Standard Chartered Bank Uganda Limited v Lutwama (Civil Suit 772 of 2022) [2024] UGCommC 358 (11 November 2024)

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA ICOMMERCTAL DrVrSrONl CIVIL SUIT NO. 0772 OF 2022 STANDARD CHARTERED BANK UGANDA LTD: : : : : : : : : : : : : : : : : :PLAINTIFF

#### VERSUS

# LUTWAMA CHARLES WILLIAM: : : : : : : : : : 3 : : : : : : : : : : : : : : : : : : : : : : : :DEFENDANT

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

#### JUDGMENT

The plaintiffbrought this suit against the defendant by way ofan ordinary plaint for a claim of Ugx 67,441,9331: (sixty-seven million four hundred forty-one thousand nine hundred thirty-three shillings) being the outstanding loan balance owed by the defendant, interest thereon and the costs ofthe suit.

The defendant who was a customer of the plaintiff obtained a top-up salary loan facility totalling Ugx 180,000,000/: (one hundred and eighty million shillings only) at a variable interest rate of 20%o per annum from the plaintiff in October 2017 . The said loan was to be paid within a period of 59 months from the 30th October 201 7 to the 30th August2022. The said loan was insured to be covered in incidences ofdeath, total/permanent disability, and retrenchment.

The defendant diligently paid his loan as scheduled to the plaintiff until December 2020 when his employment contract expired and the same was not renewed. Later the defendant's gratuity was paid which was used to service the loan for the months of January till May 2021. The defendant defaulted on the repayment of his loan from the 30th June 2021. The default in payment resulted in the accumulation of the amount due to Ugx 67,441,9331:.

30 Despite several reminders, the defendant failed to rectifo the default hence this suit.

During the hearing of this matter, the plaintiff produced one witness, Nagasha Jackline (PWl), a recovery manager with the plaintiff and the defendant was the sole defence witness (DWl).

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# REPRESENTATION

The plaintiff was represented by M/s S & L Advocates whereas the defendant was represented by lWs Sam Kabanda Advocates & Solicitors.

#### SUBMISSIONS OF PARTIES

40 Counsel for the plaintiff submitted that the plaintiff undertook to repay the loan of Ugx 180,000,000/= in 59 monthly instalments from 30th October 2017 to 30th October 2022 at a variable interest rate of 20oh per annum. Counsel submitted that PWl testified that the defendant only paid the instalments for 30 months and defaulted in the repayment. Counsel contended that during cross-examination, DWI admitted that he last paid his loan in May 2021 . Counsel stated that this default led to the accumulation of the outstanding amount to Ugx 67,441,933/: and that the defendant is therefore indebted to the plaintiff.

Counsel for the plaintiff further submitted that clauses l, 2 and 3(c) of the loan facility document show that the plaintiff obtained unsecured loan facilities from the plaintiff and the salary was only intended to prove the creditworthiness of the defendant and not act as a security for the loan. Counsel stated that even if the salary was to act as security for the loan, the loss of the salary did not discharge him from his loan repayment obligations as security does not eliminate liability where it ceases to exist.

Counsel for the plaintiff further submitted that the insurance cover in question did not extend to the instant case and could not be utilized as it was in respect of death, total and permanent disability, and retrenchment. Counsel submitted that the defendant has not submitted any evidence of those three occurrences for the insurance cover to apply therefore in the circumstances, the insurance cover does not apply.

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The defendant in his defence claims that the loan in question was advanced to him as a salary loan till 2022 by the plaintiff who was well aware that his contract of employment was ending in 2018 which was later extended to 2020.

Counsel for the defendant submitted that the collateral for the facility in this case was the subsistence of the defendant's employment. Secondly, it was always in the knowledge of the plaintiff when the defendants' contract would end. Counsel submitted that PWI personally confirmed that it is the plaintiff s policy to risk on

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such clients as the defendant. Counsel contended that the above risk was a foreseen risk that the plaintiff took based on the good antecedents of the defendant and therefore when the defendant's contract expired, the implied substantial collateral ceased to exist and therefore the relationship between the plaintiffand defendant was frustrated and ceased to exist.

Counsel for the defendant further submitted that the insurance cover provided for death, total and permanent disability, and retrenchment. Counsel contended that there was permanent and total disability on the part of the defendant to continue servicing the loan because his contract had expired and he had no source of income.

### JUDGMENT

I have carefully read the pleadings, listened to the testimonies of the witnesses, and read the submissions of counsel in this matter. During the scheduling conference, the parties raised two issues to be determined by this court:

# 1. Whether the defendant is indebted to the plaintiff for the sums claimed

# 2. What remedies are available

#### Issue I :

# Whether the defendant is indebted to the plaintiff for the sums claimed

It is not in dispute that the defendant obtained a loan facility from the plaintiff totalling Ugx 180,000,000/: (One hundred and eighty million shillings) that he diligently serviced till May 2021 .lt is also not in dispute that the defendant defaulted in making payments from the month of June 2021 and that the outstanding amount the bank is claiming isUgx 67,441,933/: (sixty-seven million four hundred fortyone thousand nine hundred thirty-three shillings).

