Steam Investments Limited & 3 Others v Equity Bank Uganda Limited (Miscellaneous Application 1429 of 2022) [2024] UGCommC 101 (30 April 2024)

## 5 **THE REPUBLIC OF UGANDA**

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

## **(COMMERCIAL DIVISION)**

## **MISCELLANEOUS APPLICATION NO. 1429 OF 2022**

## **(ARISING OUT OF CIVIL SUIT NO. 0820 OF 2022)**

- 10 **1. STEAM INVESTMENTS LTD** - **2. KYEYUNE TWAHA ADAM** - **3. MUHUMUZA FRANK** - **4. MUHUMUZA STEVEN ::::::::::::::::::::::::::::::::::: APPLICANTS**

## **VERSUS**

## 15 **EQUITY BANK UGANDA LTD ::::::::::::::::::::::::::::::::: RESPONDENT**

## **Before Hon. Lady Justice Harriet Grace Magala**

## **Ruling**

## **Background**

The Respondent through a Credit Facility Agreement dated 10th March 2018, advanced to the First Applicant a credit facility to the tune of Ugx. *1,500,000,000/- (Uganda Shillings One Billion Five Hundred Million only*). This

credit facility was guaranteed by the 2nd, 3rd and 4 25 th Applicants. The credit facility was secured by property comprised in LRV KCCA 252 FOLIO 11 at Kagugube registered to the 1st Applicant (mortgage property), personal guarantees of the 1st

- 5 Applicant's directors and receivables of Ugx. 1,929,390,000 (USD 528,600) from UETCL. The said loan facility was varied on the 21st March 2020 to Ugx. 1,868,895,866/- at the request of the 1st Applicant and subsequently varied to Ugx. 2,369,000,000/- on 28th March 2021. The 2nd, 3rd and 4th Applicants executed unlimited personal guarantees for the variation and facility. - The 1 10 st Applicant defaulted on repaying the credit facilty alleging frustration on the payment by Isolux Corsan Ingeneria S. A and effects of COVID-19 pandemic. The 1st Applicant then sued the Respondent vide HCCS No. 133 of 2022 for declarations that it is not indebted to the Respondent, mortgage charge on the mortgage property is void, illegal and unenforceable, the discounting credit facilities/transactions between the 1 15 st Applicant and Respondent are illegal and - unenforceable, invoice discount loans were frustrated by failure of the main contractor to pay, the Respondent's continuing charging of interest after commencement of Bank of Uganda Guidelines on Credit Relief and Loan Restructing for supervised financial institutions during COVID-19 pandemic is - 20 illegal, injunctions against the Respondent, punitive damages, general damages, interest and costs. Subsequently, the Respondent as well sued the Applicants vide HCCS No. 820 of 2022 under Order 36 of the Civil Procedure Rules (summary suit) to recover *Ugx. 3,162,936,609/- (Uganda Shillings Three Billion One Hundred Sixty-Two Million Nine Hundred Thirty-Six Thousand Six Hundred* - 25 *Nine only)*, being the outstanding balance on the credit facility and costs of the suit. It is from this suit that the Applicants seek unconditional leave to appear and defend, through this Application.

The Applicant seeks orders that the Applicants/Defendants be granted unconditional leave to appear and defend the suit and costs of this Application be 30 provided for.

The Application is based on the following grounds:

- 5 a) That civil suit No. 0820 of 2022 is an abuse of court process; - b) That there is already an existing suit, Civil Suit No. 133 of 2022, Steam Investments Ltd versus Equity Bank Uganda Ltd.; - c) That the Respondent has no cause of action against the Applicants; - d) That the claim in Civil Suit No. 820 of 2022 is illegal and unenforceable; - 10 e) That there is a pending ruling for temporary injunction and interim order vide Miscellaneous Application No. 201 of 2022 and 200 of 2022; - f) That Civil Suit No. 0820 of 2022 is barred by the rule of Lis pendens; - g) That the loan transaction was based on an illegal mortgage and the same is still under judicial investigation in Civil Suit No. 133 of 2022; - 15 h) That the Defendants/Applicants are not indebted to the Plaintiff/Respondent; - i) That the Applicants/Defendants have a good defence against the suit; and - j) It is just and equitable that this Application be granted for the ends of justice to be met. - 20 The affidavit in support of the application was deposed by Twaha Adams Kyeyune and it states that: - a) On the 18th day of February 2022, the 1st Applicant instituted Civil Suit No. 133 of 2022 against the Respondent and served the Respondent on the 15th March 2022; - 25 b) Civil Suit No. 820 of 2022 offends the rule of Lis Pendens rule and that the entire suit is an abuse of court process; - c) The 1st Applicant filed an Application for a Temporary injunction and interim injuction order vide Miscellaneous Applications No. 200 of 2022 and 201 of 2022, which are pending the delivery of Rulings; - 30 d) The Respondent filed affidavits in reply and it is fully aware that the said Applications are pending the delivery of rulings; and - e) The Respondent has no cause of action against the Respondent.

