance
outstanding where the security is insufficient to cover the entire sum owed.
He submitted that the respondent at all times informed the applicant of the sums
owed as seen in annextures "D" and ".E" of the respondent's affidavit in reply,
among other various notifications given to the applicant who was always aware
that the sum owed exceeded the value of the security which was valued upon the
joint instructions of the applicant and respondent and its open market value was
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Shs. 20,000,000/= and forced sale value of Shs. 15,000,000/=.
On the alleged sale of the mortgaged property below its market value, counsel
submitted that the respondent auctioned the security at Ushs. 35,000,000/=, a price
over and above its value including its forced sale value under the subsequent
valuation and the proceeds covered only the costs of recovery and a small portion
of the debt owed by the applicant. He contended that the respondent was entitled to
charge interest on the sum outstanding as provided for in clauses 6.1 and 6.2 of the
overdraft facility agreement executed by the parties and so this issue too does not
merit consideration at trial.
On another note, counsel for the respondent had issues with the applicant’s
introduction of a new defence in its affidavit in rejoinder which had not been stated
in the affidavit in support and other new issues in the submissions that were neither
in the affidavit in support nor in the rejoinder. The alleged new defence in the
affidavit in rejoinder is that the respondent delayed to sell and as such was
negligent. The ones in the submission are the allegation that the respondent failed
to notify the applicant of the balance outstanding after the sale and the intended
contesting of the rate of interest charged and the interest clauses in the overdraft
facility. He submitted that the respondent is greatly prejudiced by the addition of
the new allegations in the said affidavit in rejoinder which it has no opportunity to
respond to. He urged this court to either disregard the supposed affidavit in
rejoinder or disregard the offending paragraphs, specifically paragraphs 4 and 6.
On new the matters raised in the submissions, counsel for the respondent submitted
that his client did not have opportunity to address them in the affidavit in reply as
they were not part of the evidence and as such the respondent would be greatly
prejudiced if this court decided this application basing on counsel’s evidence at the
bar. He argued that if the applicant intended to rely on them he should have raised
them in his application and not in the submissions.
In response to the alleged new defence raised in the affidavit in rejoinder, but
without prejudice to the foregoing protest, counsel submitted that it is trite law that
a mortgagee is at liberty to choose when to sell the security and the only duty the
mortgagee owes to the mortgagor is to obtain the true market value of the
mortgaged property at the moment he chose to sell it as was stated in Cuckmere
Brick Co. vs Mutual Finance Ltd (1971) Ch 949.
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Counsel contended that in this case the respondent gave the required notices and
thereafter immediately commenced on the sale and advertised the property thrice.
The subsequent re- advertisements were as a result of offers at the earlier auction
failing to materialize and also the offers being low. Furthermore, that the
respondent always informed the applicant whenever a sale fell through and the
property was to be re-advertised for sale. He submitted that the respondent finally
sold the mortgaged property over and above its value.
I have carefully considered the above submissions as well as looked at the
application with the affidavits and the plaint in the main suit. Before I delve into
the merits of this application, I will first deal with the question of law
canvassed by counsel for the respondent on the validity of affidavit in support
of this application.
It is contended that the affidavit in support is incurably defective because it was
commissioned by a commissioner for oaths whose commission had terminated
upon being suspended from legal practice by the Law Council Disciplinary
Committee. Counsel for the applicant in reply submitted that the respondent did
not provide evidence of suspension of the advocate to this court in terms of the
ruling by the Law Council Disciplinary Committee and the gazette notice and so it
remains a mere allegation. He also argued that even if this court were to find that
the affidavit is incurably defective it would not make the application it purports to
support incompetent because according to counsel, it is not mandatory that an
application brought under order 36 rule 4 of the CPR must be supported by an
affidavit. He argued further that the word shall used in the rule is merely directory
because the rule does not state the effect of failure to support an application with
an affidavit. This position was supported by the decision of Tsekooko JSC in
Mukasa Anthony Harris vs. Dr. Bayiga Michael Philip Lulume (SC) Election
Petition Appeal No. 18 of 2007. Counsel for the applicant urged this court to
overrule the objection on the above grounds with costs as there is no evidence to
support it.
It is not disputed that the applicant’s affidavit was commissioned by Mr. Augustine
Ssemakula but the only issue I see is whether or not he had been suspended from
legal practice at the time he commissioned the affidavit and, if so, whether the
application can stand without the affidavit in support. It is indeed true that the
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respondent did not provide proof of Mr. Ssemakula’s suspension beyond the
citation of the case in respect of which he was allegedly suspended. In view of this
serious question of law can this court just fold its hands and merely agree with
counsel for the applicant that since no evidence of the suspension had been
provided the objection cannot stand?
