Kingston Enterprises Limited and 3 Others v Standard Chartered Bank (U) Limited (Civil Appeal 446 of 2021) [2021] UGCommC 158 (23 April 2021)

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

## **CIVIL APPEAL No. 0446 OF 2021**

5 **(Arising from Civil Suit No. 1050 of 2020)**

| | 1.<br>KINGSTON ENTERPRISES LIMITED | } | | |----|------------------------------------|---|---------------------| | | 2.<br>RABO ENTERPRISES LIMITED | } | …………………… APPELLANTS | | | 3.<br>H & K INVESTMENTS LIMITED | } | | | 10 | 4.<br>AMINA HERSI MORGHE | } | |

## **VERSUS**

**STANDARD CHARTERD BANK (U) LMITED ………………………… RESPONDENT** 15

## **Before: Hon Justice Stephen Mubiru.**

#### **JUDGMENT**

a. Background.

20 The appellant sued the respondent seeking a declaration that they are not indebted to the respondent as claimed and that the respondent's intended sale of their mortgaged properties was tainted with illegality. They applied for a temporary injunction order pending the hearing of the suit which was granted by the Deputy Registrar conditioned upon the appellant's depositing 30% of the amount outstanding as claimed by the respondent in the main suit, within 30 days of the order.

b. The appeal.

The appeal is against an order of the Deputy registrar when she granted an order of temporary injunction in favour of the appellant conditioned upon the appellant's deposit of 30% of the amount

30 outstanding as claimed by the respondent in the main suit, within 30 days of the order.

c. Submissions of counsel for the appellant.

M/s Okecha Baranyaga and Co. Advocates submitted that Regulation 13 (1) of *The Mortgage Regulations* is not mandatory in applications of this nature but is only applicable when the mortgagee's right of foreclosure is not in dispute. In the instant case the outstanding amount is in dispute, the appellants' indebtedness is contested, the legality of the foreclosure is contested and the respondent did not furnish court with the current market value of the properties to form the basis of the 30% deposit.

#### d. Submissions of counsel for the respondent.

M/s Kampala Associated Advocates submitted that at the time the application for a temporary injunction was made, the respondent had advertised the mortgaged properties for sale rendering 10 Regulation 13 (1) of *The Mortgage Regulations* applicable to the facts.

e. The decision.

Since the promulgation of *The Mortgage Regulations, 2012* the question has arisen as to whether 15 a temporary injunction should be granted conditionally and specifically upon a deposit of 30% of the forced sale value of the mortgaged property or outstanding amount, where the effect of the injunction is to stop the sale of the mortgaged property, as it will be in almost all applications for temporary injunctions involving mortgaged property. Regulation 13 of *The Mortgage Regulations, 2012* provides as follows;

13. Adjournment or stoppage of sale.

- (1) The court may on the application of the mortgagor, spouse, agent of the mortgagor or any other interested party and for reasonable cause, adjourn a sale by public auction to a specified date and time upon payment of a security 25 deposit of 30% of the forced sale value of the mortgaged property or outstanding amount. - (6) Notwithstanding sub-regulation (1) where the application is by the spouse of a mortgagor, the court shall determine whether that spouse shall pay the thirty percent security deposit.

The need to interpret of any statute arises only where the language of a statutory provision is ambiguous, not clear or where two views are possible, or where the provision gives a different meaning defeating the object of the statute. When interpreting that provision, one line of authorities

has taken the view that the word "may," as used therein, refers to the discretion whether or not to adjourn the sale but not the requirement of payment of security deposit in the event of an adjourned sale. Should the court exercise its discretion by adjourning the sale, the mortgagor is mandatorily required to pay the said security (see for example *Haji Edirisa Kasule and another v. Housing*

5 *Finance Bank Ltd and two others, H. C. Misc. Application No. 667 of 2013; Guaranty Trust Bank (U) Ltd v. Ankole Riverline Hotel Ltd, H. C. Civil Appeal No. 28 of 2014* and *Paunocks Enterprises Ltd and others v. Stanbic Bank (U) Ltd, H. C. Miscellaneous Application No. 1113 of 2014*).

