JAS Ventures International Limited v Atuhaire (Civil Suit 676 of 2021) [2025] UGCommC 29 (18 March 2025)


# **IN THE HIGH COURT OF UGANDA SITTING AT KAMPALA COMMERCIAL DIVISION**

Reportable Civil Suit No. 0676 of 2021

In the matter between

#### **JAS VENTURES INTERNATIONAL LIMITED PLAINTIFF**

**And**

**ATUHAIRE JULIET DEFENDANT**

### **Heard: 1st July, 2022. Delivered: 18th March, 2025.**

*Money Lenders - section 26 of The Civil Procedure Act - section 86 of The Tier 4 Microfinance Institutions and Money Lenders Act - unconscionable rate of interest - A rate of interest that is considered to be excessive as compared to prevailing market interest rates, if not justified by the fact that the nature of the loan in issue carries an unusually high risk, is prima facie usurious - this court has a discretion to award interest at less than the contractual rate, when that rate is manifestly excessive or unconscionable.*

*The law of contract - Procedural unconscionability refers to the process by which an agreement is reached and the form of an agreement - the court analyses whether the contract possesses an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice - With substantive unconscionability, the focus of the court's analysis is to determine two important aspects: whether the term is one-sided and whether the term has an overly harsh effect on the disadvantaged party - the test is whether the terms that are so one-sided, unjust, or oppressive that they "shock the conscience" of the court, making enforcement unfair.*

## **JUDGMENT**

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#### **STEPHEN MUBIRU, J.**

#### The plaintiff's claim;

[1] The plaintiff is a duly licensed money lending company. By an agreement dated 1st April, 2021 the defendant obtained a loan in the sum of shs. 40,000,000/= repayable within four months at an interest rate of 17.5% per month. As security for the repayment of the loan, the defendant offered the plaintiff her title deed to land comprised in Kyaddondo Block 184 Plot 1224. The defendant having defaulted on her obligation, the plaintiff filed summary suit against her for the recovery of 86,000,000/= then outstanding as at 8th October, 2021, whereupon the defendant filed an application for leave to appear and defend the suit. The court on 10th February, 2022 entered partial judgment in the acknowledged sum of shs. 26,000,000/= and granted the defendant leave to defend the rest of the claim. It is the plaintiff's claim that the defendant still owes it a sum of shs. 60,000,000/-= with interest and costs, the defendant having made a payment of shs. 14,000,000/= on 14th April, 2022.

#### The defence to the claim.

[2] In her defence, the defendant contended that the loan was obtained for a term of one year expiring on 1st April, 2022. The loan was to be repaid in instalments, provided payment in full was realised by 1st April, 2022. Although she executed the loan agreement, she was never given a copy. She was able to have access to the content only after being served with the plaintiff's pleadings and was surprised to find that the loan period had been altered to four months. The rate of interest of 17.5% per month is harsh, excessive and unconscionable. The contract is therefore unenforceable.

### The questions for determination;

[3] At the scheduling conference conducted by Court on 12th May, 2022 the following issues were agreed upon by the parties for determination, namely;

- 1. Whether the money lending agreement is lawful. - 2. Whether or not the interest claimed by the plaintiff under that agreement is recoverable. - 3. What remedies are available to the parties?

### The submissions of counsel for the plaintiff;

[4] Counsel for the plaintiff submitted that the loan agreement was partially performed by the defendant, leaving an outstanding balance of shs. 46,000,000/=, excluding the partial judgment. The rate of interest claimed is based on the contractual terms.

#### The submissions of counsel for the defendant;

[5] For unexplained reasons, Counsel for the defendant were not in court when the defence came up for hearing on 1st July, 2022 after two previous adjournments; 12th May, 2022 and 10th June, 2022 granted for that purpose. The defendant opted not to adduce evidence despite the Court inviting her to do so, whereupon the Court directed closure of the defence and issued a schedule for filing of final submissions. The defendant still opted not to file any final submissions.

