Standard Chartered Bank (U) Limited v Kemigisha (Civil Suit No. 369 of 2015) [2021] UGCommC 126 (12 February 2021)


## **THE REPUBLIC OF UGANDA**

### **IN THE HIGH COURT OF UGANDA AT KAMPALA**

### **(COMMERCIAL COURT DIVISION)**

### 5 **CIVIL SUIT NO. 369 OF 2015**

### **STANDARD CHARTERED BANK (U) LIMITED ====== PLAINTIFF**

### **VERSUS**

### 10

## **KEMIGISHA CHARLOTTE =================== DEFENDANT**

### **BEFORE HON. MR. JUSTICE RICHARD WEJULI WABWIRE**

### 15 **JUDGMENT**

The plaintiff seeks to recover **Ushs. 68,600,906/= (Uganda Shillings Sixty-Eight Million Six Hundred Thousand Nine Hundred Six only)** being money due and owing from the defendant arising from a loan which was extended to the defendant by the plaintiff, interest of 20 25% p. a on the total sum from the date of filing this suit till payment in full and costs of the suit.

The background to this case is that on or around 27th April 2012, the defendant applied for a loan of **UGX 90,000,000/= (Uganda Shillings Ninety Million)** from the plaintiff bank which duly 25 considered and accepted her application for the facility. The loan was disbursed to the defendant onto her loan account number 2010595047944 on 03rd May 2012. The loan was to be repaid within 58 months together with interest thereon at a rate of 25% p.a.

The defendant was to repay monthly installments of **UGX 2,641,619**

# 30 **(Uganda Shillings Two Million Six Hundred Forty-One Thousand Six Hundred Nineteen)**.

In June 2014, the defendant defaulted on her repayment obligations and her loan account continued to accumulate arrears as well as interest.

35 Despite several reminders and demands, the defendant failed, neglected and/or refused to regularize her account. As a result, the plaintiff recalled the loan and demanded payment of all monies under the loan on 14th of October 2014.

At the time of filing this suit, the defendant's outstanding loan 40 balance was **UGX 70,112,698 (Uganda Shillings Seventy Million One Hundred Twelve Thousand Six Hundred Ninety-Eight)** being the total balance on the principal loan and interest thereon.

Following the filing of this suit, the defendant paid part of the outstanding balance which slightly reduced her loan balance to

## 45 **Ushs. 68,600,906/= (Uganda Shillings Sixty-Eight Million Six Hundred Thousand Nine Hundred Six only)**.

The issues for determination in this case are as follows:

- 1. Whether the plaintiff's suit discloses a cause of action against the defendant - <sup>50</sup> 2. Whether the defendant's defense of her loan being recovered and payable under the insurance policy is sustainable - 3. Whether the Plaintiff is entitled to the remedies sought.

In their written submissions, Counsel for the defendant submitted on Issues 1e and 2 concurrently. I will adopt the same format in 55 determining the first two issues since they are related.

The Plaintiffs were represented by Ligomarc Advocates while the Defendant was initially represented by AF Mpanga Advocates who later withdrew from the case and she was then represented by Asiimwe , Namawejje & Co. Advocates.

### 60 **Issues 1 & 2**

### **The Plaintiff's case**

In their submissions on issue one, counsel for the plaintiff submitted that it is settled law that in determining whether or not a plaint discloses a cause of action, the Court must look only at the plaint 65 and its annextures, if any, and nowhere else. Counsel relied on the case of *Nelima & 2 Others vs Bank of Baroda (Uganda) Ltd, HCCS No. 55 of 2015* which cited with approval the decision of Court in *Auto Garage v Motokov [1971] E. A 514* that:

- i. The plaintiff enjoyed a right - 70 ii. The right has been violated, and - iii. The defendant is liable

Counsel for the plaintiff submitted that it is discerned from reading paras. 4(a) – (c) of the plaint, the defendant approached the plaintiff by way of application to be availed a credit facility of **Ug. shs.** 75 **90,000,000 (Uganda Shillings Ninety Million).** The plaintiff extended the said facility upon the defendant's agreement to the terms thereof to repay the same within 58 months at an interest rate of 25% p.a. He further submitted that by virtue of the said loan agreement, the plaintiff enjoyed a legal right of having its money 80 repaid together with the interest thereon and referred to *Exh 1* which is the loan agreement.

Counsel also submitted that the defendant defaulted on her monthly loan instalments with effect from June 2014, to date. That this default is clearly stated in paras. 4(d) – (f) of the plaint and the same 85 is supported by *annextures B and C* attached to the plaint. It was therefore counsel's submission that the defendant violated the plaintiff's right when she defaulted on her loan repayment.