I would say no because questions of illegality are so serious that they require
further investigation and action by courts of law. In that spirit I did come across
the case of Standard Chartered Bank (U) Ltd vs. Mwesigwa Geoffrey Philip
HCMA No. 477 of 2012 arising from HCMA No. 22 of 2011 and HCCS No. 30 of
2010 where the issue of Mr. Semakula’s suspension was raised and ample
evidence of his date of suspension was provided before Hon. Justice Christopher
Madrama who had this to say in his findings and conclusion of the matter:“The Respondent cannot run away from the import of the
submissions of his own lawyers and the binding Supreme Court
authority of Prof Syed Huq Versus the Islamic University in
Uganda Supreme Court Civil Appeal Number 47 of 1995,
graciously supplied to the court. For now the letter of the Chief
Registrar gives the information that Augustine Ssemakula was
suspended from practice as an advocate for a period of two
years with effect from 31 August 2012 and this letter was
relied upon by the Respondent’s counsel. I agree with the law
which is binding on me and would only consider the affidavit in
support of the application by Counsel Paul Kuteesa and
disregard affidavits commissioned after 31 August 2012….”
It is abundantly clear from that ruling that Mr. Ssemakula Augustine was
suspended from legal practice for a period of two years with effect 31 st August
2012. It therefore follows that any affidavit purportedly commissioned by him
during the period of his suspension would be incurably defective and court can
only strike it out. The affidavit in support of this application was commissioned by
Mr. Ssemakula on 22nd of July 2014 a month and nine days before the period of his
suspension lapsed on 31st August 2014. In the circumstances, I find that the
affidavit in support is incurably defective and it is accordingly struck out thereby
leaving the application unsupported.
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The next question is therefore whether the notice of motion can stand without an
affidavit in support as argued by counsel for the applicant. The answer to this
question is found in the wealth of authorities that dealt with incurably defective
affidavits. They include, among others; Jayantilal Amratlal Bhimji & Another vs
Prime Finance Company Ltd, Misc. Application No. 467 of 2007; Kaingana vs
Dabo Boubou [1986] HCB 59 and Attorney General vs Kilembe Mines Ltd &
Another, Misc. Application No. 702 of 2008)
In Kaingana v Dabo Boubou (supra) it was held that:“Where an application is grounded on evidence by affidavit, a copy
of that affidavit intended to be used must be served with the action.
In such a case, the affidavit becomes a part of the application. The
Notice of Motion cannot on its own be a complete application
without the affidavit. Therefore in the instant case the Notice of
Motion alone was not enough”. [Emphasis mine].
Following the above authorities, I find that this application is incompetent without
the supporting affidavit and cannot stand. I have considered the misconceived
submission of the applicant’s counsel based on the decision in Mukasa Anthony
Harris (supra) and I wish to categorically state that the interpretation of provisions
of the law stated in that case is not applicable to Order 36 rule 4 of the CPR which
expressly spells out what needs to be stated in the affidavit in support of the
application.
The mischief intended to be addressed by Order 36 rule 4 is granting an
application for leave to appear and defend a suit when actually there is no defence
to the claim. The purpose of requiring an application for leave to appear and
defend a summary suit to be supported by an affidavit is for the applicant to
provide evidence that would convince court that indeed there is an arguable
defence to the claim by the plaintiff which merits a full trial. That is why rule 4 of
Order 36 mandatorily requires the affidavit to state whether the defence alleged
goes to the whole or to part only, and if so, to what part of the plaintiff’s claim. It
is therefore the firm view of this court that if counsel for the applicant’s dangerous
arguments were to be upheld the mischief would remain and that would defeat the
whole concept of summary suits under Order 36 whose rationale was stated by the
Court of Appeal of East Africa in the case of Zola v Ralli Brothers Ltd [1969] EA
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691 at 694 in the following words:“Order 35 is intended to enable a plaintiff with a liquidated
claim, to which there is 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 which application is made considers that there is any
reasonable ground of defence to the Claim the plaintiff is not
entitled to Summary Judgment.”
That court was considering the Kenya equivalent of our Order 36 of the CPR under
which this application is brought. When you do away with the strict requirement
for affidavit in support that states the defence then all applications would have to
be granted since there would be no basis for granting some and rejecting others
and the purpose of summary suits would not be served.
For the above reasons, I find that applications under Order 36 rule 4 are grounded
on evidence by affidavit and therefore an affidavit is a mandatory requirement.
Any application that does not comply with that requirement like the instant one
would be incompetent and I so find. In the result, this application would be struck
out with costs.
Be that as it may, I have decided to consider the merits of the application based on
the assumption that it is supported by a valid affidavit and as such it is valid. I did
so for avoidance of multiplicity of proceedings just in case for some reason the
above decision is set aside and the applicant decides to again apply for leave to
defend the suit on the basis that this application was not determined on the merits.
It is indeed a settled principle of law that before leave to appear and defend is
granted, the applicant / defendant must show by affidavit that there is a bona fide
triable issue of fact or law. This has been repeatedly restated in a number of cases
including Maluku Interglobal (supra) cited by the respondent’s counsel. It is
therefore the duty of the applicant to satisfy this court that there is an issue or
question in dispute which ought to be tried.
I have looked at the grounds of this application and the alleged issues that need to
be tried and I am not persuaded that they merit wasting courts time to hear them.
