Nakayi v DFCU Bank (U) Limited (Civil Suit 959 of 2022) [2024] UGCommC 282 (26 March 2024)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA ICOMMERCIAL DMSIONI

### CIVIL SUIT NO. 0959 OF 2022

AISHA NAKAYI: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : ! ! : : : : :PLAINTTFF VERSUS

# DFCU BANK (U) LIMITED: : : : : : : : : : : : : : : : : : : : : : :: : : : : :DEFENDANT BEFORB: HON. LADY JUSTICE ANNA B. MUGENYI JUDGMENT

#### PLAINTIFF'S CASE

The plaintiffbrought this suit against the defendant for a declaration that the sale of the plaintifls property is premature; that the defendant has acted in bad faith; that the defendant breached its duty ofskill and care to the plaintiff, general, special and punitive damages, interest thereon and costs of the suit.

The ptaintiff contends that on I'r August 2018, the plaintiff mortgaged her property known as plots 1262 and block 249 atBunga, Makindye division to the defendant in consideration for the sum of Ugx 850,000000/:. The plaintiff made consistent payments for the initial facility until a family misfortune that intemrpted the consistent payments during the COVID 19 pandemic bW resumed payments in lump sums just before the defendant advertised the plaintiffs property for sale.

The plaintiff contends that she has been willing to settle her outstanding dues and has made considerable deposits towards the same and reduced the mortgege debt to a sum of lJgx 726,872,000/: as evidenced through her record of payment. She

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contends that the deposits for the period from l2th August 2o2zto date total to Ugx 108,000,000/: which have reduced the loan balance totJgx726,872,0001=; and that despite the show ofgood faith on her part to pay the loan the defendant has totally disregarded the deposits and have acted with impunity, malice and bad faith by intimating its intention to sell the plaintifls property regardless. On the 16th September 2022, the plaintiff wrote to the defendant proposing to have the loan restructured as a further sign to pay up the loan but the proposals were not heeded to by the defendant who is determined to sell the property in a hurried and irational manner disregarding bank practices and ethics.

The plaintiff avers that the defendant's actions tantamount to negligence, breach of duty of care, bad faith and malice on its part as it shows more interest in the mortgaged property than the loan payments.

#### DEFENDANT'S CASE

The defendant denied the plaintiff s claims and contends that by a facility letter dated 3ls' August 2018, the defendant availed to the plaintiff a loan facility of Ugx 850,000,000/= payable in monthly installments of Ugx 14, 772,8001: which was secured by a mortgage on land comprised in Kyadondo block 249 plot 1262 atBunga registered in the name of the plaintiff. The plaintiff defaulted in servicing her loan facility in accordance with the agreed payment terms and on 41h June 2021, the defendant issued a Notice of Default pursuant to section 199 (2) of the Mortgage Act requiring her to pay the outstanding arrears on the facility of Ugx 31,683,6251: within 45 working days. The defendant further issued a Notice of Sale dated 3Oth March 2022 in accordance with section 26 (2) of the Mortgage Act requiring the plaintiff to pay the entire outstanding loan sum of Ugx 796,819,766/: witllrn 2l working days.

By a letter dated l2th April 2022, the defendant granted the plaintiff an opportunity to fully settle the arrears by 23'd April 2022 in order that she may redeem the mortgaged property from sale. Thereafter the defendant advertised the mortgaged property in the Daily Monitor newspapers dated 19fr August 2022 arird 27th October 2022. The plaintiff made part payments in a bid to seule her debt with the defendant laving an outstanding balance in the sum of Ugx 736,405,2151-- as at 9th November 2022.

The defendant further contends that the plaintiff remains a defaulting mortgagor and the defendant has a right to exercise its remedies as a mortgagee and is therefore lawfully exercising its remedy of sale under the Mortgage Act2009;that the plaintiff has filed this suit in an attempt to frustrate the bank's efforts to recover its outstanding monies as the requisite statutory notices were issued, the debt is still owed and the process of sale is in accordance with the law. Further that the monies advanced by the plaintiffto the defendant is depositors' money which the defendant is duty bound to recover and that in not doing so, the defendant is being kept out of use of the money to its detriment. The defendant denied that it acted in a negligent manner or exercised nay acts of malice or bad faith towards the plaintiff who has not adduced any evidence of the said acts.