Counsel further submitted that the plaint clearly shows that the defendant entered into a contractual arrangement with the plaintiff 90 and that her continuous default to repay the loan amounts to breach of contract for which the defendant is liable. Counsel opined that from the foregoing, it was clear that the plaintiff had demonstrated from its plaint that it has a cause of action against the defendant and prayed that the issue is resolved in the affirmative.

95 In their submissions on issue two, counsel for the plaintiff contended that the defendant's defense that her loan was recoverable under the

Page **4** of **18**

insurance policy is not sustainable and does not hold water at all. Counsel submitted that the risk which was insured when the defendant obtained the loan facility from the plaintiff, was 100 retrenchment alone. That the said insurance policy did not cover the defendant upon her resignation and that this is evidenced by the plaintiff's *Exh P6.*

Counsel submitted that the defendant was never retrenched by her employer but she willfully resigned from her employment as 105 evidenced by the plaintiff's *Exhs. P7 and P8.* Counsel pointed out that the defendant has been gainfully employed by another employer and is able to repay her loan with the plaintiff as evidenced by *Exhs P9*. That, therefore, the insured risk did not happen as the defendant willfully resigned from her employment and hence her defense that 110 her loan is recoverable by insurance cannot stand. Counsel

emphasized that the defendant is personally liable and obligated to honor her loan repayment obligations with the plaintiff.

Counsel prayed that this Court orders the defendant to repay the entire outstanding loan balance of **Ushs. 68,600,906 (Uganda**

115 **Shillings Sixty-Eight Million Six Hundred Thousand Nine Hundred Six only)**

### **The Defendant's case**

Regarding Issue 1, counsel for the Defendant submitted that it is not in dispute that a loan facility was extended to the defendant and that 120 it is not in doubt that the said loan was insured for death, disability or redundancy according to plaintiff Exhibits 5 and 6 and para. 5 (d) of the defendant's written statement of defence which was unchallenged by the plaintiff.

Counsel pointed out that the representation by the plaintiff's official, 125 Dan Wabi to the defendant that the insurance policy was to be taken out to secure repayment of the second loan and money to a tune of **UGX 1,805,000/= (Uganda Shillings One Million Eight Hundred Five Thousand)** taken out of the defendant's account by the plaintiff to cater for the insurance premium as evidenced by P. E 1, which is 130 undeniable by the plaintiff and is also pleaded in para. 9(d) of the written statement of defence. In the case of *Stanbic bank (U) Ltd vs cellular Galore Ltd & 2 Ors, HCCS No. 50 of 2010,* the case of *Barton vs County Natwest Ltd [1999] Lloyds Report Ban 408, CA* was quoted where it was held, *interalia,* that:

135 *'…where a misrepresentation is made …and it is of a kind that would be likely to induce the person to enter into a contract, there is a presumption of reliance in favor of the victim of the misrepresentation. The creditor then has the burden of proving that there was no reliance by the victim on the* 140 *misrepresentation.'*

It was submitted for the defendant that the plaintiff made a representation to the defendant through its official that the loan that was being extended was insured, *inter alia*, against disability and redundancy and it is upon this representation that the defendant 145 agreed to the second loan, materially changing her position and that therefore the plaintiff is estopped from acting otherwise or asserting a position to the contrary as pleaded in paras. 9(b),(c)&(d) of the written statement of defence.

Counsel pointed out that in light of the above, the defendant having 150 resigned from UMEME in March 2013, remained in gainful employment with Globalteq Uganda Limited as Deputy CEO, a fact that was brought to the attention of the, Dan Wabi, the plaintiff's Relationship Manager who forwarded the said letter to one, Sheila who was the plaintiff's Credit Manager then.