The decisions in effect state that applications for temporary injunctions involving mortgaged 10 property have to be dealt with in conformity with the statutory provisions for mortgages under *The Mortgage Act, 2009*. The statutory requirements under the Mortgage Regulations thereby override traditional considerations for the grant of a temporary injunction (see *Willis International Engineering and Contractors Ltd and another v. DFCU Bank*, *H. C. Miscellaneous Application No. 1000 of 2015* and *Miao Huaxian v. Crane Bank Limited and another, H. C. Misc. Application* 15 *No 935 of 2015*).

This position is buttressed by the Court of Appeal decision in *Ganafa Peter Kisawuzi v. DFCU Bank Ltd, C. A. Civil Application No. 64 of 2016* where the Court refused to grant an order of a temporary injunction to the applicant holding that the remedy was not available to him on the 20 ground that the applicant had not complied with regulation 13 (1) of *The Mortgage Regulations 2012*, which required him to deposit 30% of the forced sale value of the mortgaged property or the outstanding amount before stoppage of sale. In that case, Counsel for the respondent submitted that the applicant had not deposited 30% of the value of the mortgaged property contrary to *The Mortgage Regulations.* Counsel for the applicant conceded this but submitted that the applicant 25 was willing to deposit the said amount if ordered by the court. The Court of Appeal therefore did not have the occasion to specifically state this as a general principle.

On the other hand, another line of authorities has taken the view that the requirement is not mandatory and the court has the discretion whether or not to require the deposit as a pre-condition 30 to the grant of an injunction, especially where; the validity of the mortgage or the amount

outstanding is being challenged; or where there is a procedural irregularity in the statutory notices

prior to the advertisement for sale of the mortgaged property; or where there is no credible evidence of the current market and forced sale value of the mortgaged property (see for example *G. S Royal Hardware and Industries Ltd and another v. Equity Bank (U) Ltd and another, H. C. Misc. Application No. 721 of 2015* and *Parul Ben Barot v. Victoria Finance Company Ltd, H. C. Misc.*

5 *Application No. 319 of 2017* and *Alpha2 Business Company Ltd v. Diamond Trust Bank Ltd and two others, H. C. Misc. Civil Application No. 71 of 2016*).

*The Mortgage Regulations 2012* were prescribed by the Minister of Lands under section 41 (1) of *The Mortgage Act, 2009* which gives the Minister powers, by regulations, to prescribe anything 10 which may be prescribed under *The Mortgage Act* and generally for the better carrying into effect of the purposes and provisions thereof. The dominant purpose of construction of any statutory provision is to ascertain the intention of the legislature and the primary role is to ascertain the same by reference to the language used. For the purpose of interpretation, courts have to take into account various internal and external aids. The legislative intention assimilates two perspectives; 15 the perspective of "meaning" on the one hand, and the perspective of concept of "purpose," "object," "reason," or "spirit" pervading through the statute, on the other.

Regulation 13 is headed "Adjournment or stoppage of sale." Headings in a statute or Regulations may be taken as very broad and general indicators of the nature of the subject matter dealt with 20 thereunder. They can be taken into consideration in determining the meaning of the provision where that provision is ambiguous, and may sometimes be of service in determining the scope of the provision. But where the enacting words are clear and unambiguous, the title and headings must give way, and full effect must be given to enactment. If there is any doubt in the interpretation of the words of the section, the headings certainly help the court to resolve the doubt (see*Chaudhri*