- 5 The Affidavit in reply was deposed by Martha Kamuhanda and it states that: - a) HCCS No. 133 of 2022 was intended to frustate the payment of the loan by the Applicant and there is no way it is connected with HCCS No. 820 of 2022 which is claim for liquidated sums of money due and outstanding; - b) In HCCS No. 133 of 2022, the Applicants do not deny ever been indebted 10 to the Respondent; - c) The 1st Applicant was offered Ugx. 1,500,000,000/- (Uganda Shillings One Billion Five Hundred Million only) on the 18th March 2018 and the facility was guaranteed by the 2nd, 3rd and 4th Applicants; - d) The facility was varied on the 21st May 2020 to Ugx 1,868,895,866/-, payable in ten months again varied on the 28 15 th May 2020 to Ugx. 2,369,000,000/- payable in 24 months and these variations were personally guaranteed by the 2nd, 3rd and 4th Applicants through unlimited personal guarantee; - e) Despite the restructures, the 1st Applicant defaulted and the amount due and outstanding is Ugx. 3,162,936,609/= and the 2nd, 3rd and 4 20 th Applicants have failed to pay the outstanding amount despite being aware of the default; - f) The Applicants have no defence to the main suit and only filed HCCS No. 133 of 2022 to frustrate recovery of the outstanding loan by the 25 Respondent; and - g) This Application lacks merit and should be dismissed with costs.

## **Hearing and Representation**

The Applicants were represented by M/s Kigenyi-Opira & Co. Advocates while the Respondent was represented by M/s Kavuma Kabenge & Co. Advocates.

30 **Submissions**

## 5 **Applicants' submissions**

The Applicants' counsel submitted on one issue for resolution i.e. whether this Application merits the grant for unconditional leave to appear and

defend. It was the submission of the learned counsel that **Order 36 rule 4 of the Civil Procedure Rules** allows grant of unconditional leave to appear and defend 10 a suit where the applicant shows that he or she has a good defense on merit or that a difficult point of law is involved or there is a dispute which ought to be tried or a real dispute as to the amount claimed which requires taking an account to determine or any other circumstances showing reasonable grounds of a bona fide defence. He cited and relied on the case of on *M. M. K Engineering Versus*

- 15 *Mantrust Uganda Ltd HCMA No. 128 of 2012, Maluku Inter Globle Trade Agency V Bank of Uganda (1985) HCB 65 at 66 and Kotetcha Versus Muhammed (2002) E. A 112* to argue that the defendant must by affidavit or otherwise prove that there is a bona fide triable issue of law or fact. - Furthermore, it was submitted for the Applicant's that while the essence of 20 summary procedure is to enable the plaintiff with a liquidated claim to which there is no clear defence to obtain a quick and summary judgment without being unnecessarily kept from what is due by the delaying tactics of the defendant, the defendant who wishes to resist the entry of summary judgment should place evidence by way of affidavit before the court showing some reasonable grounds 25 of defence. He cited and relied on the case of *Sembule Investments Versus Uganda Baati Ltd HCMA No. 664 of 2009.*

The Applicants' counsel argued that HCCS No. 820 of 2022 offended the lis pendens rule under **Section 6 of the Civil Procedure Act**, since there already existed HCCS No. 133 of 2022. To buttress his argument, counsel relied on the

<sup>30</sup> case of *Springs International Hotel Ltd Versus Hotel Diplomat and another Civil Suit No. 227 of 2011.* He further submitted that Miscellaneous Applications

5 No. 201 of 2022 and 200 of 2022 already existed in this court and are pending ruling, and that the Respondent made replies in those Applications. Additionally, counsel based on the Plaint in in HCCS No. 133 of 2022 to submit that the transaction was based on an illegal mortgage and the same was under judicial investigation in HCCS No. 133 of 2022 and this is a triable isssue which merits 10 grant of unconditional leave to appear and defend the suit.

He finally submitted that 2nd, 3rd and 4th Applicants were not indebted to the Respondent and therefor it has no cause of action against them.

## **Respondent's submissions**

It was submitted for the Respondent that this application raised no triable issues 15 or plausible defence and the defence had general denial and was intended to delay justice and waste Court's time.

That HCCS No. 133 of 2022 is intended to frustrate payment of the loan obligation by the Applicants and there is no way it is connected to the present suit which is specific claim for liquidated sums of money sue and outstanding against

20 the Applicants. Counsel for the Respondent reiterated the averments in the Affidavit in Reply and emphasized the position on the essence of summary procedure stated in the case of *Sembule Investments Ltd V Uganda Baati Ltd (supra).* He concluded that the Applicants had made no effort to prove any palusible defence but rather made plain/vague statements denying liability.

## 25 **Determination**

It was the submission of the Applicants that HCCS No. 820 of 2022 offended the *lis pendens* rule. This in my considered opinion is a preliminary point of law which is capable of disposing the suit and merely a ground to grant the Applicants leave to appear and defend the suit.