- 155 That the defendant continued to pay the monthly instalments for a little over a year while working with Globalteq Uganda Limited until the said company was liquidated, which fact was brought to the attention of the plaintiff and thus it is not true that the defendant became redundant after her resignation with UMEME. - 160 Counsel contended that P9 cannot be conclusive evidence of gainful employment and should have been corroborated with an employment agreement or appointment letter which evidence was neither produced nor pleaded by the plaintiff. counsel prayed that Court considers it hearsay evidence which is inadmissible. - 165 Counsel relied on the case of *Housing Finance Bank Ltd & Anor vs Igeme Nathan Nabeta, HCCS No. 228 of 2012,* Justice Christopher Madrama dismissed the plaintiff's suit and awarded costs to the defendant and stated, *inter alia:*

*'That undertaking depended on the Defendant retaining his* 170 *Parliamentary seat. The entire arrangement collapsed and*

*was frustrated upon the occurrence of the loss of a job by a loser's petition by which the defendant lost his Parliamentary seat for Jinja Municipality East…In the circumstances the first plaintiff had no cause of action against* 175 *the defendant because the salary loan was frustrated and the source of income dried up. In the facts and circumstances of this case, the loan the defendant took was a salary loan and it was fully secured by an insurance policy according to the contractual requirements of the policy document. It was also a* 180 *contractual requirement that the policy was security for a loan under the loan agreement, Exh. P2.*

> *In the premises, the plaintiff's action stands dismissed with costs.'*

It was counsel's submission that the case was on all fours of the facts 185 of the instant case save for the fact that the plaintiff didn't claim the insurance cover from the insurer; where the defendant was extended a loan facility which was fully secured by an insurance policy according to the contractual obligations of the plaintiff to take out the policy against, *inter alia,* disability to pay the loan instalments 190 due to redundancy on behalf of the defendant from whom the plaintiff had received payments.

Counsel also submitted that the change in condition of repayment obligations were not directly or indirectly induced by the defendant, neither did they arise because of breach of contract of employment 195 on her part, but rather, redundancy which extinguished the

defendants' obligations on account of redundancy and the plaintiff had recourse to the insurance company as was in the aforementioned case and not the defendant.

In the circumstances, the plaintiff has no cause of action against the 200 defendant because the salary loan was frustrated and the source of income dried up.

Counsel reiterated that it was a contractual requirement that the policy was security for a loan under the loan agreement, a fact admitted by the plaintiff, and ought to have been taken out by the 205 plaintiff. That failure to do so leaving the policy to expire constituted bad faith on the part of the plaintiff hence depriving the defendant of the full benefit of the insurance cover. Consequently, the plaintiff is estopped from seeking to recover or enforce amounts unpaid under the top up/ second loan.

- 210 Counsel prayed that Court finds that under the foregoing submissions with the available evidence, the plaintiff has no cause of action against the defendant and that, the defendant's' defense of her loan being covered and payable under the insurance policy is tenable and the suit be dismissed with costs to the defendant. - 215 The plaintiff filed a rejoinder which consisted mainly of submissions that the defendant's counsel was making submissions from the bar and reiterating their earlier submissions.

### **Resolution** This suit is for breach of contract and recovery of a loan amount by 220 the plaintiff bank. It is not in dispute that indeed, around May 2012, the plaintiff bank advanced an initial loan amount of **UGX 90,000,000/= (Uganda Shillings Ninety Million)** to the defendant as shown by Exhs. P1 and P2 which are the defendant's loan application form and loan account statement.

225 The defendant made some payments to this loan amount which then came down to an outstanding loan balance of **Ushs. 68,600,906 (Uganda Shillings Sixty-Eight Million Six Hundred Thousand Nine Hundred Six only)**.

It is also not in dispute that the defendant subsequently defaulted on 230 repayment of the loan as evidenced by Exhs. P3 & P4 which shows a demand/ notice of intention to sue from the bank.

These two undisputed facts answer in the affirmative, the first two known criteria in *Auto Garage v Motokov (supra)* for determination as to whether there is a cause of action.

235 The third criteria as to whether the defendant is liable is however disputed by the defendant, which leads to Issue 2.

Counsel for the defendant submitted that the defendant did not neglect or refuse to pay the loan amounts as agreed but that she was rendered redundant when her new employer, Globalteq lost funding.

240 At the time of obtaining the facility, the defendant was employed by UMEME Limited but she resigned in March 2013 as evidenced by Exh. P8 and claims to have joined Globalteq as the Deputy CEO where she continued to service her salary loan until she was rendered redundant.

245 Counsel also alluded to the fact that there was misrepresentation on the side of the defendant through one of the plaintiff's employees that the loan would be covered by insurance upon death and disability.

Exh. P5, an auto generated document confirms that the loan was insured against death and disability.

