NSENGIYUMVA v. BANK OF KIGALI (BK) PLC

# NSENGIYUMVA v. BANK OF KIGALI (BK) PLC

- Source: Amategeko - Section: Decisions (Judgements) - Date: 2021-10-07 - Case/document no.: RS/INJUST/RCOM 00005/2021/SC - Collection: Supreme Court

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NSENGIYUMVA v. BANK OF KIGALI (BK) PLC [Rwanda SUPREME COURT-RS/INJUST/RCOM 00005/2021/SC (Ntezilyayo, P.J., Cyanzayire, Hitiyaremye, Karimunda and Nyirinkwaya, J.) October 7, 2021] Rules of procedure for judgment review due to injustice – Scope of the subject matter – Issues that were not subject to examination during the original trial cannot be brought forth for examination in relation to judgment review due to injustice. Commercial procedure – Bank loan– Bank loan interests – Bank loan interests continue to accrue until the entire loan is repaid, provided that such accrual does not exceed the amount of the outstanding principal loan, as calculated from the date when the loan became non-performing. Commercial procedure – Loan agreement– The termination of a loan agreement does not release the debtor from his/her obligation to repay the related loan interests, and the interests continue to accrue until the full loan is repaid. However, such accrual cannot exceed the amount of the outstanding principal loan (in duplum rule). Facts: Bank of Kigali Plc sued Nsengiyumva Fulgence before the Commercial Court seeking an order for him to pay to the Bank a principal loan of 155,308,448 Frw, along with the related interests that were computed up to the outstanding principal loan, resulting in a total sum of 310,616,976 Frw. The Commercial Court heard the case and determined that the claim of the Bank of Kigali was founded. Consequently, the Court ordered Nsengiyumva Fulgence to pay 300,000,000 Frw to the Bank. Dissatisfied

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with the ruling, Nsengiyumva Fulgence appealed to the Commercial High Court. However, instead of upholding the payment of 300,000,000 Frw, the Commercial High Court ordered him to pay 155,301,368 Frw. Bank of Kigali Plc subsequently appealed against this decision before the Court of Appeal which held that its appeal is grounded and ordered Nsengiyumva Fulgence to pay 310,616,896 Frw. Nsengiyumva Fulgence petitioned the President of the Supreme Court, requesting the review of the judgment on grounds of injustice. The President of the Supreme Court decided accordingly and the judgment was tried on 15/02/2022. Nsengiyumva Fulgence expressed his dissatisfaction with the calculation of interest charges. He highlighted that on 12/10/2012, the Bank of Kigali Plc had sent him a letter notifying him of the suspension of their normal business partnership and informing him that the case was handed over to the Bank employee who would initiate the process of forced repayment. Nsengiyumva Fulgence argues that since the mortgage auction did not fully cover the debt, the Bank should have immediately resorted to legal action instead of continuing to accrue interest for the entire five-year period, especially considering that the loan agreement had been terminated. Additionally, he asserts that the Bank should be held accountable for the loss of 275,400,000 Frw that he incurred and proposes utilizing 146,543,891 Frw, which remains outstanding, for judicial set-off. Bank of Kigali Plc argues that throughout the entire five- year period, both parties were engaged in negotiations for debt repayment. It asserts that the correspondences exchanged between them demonstrate this fact, and as a result, they refrained from initiating legal proceedings while the negotiations were ongoing. Additionally, they maintain that there was no prohibition on the accrual of interest as long as it did not exceed the outstanding principal loan since the loan had not been fully repaid. In regard to the claim of

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Nsengiyumva Fulgence for the loss incurred due to the auction, Bank of Kigali Plc asserts that this is a new claim unrelated to the current case. It contends that from the trial stage onwards, the focus of this case has been solely on determining the actual amount that the debtor is obligated to pay to the Bank in relation to the unpaid loan he was granted. Held: 1. Issues that were not subject to examination during the original trial cannot be brought forth for examination in relation to the judgment review due to injustice. 2. Bank loan interests continue to accrue until the entire debt is repaid, provided that such accrual does not exceed the amount of the outstanding principal loan, as calculated from the date when the loan became non-performing. 3. The termination of the loan agreement does not release the debtor from his/her obligation to repay the related loan interests, and the interests continue to accrue until the full loan is repaid. However, such accrual cannot exceed the amount of the outstanding principal loan (in duplum rule). The application for the judgment review due to injustice has merits in parts. The respondent is ordered to pay the Bank a total of 293,087,782 Frw, which comprises 146,543,891 Frw for the outstanding principal loan and 146,543,891 Frw for the accrued interests. Statutes referred to: Law no 45/2011 of 25/11/2011 governing contracts, article 60