- 5 The term Lis *pendens was* defined in the case of *Springs International Hotel Ltd V Hotel Diplomate Ltd and another Civil Suit No. 227 of 2011,* while making reference to the **8 th Edition of the Black's Dictionary** as a pending suit or action. The same is provided for under **section 6 of the Civil Procedure Act** which states that: - 10 "*No court shall proceed with the trial of any suit or proceeding in which the matter in issue is also directly and substantially in issue in a previously instituted suit or proceeding between the same parties, or between parties under whom they or any of them claim, litigating under the same title where that suit or proceeding is pending in the same or any other court having* 15 *jurisdiction in Uganda to grant the relief claimed".*

According to Yorakamu Bamwine, J (as he then was) in the case of **Tindyebwa Stephen versus Alpha International Investments Ltd., MA 0789 of 2005,** the provision of section 6 of the Civil Procedure Act is couched in mandatory terms. Therefore, when a question arises as to the competence of a suit or matter 20 in reference to this Section, the court ought to stay the subsequent suit.

The test applied when determining whether the suit offends the *lis pendens rule* was well laid out in the case of *Springs International Hotel Ltd V Hotel Diplomate Ltd and another (supra)* as:

- *a) whether the matter(s) in issue in the instant suit are directly and* 25 *substantially the same as the matters in issue in a previously instituted suit;* - *b) whether the parties in the previous suit are directly or substantially the same as in the subsequent suit; and* - *c) whether the suit is proceeding or pending in the same or any other court having jurisdiction to grant the reliefs claimed.*

# 5 **The first test is that the matter(s) in issue in the instant suit are directly and substantially in issue in a previosly instituted suit.**

The matters in issue to be substantially similar does not refer to one issue but the entire subject matter of the suits. To determine this question, the court analyzes the pleadings of both the previoius suit and the current contested suit. This 10 includes the prayers/releifs sought by the parties in both suit.

A perusal of the Plaint in HCCS No. 133 of 2022 shows that the Plaintiff, now 1st Applicant contests the loan facility executed between it and the Respondent. The Plaintiff also denies the claimed debt on the basis that the transaction was/is illegal. The 1 st Applicant/Plaintiff seeks declaration that the mortgage charge on

- 15 land comprised in LRV KCCA 252 FOLIO 11 at Kagugube is illegal, void and unenforceable. Under paragraph 4(f) of the Plaint, the Plaintiff/1st Applicant clearly alludes to the restructring of the credit facilities to Ugx. 1,500,000,000/- (Uganda Shillings One Billion Five Hundred Million only) on 10th March 2018. - In the specially endorsed plaint in HCCS No. 820 of 2022, the 20 Plaintiff/Respondent's claim is based on the loan facility of Ugx. 1,500,000,000/- (Uganda Shillings One Billion Five Hundred Million only) based on an offer letter dated 10th March 2018.

The questions for determination in both suits i.e. HCCS No. 820 of 2022 and HCCS NO. 133 of 2022 are substantially similar and directly interelated i.e. the validity or legality of the loan facilities and whether the 1 25 st Applicant is indebted to Equity Bank Uganda Limited. These loan facilities arise from the same transaction and this as well settles the question of mortgage and the guarantees issued by the 2nd, 3rd and 4th Applicants.

The Respondent admits the existence of HCCS No. 133 of 2022 but submitted 30 that the suit was intended to frustrate payment of loan obligation. This does not

5 change the fact the matters in issue are substantially, directly related and similar in both suits.

## **The second test is that the suits are between the same parties.**

In Civil Suit No. 133 of 2022, the parties are *Steam Investments Ltd Versus Equity Bank Uganda Ltd*. In Civil Suit No. 820 of 2022, the parties are *Equity Bank* 10 *Uganda Ltd Versus Steam Investments Ltd and three others*.

I should note that the parties being the same in both suits does not mean that the parties shall be all identically similar or all in both suits but if one of the parties with substantially similar interests crossappears in both suits, this fits the test of *lis pendens*. See. *Springs International Hotel Ltd Versus Hotel Diplomate ltd*

15 *and another* (supra).

Both the 1st Applicant and the Respondent are parties in HCCS No. 133 of 2022 and HCCS No. 820 of 2022. I am therefore of the opinion that the parties in both suit are similar.

**The last test is that the suit or proceeding is pending in the same or any other** 20 **court having jurisdiction to grant the reliefs claimed.**

This court has noted that it is not disputed by the Respondent that HCCS No. 133 of 2022 was filed in this court.

It is this court's finding that there exists a suit HCCS No. 133 of 2022 pending hearing and determination in the High Court of Uganda (Commercial Division).

25 This is court of competent jurisdiction.

In the circumstances I find that HCCS No. 820 of 2022 offends the rule of *Lis Pendens* and is an abuse of the court process. The same is hereby struck out under section 98 of the Civil Procedure Act and section 17(2) of the Judicature Act. The

5 Parties are hereby directed to prosecute HCCS No. 133 of 2022 without any further delay.

Each party shall bear their own costs.

Dated and signed at Kampala this **29th day of April 2024.**

# 10 **Harriet Grace MAGALA**

## **Judge**

Delivered online (ECCMIS) this **30th day of April 2024.**