#### The decision;

[6] In all civil litigation, the burden of proof requires the plaintiff, who is the claimant, to prove to court on a balance of probability, the plaintiff's entitlement to the relief being sought. The plaintiff must prove each element of his or her claim, or cause of action, in order to recover. In other words, the initial burden of proof is on the plaintiff to show the court why the defendant is liable for the relief claimed. Generally, the plaintiff in the instant suit must show: (i) the existence of a contract and its essential terms; (ii) a breach of an obligation imposed by the contract; and (iii) resultant damages.

#### **First issue;** whether the money lending agreement is lawful.

- [7] According to order 6 rule 3 of *The Civil Procedure Rules*, in all cases in which the party pleading relies on any misrepresentation, fraud, breach of trust, wilful default or undue influence, and in all other cases in which particulars may be necessary, the particulars with dates shall be stated in the pleadings. When a defendant raises the defence of illegality, asserting that a claim or contract is unenforceable because it is based on or involves illegal conduct, the particulars of the illegality ought to be specified. The defendant must outline the specific illegal acts or circumstances. pleading particulars in detail is meant to define with clarity and precision to issues or questions which are in dispute between the parties and are to be determined by court (see *Interfreight Forwarders (U) Limited v. East African Development Bank [1994-1995] HCB 54* and *Iddi Ouma and another v. Uganda National Roads Authority and two others, H. C. Civil Suit No. 159 of 2018*). - [8] In paragraph 5 (l) of the written statement of defence, the defendant pleaded that the contract is illegal by reason of charging an interest rate of 17.5% per month. *The Tier 4 Microfinance Institutions and Money Lenders Act, 2016* did not at the time of the contract, specify the interest rate that should be charged. Section 86 (2) only provided that where a borrower defaults to pay the sum payable to the money lender on the due date, the moneylender is entitled to charge simple interest on that sum from the date of default until the sum is paid. The section however prohibited compound interest. A money lending contract is illegal and unenforceable if it directly or indirectly provides for the payment of compound interest; or the rate or amount of interest being increased by reason of a default in the payment of sums due under the contract. In the instant case, the parties agreed on that rate and it was not in violation of any statutory provision. The issue is accordingly answered in the affirmative; the money lending agreement is lawful.

## **Second issue;** whether or not the interest claimed by the plaintiff under that agreement is recoverable.

- [9] The defendant contends that the rate of interest of 17.5% per month is harsh, excessive and unconscionable, and therefore the contract is unenforceable. One of the fundamental principles of the law of contract is freedom of contract, which allows a person to decide when, with whom and on what terms to contract with another. This liberty though is not absolute. Several limitations are placed on the exercise of this right. For example, equity grants relief against contractual terms that are oppressive (unequal or one-sided exchanges) or unconscionable. If a contract is shown to be inequitable and unconscionable, a court of equity will not enforce it. Section 89 (1) of *The Tier 4 Microfinance Institutions and Money Lenders Act, 18 of 2016* empowers courts to reopen money lending transactions where the interest charged in respect of the sum actually lent is excessive, the transaction is harsh and unconscionable, or the transaction is such that a court of equity would give relief. - [10] "Unconscionability" applies to a contract or contractual provision that is so unfair or oppressive to one party that no reasonable or informed person would agree to it. An unconscionable contract or provision leaves one party with no real, meaningful choice and is unreasonably advantageous to the other party, usually due to the other party's superior bargaining power. The purpose and justification of the doctrine is to protect the weaker party to a contract from the possibility that the stronger party abuses that power and writes the terms of the contract to its sole advantage. It in essence addresses victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in inequitable circumstances; in breach of reasonable standards of commercial practice. - [11] This means that the lender's conduct must be extremely unfair or unreasonable. The doctrine does not seek to undo a contract upon the mere existence of an unequal bargaining position or a bad bargain by one of the parties. Consequently,

an unconscionable contract or clause has been defined as one that "no man in his senses and not under delusion would make on the one hand and as no honest and fair man would accept on the other" (see *Pelfrey v. Pelfrey 487 SE 2d 281, 284 (Va Ct App 1997*). The unconscionable character of a contract or clause will only be accepted in those cases that are "so outrageous and unfair in its wording or its application that it shocks the conscience or offends the sensibilities of the court" (see *Adams v. John Deere Co 774 P 2d 355, 357 (Kan Ct App 1989*).