Cases referred to:

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RCOMA 0166/12/CS, Umutesi Kaberuka Espérance v I&M Rwanda Ltd rendered by the Supreme Court on 28/04/2017. RCOMA 0044/12/CS, Ndayambaje v Ecobank, rendered by the Supreme Court on 07/11/2014. RS/INJUST/RC 00007/2018/SC, Nditiribambe Samuel v Gatera Jason and Crts, rendered by the Supreme Court on 13/03/2020; RS/INJUST/RSOC 00001/2018/SC Ukwibishaka Alexis v. BPR Bank Rwanda, rendered by the Supreme Court on 02/07/2021. RS/INJUST/RAD 00003/2021/SC Tabaruka Dieudonné v. Gicumbi District, rendered by the Supreme Court on 20/05/2022. Judgment 1. BACKGROUND OF THE CASE

On October 8, 2010, the Bank of Kigali Plc granted Nsengiyumva Fulgence a loan of 181,182,303 Frw repayable within 7 years, with a monthly repayment of 3,770,444 Frw starting from November 31, 2020. However, Nsengiyumva Fulgence defaulted and fell into arrears. Subsequently, he requested a loan restructuring, and on April 14, 2011, the loan was restructured to the amount of 196,660,736 Frw, repayable over a period of 120 months with a monthly repayment of 3,482,715 Frw with an interest rate of 17.25%. Despite the restructuring, Nsengiyumva Fulgence once again failed to repay the loan and fell into arrears once more.

On October 12, 2012, the Bank of Kigali Plc sent a letter to Nsengiyumva Fulgence, informing him of the cancellation of his loan payment plan and instructing him to immediately pay the outstanding amount of 247,546,466

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Frw, which included the principal loan and related interests. The letter also notified him that the interest rate of 19.25% would continue to accrue until the entire loan was fully repaid. Additionally, he was informed that his case had been assigned to the Bank employee with the authority to initiate the process of forced repayment.

On September 19, 2014, a house that Nsengiyumva Fulgence had mortgaged with Bank of Kigali Plc was auctioned, and it was the same Bank that acquired the mortgage for 100,000,000 Frw. On October 8, 2014, the amount of 92,320,310 Frw was deposited in the debtor's bank account.

On October 13, 2017, Nsengiyumva Fulgence wrote to the Bank of Kigali Plc requesting permission to sell the mortgaged house and pay his debt of 300,000,000 Frw1. On December 11, 2017, the Bank of Kigali Plc replied to him granting permission. However, the Bank cautioned him that he had only 60 days to complete the process and repay the debt; otherwise, the granted permission would become invalid; such a fact happened.

Bank of Kigali Plc filed a claim against Nsengiyumva Fulgence in the Commercial Court, seeking an order for him to pay the Bank the principal loan of 155,308,448 Frw, along with the related interests that were calculated up to the outstanding principal loan, resulting in a total sum of 310,616,976 Frw. Nsengiyumva Fulgence acknowledged the existence of the debt of 247,546,466 Frw, but he did not acknowledge the interests that accrued after

1 By that letter, Nsengiyumva Fulgence stated that based on the loan that I owe to the Bank of Kigali Plc amounting to 300,000,000 Frw, I request your permission to sell the house for repayment to Bank of Kigali Plc, and settling the issue of the loan as after selling it I will pay the loan once for all.

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the cancellation of their agreement and the auction of the attached mortgage by Bank of Kigali Plc.

On January 23, 2020, the Commercial Court heard the case RCOM 02129/2019/TC and decided that the claim filed by Bank of Kigali Plc was grounded. The Court issued an order directing Nsengiyumva Fulgence to pay the Bank a total sum of 300,000,000 Frw. This amount covered the outstanding principal loan along with the associated interests, in addition to 560,000 Frw for legal counsel and procedural fees.