- 25 *Thakur Das and Others v. Chaudhri Jairaj Singh (Allahabad), [1903] UKPC 77*). A heading cannot control the interpretation of a clause if its meaning is otherwise plain and unambiguous, but it can certainly be referred to as indicating the general drift of the clause and affording a key to a better understanding of its meaning. - 30 The sub-heading shows, in my opinion, that the enactment of Regulation 13 was intended to define the conditions upon which a sale by a mortgagee, may be either stopped or adjourned. Where a

general statute and a specific statute relating to the same subject matter cannot be reconciled, the special or specific statute ordinarily will control. The provision more specifically directed to the matter at issue prevails as an exception to or qualification of the provision which is more general in nature (see *Warburton v. Loveland, (1824-34) All ER Rep 589*). Since stoppage or adjournment

5 of a sale is governed by special legislation, it prevails over the general requirements for the grant of temporary injunctions specified in Order 41 of *The Civil Procedure Rules*. If it is not constructed in that way the result would be that the special provision would be wholly defeated.

Aside from the internal aids to interpretation of the provision, account must be taken of the object

10 of the enactment in light of the statement of Lord Denning in *Escoigne Properties Ltd v. Inland Revenue Commissioners [1958] 1 All ER 406 (BL) at 414D* that:

A statute is not passed in a vacuum, but in a framework of circumstances, so as to give a remedy for a known state of affairs. To arrive at its true meaning, you should know the circumstances with reference to which the words were used; and what the object 15 was, appearing from those circumstances, which Parliament had in view. That was emphasised by Lord Blackburn in *River Wear Comrs v. Adamson ((1877) 2 App Cas 743 at 763-5* and by the Earl of Halsbury LC in *Eastman Photographic Materials Co v. Comptroller-General of Patents [ 1898] AC 571 at 575, 576* in passages which are worth reading time and again.

It follows that even in an area regulated in detail by legislation, policy may be a factor in the court's decisional process; although the policy ascertained and applied may be that which is deemed to have been the legislature's, rather than the court's, conception of the wisest rule. Policy, in the sense of the motivating equitable and practical reasons behind the development of legal principles, 25 plays a constant although usually imperceptible role in the decisional process. Policy, in the sense that justice is the aim and intent of all legal system and procedures, is the spirit vitalising the letters of the law. A statute therefore is to be construed so as to suppress the mischief in the law and advance the remedy (see *Heydon's case (1584) 3 Co. Rep. 7a*). The rule means that where a statute has been passed to remedy a weakness in the law, the interpretation which will correct that 30 weakness is the one to be adopted.

Regulation 13 of *The Mortgage Regulations, 2012* is an enactment of the principle "pay now, argue later." It is designed to restrict the ability of the mortgagor to use litigation or the courts, to vexatiously delay the realisation of money due to the mortgagee. It is intended to reduce the number of frivolous objections to sales by a mortgagee and guarantee that the mortgagee will not be unnecessarily prejudiced by a delay in payments, inevitably occasioned by litigation. It ensures that the mortgagees are not left out of pocket due to the time that lapses over the course of litigation,

5 while on the other hand encouraging a mortgagor to hasten the progress of litigation so as to improve on its ability to expand its business, or pay debts, or to mitigate any detrimental effect imposition of the condition may have had on the mortgagor's liquidity.

It applies to situations where a dispute arises between the mortgagor and the mortgagee regarding 10 their respective rights under the mortgage, before the mortgagee can exercise their power of sale or foreclosure. Although payment of loan instalments is not suspended pending a suit, unless directed otherwise, the practical reality is that litigation has tended to have that consequence. This provision therefore strikes a balance between the competing desire of the mortgagee to realise the security following default and that of the mortgagor to have his or her day in court on questions 15 regarding the legality or propriety of events triggering that process, whilst the mortgagor pursues his or her various remedies.

While on the one hand the court should be alive to the potential of the mortgagee abusing this provision by invoking the power of sale maliciously or unlawfully, it should at the same time be 20 mindful of the purpose of this provision being undermined by a disgruntled mortgagor making unfounded assertions of illegality, dispute over the amount outstanding, the value of the property, and so on, purposely to avoid or delay the sale. While the potential abuse by the mortgagee is mitigated by the fact that the amount paid by the mortgagor will eventually be refunded with interest by the mortgagee when the court establishes that the mortgagee's computation of the 25 disputed outstanding amount or value of the property was incorrect, if the "pay now, argue later" rule were not enacted, there would be an incentive for a mortgagor to dispute a sale, which the mortgagor would not otherwise have done.