- [12] Courts look at a number of factors when determining whether a contract is unconscionable, including the disparate bargaining power of the parties, whether one party was more sophisticated than the other, and whether the agreement was a contract of adhesion (a contract where the relevant terms have not been subject to effective negotiation between the parties). Courts also scrutinise the contract provisions to determine whether they are oppressive, unfair, or overly harsh. A court may refuse to enforce an unconscionable contract, or it may void the unconscionable clause and enforce the remainder of the contract, or it may enforce the contract but limit an unconscionable clause's application to avoid an unconscionable result. - [13] Five factors normally present in a case of unconscionability, as classically understood; (1) the weaker party is under a significant disability; (2) the stronger party knows or ought to know of the disability; (3) the stronger party has victimised the weaker in the sense of taking advantage of the weaker party's disability, either by active extortion of the bargain or passive acceptance of it in circumstances where it is contrary to conscience that the bargain should be accepted; (4) there is a marked inadequacy of consideration and the stronger party either knows or ought to know that to be so; (5) there is some procedural impropriety either demonstrated or presumed from the circumstances. - [14] Therefore, a contract which is negotiated in good faith, with no knowledge (or reasonable knowledge) of incapacity on the part of the other party, is not voidable

for unconscionability (see *Hart v. O'Connor [1985] 1 AC 1004)*. In determining whether a term in a loan agreement satisfies the requirement of good faith, regard must be had in particular to the following matters: (i) the strength of the bargaining positions of the parties; (ii) whether the borrower had an inducement to agree to the term; (iii) whether the loan was advanced at the request of the borrower; and (iv) the extent to which the lender has dealt fairly and equitably with the borrower. In cases where a creditor has knowledge of facts which render the presence of undue influence not only possible, but probable, the creditor must insist on independent advice.

[15] Clauses in a contract that have been obtained unconscionably will be struck out as void. To have a transaction set aside as a harsh and unconscionable bargain, a party would have to show not only that the terms of the transaction were harsh or oppressive, but also moral unfairness. Browne-Wilkinson J in *Multiservice Bookbinding Ltd v. Marden [1978] 2 All ER 489; [1979] Ch 84*, said;

> In my judgment a bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience.

[16] In assessing whether relief should be granted, all circumstances of the case should be considered, including the degree of mutuality. Where it is an arm's length commercial transaction upon which each party had received legal advice, the court will not intervene (see *Knightsbridge Estates Trust Ltd v. Byrne [1939] 1 Ch 441; [1939] Ch 441*). The conditions required to establish the defence of unconscionability in the enforcement of a document are as follows: (a) a grossly unfair and improvident transaction; (b) a victim's lack of independent legal advice or other suitable advice; (c) an overwhelming imbalance in bargaining power caused by the victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and (d) the other party's knowingly taking advantage of this vulnerability (see *Phoenix Interactive Design Inc. v. Alterinvest II Fund L. P., 420 D. L. R. (4th) 335*). There must be both procedural and substantive unconscionability. "A bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say in a way which affects his conscience" (see *Multiservice Bookbinding Ltd v. Marden [1978] 2 All ER 489, [1979] Ch 84*).

- [17] Procedural unconscionability refers to the process by which an agreement is reached and the form of an agreement (see *Cityland and Property (Holdings Ltd) v. Dabrah [1968] Ch 166*). Here, the court analyses the existence of oppression and surprise over the innocent party. Oppression will exist if there is an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the supposedly agreedupon terms are hidden in a prolix printed form drafted by the party seeking to enforce them. - [18] For example, in *Indianapolis Morris Plan Corp. v. Sparks, 132 Ind. App. 145, 172 N. E.2d 899 (1961)*, an instrument of guaranty signed by husband and wife when a note secured by a chattel mortgage was executed, did not guarantee a loan for a much larger amount to the husband individually. The agreement made each spouse the agent of the other, waived any demand for payment of a subsequent loan, provided for costs and attorneys' fees, waived the necessity for the mortgagee to resort to legal remedies, and ratified all subsequent acts of the other spouse. The court found the guarantee ripe for abuse and limited its application to the note with which it was executed. The court stated that;

where one party has taken advantage of another's necessities and distress to obtain an unfair advantage over him, and the latter, owing to his condition, has encumbered himself with heavy liability or an onerous obligation for the sake of a small or inadequate present gain, equity will relieve him.

