Landmark Junior School Limited v The Microfinance Support Centre Limited (Miscellaneous Appeal 5 of 2023) [2024] UGCommC 356 (18 October 2024)

## THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) **MISCELANEOUS APPEAL NO. 0005 OF 2023** (ARISING FROM MISCELLANEOUS APPLICATION NO 1659 OF 2022) (ARISING FROM CIVIL SUIT NO 0690 OF 2022) LANDMARK JUNIOR SCHOOL LIMITED:::::APPLICANT/APPELLANT **VERSUS**

# THE MICROFINANCE SUPPORT CENTRE LIMITED:::::RESPONDENT **BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI**

#### **RULING**

This miscellaneous appeal was brought by way of notice of motion under section 98 of the Civil Procedure Act (CPA) and order 52 rules 1, 2 & 3 of the Civil Procedure Rules (CPR) for orders that the ruling and orders of Court delivered by Her Worship Nakitende Juliet in miscellaneous application no 1659 of 2022 wherein she ordered the applicant to deposit 30% of the contested mortgage in Court be varied and the costs of the application be provided for. This application was supported by the affidavit of Herman Joseph Ssemakula and opposed by the affidavit in reply of Winner Karungi Kokureeba, the legal officer of the respondent.

The facts giving rise to this appeal are that the appellant filed a suit against the respondent citing the illegality of their transaction and seeking relief from foreclosure. The appellant further filed an application for temporary injunction pending the hearing and disposal of the main suit. As the main suit was ongoing the respondent advertised the sale of the appellant's properties comprised in LRV 4246 Folio 17 Plot 5785 Block 273 land at Lufuka Kyadondo, LRV 1242 Folio 17 Plot 774 Block 273 land at Bunamwaya Kyadondo, LRV 1611 Folio 1 Plot 887 Block 273 land at Bunamwaya Kyadondo and LRV 4195 Folio 4 Plot 5784 Block 273 land at Lufuka Kyadondo.

A temporary injunction was subsequently granted restraining the respondent against foreclosure in respect of property comprised in LRV 4246 Folio 17 Plot 5785 Block 273 land at Lufuka Kyadondo, LRV 1242 Folio 17 Plot 774 Block 273 land at

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Bunamwaya Kyadondo, LRV 4195 Folio 4 Plot 5784 Block 273 land at Lufuka Kyadondo and untitled land at Namasuba Lufuka zone LDCI on condition that the appellant deposits 30% of Ugx 3,500,000,000/= that is equivalent to Ugx $1,050,000,000/$ = to be paid within sixty (60) days from the date of the ruling. The appellant was dissatisfied with that order hence this appeal.

The appellant contends that the learned registrar erred in law and fact when she ordered the applicant to pay 30% of Ugx 3,500,000,000/= which is equivalent to Ugx 1,050,000,000/= within sixty days from the date of the ruling which is undeserving.

The respondent contends that the appeal filed by the applicant has no chance of success and the applicant herein does not deny receiving the sum of Ugx $3,000,000,000/$ = from the respondent which he wishes to refund. The applicant further contended that if the application is granted and the conditional orders granting the temporary injunction are set aside, the respondent who has been denied sums due to it for over 40 months, being the default period shall be grossly prejudiced.

#### **REPRESENTATION**

The appellant was represented by M/s KSMO Advocates whereas the respondent was represented by M/s Muganwa, Nanteza & Co Advocates.

#### **RULING**

I have carefully addressed my mind to the pleadings, record of proceedings, the ruling of the assistant registrar, and the submissions made by counsel for the parties in the determination of this appeal.

Order 50 rule 8 of the CPR provides for the right to file miscellaneous appeals to the High Court thus:

"Any person aggrieved by any order of a registrar may appeal from the order to the High Court. The appeal shall be by motion on notice.''

This is a first appeal and this Court takes note of the fact that as a first appellate court, it has a duty to evaluate the evidence on record and come to its own conclusion without disregarding the ruling appealed from but carefully weighing and considering it (Kifamunte Henry v Uganda, Supreme Court Criminal Appeal No. 10 of 1997).

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The main issue for determination is whether the learned registrar erred in law and fact when she ordered the applicant to pay 30% of Ugx 3,500,000,000/= which is equivalent to Ugx $1,050,000,000/$ = within sixty days from the date of the ruling.

In the instant case, the learned registrar while making her ruling noted that the applicant had all his land and school mortgaged and if the status quo is not maintained, they stand to suffer irreparable damage. The learned registrar then found that the balance of convenience lies with the applicant who stands to lose his immovable property.