250 Exh. P6 is the Insurance Policy Document/ Credit Life Assurance Agreement, effective 01st August 2011 between the plaintiff and Sanlam Life Insurance (Uganda) Limited. In that policy, the cover provided included life cover against death, retrenchment cover, abscondance cover and total permanent disability cover, which 255 relates to physical injury according to the definition in the policy. Counsel for the defendant sought to rely on the case of *Housing Finance v Igeme* to stretch it to entail the defendant being rendered redundant at her employment thus leading to the inability to continue paying the loan as required. With due respect to Counsel, 260 the attempt to impregnate meaning to the word *disability* with such interpretation to the application of the clause is misconceived. It is preposterous to argue that a healthy employee who is declared redundant can make a claim under the disability cover. In any case, the insurance policy explicitly provides for retrenchment which is 265 akin to redundancy but also separately provides for disability.

However, to benefit from the retrenchment/redundancy cover, certain circumstances under which the defendant/borrower left employment are excluded.

- Clause 3.3(i) of the Insurance Policy- P6, excludes resignation as a 270 ground for eligibility to retrenchment/redundancy benefit. Exhibit P8- a letter from the head of Human Resources at Umeme, is uncontroverted evidence that the Defendant voluntarily resigned from gainful employment with Umeme, which is where she worked when the loan and insurance policy were taken out. - 275 Having voluntarily resigned her employment, the insurance redundancy /retrenchment cover under the policy could not be invoked to meet the outstanding loan obligations.

Even if in evidence in submissions from the Bar by her Counsel and in a letter marked P4 from her then lawyers allude to the fact that 280 she subsequently went into gainful employment with a firm which subsequently rendered her redundant, no evidence was adduced to show that the Insurance Policy was extended to cover the period and circumstances subsequent to her resignation from Umeme.

In light of the foregoing, the defendants finds herself in the 285 unfortunate circumstances of having voluntarily opted out of the insurance policy cover which she now seeks to rely upon for redemption.

The cover is now not available and whereas Issue no 1 succeeds, Issue no. 2 is answered in the negative.

### 290 **Issue 3**

### **The Plaintiff's case**

The plaintiff sought the following remedies:

That the defendant pays the following sums to the plaintiff:

- a) **UGX 68,600,906 (Uganda Shillings Sixty-Eight Million Six** - 295 **Hundred Thousand Nine Hundred Six only)** being the total outstanding principal loan. - b) Interest at 25% p.a on the total sum from the date of filing this suit till payment in full, and - c) Costs of this suit - 300 Counsel submitted that the plaintiff is entitled to recover the above amounts given the undisputed evidence adduced by the plaintiff that the defendant sought for and obtained a loan amount of UGX 90,000,000= (Uganda Shillings Ninety Million only), at an agreed rate of 25% p.a by making 58 monthly instalments of **UGX 2,641,619** 305 **(Uganda Shillings Two Million Six Hundred Forty-One Thousand Six Hundred Nineteen)**. Counsel also submitted that it is trite law that a party who suffers breach of contract is entitled to

compensation for the loss. He relied on Section 6(1) of the Contracts Act which provides *that*

310 *'where a contract is breached, and a sum is named in the contract as the amount to be paid in case of a breach or where a contract contains any stipulation by way of penalty, the party who complains of the breach is entitled, whether or not initial damage*

*or loss is proved to have been caused by the breach, to receive* 315 *from the party who breaches the contract reasonable compensation not exceeding the amount named or the penalty stipulated, as the case may be."*

## He cited the case of *Barclays Bank of Uganda vs Bakojja – HCCS No. 53 of 2011, where Justice Flavia Senoga Anglin held that*

320 *'the principle established by decided cases is that a long term loan would immediately become payable but payable at once to constitute a penalty as being payment stipulated as in torrerem or legal threat of the offending party".*

'T*he aim of the law is to ensure that an innocent party receives his full* 325 *due and that no rule or equity can compel him to take a loss no matter how minute it may be… an innocent party should be adequately compensated, the only compensation for nonpayment of the debt. The innocent party in other words is entitled to that no loss end and is empowered to achieve it by an action for debt. The contract breaker* 330 *cannot escape his contractual liability or limit his liability by repudiating it and insisting that such repudiation be accepted by the innocent party.'* see **Altica sea carriers Corporation vs Ferrostoal Poseidon Bank Reederei GMBH [1976] 1Lloyds Rep. 250**

In light of the above authorities and evidence, counsel submitted that 335 the plaintiff has suffered the breach of a contract by the defendant, and as such, the plaintiff is entitled to **UGX 68,600,906 (Uganda Shillings Sixty-Eight Million Six Hundred Thousand Nine** **Hundred Six only)** being the outstanding loan balance due on the breached contract with interest thereto.