[19] Multiple criteria have been considered by the courts to determine if a contract is procedurally unconscionable. Some of the most important criteria are: a) the way the contract was agreed upon by the parties (could the party negotiate the content of the contract? Was the agreement an adhesion contract?); b) the bargaining power of the parties (was one of the parties economically or legally stronger than the other?), c) the availability of a meaningful choice for the party alleging unconscionability at the time when the contract was agreed upon; d) whether the clauses were offered on a "take it or leave it basis," e) whether the party claiming the unconscionable character of the contract or clauses, considering his or her education or lack thereof, had the ability and reasonable opportunity to understand the terms of the contracts; and f) whether the relevant terms were hidden in a maze of fine print.

- [20] With substantive unconscionability, the focus of the court's analysis is to determine two important aspects: whether the term is one-sided and whether the term has an overly harsh effect on the disadvantaged party. In other words, the court analyses whether the clauses of the agreement are unreasonable and unfair, or if the provision unreasonably favours the party asserting it. The court must evaluate all the circumstances on an objective basis, considering the reasonable expectations of the average person entering into such an agreement. - [21] Considering the procedural unconscionability perspective, the court analyses whether the contract possesses an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice. Although a contract can be held valid and enforceable even if there is a substantial difference in the bargaining powers of both parties, exercise of a superior bargaining power can lead to the inclusion of abusive clauses in the contract. A contractual term which is not individually negotiated may be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the weaker party. - [22] An absence of meaningful choice by the disadvantaged party is often used to prove unfair bargaining. Procedural unconscionability raises questions about whether the weaker party truly understood the contract that he signed, or about whether he had any |meaningful choice in the matter. In the instant case, the defendant did not adduce evidence of the circumstances claimed to have created procedural unconscionability. Considering the low level complexity of the transaction, the position of the defendant as the proprietor of multiple business concerns, I find that the defendant had the experience and capacity, if anything was unclear, to seek clarification from the plaintiff before signing. She was not vulnerable to an extent that undermined the agreement she entered into. She was knowledgeable about the financial transaction and knew about the risks involved. There is no evidence to show that any amount of pressure was applied to her as was capable of overcoming her free will. At all time, the defendant was acting freely and voluntarily and not under undue influence, duress, intimidation, or inducement of the plaintiff or any other person. The plaintiff did not take advantage of the defendant's ignorance of the totality of the circumstances, since none existed.

- [23] A contract is most likely to be found unconscionable if both unfair bargaining and unfair substantive terms are shown. While both must be present, the two elements will not necessarily possess the same intensity. Concerning substantive unconscionability, the test is whether the terms that are so one-sided, unjust, or oppressive that they "shock the conscience" of the court, making enforcement unfair. The task of the court is to analyse the terms of the contract, focusing on the fairness of the term in dispute. In determining substantive unconscionability, courts evaluate the fairness and reasonableness of the contract terms in light of the parties' circumstances, industry standards, and public policy considerations. Charging usurious interest rates, i.e. interest rates exceeding legal limits, is generally illegal and considered a practice of unfairly enriching the lender, and hence an incidence of substantive unconscionability. - [24] The expression "usury rate" refers to a rate of interest that is considered to be excessive as compared to prevailing market interest rates. In effect it is lending money at an unreasonably high rate of interest. The line between a usurious

interest rate and a merely high interest rate is the subject of some controversy. High interest rates may be justified by the fact that the loan in issue carries unusually high risk or involves a high-risk borrower, where in spite of the interest being excessive, it would not be an unfair transaction because of the special circumstances justifying the rate of interest actually charged. Interest rates are subject to prevalent market conditions; to supply- demand economics etc. A hard and fast rule cannot be laid down to say that interest above a particular rate is usurious. Whether the rate of interest charged is unfair or not depends upon the circumstances of the case, with reference to the prevailing market lending rate and on the economy of the country in general. Judicial notice cannot be taken of interest rates. Evidence has to be introduced to show the prevalent interest rates at the period of the contract for the Court to conclude that the rate claimed is usurious.