By so deciding, the Court based its ruling on article 112 (2o) of Law no 47/2017 of 23/09/2017 governing the organization of banking which provides that in recovering the non-performing loan, the interests must not exceed the principal loan owed when the loan becomes non- performing. The Court has also referred to article 28 of Law no 15/2004 of 12/06/2004 relating to evidence and its production2 following the fact that Nsengiyumva Fulgence has, by a letter that he addressed to Bank of Kigali Plc on 13/10/2017, acknowledged the existence of the claimed debt.

Nsengiyumva Fulgence appealed against the aforementioned ruling to the Commercial High Court. The Court tried the case RCOMA 00175/2020/HCC on November 27, 2020, and decided that Nsengiyumva Fulgence should pay 155,301,368 Frw to Bank of Kigali Plc instead of the initially ordered amount of 300,000,000 Frw.

The Court clarified that once the Bank of Kigali had auctioned the mortgage attached to the loan and found that

2 The article provides that “A friendly letter is used as evidence against its author, even if it has not been signed, as long as it can be established that it emanated from the authoring party. It constitutes an extra-judicial admission even if it contains a recognition of the disputed right”.

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the auction proceeds were insufficient to fully pay the debt, it should not have continued calculating the accruing interest for five years while it had already terminated the loan agreement with Nsengiyumva Fulgence, instead, it should have brought the issue before the courts for claiming the remaining repayment. Furthermore, the Court explained that the fact that Nsengiyumva Fulgence acknowledged the debt of 300,000,000 Frw in his letter dated October 13, 2017, cannot be taken into consideration as he did not admit such loan as the debt owed to Bank of Kigali, rather both parties agreed on it while they were negotiating for amicably settling the issue without resorting to the court proceedings.

Bank of Kigali Plc appealed against the aforementioned decision to the Court of Appeal. On April 30, 2021, the Court of Appeal tried the case N0 RCOMAA 00104/2020/CA and held that the appeal filed by Bank of Kigali Plc was justified. The Court ruled that Nsengiyumva Fulgence should be liable for the outstanding principal debt, along with all the related interests that had accrued up to the outstanding principal loan, resulting in a total sum of 310,616,896 Frw. Additionally, the Court awarded 700,000 Frw for counsel and procedural fees.

The Court held that the interests would continue to accrue until the debt was fully paid off, with the condition that they should not exceed the remaining non-performing principal loan. This ruling is in accordance with the provisions of Article 112 (2o) of Law no 47/2017 of 23/9/2017 governing the organization of banking.

Regarding the letter dated October 13, 2017, sent by Nsengiyumva Fulgence to Bank of Kigali Plc, the Court of Appeal found no grounds to dismiss his admission made in that letter, in accordance with the provisions of Article 28 of the aforementioned Law no 45/2004 of 12/6/2004.

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Following the Court ruling, Nsengiyumva Fulgence filed an application to the President of the Supreme Court, requesting the review of the judgment on grounds of injustice. After examining the application, the President of the Supreme Court, by his decision No 227/CJ/2021 of 20/9/2021, forwarded the case to the Court's Registry for being re-adjudicated. The case was subsequently assigned the docket N0 RS/INJUST/RCOM 00005/2021/SC.

The case was heard in public on February 15, 2022, Nsengiyumva Fulgence was represented by Counsel Kayiranga Cyrille and Bank of Kigali by Counsel Biseruka Frank. During the hearing, the litigants presented arguments on two main issues: (A) The determination of the actual amount of debt that Nsengiyumva Fulgence owes to Bank of Kigali Plc and (B) The justification of the damages claimed by Nsengiyumva Fulgence at this stage of the case.

The hearing was concluded on the same day, and the judgment pronouncement was fixed on March 25, 2022. However, during the deliberation, the Court deemed it necessary to appoint an expert to provide clarification on the evolution of the loan owed by Nsengiyumva Fulgence to Bank of Kigali Plc.

