Kingstone Engineering & Construction Consultants Limited v NCBA Bank Uganda Limited (Civil Suit 350 of 2021) [2023] UGCommC 230 (14 February 2023)

Full Case Text

#### THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION]

#### **CIVIL SUIT NO. 350 OF 2021**

# **KINGSTONE ENGINEERING & CONSTRUCTION** CONSULTANTS LTD::::::::::::::::::::::::::::::::::::

#### **VERSUS**

NCBA BANK UGANDA LIMITED::::::::::::::::::::::::::::::::::::

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

#### **PLAINTIFF'S CASE**

The plaintiff contends that it accessed a loan from the defendant on the 14th of June 2018 of UGX 500,000,000/- payable over a period of 60 months in early 2020 from NC Bank Limited.

The plaintiff faced some financial challenges and was unable to meet its payment obligations as contracted. the plaintiff's loan was recalled and the plaintiff was issued with a Notice of Sale of the mortgage property dated 29th January 2021 with the outstanding balance of UGX 418,036,417/- and the same was followed with a demand notice dated 1st March 2021 from Virgin Markets Multi Legal Auctioneers and High Court Bailiffs with a demand of UGX 462,745,213.

The plaintiff latter engaged the defendant to allow it find a buyer for the property and upon finding one, the defendant by loan statement dated 17th March 2021, communicated to the plaintiff an outstanding loan balance of UGX 462,125,408/which the plaintiff proceeded to pay by making a deposit onto its account with the defendant of UGX 462,300,000/- on the 22nd March 2021 to clear the loan. The plaintiff also made a deposit of UGX 48,700,000/- into its account with the

defendant on the same day and another deposit of UGX 43,74g,,OOOl- on the 29ft March202l into its account.

The defendant over and above the ucx 462,125,408/- that it was demanding the plaintiff as per its communications, went ahead to deduct the plaintiff s other monies deposited into its account making a further deduction of UGX 92,378,133/- over and above the communicated outstanding balance and refused to hand over the certificate of title until a further ucx 35,000,000/- was paid as debt collection fees to the debt collector despite the same having earlier on paid making a total of UGX 127,378,133/- deducted and paid way above the communicated sum.

#### DEFENDANT'S CASE

The defendant contends that the allegation that the plaintiff had made payments towards the loan of approximately 375,357,6431- by l4m January 2020 is totally false; and that the plaintiff is deliberately trying to mislead the court by including loan repayments for a separate loan as payments for the loan in issue. The plaintiff had already defaulted on the loan repayment for the loan in issue by the time that the nationwide lockdown was announced towards the end of March 2020.

The defendant acquired the assets and liabilities of commercial Bank of Africa (Uganda) Limited, which process involved the integration of banking systems of two financial institutions, that is commercial Bank of Africa (Uganda)Limited and NC Bank Uganda Limited (now called NCBA Bank Uganda limited). The defendant's banking system had on some occasions, both during and following the integration, experienced some system glitches and anomalies which normally caused some entries not to be captured on the system.

As a result of a system anomaly, the defendant communicated incorrect figures as sums outstanding on the loan in issue to the plaintiff. The system had not captured the accrued interest and penal interest payable from the date that the last payment of asum of UGX 830,4961- was effected on l4s January 2020. The communication of the incorrect figures to the plaintiffwas done inadvertently by the defendant, arising purely from a system anomaly.

when the proper loan account position was established by the defendant, the defendant immediately notified the plaintiff of the same and requested the plaintiff to pay the outstanding sum to have the facility fully paid off. All the deductions done

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by the defendant on the plaintifls account towards repayment of the loan were proper and lawfully done, to clear the actual outstanding sum on the loan that the plaintiff was obliged to clear.

The collection fees were agreed to by the plaintiff following negotiations that the plaintiff conducted directly with the debt collector. The collection fees were paid directly to the debt collector. The allegation that the plaintiff was made to pay additional collection fees is totally false. The monies debited by the defendant from the plaintiffs account were all used to clear outstanding loan balances and no sum was debited from the plaintiffs account for purposes ofpaying collection fees.

The defendant acted professionally at all times and only charged what was properly and legally due from the plaintiff. The penal interest was contractually agreed to by the plaintiff. The collection fees were agreed to by the plaintiff fotlowing negotiations that the plaintiff conducted directly with the debt collector, and the defendant should not be dragged into matters that the plaintiff privately and willingly concluded with the debt collector.