In the instant case, DW1 admitted during cross-examination that he indeed picked a loan from the plaintiff and serviced the same till May 2021. He also rightly admitted that he defaulted in payment of the same in the month of June 2021 as the payments were based on his salary deductions and because his contract of employment had ended in December 2020 and he had not found any alternative source of income, he could not pay the loan.

Further, the evidence adduced in the loan advancement form marked as PEXH 3 shows under Part.2that the solutions /bundled products the defendant applied for was the salary solution lite: Personal loan \* Current Account and the lending product requested for was a personal loan.

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Under the key facts document marked as annexure PEXH 4, paragraphs 1 and $3(c)$ show that the type of loan applied for was the personal instalment loan and that the same was unsecured. It is also indicated under the same document that the loan is designed for salary earners to obtain credit to further their individual plans.

Whereas the key facts document and the loan agreement show that this loan was the type that was designed for salary earners, the same document also states that the same loan is unsecured.

The issue in relation to unsecured salary loans was tackled in the case of **Standard** Chartered Bank v Bob Ssekamatte Nsereko HCCS No. 0873 of 2020, by Honorable Justice Mubiru who held that:

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"The fact that he took out a salary loan cannot support his contention that repayment was by that fact alone intended to be made exclusively from his earnings as salary from that employment. Salary loans are for individuals who are employed, with a regular salary, pension, or any other fixed compensation. Such borrowers are expected to repay their loans through monthly deductions or debit from salary deposits onto personal accounts maintained with the lender, for the loan period. Naturally, only an individual with a salary job is eligible for this loan. This is because the borrower can always pay back at the end of the month immediately after the borrower receives his or her salary.''

The learned Judge further went on to elaborate on unsecured debts as follows: 120

"An unsecured debt is backed only by the reliability and credit of the borrower. The requirement that the borrower is a salaried employee at the time of taking out the loan is never intended to constitute the salary as security for payment but rather to prove the borrower's creditworthiness and promise to repay. In the sense that no collateral is required for a salary loan, it is an unsecured debt where if the borrower defaults on this type of debt, the lender must initiate a suit to collect what is owed."

Though it is true that the loan was issued for a longer time than the employment period, that does not in any way absolve the defendant from servicing the same. The parties entered a loan agreement where the defendant undertook to pay the loan within a given time frame and the same loan was unsecured which ultimately points to the fact that the defendant had an obligation/duty to service his loan regardless of whether he was employed or not.

I therefore find that the defendant picked an unsecured salary loan and the loss of his employment does not relieve him of the obligation to pay the same.

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In regards to whether the defendant is excluded from the payment ofthe debt due to the insurance policy, I find that the insurance cover as rightly stated by the plaintiff only catered for customers in three incidences of death, permanent disability and retrenchment and the defendant does not fall under any of the three categories foreseen in the insurance cover.

L40 Though counsel for the defendant submitted that his loss of employment amounts to his permanent disability to pay, I strongly disagree with that assertion as this is not the disability envisaged under the policy. Therefore, in the circumstances, the insurance cover could not apply to the defendant.

From the foregoing, it can be seen that the defendant is indebted to the plaintiffin the amount claimed.

I, therefore, find that the defendant is indebted to the defendant in the sum ofUgx 67,441,933/: (sixty-seven million four hundred forty-one thousand nine hundred thirty-three shillings).

### Issue 2:

#### 150 What remedies are available

The plaintiff prayed for payment of the outstanding loan amount of Ugx 67,441,933. The Defendant did not dispute the amount of money claimed and neither did he submit any evidence to prove that he had paid the said money. Therefore, having resolved the 1't issue in the affirmative, the Plaintiff is entitled to payment of the outstanding amount of money.

# Interest

In both PEXH 3(loan advancement form) & PEXH 4 (key facts document) signed by both the plaintiffand defendant, the parties agreed that the loan would attract an interest rate of 20o/o per annum.

160 The defendant is therefore liable to pay interest of 20%o from the date of the default till its full payment.

# Costs

The general rule is that a successful parfy is awarded costs unless there are good reasons to deny it. (Jennifer Behange, Rwanyindo Aurelia, Paul Bagenzi v School Outfitter (tI) Limited CACA No.53 of 1999).

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The plaintiff is the successful party in this case and I see no reason for denying him the costs ofthe suit.

Judgment is hereby entered for the plaintiff on the following terms:

- 1) The defendant pays the plaintiff the outstanding amount of Ugx 67,441,933 - 2) Interest of20o/o per annum from the date ofthe default till full payment - 3) Costs to the plaintiff

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180 HON. LADY JUSTICE ANNA B. MUGENYI DATED rl [.r.r].

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