In her report, Ayinkamiye Spéciose, the Expert, highlighted that: 1. On October 12, 2012, when Bank of Kigali Plc notified Nsengiyumva Fulgence of the suspension of the usual dealings on the loan agreement, he owed the Bank a principal loan of 196,660,736 Frw with ordinary interests amounting to 42,120,536 Frw, resulting in a total sum of 238,864,201 Frw. This amount is different from the previously presented figures of 247,546,466 Frw by Bank of Kigali Plc.

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Regarding the difference between the figures provided by the expert and the computation by Bank of Kigali Plc, the expert explained that it arose from the method of calculation. The Bank's computation was based on a period of 360 days per year, while the expert calculated the amount based on 365 days per year, as instructed by the National Bank of Rwanda in its letter of December 3, 2021, which was addressed to financial institutions. 2. On October 8, 2014, after the auction of Nsengiyumva Fulgence's mortgaged house, he made a payment of 92,320,310 Frw. The outstanding loan amounted to 146,543,891 Frw (238,864,201 Frw-92,320,310 Frw). 3. The total amount of ordinary and late loan interests computed from October 8, 2014, to September 5, 2019, amounted to 138,420,742 Frw. Additionally, the interests computed from December 31, 2019, amounted to 147,076,869 Frw.

The hearing was resumed on September 20, 2020, Nsengiyumva Fulgence was assisted by Counsel Kayiranga Cyrille, Bank of Kigali by Counsel Biseruka Frank. Ayinkamiye Spéciose, the appointed expert, also attended the hearing and presented her report. The litigants provided their comments on the report, and subsequently, the hearing was closed. II. ISSUES OF THE CASE AND THEIR ANALYSIS

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a. Determination of the amount of loan to be paid by Nsengiyumva Fulgence to Bank of Kigali Plc

Nsengiyumva Fulgence assisted by Counsel Kayiranga Cyrille, states that he has no objections to the report presented by the Expert. However, he disagrees with the interests that Bank of Kigali Ltd later charged him, especially considering that it had already notified him of the termination of the loan agreement in its letter dated October 12, 2012. In the letter, it also informed him that the matter was handed over to the Bank employee to initiate a procedure for forced repayment. He further argues that if the proceeds from the mortgage auction were insufficient to fully pay the debt, the Bank should not have continued calculating the accruing interests for the entire 5 years when the loan agreement was no longer in effect.

He further adds that even the Court of Appeal, in its ruling, stated that when the Bank realized that the proceeds from the mortgage auction were insufficient to cover the claimed debt, it should have brought the matter to the competent courts, this was not done as they engaged in negotiations. However, these negotiations lasted only 60 days, which was the time granted by the Bank of Kigali Plc to him for selling the mortgaged house.

He states that in the judgment N0 RS/INJUST/RP 00006/2017/CS rendered on November 29, 2019, this Court irrevocably held that Mr. Rutembesa Phocas and the persons who assisted him in auctioning his property, had committed the offense of drawing up and using a modified and false document. Due to the fact that Rutembesa Phocas represented Bank of Kigali in this action that led to the commission of the offense, Bank of Kigali Plc should be held liable under Article 33 of the Organic Law no 01/2012 of 2/5/2012 instituting the penal code that was into force at

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the time the offense was committed, they caused to him a loss of 275,400,000 Frw which should be set-off with the outstanding loan of 146,543,891 Frw.

Counsel Biseruka Frank, representing Bank of Kigali Plc in this case, acknowledges that he has no objections to the Expert's report. He further states that the difference between the Bank's figures and his figures stems from the fact that the Bank filed the case before the issuance by the National Bank of Rwanda of the regulation on computing the loan interests based on 365 days per year.

Regarding the statement of Nsengiyumva Fulgence that Bank of Kigali Plc should not have continued to calculate interest accrual for the five years while the loan agreement was terminated and that the Bank should have taken the matter to the competent courts, the legal counsel of the Bank explains that, as stated in paragraph 20 of the Court of Appeal's judgment, both parties were engaged in negotiations for the repayment of the debt during those five years. The legal counsel further points out that several correspondences indicate that negotiations were still ongoing, including a letter dated April 13, 2017, in which Nsengiyumva Fulgence himself acknowledges a debt of 300,000,000 Frw and requests for facilitation in payment terms. Therefore, the Bank of Kigali Plc could not have brought the matter to court while the issue was still being negotiated.

