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

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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:

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 1. Whether the plaintiff’s suit discloses a cause of action against
the defendant
50 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

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 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

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 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)

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 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

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 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

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 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

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 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

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 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

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 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.

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 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.

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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

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 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”.

‘The 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

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 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

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 requirement to suspend interest when a loan becomes non-
performing 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

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 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.

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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.

425

………………………………………………………

RICHARD WEJULI WABWIRE

JUDGE

430

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