The considerations underpinning the "pay now, argue later" concept enacted in Regulation 13 of

30 *The Mortgage Regulations, 2012* include the public interest in obtaining full and speedy settlement of commercial disputes and the need to limit the ability of recalcitrant debtors to use objection and appeal procedures strategically to defer the payment of borrowed funds. It was argued by counsel for the appellant that a dispute over the legality of the mortgage, the procedure of its enforcement or the amount outstanding is reason enough not to impose the 30% deposit requirement. If this were to be adopted as a valid reason, then the entire purpose of the provision would be defeated.

5 All it takes is for the mortgagor to raise such a claim in the plaint, however frivolous. The legislative intent on the other hand can be achieved by interpreting "amount outstanding," to mean the amount as claimed by the mortgagee at the time the suit is filed.

Similarly, it is equally disingenuous to seek to defeat the purpose of the provision by adverting to 10 Regulation 11 (2) of *The Mortgage Regulations, 2012* which requires a valuation report to be made not more than six months before the date of sale. That requirement is specific to the value at the time of sale by the mortgagee, not necessarily for purposes of the adjournment or postponement of a sale. For the purposes of Regulation 13 (1), the value of the property at the time of execution of the mortgage would suffice. This is more so since it is a pre-dispute value that was agreed upon

15 by the parties.

It is only under Regulation 13 (6) of *The Mortgage Regulations, 2012* that discretion is conferred on the court to determine whether or not the 30% requirement should be imposed. Under that provision, "where the application is by the spouse of a mortgagor, the court shall determine 20 whether that spouse shall pay the thirty percent security deposit." The court may then take into account such factors as; - how long the spouses were cohabitating before the default; the financial resources of the spouse applying; the availability of alternative accommodation; whether there are children of the relationship; the amount of debt involved, the risk of dissipation of the property by the mortgagor during the period of suspension; whether the applicant is able to provide adequate 25 security for the payment of the amount involved; whether the payment of the amount involved would result in irreparable financial hardship to the applicant; whether fraud is involved in the origin of the dispute, etc. This may be propelled by the fact that the property in issue also serves as the matrimonial home or family land.

30 In *Nakayaga v. FINA Bank and another, H. C. Misc Application No 471 of 2014,* the applicant was the wife of the mortgagor who had mortgaged the title deed to land constituting their matrimonial

home to FINA Bank Ltd for a loan. She filed a suit protesting the imminent sale of that property on grounds that she never granted consent to the mortgage variation between her husband and the bank and that she had not obtained independent advice in respect of the mortgage of the family/matrimonial property. She contended therefore that the intended sale was unlawful and

5 illegal. When she sought a temporary injunction pending the disposal of that suit, the learned Judge declined to order the applicant to deposit 30% of the forced sale value of the suit property as security on grounds that Regulation 13 (1) of *The Mortgage Regulations, 2012* presupposes that the mortgagee's right to foreclose is not in dispute. The learned trial Judge did not avert to Regulation 13 (6) which in my view was the one applicable.

Despite that, it seems to me that Regulation 13 (6) of *The Mortgage Regulations, 2012* is intended to allow the court, on a case by case basis, where the property mortgaged is a matrimonial home or family land, to balance the interests of the mortgagee and the mortgagor's spouse's right of occupancy of the matrimonial home guaranteed by section 39 (1) of *The Land Act*. In a deserving 15 case, the court may find that the right of the spouse to have access to and live in the matrimonial home or on family land should unconditionally prevail over the prospect of the mortgagee's cash flow being interrupted and hence the mortgagee being out of pocket during the litigation. Needless to say, payments and when they are due are a crucial factor in any arrangement of borrowing but so are the rights and remedies available to a spouse when either the mortgagee or mortgagor, or 20 both, have *prima facie* failed to follow the correct process for mortgaging such land.