The plaintiff was made fully aware of its loan account position and the plaintiff credited its account in March 2021 well knowing the said position and the fact that the debits by the defendant that followed were for loan repayments.

The defendant contends that it has not committed any wrong and that the plaintiff is trying to take advantage of the incorrect figures that were communicated to it as a result of the system anomaly to claim for monies that were truly outstanding on its loan and for which it had a legal and contractual obligation to clear.

During the hearing, the plaintiff presented one witness Muhumuza Michael (PW1) while the defendant presented James Mayanja (DW1). Both parties agreed to file written submissions which have been considered in this Judgment.

### REPRESENTATION

The plaintiff was represented by M/s Masereka, Mangeni & Co. Advocates while the defendant was represented by M/s Kyazze, Kankaka & Co. Advocates.

\*-,v \J

#### **JUDGMENT**

The parties, in the joint scheduling memorandum, agreed on the following Issues to be determined by Court:

### 1. Whether the deductions of the plaintiff's money were justified

2. What remedies are available to the parties?

#### **Issues 1and 2**

DW1, James Mayanja, the Head of Credit and Risk Management of the defendant testified to the effect that the plaintiff applied for and was issued credit facilities by the defendant as seen in exhibits PE1, PE7, DE1, DE3 and DE4. The credit facility of Ugx 100,000,000/= that was disbursed to the plaintiff by the defendant on $30^{th}$ January 2019 was cleared by the plaintiff by 8th October 2019 (exhibits PE7 and DE4). The credit facility of Ugx 500,000,000/= was disbursed to the plaintiff by the defendant on 14th June 2018 as per loan payment schedule marked DE2 and the plaintiff serviced the said facility until sometime in January 2020 when it started defaulting on its loan repayment obligations in respect of the credit facility. As a result of the defaults, demands and notices were made against the plaintiff by the defendant who averred that the plaintiff was at all material times fully aware of its obligations to repay the loan in line with the terms and conditions upon which it sourced the credit facility as set out in PE1.

The plaintiff through PW1, Muhumuza Michael, did not dispute the fact that the plaintiff was granted the credit facility in issue, that the plaintiff defaulted on its obligations to repay the loan and that notices of default and sale were issued to it by the defendant. The point of contention by the plaintiff is that $Ugx 462,125,408/=$ was communicated to it by the defendant as the outstanding sum payable on its loan but the defendant made deductions way above the stated outstanding loan balance from the plaintiff's account.

DW1 stated that as at 14th January 2020, the outstanding principal to be paid on the loan stood at a sum of Ugx 415,454,025/- as indicated in exhibit DE3; and that the accrued interest on the loan and the additional penalty interest for the period starting 14th January 2020 was not included in the sums communicated to the plaintiff. The said accrued interest for the period starting 14th January 2020 to 14th March 2021 was Ugx 96,484,622/- while the additional penalty interest for the said period was Ugx 42,211,731.76/ $=$ as seen in DE2, DE3, DE5 and PE7.

DW1 averred that the communication of the incorrect figures to the plaintiff was done inadvertently by the defendant arising from purely a system anomaly as the said system was not capturing the accrued interest and the penalty interest but it immediately gave an alert when attempts were made to close off the loan.

Further that following the alert by the Bank's system a reconciliation was done by the defendant and the proper loan account position was established. When the proper loan account position was established by the defendant, the defendant immediately notified the plaintiff of the same and requested the plaintiff to pay the outstanding sum to have the facility fully paid off. The plaintiff was made fully aware of its loan account position and the plaintiff credited its account on 22nd March 2021 with Ugx 462,300,000/= and Ugx 48,700,000/= and Ugx 45,000,000/= on 29th March 2021 well knowing the said position and the fact that the debits by the defendant that followed were for loan repayments.

DW1 averred further that the plaintiff heeded to the defendant's request and all the deposits that were made by the plaintiff on its account in the month of March 2021 were made by the plaintiff on the clear understanding that they were for loan clearance as clearly noted in the narrations in the statement marked PE7. All the deductions done by the defendant on the plaintiff's account towards repayment of the loan were proper and lawfully done, to clear the actual outstanding sum on the loan that the plaintiff was obliged to clear.

He averred further that the collection fees were agreed to by the plaintiff following negotiations that the plaintiff conducted directly with the debt collector; that the collection fees were paid directly to the debt collector and that the allegation that the plaintiff was made to pay additional collection fees is totally false. The monies debited by the defendant from the plaintiff's account were all used to clear outstanding loan balances and no sum was debited from the plaintiff's account for purposes of paying collection fees.