- [25] On the other hand, predatory lending involves the imposing of unfair, deceptive, or abusive loan terms on borrowers. Predatory lenders often use aggressive sales tactics and take advantage of borrowers' lack of understanding of financial transactions. Through deceptive or fraudulent actions and a lack of transparency, they entice, induce, and assist a borrower to take out a loan at a cost that is extremely above the market rate, which they will not reasonably be able to pay back. Predatory lenders take advantage of either the borrowers' circumstances or their lack of knowledge. Typical targets include people whose inadequate income leads to regular and urgent needs for cash to make ends meet and the less educated. - [26] Interest rates have a bearing on the credit risk. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations; the risk that a lender may not receive the owed principal and interest, which results in an interruption of cash flows and increased costs for collection. Credit risks are calculated based on the borrower's overall ability to repay a loan according to its original terms. Credit risk can be measured by: credit history, capacity to repay,

capital, the loan's conditions, and associated collateral. If there is a higher level of perceived credit risk, lenders usually demand a higher rate of interest for their capital. Interest rates on secured loans tend to be higher than on unsecured loans. The majority of lenders with higher lending rates tend to have higher nonperforming loans and a small market share. Other factors are the size of the lending institution, the size of the economy and costs lending institutions incur to stay running which in turn requires a high level of profitability to generate the return on capital that the shareholders require. This being a private lending transaction, the defendant had to adduce evidence showing that the private lending market rate was less than 17.5% per month at the time.

[27] According to the Bank of Uganda "*Bank Lending Survey Report First Quarter - FY 2020/2*1" (at

https://www.bou.or.ug/bou/bouwebsite/bouwebsitecontent/statistics/Bank\_Lendin g\_Survey\_Reports/2021/Sep/Bank-Lending-Survey-Report-Q1-FY2020\_21.pdf), in January 2020, the industry average lending rates were at 20.06% percent and it had dropped to 17.2 percent in June, 2020. The plaintiff's rate of 17.5% per month (translating into 210% per annum) applied in the agreement dated 1st April, 2021 therefore appears to be significantly higher, in fact over ten times higher, than the average commercial bank market rate of 20%. Such a high interest rate may not be justified considering the fact that being secured by a land title, the loan in issue did not carry an unusually high risk and neither is there evidence to show that there was a reasonable basis to classify the defendant, at the time of the borrowing, as a high-risk borrower. In November 2024, Uganda's Ministry of Finance capped interest rates for money lenders and Tier 4 Microfinance Institutions at 2.8% per month (33.6% annually) under *The Tier 4 Microfinance Institutions and Money Lenders (Prescription of Maximum Interest Rate) Notice*, Legal Notice No. 21 of 2024, aiming to protect borrowers from predatory lending practices.

