Alpha international Investments Ltd v Nathan Kizito (High Court Civil Suit No. 131 of 2001) [2003] UGCommC 7 (21 April 2003)

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{\insrsid3879242 \chftnsepc \par }}\sectd \linex0\headery708\footery708\colsx708\endnhere\sectlinegrid360\sectdefaultcl\sectrsid473801\sftnbj {\footer \pard\plain \s16\ql \li0\ri0\widctlpar \tqc\tx4153\tqr\tx8306\pvpara\phmrg\posxr\posy0\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid2512924 \fs24\lang2057\langfe2057\cgrid\langnp2057\langfenp2057 {\field{\*\fldinst {\cs17\insrsid3879242 PAGE }}{\fldrslt { \cs17\lang1024\langfe1024\noproof\insrsid1836972 1}}}{\cs17\insrsid3879242 \par }\pard \s16\ql \li0\ri360\widctlpar\tqc\tx4153\tqr\tx8306\aspalpha\aspnum\faauto\adjustright\rin360\lin0\itap0\pararsid3879242 {\insrsid3879242 \par }}{\*\pnseclvl1\pnucrm\pnstart1\pnindent720\pnhang {\pntxta .}}{\*\pnseclvl2\pnucltr\pnstart1\pnindent720\pnhang {\pntxta .}}{\*\pnseclvl3\pndec\pnstart1\pnindent720\pnhang {\pntxta .}}{\*\pnseclvl4\pnlcltr\pnstart1\pnindent720\pnhang {\pntxta )}} {\*\pnseclvl5\pndec\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl6\pnlcltr\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl7\pnlcrm\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl8 \pnlcltr\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl9\pnlcrm\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}\pard\plain \s15\qc \li0\ri0\sb100\sa240\sbauto1\sl360\slmult1 \widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\ipgp1\pararsid1535516 \fs24\lang2057\langfe2057\cgrid\langnp2057\langfenp2057 {\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 THE REPUBLIC OF UGANDA \line IN THE HIGH COURT OF UGANDA AT KAMPALA \line [COMMERCIAL DIVISION] \line HICIC. S. NO. 131 OF 2001 \line ALPHA INTERNATIONAL INVESTMENTS }{\b\lang1033\langfe2057\langnp1033\insrsid1535516\charrsid473801 LTD:}{ \b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid1535516 ::}{\b\lang1033\langfe2057\langnp1033\insrsid1535516\charrsid1535516 ::::::::::::}{\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid1535516 :::::}{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 }{\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 PLAINTIFF \line VERSUS \line }{\b\lang1033\langfe2057\langnp1033\insrsid1535516\charrsid1535516 NATHAN}{ \lang1033\langfe2057\langnp1033\insrsid1535516 }{\b\lang1033\langfe2057\langnp1033\insrsid1535516 KIZITO::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::DEFENDANT \line \par }\pard \s15\ql \li0\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\ipgp1\pararsid1535516 {\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 BEFORE: }{ \b\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 THE HON. }{\b\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid1535516 LADY}{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 }{ \b\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 JUSTICE M. S. }{\b\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid1535516 ARACH}{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 - }{ \b\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 AMOKO \line JUDGMENT: }{\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \line }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The Plaintiff is a limited liability company and a licensed money lender. The Defendant is a Ugandan businessman. \line }{\lang1033\langfe2057\langnp1033\insrsid1535516 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The De}{\lang1033\langfe2057\langnp1033\insrsid1535516 fendant obtained a loan of Shs.5}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 m from the Plaintiff on 15/4/99. By a loan agreement dated 15/4/99, the Defend ant undertook to re-pay the loan within 3 months at an interest rate of 20% per month. He deposited his land title to land comprised in Private Mailo Block 337 Plot 274, at Mugogo, as security. \line }{\lang1033\langfe2057\langnp1033\insrsid1535516

\par }\pard \s15\ql \li0\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\ipgp1\pararsid14878443 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The Defendant defaulted in repaying the loan and the Plaintiff tiled this summary suit for Shs.16,450,000/}{\lang1033\langfe2057\langnp1033\insrsid1535516 =}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 being the amount of principal and interest due and owing as at 30/4/2000. The Defendants application for leave }{\lang1033\langfe2057\langnp1033\insrsid1535516 to appear and defend (Misc. Appl}{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 .}{\lang1033\langfe2057\langnp1033\insrsid1535516 }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 No. 132/2001) was dismissed for want of prosecution; and Judgmen t was entered for the full amount claimed. The Defendant then applied to set aside the Judgment and stay execution under 0.33 rule 11 of the CPR. The application was allowed partly and the Judgment was set aside in part. However, since the Defendant admit t}{\lang1033\langfe2057\langnp1033\insrsid1535516 ed obtaining the Shs.5}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 m loan, Judgment remained in that sum. The Defendant was granted leave to defend the rest of the claim. He filed a W. S.