First of all, the allegation that the respondent continued to subject the outstanding
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debt to interest yet they had received the money through the sale of the security is
misconceived because as long as the loan amount had not been fully paid the
respondent was at liberty to continue charging the contractual interest as clearly
spelt out in clauses 6.1 and 6.2 of the Overdraft Facility offer letter dated 28th
March 2011 whose terms and conditions the plaintiff’s directors Ms. Doreen
Mwesigye and Ms. Annet Barlow accepted by appending their signatures thereto
on the 30th of March 2011. I therefore do not see any issue for trial as regards the
continued charging of interest after a sale that did not realize fully the outstanding
debt.
Secondly, on the alleged continued charging of interest on the loan by the
respondent after the applicant had allegedly instructed it to stop doing so, I find it
quite ridiculous that the applicant could even raise such an argument moreover
with the help of a lawyer who ought to know better that a party to a contract cannot
just unilaterally issue an instruction to the other party to stop doing what the
parties had agreed on. If at all the applicant wanted to negotiate waiver of the
interest it could not merely write to the respondent and expect it to just comply. It
would have taken trouble to initiate meetings with the respondent to discuss the
matter. Therefore, it can only fault the respondent if they had negotiated and
agreed on waiver of the interest and the respondent again reverted back to the
original position. Absence of that agreement, the applicant cannot treat its letter of
request to the respondent as an instruction which was not followed. I therefore do
not find any merit on this ground that would require a trial.
Thirdly, on the alleged sale of the security at an under value, I have not seen the
basis for alleging so. It is not in dispute that the value of the property as at June
2009 was Shs. 20,000,000/= (open market) and Shs. 15,000,000/= (forced sale).
This was ascertained by a valuation exercise in which the applicant’s director and
registered proprietor of the mortgaged property Ms. Doreen Mwesigye is stated in
the report to have been present when the inspection of the property was done by
the valuer. In clause 12.0 of that report it was stated that the estimated market
value of the property on completion of the boys quarters would be Shs.
40,000,000/=. There is no evidence that the boys quarters was completed but four
years later another valuation was done after the applicant had cleared the
respondent to sell the security to realize its money and the open market value was
stated to be Shs. 40,000,000/= while the forced sale value was found to be Shs.
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23,000,000/=. The respondent then sold it at Shs. 35,000,000/= way above the
forced sale value but slightly below the open market value.
Surely, can it be said that this property was sold at an under value? It is also quite
interesting that the applicant merely wrote to the respondent to sell without even
bothering to find out the then market value. If indeed this property was of more
value than what the respondent obtained would not the applicant have sought to
participate in the sale? To my mind the applicant was not very keen because it
knew that the property would not fetch that much money beyond the known value
and that is why it even requested to know the balance to be paid after the sale.
Besides, the applicant has not attached any document either in terms of valuation
report with a higher value or offers to buy the land at a higher price to try and
convince this court that the sale was at an under value. For the above reason, I
would find that the issue of under value is devoid of any merit and cannot be a
ground for granting this application.
Finally, on the alleged delay to sell which amounts to negligence, I have looked at
the applicant’s letter dated 15th June 2012 by which she requested the respondent
to sell the mortgaged property if they failed to make some payments in the
following months. The letter did not specify the month but said following months
implying that the respondent was to expect payments at least for some months
before it could sell. Indeed the respondent waited for some months and on 19th
September 2012 it issued a notice of sale of the mortgaged property to recover the
debt. The applicant replied on 23rd September 2012 and stated in paragraph one of
that letter that:- “We are in receipt of a notice that you will be selling mortgaged
property as agreed in the meeting”. It can be deduced from that sentence that the
parties had met and agreed on selling the property before the notice was issued.
What followed according to paragraph 8 of the affidavit in reply and the
annextures thereto was advertisement of the property in the newspaper of 10 th
October 2012 less than a month after the notice was issued. Other advertisements
were made in November 2012 and July 2013 and the property was finally sold on
16th October 2013. The respondent explained that it did not merely delay to sell but
the offers were either too low or there was none and that is why the earlier
advertisements did not yield any sales. Would one therefore blame the respondent
for delaying to sell the mortgaged property under those circumstances and should
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court sit to hear the main suit on that ground? I would say no because there is
obviously no basis for the allegation.
On the whole, even if this application had not been found to be incompetent I
would have still been inclined to find no merit in it because all the alleged issues
for trial are a mere sham. It does not raise any arguable case of illegality in the sale
by the respondent and, or the charging of the contractual interest before and after
the sale because loans continue to accrue the contractual interest until it is fully
paid unless agreed otherwise by the parties.
However, since I had already made a finding and conclusion on the point of law,
this application stands struck out with costs for being incompetent and judgment as
prayed for in the summary pliant is entered for the respondent/plaintiff.
I so order.
Dated this 5th day of February 2015.
Hellen Obura
JUDGE
Ruling delivered in chambers at 3.30 pm in the presence of Mr.Stuart Ahebwa h/b
for Mr. Patrick M. Mugisha for the applicant and Mr. Robert Okalang for the
respondent.
JUDGE
05/02/2015
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