DW1 testified that the defendant acted professionally at all times and only charged what was properly and legally due from the plaintiff. The penal interest was contractually agreed to by the plaintiff. The collection fees were agreed to by the plaintiff following negotiations that the plaintiff conducted directly with the debt collector, and the defendant should not be dragged into matters that the plaintiff privately and willingly concluded with the debt collector.

DW1 stated that the defendant did not commit any wrong as alleged by the plaintiff and that the plaintiff is trying to take advantage of the incorrect figures that were communicated to it as a result of the system anomaly to claim for monies that were truly outstanding on its loan and for which it had a legal and contractual obligation to clear.

Interestingly, and as pointed out by counsel for the defendant in his submissions, PW1 in cross examination confirmed the following facts which I will replicate below verbatim:

- a) That the plaintiff accessed the loan of Ushs $500,000,000/=$ on the basis of the terms and conditions set out in Exh PE1 (the Offer Letter dated 28th May $2018).$ - b) That the average sum of the monthly loan repayment instalment by the plaintiff to the defendant was about Ushs $13,941,160/=$ . - c) That from the last payment of Ushs 830,496/= which the defendant debited on 14th January 2020, the plaintiff did not pay any monies towards clearance of the loan until the $22^{nd}$ day of March 2021 when a sum of Ushs 462,300,000/= was deposited on the plaintiff's account as reflected in Exh PE7, that for the said entire period, the plaintiff was in default on its loan repayment obligations. - d) That Exh DE3 (the loan statement of the plaintiff for the loan of Ushs 500,000,000/-) shows the actual principal and interest that the plaintiff had paid on its loan from 14th July 2018 to 14th January 2020. That the said position is in line with the position set out in Exh DE2 (the loan repayment schedule), also Exh DE4 (Loan statement of the plaintiff for the loan of Ushs 100,000,000/=) shows the proper position in respect of the loan repayment for the said loan. - *e)* That the outstanding principal on the loan by the time that the plaintiff started defaulting on its loan on 14th January 2020 was Ushs 415,452,025/= as indicated in the loan statement (Exh DE3).

- f) That Exh PEI (loan offer letter dated 28th May 2018) under clause 1.2 provided for additional penalty interest at a rate of 33.50% pER annum on the total outstanding balance to be charged in addition to the effective interest, in the event ofdefault. - g) That the Defendant was in the circumstances entitled to charge additional penalty INTERESTfoT the period l4th January 2020 to 22d March 202 t when the plaintiff was in default of its loan repayment obligations. - h) That Exh DE5 (Accruals statement for the period l4th January 2020 TO l4th March 2021) shows the principal and interest that was payable during the said period as well as the additional penalty interest during the said period of default. - i) That the defendant formally notified the plaintiff of additional monies to be paid vide letter marked Exh PE5.

From the evidence above and the testimony of pw1 and including the plaintiff s documents, PE2 and PE3, it is clear that the plaintiff was notified about the sale of the mortgaged property and was issued with a demand notice cum notice of intention to sue for non- payment of his loan obligations. From the bank statements adduced in court by the defendant, it is also clear and was confirmed by pw 1 , that the plaintiff did not pay any money towards clearance of its loans from 14th January 2020 when the last payment of Ugx 830,4961: was debited from its account until 22nd March 2021 when ugx 462,3000,000/: was deposited on the said account. The plaintiff even made further deposits in March 2021 all clearly towards clearance of its loan obligations as seen in the narrative in the said bank statements.

I agree with the submissions of counsel for the defendant that the plaintiff was fully aware of its loan obligations in line with exhibit pE1 and was aware that the outstanding principal on the loan, the accrued interest thereon and the additional penalty interest were all due and payable and that the sums of money deposited on its account on 22'd and 29th March 2021 were utilized to clear the plaintifls obligations by the defendant. I also agree with the defendant's submissions that the defendant acted in accordance with the provisions of the loan agreement freely

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entered into by the parties therein and cannot be estopped from enforcing the same in a bid to recover monies contractually due from the plaintiff.

In conclusion, I find that the plaintiff has failed to prove its claims and that the deductions of the plaintifls money by the defendant were justified because the same were made to clear the plaintiff s known loan obligations in as far as the outstanding principal sum, accrued interest and penalty interest were concemed.

In the result, the present suit is dismissed with costs to the defendant.

HON. LADY JUSTICE ANNA B. MUGENYI DATED I lr.lu