Cairo Bank Uganda Limited v Hualong Energy Company Limited (Miscellaneous Cause 39 of 2023) [2023] UGCommC 241 (6 December 2023)

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL COURT DIVISION) **MISCELLANEOUS CAUSE NO 0039 OF 2023**

## CAIRO BANK UGANDA LIMITED:::::::::::::::::::::::::::::::::::: **VERSUS**

## HUALONG ENERGY COMPANY LIMITED:::::::::::::::::::::::::RESPONDENT

# **BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI**

#### **RULING**

This Miscellaneous Cause was brought by way of Notice of Motion under Order 52 rules 1 & 3 of the Civil Procedure Rules(CPR), sections 20(d), 24 (1) & (2), 44(1), (2), (3), (4) & (5) of the Security Interest in Movable Property Act and section 33 of the Judicature Act for orders that;

- a) The Respondent should grant vacant possession to the Applicant or their authorized agents of the properties that are subject to debenture and mortgage securities dated 13<sup>th</sup> and 11<sup>th</sup> June 2019 respectively securing the Respondent loan with the Applicants to wit land and development comprised in LRV 4474, folio 8 at Lungala Mpigi and plant and machinery for recycling engine oil. - b) The Applicant forthwith be authorized to take over vacant possession of the properties securing its loan to the Respondent to enforce recovery of the loan by sale at the best available cost. - c) Costs of this Application be provided for.

The Notice of Motion was supported by the affidavit of Mr. Peter Okio Olal, the Head of credit of the Applicant.

The Respondent did not file any reply to the Notice of Motion despite being served with court process as confirmed in the afiidavit of service of Balyegisa Charles, an approved process server of the Court.

#### **BACKGROUND**

The Applicant advanced a loan facility of five billion shillings to the Respondent and the same was secured by debentures and mortgages over machinery and property comprised in LRV 4474 Folio 8 at Lungala in Mpigi District. The Respondent defaulted on the payment of the loan with an outstanding balance of Ugx 1.336,318,319/=. The Applicant issued a notice of default to the Respondent requiring them to pay the outstanding loan balance within 45 days. A demand notice was further issued by the Applicant's lawyers and a notice of sale was subsequently issued after the property was advertised on the Daily Monitor newspaper. The Respondent did not respond to all the notices that were served on them. The Applicant finally wrote a letter to the Respondent requesting vacant possession which was ignored. Thus this Application to the Court.

#### **REPRESENTATION**

The Applicant was represented by M/s KSMO Advocates. The Respondent was not represented and neither was their representative present during the hearing.

#### **SUBMISSIONS**

Counsel for the Applicant brought it to the attention of the court that the Respondent was served and an affidavit of service was on record and prayed that the court allows them to proceed exparte which prayer was granted.

Counsel submitted that the Respondent obtained a loan facility from the Applicant worth five billion Uganda shillings which was secured by debentures and mortgages over machinery and property comprised in LRV 4474 Folio 8 at Lungala Mpigi District and the Respondent in the payment of the loan has an outstanding balance of Ugx 1,336,318,319/= which continues to accrue at an interest rate of 19% per year. He contended that the Applicant has made several demands, and issued notices of default and sale of the loan securities to the Respondent for the repayment of the loan to no avail. The Applicant intends to conduct a sale of the pledged properties to recover the outstanding loan but requires vacant possession to facilitate an inspection by prospective buyers and a smooth sale and handover of the properties by the buyers. The Applicant has approached the Respondent for purposes of handing over possession and to facilitate foreclosure but the requests have been ignored as a basis for this Application.

Counsel further averred that under section 47 of the Security Interest in Movable Property Act, a secured creditor can obtain orders of the court to permit him to take

possession of the security for purposes of the sale especially where there are circumstances that would indicate that taking possession would not be possible without breaching the peace and the fact that the Respondent ignored the Applicant's various demands is sufficient ground for court to allow and grant vacant and peaceful possession. Counsel cited section 20(d) of the Mortgage Act and stated that it allows a mortgagee to enter into possession of mortgaged land where there is a default in payment by the borrower and prayed for the orders they are seeking to be granted.

#### RULING

I have read the pleadings and listened to the submissions of counsel for the Applicant.

The Respondent was not present in court on the 6h November 2023 during the hearing. The Applicant prayed to proceed with the hearing exparte after submitting that the Respondent was served and an affidavit of service is on record. court verified that service was indeed made and an affidavit of service was filed on record and accordingly granted the Applicant their prayer to proceed exparte.

The main issue for determination is whether an order to take over vacant possession should be granted to the Applicant

Section 19 (1) of the Mortgage Act provides that where money secured by <sup>a</sup> mortgage is made payable on demand, a demand in writing shall create a default in payment. Secondly, under section l9 (2) where the mortgagor is in default of any obligation to pay the principal sum on demand or any interest or other relief payment or part of it under a mortgage, or in the fulfillment of any common condition, express or implied in the mortgage, the mortgagee may serve to the mortgagor notice in writing of the default and require the mortgagor to rectifu the default within <sup>45</sup> working days.