The defendant filed a counterclaim wherein they contend that the plaintiffis indebted to the counterclaimant who is entitled to payment of Ugx 736,405,2151: with interest continuing to accrue thereon at the contractual facility rate. The defendant prayed that the plaintifls suit is dismissed and judgment in their favor is entered for the sum of Ugx 736,405,215, interest thereon at the contractual facility rate till repayment in full and costs of the counterclaim.

The plaintiff filed a reply to the counterclaim denying the defendant's claims therein and contending, inter alia, that the counterclaimant's lawyers misadvised it on the

procedural aspects surrounding the said transaction culminating in a fatal, irregular ad emotional advertisement of sale of the property.

During the hearing, the plaintiff (PWl) was the sole witness in her case while the defendant presented Andrew Nateeraho (DWl) as their witness. Counsels for the parties agreed to file written submissions which they did and the same have been considered in this Judgment.

#### REPRESENTATION

The plaintiff was represented by M/s ADSUM Advocates while the defendant was represented by M/s MMAKS Advocates.

#### JUDGMENT

In a joint scheduling memorandum filed by counsel for the parties, the following Issues for determination by this Court were agreed on:

- l. Whether the home loan facility was frustrated - 2. Whether the penal interest rates are harsh and unconscionable - 3. Whether the defendant is entitled to payment of Ugx 736,405,215F with interest thereon in the counterclaim - 4. What remedies are available?

Issue I

#### Whether the home loan facility was frustrated

ln the case of Life FM 93.8 Limited v Emamba Esazire United Brothers Company Limited (Miscellaneous Application 58 of 2021), Honorable Justice Vincent Mugabo had this to say regarding the doctrine of frustration in as far as the COVID l9 pandemic was concerned:

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"Could the outbreak of COVID-I9 be said to have frustrated the agreement between the parties? The basic principle here is that if after a contract is made, something happens, through no fault of the parties, to make ils pedormance impossible, the contract is said to be frustrated, and the obligations under it come to an end. Although there are many events which may make performance impossible, only certain limited types will allow a contract to be ftustrated. These are the ones that make performance impossible or illegal or irreleyant through being overtaken by events. See Contracl Law Seventh Edition Catherine Elliott & Frances Quinn pg 303.

For a contract whose performance is to be considered frustrated by event out of no party's fault, the applicant needs to show that: CI 11

- a. Performance was wholly impossible - b. The event must be beyond the reasonable control ofthe affected party - c. There must be a nexus between the flustrafin4 event and the inability to perform - d. Reasonable steps were taken by the affected party to avoid or mitigate the frustrating event or its consequences.

The outbreak of COVID-|9 in itself is not a frustrating event. But its effects may be looked at. This comes with the nexus between the effects of the pandemic and the obligation to be performed in the agreement. A disruption that merely affects profitability is not sufficient as a frwtrating event

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In the case of Mogas (U) Ltd v Benzina (U) Ltd (Civil Suit No. 88 of 2013) Honorable Justice Madrama while discussing the doctrine of frustration quoted the case of Taylor v Caldwell (1863) 3 B. & S 826 where on appeal to the Court of Appeal per Vaughan Williams L. J. discussed the principle in **Taylor v Caldwell** at page 751 thus:

"... Surely the view of the Coronation procession was the foundation of the contract, which is a very different thing from the purpose of the man who engaged the cab $$ namely, to see the race $-$ being held to be the foundation of the contract. Each case must be judged by its own circumstances. In each case one must ask oneself, first, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If all these questions are answered in the affirmative (as I think they should be in this case), I think both parties are discharged from further performance of the contract."

Keeping the above authorities in mind, this Court observed that the parties entered into a Home Loan Facility agreement dated 31st August 2018 on 1st September 2018 wherein the plaintiff sought and obtained Ugx 850,00,000/= to purchase a property comprised in Kyadondo Block 249 plot 1262, which was in fact the security for the said facility and the subject of the legal mortgage signed by both parties on the same day.