- [28] A rate of interest that is considered to be excessive as compared to prevailing market interest rates, if not justified by the fact that the nature of the loan in issue carries an unusually high risk, is *prima facie* usurious. A high risk loan is one involving a borrower who does not have a solid track record of repaying debts, which could make default on the loan more likely, yet the debt is unsecured. A high risk borrower is one who has a history of failing to meet financial obligations on time, who as a result is likely to fail to make timely payments in the future. To protect against that, a high-risk loan comes with an extremely high interest rate such that if only partial repayment is made, the big-figure interest will help the lender recoup some of the loss. - [29] To assess the creditworthiness of a borrower, the lender usually considers; the payment history of the borrower, the borrower's current level of indebtedness, and the categories of current debt (such as mortgages, personal loans, unpaid bills, etc.). A high interest rate may be justified where the analysis reveals that the borrower is not financially responsible when it comes to money and credit management, for example where it is shown that the borrower has a history of multiple defaults on different credit products from several different lenders. In the instant case, although the credit was unsecured, there is no evidence to show that the defendant was a high risk borrower as to justify a rate of interest that was significantly above the prevailing market interest rates. There being no evidence to show that the credit arrangement involved an unusually high risk or a high-risk borrower, I therefore find the 17.5% per month rate of interest imposed on the defendant was usurious in the circumstances. - [30] Consequently, although I have not found evidence of procedural unconscionability, there is ample evidence of substantive unconscionability in this contract regarding the rates of interest imposed on the defendant that justify this court's intervention on equitable grounds. In *Francis Kiyaga v. Josephine Segujja and another, C. A. Civil Appeal No. 37 of 2010* when the Court found the rate of interest of 20% per month unconscionable, invoking its powers under section 26 of *The Civil*

*Procedure Act*, it reduced it to 20% per annum. Similarly, in *Attorney General v. Dr. Major (Rtd.) Anthony Jallon Okullo, C. A. Civil Appeal No. 207 of 2016* the trial court reduced the contractually agreed rate of compound interest of 24% per annum to 15% per annum. On appeal, when the Court found the rate of compounded interest of 15% per annum on a dollar award of general damages harsh and unconscionable, invoking its powers under section 26 of *The Civil Procedure Act*, it reduced it to 6% per annum. In *Alice Okiror and another v. Global Capital Save and another, H. C. Civil Suit No. 149 of 2010* when the Court found the rate of interest of 12% per month unconscionable, invoking its powers under section 26 of *The Civil Procedure Act*, it reduced it to 25% per annum. Lastly, in *Juma v. Habibu [1975] 1 EA 108*, the Court having found that an interest rate of 5% percent per month, equivalent to 60% p.a. charged in a mortgage deed was unreasonable, it reduced it to 12% p.a.

- [31] By virtue of section 26 of *The Civil Procedure Act*, and section 86 of *The Tier 4 Microfinance Institutions and Money Lenders Act, 18 of 2016,* this court has a discretion to award interest at less than the contractual rate, when that rate is manifestly excessive or unconscionable. The time when the amount claimed was due is the date from which interest should be awarded. In determining a just and reasonable rate, courts take into account "the ever rising inflation and drastic depreciation of the currency. A Plaintiff is entitled to such rate of interest as would not neglect the prevailing economic value of money, but at the same time one which would insulate him or her against any further economic vagaries and the inflation and depreciation of the currency in the event that the money awarded is not promptly paid when it falls due" (see *J. K Patel v. Spear Motors Ltd, S. C. Civil Appeal No. 4 of 1991*). - [32] I consider for this purpose that the plaintiff is in the money lending business in an arm's length contract of borrowing. The prevailing commercial bank market rate of interest at the time of the contract averaged at around 20% per annum. I consider though that this was a borrowing from a microfinance entity and not a commercial

bank and on that account substitute the unconscionable rate of interest in the contract with a rate of 2.75% per month (hence 33% per annum) on the balance outstanding as from the due date, i.e. 1st August, 2021 until the date of this judgment, i.e. 18th March, 2025.