The law gives remedies and powers to a mortgagee upon default and issuance of <sup>a</sup> notice of default in the sections discussed below.

Section 20(d) and (e) of the Mortgage Act give the mortgagee the power to enter into possession of the mortgaged land; or sell the mortgaged land where the mortgagor is in default and has failed to comply with the notice issued under section 19 of the Mortgage Act.

Section 26 of the Mortgage Act provides that where the mortgagor is in default of his or her obligations under the mortgage and remains in default after the expiry of

\s

the time provided for the rectification of the default stipulated in the notice served on him or her under section 19, a mortgagee may exercise his or her power of sale of the mortgaged land.

I must note that the exercise of the power of sale by a mortgagee under the Mortgage Actsections 19,20,and26isnotprecededbyanorderofthecourtbutisastatutory power of sale based on compliance with the prescribed procedure. The prescribed procedure has inbuilt statutory safeguards that ensure sufficient notice to interested parties and faimess.

In the present case, the Applicant and the Respondent executed a mortgage deed on the 11s of June 2019 marked as Ernnexure Cl in which a legal mortgage was created in favor of the bank that agreed to grant an overdraft facility of 740 million Uganda shillings and USD 100,000 and this was secured by the Respondent's property on LP. V 4474, Folio 8 at Lungala in Mpigi district. This interest was entered as an encumbrance on the Respondent's certificate of title on the 9th January 2020.

As required by the Mortgage Act, when there was a default by the Respondent, the Applicant issued a notice ofdefault marked as annexure F to the Respondent on the 25'h November 2022 requiring them to pay the outstanding loan balance within 45 days.

A demand notice dated the 6s February 2023 attached to the record also indicates that the Applicant through their lawyers demanded the payment of the outstanding loan within 7 days.

A notice of sale was subsequently issued by the Applicant and attached as annexure H to the affidavit in support. The mortgaged property was subsequently advertised in the Daily Monitor newspaper on 14n March 2023 and the Applicant wrote a letter to the Respondent marked as annexure J dated the 20th March2023 requesting them to render vacant possession of the property.

A mortgagee is under obligation to the court to prove entitlement under the Mortgage Act by proving that it has complied with the statutory provisions provided for under sections 19 and26 of the Mortgage Act.

In the present case the Applicant has demonstrated that they complied with the legal requirements under the Mortgage Act. They have duly established that there was a default by the Respondent and a period of45 days was given for the rectification of the default to no avail.

TN

It should also be noted that the Applicant and Respondent executed a debenture marked as annexure B1 that was registered with the Registrar of Companies on the 30<sup>th</sup> January 2020 where the bank advanced an overdraft facility of Ugx $740,000,000/=$ and USD 100 to the Respondent and the Respondent charged all its undertakings, tools, equipment, machinery, apparatus, etc. Most of the properties charged are moveable properties and thus the appropriate law that deals with them is the Security Interest in Movable Properties Act, 2019.

Section 44 of the Security Interest in Movable Properties Act provides for the rights of a secured creditor upon default as discussed below.

## Section 44(1) of the Security Interest in Movable Properties Act provides that:

"Where a debtor defaults on the obligation to pay or where another event of default occurs, the security interest becomes enforceable".

Section 44 (3) of the Security Interest in Movable Properties Act places a duty on the secured creditor thus:

"Where a debtor defaults to perform a secured obligation, the secured creditor shall serve on the grantor a notification, in writing or in other form agreed between the parties, to pay the money owing or perform and observe the agreement as the case may be".

Section 44 (5)(a) of the Security Interest in Movable Properties Act provides that:

"Where the debtor does not remedy the default within the time period indicated in the notification, the secured creditor may in case of a security interest perfected by registration, register a default and enforcement notice with the registrar".

Section 47 of the Security Interest in Movable Properties Act allows a secured creditor to take possession of the collateral after default without court order where the secured creditor gives notice of default and notice to take possession to the grantor or the person in possession of the collateral and possession can be taken without the breach of peace.

On perusal of the record and as discussed above, a default notice was duly given to the Respondent and they never complied and responded to the notice.

Similarly, a letter attached as annexure J was written to the Respondent requesting vacant possession of the property which was ignored.

I am inclined to agree with Counsel for the Applicant that a court order granting vacant possession is necessary and the absence of it may cause a breach of peace.

I hereby grant an order of vacant possession in favor of the Applicant concerning land and developments comprised in LRV 4474, Folio 8 at Lungala Mpigi District.

Costs of this Application shall be borne by the Respondent.

Om Batative

HON. LADY JUSTICE ANNA B. MUGENYI DATED...................................