The plaintiff in her witness statement averred that for the first three years to wit 2018, 2019 and 2020 she had a nearly perfect payment record as she consistently paid the bank their installments as agreed; and that during the month of May 2021, her business begun getting some challenges when the initial partial lockdown was announced by the President of Uganda that restricted movement between districts and when the 42- day lockdown was further imposed in June 2021, she suffered more upheavals in her business and cash flows. She stated that since the economy opened up she has rigorously resumed paying her instalments and that in 2022 she had paid Ugx 214,028,477 and in 2023 she had paid almost Ugx 95,000,000/= and that the evidence before Court showed that she had paid about Ugx 800,000,000/: towards the mortgage debt by the date of her witness statement i.e. December 2023.

DWI averred that the plaintiff defaulted in servicing her loan facility in accordance with the agreed payment terms and on 4th June 2021 the defendant issued a Notice of default requiring her to pay outstanding arrears on the facility of Ugx 31,683,625 within 45 working days; and further issued a Notice of Sale dated 30ft March 2022 requiring the plaintiff to pay the entire outstanding loan of Ugx 796,8 19,7666 within 21 working days. By a lefter dated 12th April2022, the defendant granted the plaintiff an opportunity to fully settle the arrears by 23'd April 2022 in order that she may redeem the mortgaged property from sale after which the mortgaged property was advertised in the Daily Monitor newspaper on l9'h August 20202 and 27th October 2022.

From the evidence on record, the plaintiff, apart from claiming that her business got some challenges and that she suffered upheavals in her business and cash flows, did not adduce any evidence to prove that performance was wholly impossible due to COVID l9 restrictions. Although the occurrence of COVID 19 and the restrictions by the Ugandan Govemment that followed were outside the control of both parties, the plaintiff must be able to demonstrate that the said restrictions hindered or made it impossible for the parties to meet their obligations.

As pointed out by counsel for the defendant and as seen in the plaintiffs bank statements, the plaintiff requested and obtained the loan monies in issue and was able to meet her loan obligations throughout 2020 when COVID 19 was at its peak and began to default in May 2021 after which a Notice of Default was issued to her in June 202l. The plaintiff, although she states that more than Ugx 900,000,000/= was stolen from her by her workers, did not adduce any evidence to prove the said theft of such large sums of monies which only rendered her allegations of upheavals

in business and cash flows questionable especially if her business was able to yield such large sums at that time.

Further, no reasonable steps were taken by the plaintiff to avoid or mitigate the alleged frustrating event or its consequences. Not only did the plaintiff neglect to apply for possible restructure of the loan obligation aE she confirmed in crossexamination which could only imply she did not find it necessary to do so, but she was given an opportunity to fully settle the arrears by the defendant which she appears to have failed to do resulting the advertisement of the mortgaged property. In DExh5 dated 12ft April 2021 from the defendant to the plaintiff s representative, it is indicated that the defendant would not support their request to recall the Notice of sale because:

c the bank has accepted seyeral repayment plans and promises to pay where our mutual client cited various sources offunds but all these have not yielded any positive results.

t IYe have given our mutual client enough time to redeem the property in vain.

From the fore going, I find that the plaintiff has failed to demonstrate that the home loan facility was frustrated since the plaintiff appears to have had various sources of funds from which she could have mitigated the consequences of the alleged frustrating event but did not see it through. DWI in his testimony stated that the defendant had done everything to assist the plaintiff fulfil her obligations in vain.