He also argues that there was no reason to halt the accrual of interest since the debt had not been fully repaid. He emphasizes that the interest would continue to accumulate without exceeding the remaining unpaid principal loan, as stated in Article 112 (2o) of Law No 47/2017 of 23/09/2017 governing the organization of banking. He points out that this is why Bank of Kigali Plc did not request the full interest amount of 503,701,707 Frw

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when Bank of Kigali filed the claim at the first instance, it claimed the interest of 155,301,368 Frw, equal to the remaining loan unpaid by Nsengiyumva Fulgence after the mortgage auction and this was upheld by the Court of Appeal.

With regard to the request of Nsengiyumva Fulgence that Bank of Kigali Plc should be held liable for the loss incurred due to the auction, Counsel Biseruka Frank states that it is a new claim as the subject matter from the initiation of the proceedings is the amount of loan that he must repay to the Bank for the loan he failed to repay. He adds that there were other judgments about such an auction whereby Nsengiyumva Fulgence requested its invalidation, for example, the judgment N°RCOMA 00471/2020/HC. DETERMINATION OF THE COURT Regarding the principal loan

Article 64 of Law no 45/2011 of 25/11/2011 relating to contracts provides that contracts made in accordance with the law shall be binding between parties while article 110 of Law no 15/2004 relating to evidence and its production provides the judicial admission consists of statements the accused or his or her representative makes before the court. Such statements shall serve as plaintiff arguments

The contract entered into by both parties indicates that Nsengiyumva Fulgence was granted the loan of 181,182,303 Frw by the Bank of Kigali Plc. This loan was later restructured and the amount changed to 196,660,736 Frw, with a repayment period of 120 months starting from April 30, 2011. The monthly repayment amount was set at 3,482,715 Frw, with an associated interest rate of 17.25% per year. The Bank statements included in the case file

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indicate that the borrower did not adhere to the agreed repayment terms, resulting in the arrears.

[27] Nsengiyumva Fulgence himself admitted that he did not repay the loan granted to him, from the first instance, he pleaded that he owed the Bank a loan of 247,536,018 Frw evidenced by the letter of 12/10/2012 sent to him by Bank of Kigali, notifying to him of the suspension of the loan agreement, the remaining loan was 155,308,448 Frw, the loan decreased when the attached mortgage was auctioned, the amount of 92,320,310 Frw was paid.

Considering the agreement signed by both parties and the acknowledgment of the loan by Nsengiyumva Fulgence himself, the Court finds that the debtor is obligated to repay the remaining unpaid principal loan. However, the Court specifies that it will refer to the balance presented by the Expert, as agreed upon by both parties. Therefore, Nsengiyumva Fulgence will be required to pay 146,543,891 Frw, and not the previously determined amount of 155,308,448 Frw as ruled by the Court of Appeal.

With regard to the request of Nsengiyumva Fulgence that Bank of Kigali Plc should be held liable for the loss of 275,400,000 Frw he incurred from the mortgage auction and this loss should be set off with the remaining loan he owes to the Bank, the Court finds that it shall not be examined as it falls outside the scope of the subject matter of the case since the initiation of the proceedings, and this has been the consistent position of the Court in different cases.3

3 Case RS/INJUST/RC 00007/2018/SC of 13/03/2020 with Nditiribambe Samuel v Gatera Jason and Crts (paragraph 72); Case RS/INJUST/RSCO 00001/2018/SC rendered on 02/07/2021 with Ukwibishaka Alexis v. BPR Rwanda (paragraph 12); case RS/INJUST/RAD 00003/2021/SC of 20/05/2022 with Tabaruka Dieudonné v. Gicumbi District.

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Regarding the loan interests

With regard to the calculation of the loan interests charged by banks, it is important to consider the provisions of Article 64 of the aforementioned Law no. 45/2011 of 25/11/2011 relating to contracts, along with Paragraph 2 of Article 7 of the National Bank of Rwanda Regulation no. 02/2011 of 21/03/2011 on credit classification and provisioning, which were into force when the claim was filed. According to these provisions, any interest on non- performing credit facilities that had previously accrued but remained uncollected must be reversed and credited to an interest in a suspense account until paid by the borrower. Additionally, Article 112 (2o) of the aforementioned Law no. 47/2017 of 23/09/2017 governing the organization of banking stipulates that the interest on non-performing loans should not exceed the remaining principal loan computed from the time the loan became non-performing.