The learned registrar while relying on regulation 13 of the Mortgage Regulations 80 granted a temporary injunction in respect of properties comprised in Plot 5784, Plot 5885, Plot 774, and untitled land at Namasuba Lufuka zone LDCI conditioned upon the payment of a security deposit of 30% of the forced sale value. She relied on the valuation report submitted by Texas Consults where they estimated the forced sale value of Ugx 3,500,000,000/=.

### **Regulation 13(1) of the Mortgage Regulations** provides that:

"The court may the application $on$ $of$ 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 deposit of 30% of the forced sale value of the mortgaged property or outstanding amount".

In the case of Ferdsult Engineering Services Ltd & Anor v The Attorney General, Constitutional Petition No. 18 of 2021, Justice Cheborion Barishaki explained that:

"The requirement to make a deposit under Regulation $13(1)$ is clearly devised to stop frivolous and vexatious mortgagors from frustrating mortgagees seeking recovery of monies rightfully owed. The Regulation is necessary to protect mortgagees from unnecessary adjournments or stoppage of sales that would result in satisfaction by defaulting mortgagors".

In the case of Nakato Margaret v Housing Finance Bank Ltd & Anor, Civil 100 Appeal No 687 of 2021, Justice Stephen Mubiru also discussed the purpose of regulation 13 of the Mortgage Act thus:

''Regulation l3 of The Mortgage Regulations, 20 I 2 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 offrivolous 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 liligation, 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. ' '

As rightly stated in the above case, this provision therefore strikes a balance between the competing desires of the mortgagee to realize the security following default and that of the mortgagor to have his or her day in court on questions regarding the legality or propriety of events triggering that process, whilst the mortgagor pursues his or her various remedies.

L20 Regulation 13 (6) of the Mortgage Regulations, 2012 sets out an exception to the general rule in Regulation 13(1). This provision states that where the application for adjoumment of the sale is by the spouse of the mortgagor, the court shall determine whether or not that spouse shall pay the 30% deposit.

In the instant case, the mortgaged property does not fall under the exception set out by regulation 13(6). The appellant has further not pleaded or demonstrated how he will be prejudiced by an award of the 30% security deposit in Miscellaneous Application No. 1 659 of 2022 which is being appealed against.

I therefore find that the leamed registrar did not misdirect herself in law when she relied on regulation 13( I ) to award the security deposit of 30%o. However, I find an issue with her charging the same against the forced sale value as opposed to the outstanding amount for reasons elaborated below.

Regulation 13(1) of the Mortgage Act gives the registrar the discretion to award the 30% security deposit on either the forced sale value or the outstanding amount. This discretion must be exercised judiciously and in a way that will not occasion any injustice to the other party.

Firstly, the leamed registrar did not explain in her ruling why the 30olo was charged against the forced sale value as opposed to the outstanding amount. It should be

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noted that the forced sale value is usually higher than the outstanding amount. Taking into account that the subject matter was a school where education services are rendered, it would only be fair to charge the 30Yo security deposit against the outstanding amount.

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Secondly, the leamed registrar relied on the forced sale value quoted by Texas Consults in their valuation report. On examination of the valuation report, six pieces ofland namely Plots774,887,5784,5785,4026, and an untitled land in Kyadondo were collectively valued at a forced sale value of Ugx 3,500,000,000/:. The properties in respect of which the temporary injunction was granted were only Plots 5784, 5785, 774, and untitled land at Namasuba Lufuka zone LDCI. From the foregoing, it can be clearly seen that the forced sale value relied on was not the right value at that given time.

150 In the circumstances, where the forced sale value was not certain, it would only have been right for the leamed assistant registrar to charge the 30oh against the outstanding amount. From the notice of sale attached, it can be seen that the outstanding amount claimed is Ugx 3,3 18,019,909/: and this has been held to be the outstanding amount in decided cases.

I therefore find that the assistant registrar misdirected herself when she charged the 30oZ security deposit against the forced sale value which at the time could not be ascertained since many properties were valued as a lump sum.

Considering these unique circumstances, I am of the view that the temporary injunction should be conditioned upon the payment of a security deposit of 30% against the outstanding amount on the loan which is Ugx 3,3 18,019,9091:.

160 Consequently, I make the following orders:

- 1. The appellant pays 30% of Ugx 3,3 18,019,909/: which is equivalent to Ugx 995,404,972.1/: to be paid within 45 days from the date of this ruling. - 2. Costs of this application shall abide by the outcome of the main suit.

HON. LADYJUSTICE ANNA B. MUGENYI )o Dated......... .:./..1. W.!