- 340 Counsel submitted that according to Section 26(2) of the Civil Procedure Act, the award of interest is at the discretion of Court and considering this was a commercial transaction, and the defendant withheld money which the plaintiff could have utilized and saved itself the trouble of repaying depositors. - 345 In *K and V Limited vs The Registered Trustees of Arya Practinidihi Sabha Eastern Africa, HCCS No. 299 of 2011 in which, Lady Justice Flavia Anglin* cited the *Supreme Court case of Sietco vs Noble Builders (U) Ltd, SCCA No. 31 of 1995, where* the Supreme Court stated that - 350 '*where a party is entitled to a liquidated amount and has been deprived of it through the wrongful act of another, he should be awarded interest from the date of filing the suit till payment in full".*

He also referred to Section 62(1) of the Contracts Act to emphasize

355 that *'… the penalty stipulated under subsection (1) may provide for an interest on the amount of compensation to be paid'*

He submitted that from the evidence, it is clear that the defendant was meant to pay 25% per annum and that the plaintiff's witness testified that the interest was suspended upon the defendant's loan 360 becoming non-performing. That however, the same can be recovered in accordance with the Bank of Uganda Regulations. That the

requirement to suspend interest when a loan becomes nonperforming as well as the requirement to recover the suspended interest is provided for under Regulation 9(1) of the Financial 365 Institutions (Credit Classification and Provisioning) Regulations, S. I No. 43 of 2005.

Counsel prayed that the plaintiff be awarded interest of 25% per annum on the **UGX 68,600,906 (Uganda Shillings Sixty-Eight Million Six Hundred Thousand Nine Hundred Six only)** from the 370 date of filing the suit till payment in full.

Finally, counsel prayed that the plaintiff be awarded costs of the suit, considering the plaintiff has proved its case against the defendant. That it is trite that costs follow the event as provided for in *Section 27 of the Civil Procedure Act*.

#### 375 **The Defendant's case**

On this issue of remedies, counsel for the defendant submitted that since the plaintiff misrepresented itself to the defendant about the nature of the security/ insurance for the loan, it cannot be seen to benefit to recover the outstanding loan from the defendant. That the 380 plaintiff's failure to apply for the insurance cover within 30 days of the redundancy should not be used to the detriment of the defendant. Secondly, counsel submitted, in the alternative without prejudice to

the foregoing, that under the alleged facility terms contained in the letter dated May, 2015 which letter was generated after the loan 385 amount was disbursed, there is no power or right brought by way of evidence or otherwise reserved by the plaintiff to recall the entire outstanding loan amount upon a breach. The plaintiff is thus not entitled to recall the facility and demand payment for all outstanding amounts, if any, under the second *(reference made to Exh. P5 and*

390 *paras. 13&19 of the WSD)*

Thirdly, the interest of 25% was neither agreed upon between the parties nor brought to the attention of the defendant prior to or at the time of signing the second loan or at the time of disbursement of the loan amount. That the plaintiff's Exh. 5 cannot serve as the loan 395 agreement with terms of an auto generated document of the plaintiff which the defendant did not sign.

That from the foregoing, the defendant was rendered redundant from her job and salary on which basis she was advised by the plaintiff to take up the top-up loan to cover disability under an insurance policy.

400 That the plaintiff breached its fiduciary duty by not claiming under disability within the requisite time considering the insured event occurred.

## **Resolution**

Following my findings in issues one and two, the plaintiff succeeds 405 and is entitled to recover the outstanding amounts as prayed.

The Defendant is accordingly ordered to pay to the Plaintiff, the sum of **UGX 68,600,906 (Uganda Shillings Sixty-Eight Million Six Hundred Thousand Nine Hundred Six only)** being the outstanding loan amount**.**

410 Notwithstanding that under **Section 26(2) of the Civil Procedure Act**, the award of interest is at the discretion of Court, the transaction in this instance having been a commercial transaction, where the rate of interest was a contractual term and for which no reasons for variation of the term have been proffered and further that the 415 defendant withheld the money from the plaintiff thereby denying them possible alternative growth opportunities, Interest shall accrue.

I am however mindful of the hardship and pressure on income resources that has been occasioned by the CoVID19 pandemic on individuals and on the general economy, I accordingly exercise this 420 Courts discretion under Section 26 CPA and award interest at the

rate of 8% from the date of filing the suit till payment in full.

Taking into account the same factors regarding economic hardship, I award only 10% of the taxed costs against the Defendant.

Delivered at Kampala this 12th day of February, 2021.

# ………………………………………………………

## **RICHARD WEJULI WABWIRE**

## **JUDGE**

430