}{\lang1033\langfe2057\langnp1033\insrsid1535516 D disputing the interest of 20%}{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 per month on the ground that it is illegal and excessive and renders the transacti on harsh an unconscionable. He asked the Court to re-open the transaction and award interest at Court rate or such a rate that does not contravene the Money Lenders Act Cap 264 or as the Court may think just in the circumstances. \line }{ \lang1033\langfe2057\langnp1033\insrsid1535516 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The parties did not call evidence. They simply filed submissions on the basis of the law. Mr. Bamwite, learned counsel for the Plaintiff submitted that the interest of 20% per month which is actually 240% per annum is excessive and violates S.13 of the Money Lender Act Cap 264 of the laws of Uganda}{\lang1033\langfe2057\langnp1033\insrsid1535516 . According to Halsbury}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \rquote s Laws of England Edition volume 27 page 30 }{ \lang1033\langfe2057\langnp1033\insrsid1535516\charrsid473801 Para}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 80 where a money lender contravenes the provisions of the Money Lenders Act, the transaction is unlawful and any contract which forms part of it is void and confers no rights. Section 26 of the CPA also gives powers to the Court to intervene in an agreement where interest is harsh and unconscionable. The purpose of this provision is to guard against unjust enrichment. \line He cited the case of }{ \b\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 C. P. LALOBO -Vs BUGANDA BUTCHERIES }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 (1947) 14 EACA 12 where the interest rate of 48% p.a was held to be harsh and unconscionable and was reduced to 24% p.a, and the case of }{\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 BAGOKA -VS- KIBWAIJANA }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 [1976] HCB 338 where interest was reduced from 48% to 10%}{\lang1033\langfe2057\langnp1033\insrsid1535516 , to support his submissions. \line }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \par Applying these principles, learned counsel for the Defendant invited the Court to re open the transaction between the Plaintiff and the Defendant and proposed the rate of 10% p.a. \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 In respect of costs, Mr. Bamwite submitted that the costs of the proceedi ngs should be borne by the Plaintiff because the loan agreement is tainted with illegality. It has charged the Defendant Shs.25,000/ as Administrative fees. This violates S.19 of the Act which prohibits charges or expenses on loans whether administrative or otherwise. \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid4090633\charrsid473801 Mrs.}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 Basaza Wasswa learned counsel for the Plaintiff submitted that the Court has discretionary powers to re open a money lending transaction under the provisions sections 12 & 13 of the Act and that 24% per annum is only a bench mark. I respe ctively agree with her submission. Section 12 & 13 provide in part as follows: \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }\pard \s15\ql \li720\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin720\itap0\ipgp1\pararsid4090633 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \'93 12 (1) Where proceedings are taken in any Court by a moneylender for the recovery of any money lent after the commencement of this Act, or the enforcement of any agreement or security made or taken after the commencement of this Act, in respect of money lent either before or after the commencement of this Act, }{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 and there is evidence which satisfies the Court that the interest charged in respect of the sum actually lent is excessive, or that the amounts charged }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 for expenses, inquiries, fines, bon}{ \lang1033\langfe2057\langnp1033\insrsid4090633 us, premium, renewals or any }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 other charges, are excessive, and that, in either case, }{ \ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 transaction is harsh and unconscionable, }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 or is otherwise such that a Court of equity would give rel ief, the Court may reopen the transaction, and take an account between the money-lender and the person sued, and may, notwithstanding any statement or }{\lang1033\langfe2057\langnp1033\insrsid4090633\charrsid473801 settlement}{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 of account or any agreement purporting to close previous dealings and create a new obligation, reopen any account already taken between them, }{ \ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 