It is noteworthy that the provision conferring that discretion is prefixed by a non obstante clause "notwithstanding sub-regulation (1)." Quite often a legislative text will contain conflicting rules, and it is important to make clear which rule prevails in a specified situation. "Notwithstanding" as 25 an obstante clause, is one of the expressions that helps to do that. The expression "notwithstanding" is a preposition used to indicate that the provision that follows is limited by or an exception to another provision. It means "despite" something; or "without regard to"; or "not prevented by"; or "in spite of the fact that." It is therefore not difficult to argue that a sub-section inserted notwithstanding another provision, was intended to operate in deviation from the other provision. 30 Often, a drafter uses that expression to protect and distinguish a significant provision against a conflicting provision. The expression is used when the application of another provision in the

statute, relating to the same subject matter, could impede implementation of the provision in which that expression has been used. It means that the provision following that expression operates as an exception to an earlier provision.

- 5 It is well settled that the expression "notwithstanding" is in contradistinction to the phrase "subject to," the latter conveying the idea of a provision yielding place to another provision or other provisions to which it is made subject. "Notwithstanding" looks back to the main rule. It is used in a sub-section that is to take priority over or operate as an exception to another provision, in the given situation. It tells the reader that the subject clause overrides or is an exception to the 10 provision(s) to which it refers. It follows then that since provisions following the word "notwithstanding" are actually exceptions, if the latter provision confers a discretion, the implication then is that the former provision in respect of which the drafter sought to exempt it, does not allow for the exercise of such discretion. - 15 The correct interpretation then is that despite the main rule in Regulation 13 (1) not allowing for discretion, and hence being mandatory, exercise of discretion can still occur in situations where the application is "by the spouse of a mortgagor." Although Regulation 13 (1) contains a mandatory provision that is applied whenever court is to make an order whose effect is to suspend a sale of montaged property by a mortgagee, Regulation 13 (6) has carved out an exception that 20 allows for the exercise of discretion. In short, it means that exercise of discretion where the - application is "by the spouse of a mortgagor," is "not prevented by" the fact that Regulation 13 (1) is mandatory. Where the application is "by the spouse of a mortgagor," Regulation 13 (6) in effect overrides Regulation 13 (1) which does not permit or prevents the exercise of such discretion. - 25 A statute must be so construed so as to effectuate its object and purpose, and not to defeat the same (see *Whitney v. Commissioner of Inland Revenue [1926] AC 37*). Since a construction which would defeat the very object of the legislative intent should be avoided, I come to the conclusion that decisions which have hitherto interpreted Regulation 13 (1) of *The Mortgage Regulations, 2012* as allowing for the exercise of discretion in situations where the validity of the mortgage or the 30 amount outstanding is being challenged; or where there is a procedural irregularity in the statutory notices prior to the advertisement for sale of the mortgaged property; or where there is no credible

evidence of the current market and forced sale value of the mortgaged property, took into account matters that are extraneous to the provision. That approach has resulted in defeating the object and purpose of the provision.

5 To the contrary, decisions which have held that save for applications "by the spouse of a mortgagor" which allow for the exercise of discretion by the court, all applications for temporary injunctions involving mortgaged property which result in adjournment or postponement of a sale, require the applicant to deposit 30% of the forced sale value of the mortgaged property or the outstanding amount, as a precondition to the grant of the temporary injunction order, have 10 effectuated its object and purpose.

It follows therefore that the leaned Deputy Registrar came to the right conclusion when she conditioned the grant of the temporary injunction upon the appellant's deposit of 30% of the amount outstanding, as claimed by the respondent in the main suit, within 30 days of the order.

15 The appeal is is accordingly dismissed. The costs of the appeal shall abide the result of the suit.

Dated at Kampala this 23rd day of April, 2021 …………………………..

Stephen Mubiru Judge, 23rd 20 April, 2021.

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