I agree with the statement in the case cited by counsel for the defendant (Davis Contractors Limited v Fareham Urban District Council I1956] AC 696) that the obligations of Davis, in this case Aisha Nakayi the plaintiff, may have become more difficult but not radically different. Further as held in Blackburn Bobbin Co. Ltd v Allen (TW) & Sons Ltd 11918] f KB 540 cited by counsel for the defendant,

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"where an eyent results in alteration of the manner of performance or impossibility by one party, there will not be frustration of the contract. "

The defendant fulfilled their part of the bargain and deposited the loan monies on the plaintifls account. The plaintiff received and utilized the loan monies as agreed and is willing to repay her loan obligations and indeed has deposited sums of money towards payment ofthe same in202l and2022; and has even gone ahead to request for a restructure ofthe same which the defendant should consider to enable her pay the outstanding sums with much ease and to their benefit, if at all.

In the circumstances of this case where, as stated earlier, the plaintiff herself, explicitly in her pleadings and testimony, acknowledges she owes the defendant monies and is willing to pay the same and has gone ahead to request for a restructure of the same, I find this is not a proper case where the doctrine of frustration is applicable. Further, given that the remedy for cases in respect of the said doctrine is discharge ofboth parties from their obligations in a contract and possible recovery of sums involved yet the plaintiff is willing to repay her loan obligations if given a chance, the defense of frustration certainly does not arise or apply.

Suffice it to note that the said doctrine was not only not specifically pleaded by the plaintiff in their pleadings, but also the orders that follow a finding of frustration of contract such as discharge of parties from their obligations and recovery of funds etc. was not addressed or pursued by the plaintiff who is bound by her pleadings. Questions left unanswered include what happens to the large sums of money obtained from the defendant and received and utilized by the plaintiffl Is the justice of the matter done when the plaintiff is in possession of the loan monies as well as the property to the detriment of the lender?

From all the above, Issue I is accordingly resolved in the negative.

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#### Issues 2 and 3

## Whether the penal interest rates are harsh and unconscionable

# Whether the defendant is entitled to payment of Ugx736,405,215/= with interest thereon in the counterclaim

I have looked at the loan facility agreement between the parties and both the plaintiff and the defendant signed the same freely and are bound by its terms.

With regard to whether the penal interest rates are harsh and unconscionable, I agree with the submissions of counsel for the defendant that the default interest rates were agreed to by the parties willingly under the notion of freedom of contract, the plaintiff serviced her loan from 2019 to 2021 without raising the issue of unconscionability of the penal interest, and the plaintiff admitted in crossexamination that she freely and willingly agreed to the interest rates of the loan. Further, the plaintifls bank account statements indicated payments of penal interest on default of payment of monthly installments and the plaintiff had never contested or disputed the same in writing or even orally with the defendant. I accordingly find that the penal interest rates are not harsh and unconscionable.

With regard to whether the defendant is entitled to payment of Ugx 736,405,215/: with interest thereon in the counterclaim, the plaintiff in her testimony avers that she is aware that she owes the defendant monies though she does not know how much.

The plaintiff, in her plaint, contends that she has been willing to settle her outstanding dues and has made considerable deposits towards the same and reduced the mortgage debt to a sum of Ugx 726,872,0001= as evidenced through her record ofpayment. She contends that the deposits for the period from l2th August 2022to date total to Ugx 108,000,000/: which have reduced the loan balance to Ugx 726,872,000/:.

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The defendant presented a ledger of the plaintiffs Ugx account number 01504026405553 indicating an indebtedness of Ugx 736,405,2151: as at 9i November 202 (DEXH7) which has not been disputed or rebutted by the plaintiff and is, therefore, construed to be the sum of monies due and owing to the defendant as claimed.

I, therefore, find that the defendant is entitled to payment of Ugx736,405,215l= with interest thereon in the counterclaim.

### Issue 4

## What remedies are available?

Having held as I have above, I find that the plaintiff has failed to demonstrate that the loan facility in issue was frustrated, that the penal interest was harsh and unconscionable as claimed.

The plaintiff s suit is accordingly dismissed with costs to the defendant.

Judgment is entered in favor of the defendant in the sum of Ugx 736,405,2151-- as at 9'h November 2020 with interest accruing thereon at contractual facility rate till payment in full. Costs of the counterclaim are awarded to the defendant/ counterclaimant.

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HON. LADY JUSTICE ANNA B. MUGENYI DATED >.\*.1s.)..x1,\*