and relieve the }{\ul\lang1033\langfe2057\langnp1033\insrsid4090633\charrsid473801 person}{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 sued from payment of any sum in excess of the sum adjudged by the Court to be fairly due in respect of such principal, interest and charges, as the Court having regard to the risk and a ll the circumstances, may adjudge to be reasonable; and if any such excess has been paid, or allowed in account, }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 by the debtor, may order the creditor to repay it; and may set aside, either wholly or in part, or revise or alter any security given or agreem ent made in respect of money lent by the security money-lender, and if the money-lender has parted with the security may order him to indemnify the borrower or other person sued.\'94 \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \'9313 (1) Where, in any proceedings in respect of any money lent by a money-l ender after the commencement of this Act or in respect of any agreement or security made or taken after the commencement of this Act in respect of money lent either before or after the commencement o}{\lang1033\langfe2057\langnp1033\insrsid4090633 f this Act, it is found that }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 the interest charged exceeds the rate of }{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 twenty - four per centum }{ \ul\lang1033\langfe2057\langnp1033\insrsid4090633 per annum, or the corresponding}{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 rate }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 in respect of any other period, the Court shall presume for the purposes of section 12 of this Act, that the interest charged is excessive and that the transaction is harsh and unconscionable, but this }{ \ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 provision shall be without prejudice to the powers of the Court under that section where the Court is satisfied that the interest charged, although not ex}{ \ul\lang1033\langfe2057\langnp1033\insrsid4090633 ceeding twenty-four per centum p}{\ul\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 er annum, is excessive.\'94 }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \line (underlining is mine for emphasis) \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }\pard \s15\ql \li0\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\ipgp1\pararsid4090633 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The discretionary powers must however be exercised Judicially. \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 Mrs. Basaza Wasswa has maintai}{\lang1033\langfe2057\langnp1033\insrsid4090633 ned that the interest rate of 20}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 % per month charged by the Plaintiff in this case is not harsh or unconscionable and is justifiable and warranted because of the followin}{\lang1033\langfe2057\langnp1033\insrsid4090633 g circumstances and factors: \line }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }\pard \s15\ql \fi-720\li720\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin720\itap0\ipgp1\pararsid4090633 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 1. }{ \lang1033\langfe2057\langnp1033\insrsid4090633 \tab }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 When the Money Lenders Act which came into force in 1952; a lot of circumstances and factors present in Uganda today did not exist then. The standard and cost of living, the standards of competit ion and sophistication of business, the risks in business, inflation in the value of money, operational costs of business and the level of unscrupulous and bogus money borrowers etc render the 24% p.a as the bench mark of excessive interest rates inordina tely too low and out of keeping with prevailing modern circumstances. \line \par 2. }{\lang1033\langfe2057\langnp1033\insrsid4090633 \tab }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The interest charged is calculated on simple not compound basis, unlike in commercial banks. \line }{ \lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 3. }{\lang1033\langfe2057\langnp1033\insrsid4090633 \tab }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The rate of the dollar has gone up since April 1999. The money loaned has lost value. \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 4. }{\lang1033\langfe2057\langnp1033\insrsid4090633 \tab }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The Defendant is estopped from denying the agreement. He signed or well knowing the terms. He took the money and enjoyed it and he now comes to take refuge in Court. He ought to come to Court with clean hands. \line }{ \lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 5. }{\lang1033\langfe2057\langnp1033\insrsid4090633 \tab }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 The Defendant borrowed the money fo r speculative purposes. He has sold the school for which he borrowed the money. The chances of the Plaintiff recovering the money have greatly