## **Third issue;** what remedies are available to the parties.

- [33] The plaintiff claimed recovery of shs 86,000,000/= which was the amount outstanding as at 8th October, 2021, comprising the principal sum of shs. 40,000,000/= and accrued interest of 46,000,000/= for the period from 1st April, 2021 to 8th October, 2021. The plaintiff secured a partial judgment in the sum of shs. 26,000,000/= 10th February, 2022 leaving a balance of shs. 60,000,000/= The only payment which the defendant ever made was on 14th April, 2022 in the sum shs. 14,000,000/= - [34] Being a claim for special damages, the law is that not only must they be specifically pleaded but they must also be strictly proved (see *Borham-Carter v. Hyde Park Hotel [1948] 64 TLR*; *Masaka Municipal Council v. Semogerere [1998-2000] HCB 23* and *Musoke David v. Departed Asians Property Custodian Board [1990-1994] E. A. 219*). Special damages compensate the plaintiff for quantifiable monetary losses such as; past expenses, lost earnings, out-of-pocket costs incurred directly as the result of the breach. It is trite law though that strict proof does not necessarily always require documentary evidence (see *Kyambadde v. Mpigi District Administration, [1983] HCB 44; Haji Asuman Mutekanga v. Equator Growers (U) Ltd, S. C. Civil Appeal No.7 of 1995* and *Gapco (U) Ltd v. A. S. Transporters (U) Ltd C. A. Civil Appeal No. 18 of 2004*). - [35] As proof of the claim, the plaintiff relies on the agreement dated 1st April, 2021 (exhibit P. Ex.1) by which the defendant undertook to pay that sum in full within four months, hence by 1st August, 2021. By that documentary evidence, the plaintiff has established the basis of its claim, yet the defendant does not contest the

amount borrowed. On the other hand, the plaintiff acknowledges having received part payment on 14th April, 2022 in the sum shs. 14,000,000/=, The Court already found that the plaintiff proved, on the balance of probabilities, that it was entitled to the recovery of the amount outstanding on the principal, being shs. 26,000,000/= from the defendant. The contest remains around the sum of 46,000,000/= claimed as accrued interest.

- [36] The Court has already found that find the contractual rate of 17.5% per month to be usurious in the circumstances and replaced it with 33% per annum. The entire amount of shs. 40,000,000/= remained unpaid for a period of eight months, i.e., from 1st August, 2021 until 14th April, 2022 leading to an accumulation of shs. 8,800,000/= in accrued interest. When making payments on a loan, the funds are typically applied first to any outstanding interest before being applied to the principal balance (see *Esero Kasule v. Attorney General, H. C. Misc. Application No. 688 of 201*). - [37] When on 14th April, 2022 the defendant paid a sum of shs. 14,000,000/=, it has to be applied toward the accrued interest first, and the balance, being shs. 5,200,000/=, goes to offset part of the principal to leave an outstanding balance on the principal in the sum of shs. 34,800,000/= which has been outstanding since then. On that account, the partial judgment that was entered in the plaintiff's favour herein on 10th February, 2022 is hereby vacated and in its place a final one entered for the plaintiff against the defendant in the sum of shs. 34,800,000/= as the outstanding principal sum. That amount has attracted accrued interest at the rate of 2.75% per month (hence 33% per annum) from 14th April, 2022 until the date of this judgment, i.e. 18th March, 2025 (a period of two years and eleven months) making a total of shs. 33,495,000/= in accumulated interest. - [38] By virtue of section 26 (2) of *The Civil Procedure Act,* where and insofar as a decree is for the payment of money, this court is empowered, in the decree, to order interest at such rate as the court deems reasonable to be paid on the

principal sum adjudged from the date of the suit to the date of the decree, with further interest at such rate as the court deems reasonable from the date of the decree to the date of payment or to such earlier date as the court thinks fit. I consider the award of interest at the rate of 21% per annum from the date of this judgment until payment in full as adequate compensation for the plaintiff's having been deprived of the use of this money for the duration of this litigation, and it is accordingly awarded.

[39] According to section 27 (2) of *The Civil Procedure Act,* costs of any action, cause or matter follow the event unless Court for good cause orders otherwise. The plaintiff being the successful party in this case is therefore entitled to costs of the suit.

## The final orders;

- [40] For the foregoing reasons, Judgment is entered for the plaintiff against the defendant, in the following terms; - a) The sum of shs. 68,295,000/= outstanding principal and interest on the loan. - b) Interest on the award in (a) above at the rate of 21% p.a. from the date of this judgment until payment in full. - c) The costs of the suit.

Delivered electronically this 18th day of March, 2025 …Stephen Mubiru……..

Stephen Mubiru Judge, 18th March, 2025

## Appearances;

For the plaintiff : M/s Mukwatanise & Company Advocates. For the defendant : M/s Ausi Twigukye and Co. Advocates.