The aforementioned regulation and the provisions of the above-mentioned law clarify that the interest on loan facilities provided by banks to their clients continues to accrue until the full loan is repaid. However, this accrual is limited to the remaining balance of the unpaid principal loan calculated from the time the loan became non-performing.

The above-mentioned stance is consistent with the position adopted by this Court in various cases4. It is also the same position that was discussed and applied in the case between SIMACO Ltd and I&M Bank Rwanda, decided on February 25, 2022. In that case, this Court referred to the doctrines put forth by legal scholars and clarified that the rescission of a loan agreement does not release the borrower

4 Umutesi Kaberuka Espérance v. I&M Bank Rwanda Ltd, RCOMA 0166/12/CS of 28/04/2017 ; Ndayambaje v Ecobank, RCOMA 0044/12/CS of 07/11/2014,,

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from his/her repayment obligations5. Furthermore, the Court explained the significance of the in duplum rule, which prohibits the accrual of loan interest from exceeding the amount of the remaining unpaid principal loan, calculated from the date the loan became non-performing.6

In the revised agreement of April 14, 2011, it is evident that both parties agreed that the loan would now generate an annual interest rate of 17.25%. They also agreed that the Bank had the right to change this rate with prior notice of 30 days. Furthermore, the Bank of Kigali Plc sent a letter to Nsengiyumva Fulgence on October 12, 2012, notifying him of an increase in the interest rate to 19.25%. The letter stated that the loan interest would continue to accrue until the full loan was repaid and informed him that the interest would be deposited into a different account. Their agreement does not contradict the related National Bank of Rwanda Regulation or the Law governing the organization of the banking, as mentioned above.

The Court finds that there was nothing that prevents the accrual of loan interests as long as Nsengiyumva Fulgence had not yet repaid the claimed loan, as stated in the agreement he entered into with Bank of Kigali Plc. The interests were intended to continue accruing, with the condition of adhering to the limits outlined in Article 112 (2o) of the aforementioned law governing the organization of banking. This invalidates the defense presented by Nsengiyumva Fulgence who argues that the interests should not have continued accruing due to insufficient auction proceeds and the suspension of the loan agreement terms.

With regard to the amount of the accrued interests, the Expert’s report stated that as of 31/12/2019, these interests amounted to 147,076,869 Frw. Therefore, in

5 Case RS/INJUST/RCOM 00008/2021/SC, & 42-46. 6 Ibidem, §48-50.

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accordance with the in duplum rule, which states that the loan interests should not exceed the remaining unpaid principal, the Court held that Nsengiyumva Fulgence is required to pay to Bank of Kigali Plc 146,543,891 Frw, and not the previously stated amount of 155,308,448 Frw as decided by the Court of Appeal. b. Regarding the damages claimed in this case

Nsengiyumva Fulgence claimed 1,000,000 Frw for both the counsel and procedural fees.

Counsel Biseruka Frank who represents Bank of Kigali Plc, argues that Nsengiyumva Fulgence deserves no damages. He asserts that it was Nsengiyumva Fulgence who deliberately initiated an unnecessary case against the Bank for the loan he admits himself to. DETERMINATION OF THE COURT

Article 111 of Law no 22/2018 of 29/04/2018 relating to civil, commercial, labor, and administrative procedure states this: The claim for representation fees is an incidental claim to the principal claim aiming to repay expenses incurred during judicial proceedings. The claim for legal costs is adjudicated at the same time as the principal claim […].

The Court finds that Nsengiyumva Fulgence is not entitled to damages for the counsel and procedural fees as both parties win the case. III. DECISION OF THE COURT

Holds that the application for review of the judgment N0 RCOMAA 00104/2020/CA rendered by the Court of

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Appeal on 30/04/2021 on grounds of injustice has merit in part.

Orders to Nsengiyumva Fulgence to repay to Bank of Kigali Plc a sum of 293,087,782 Frw, which includes 146,543,891 Frw for the remaining unpaid principal loan and 146,543,891 Frw for the related interests.