reduced. \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }\pard \s15\ql \li0\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\ipgp1\pararsid4090633 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 In the alternative, learned counsel for the Plaintiff prays that Court allows a rate of }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid4090633 15%}{\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 per month if it is inclined to re-open the transaction. \line }{\lang1033\langfe2057\langnp1033\insrsid4090633 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 Now upon careful consideration of the law, the authorities cited }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid4090633 by}{ \b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 both learned counsel, and their submissions, I must say that, I am not persuaded by the reasons given by learned counsel for the Plaintiff as justification for the }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid4090633 20% }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 per month (240% per annum) interest rate. }{\lang1033\langfe2057\langnp1033\insrsid4090633 I instead agree with Mr. Bamwite\rquote }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 s submission that the interest charged in respect of the transaction between the two parties is not only excessive and harsh, but it renders the transaction unconscionable. \line }{ \lang1033\langfe2057\langnp1033\insrsid1836972 \par }\pard \s15\ql \li0\ri0\sb100\sa240\sbauto1\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\ipgp1\pararsid14878443 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 It is true that Money Lenders Act Cap 264 on }{ \lang1033\langfe2057\langnp1033\insrsid1836972 1}{\lang1033\langfe2057\super\langnp1033\insrsid1836972\charrsid1836972 st}{\lang1033\langfe2057\langnp1033\insrsid1836972 /}{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid1836972 1952}{ \b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 adopted the benchmark of 24% p.a, not per month. However, even at that time, the legislators were not oblivious to the fact that the rates would keep on changing in keeping with changi}{\lang1033\langfe2057\langnp1033\insrsid1836972 ng }{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 circumstances in the business world such as inflation, competition and risks. They therefore provided in section 13 that the rate would be \'93 24 per centum per annum or the corresponding rate in respect of any other period\'94 and that the provisions of SJ3 are \'93 without prejudice to the powers of the Court under that section where the Court is satisfied that the interest charged, although not exceeding twenty - four per centum per annum, is excessive.\'94 \line }{\lang1033\langfe2057\langnp1033\insrsid1836972

\par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 In other words, the legislator put the 24% per annum as a benchmark, but the Court could interfere subject to the prevailing rate of the period in question. Under S.13, the Court can actually interfere with the interest rate even if it is lower than the 24% depending on the circumstances. In the Lalobo cas e , the rate was reduced from 48% p.a to 24% p.a. It is possible that the Defendant as a lay person was not aware of the provisions of the Money Lenders Act when he signed the loan agreement. Quite often, people resort to loans in desperate situations. They

do not bother to find out the legal implications of their actions first. Fortunately for the Defendant, provisions of Money Lenders Act referred to are clear. There is a guide as to the interest to be charged in transactions under the Act. It protects the

category of persons in which the Defendant falls. Taking into account the rate charged by commercial financial institutions which is now between 18 - 20% p.a, I find that the rate of 24O% is excessive and very harsh. There is no justification for it in te rms of data or reports carried out by similar money lending institution. It is contrary to S.}{\lang1033\langfe2057\langnp1033\insrsid1836972 13 of the Money Lenders Act. \line }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \par I therefore exercise the discretion under S.12 and re-open the transaction. I think \line the rate of 24% p.a is fair in the circumstances. The full Judgment is in favour of \line the Plaintiff in this case therefore: \line 1. Shs.5m principal. \line 2. Interest at rate 24% p.a from 15/4/99 till payment in full. \line 3. Costs of the suit. \line }{\lang1033\langfe2057\langnp1033\insrsid1836972 \par }{\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 M. S. Arach - Amoko \line }{\b\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 JUDGE \line }{\lang1033\langfe2057\langnp1033\insrsid1836972 22.04.03}{ \lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \par }\pard\plain \ql \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid14878443 \fs24\lang2057\langfe2057\cgrid\langnp2057\langfenp2057 {\lang1033\langfe2057\langnp1033\insrsid13724767\charrsid473801 \par }}