[2025] UGCommC 12

### THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

#### **CIVIL SUIT NO. 870 OF 2020**

#### 1. PETER VICTOR KWAGALA

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2. PRISCILLA MBABAZI ::::::::::::::::::::::::::::::::::::

#### **VERSUS**

STANDARD CHARTERED BANK (U) LIMITED ::::::::::::::::::::::::::::::::::::

## (Before: Hon. Lady Justice Patricia Mutesi)

### **JUDGMENT**

#### Introduction

$1.$ The Plaintiffs brought this suit against the Defendant seeking a declaration that the Defendant's refusal to disburse a loan to them constituted breach of contract, a breach of fiduciary duty and professional negligence and the recovery of special damages, general damages, interest and costs.

## **Brief facts**

- Sometime in September 2017, the 1^st Plaintiff started working as a Credit $2.$ Analyst in the Defendant bank. In June 2020, he applied for a staff mortgage facility for the purchase the property comprised in Kawempe Division Block 195 Plot 5075 situate at Kampala (hereinafter "the suit land") priced at UGX 300,000,000. The Defendant found that he qualified for a mortgage facility of UGX 250,000,000. The Defendant told him that. to qualify for a higher amount, the income of his wife (the $2^nd$ Plaintiff) could also be considered. After reviewing her pay slips, the Defendant found that the Plaintiffs jointly qualified for a facility of UGX 312,000,000. - $3.$ The Defendant then gave the $1^st$ Plaintiff a list of requirements critical to the approval of the loan application. Key to note is that the Plaintiffs had

to provide proof that they had paid 20% of the selling price of the suit land (UGX 60,000,000). To meet this requirement, the Plaintiffs executed a sale agreement with the vendor of the suit land, one Kalisa Celestine, and paid him an initial deposit of UGX 5,000,000. They submitted that agreement and a copy of the land title, along with all other required documents, to the Defendant.

- On 15^th July 2020, the Defendant notified the Plaintiffs that it had 4. approved their application for a facility of UGX 240,000,000. However, the Defendant later asked 1^st Plaintiff, who had a running salary loan with the Defendant at the time, to clear that loan to zero balance and to also avail proof of payment of the UGX 60,000,000 to the vendor. Although the loan was not yet fully repayable at the time, the $1^st$ Plaintiff sold his car and fully settled it. The Plaintiffs also depleted their savings and took some friendly loans to fully clear the UGX 60,000,000. - On 25^th August 2020, the parties signed the facility letter and the 5. mortgage deed. The Plaintiffs were assured that the loan would be disbursed within 5 working days thereafter. These days passed without any disbursement. The 1^st Plaintiff followed up with the Defendant in vain. On $4^{th}$ September 2020, the Defendant told the $1^{st}$ Plaintiff that it had recalled the loan because of an intended departmental restructuring which was likely to affect the $1^{st}$ Plaintiff's job. Following that restructuring, the Defendant terminated the 1^st Plaintiff's employment on $3^rd$ December 2020.

#### **Issues arising**

- 6. At the scheduling conference, the parties framed the following issues for the Court's determination: - 1. Whether the Plaintiffs have a cause of action against the Defendant. - 2. Whether there was breach of contract by the Defendant. - 3. Whether there was breach of statutory duties by the Defendant.

4. Whether the Plaintiffs are entitled to the remedies sought.

### **Representation and hearing**

- When this suit was called on for hearing, the Plaintiffs were represented 7. by Ms. Geraldine Nakazibwe and Ms. Angella Twebaza from Kalikumutima & Co. Advocates. The Defendant was represented by Mr. Pius Kitamirike from S&L Advocates. The Plaintiffs brought 3 witnesses and 15 documents. The Defendant brought 1 witness and also relied on the Plaintiff's documents. The documents were exhibited as P. Ex.1 – P. Ex.15 and as D. Ex.1 – D. Fx 15 - PW1 was Ssempijja Joseph Balikuddembe who worked in the Defendant 8. bank from 2009 to 2020. He stated that in June 2020, the 1^st Plaintiff went to him for advice on the process of obtaining a staff mortgage facility and that he guided the 1^st Plaintiff on the requirements. The 1^st Plaintiff submitted all the key requirements after which the Defendant approved his mortgage application. The Defendant issued a letter of intent which PW1 and the 1^st Plaintiff duly endorsed. The suit land was subsequently valued and the valuation report was placed on the Plaintiffs' loan file. - PW1 also testified that at end of July 2022, the Plaintiffs' application was 9. queried and the Plaintiffs were asked to submit some more requirements, like proof of full payment of their contribution to the purchase price and proof of full repayment of the 1^st Plaintiff's personal loan. The Plaintiffs satisfied these requirements and the credit approvers approved the loan. The facility letter and the mortgage deed were executed on 25^th August 2020 and the loan ought to have been disbursed on or by 29^th August 2020. However, the loan was never disbursed because the Defendant recalled it on grounds of employee restructuring. - PW2 was the 2^nd Plaintiff. She testified that around June 2020, the 10. Plaintiffs were desirous of purchasing a property and had even visited and identified a few properties. They decided to apply for a mortgage to assist

with the purchase process and the 1^st Plaintiff approached the Defendant for a staff mortgage. After submitting their mortgage application, the 1^st Plaintiff told the 2^nd Plaintiff that they needed to avail the Defendant with a copy of the certificate of title and a land sale agreement. Subsequently on 24^th June 2020, the Plaintiffs signed an agreement to purchase the suit land for UGX 300,000,000.

- PW2 told the Court that the Plaintiffs provided all the documents asked 11. for. On 3^rd July 2020, the Defendant told them that, in view of their combined income, they qualified for a loan of UGX 312,000,000. On 15^th July 2020, the Defendant issued a letter of intent to the Plaintiffs notifying them that their loan application for the sum of UGX 240,000,000 repayable with interest at 6% p.a. within 300 months had been approved. The Plaintiffs accepted the terms of the letter of intent. The valuers later reported that the suit land was worth UGX 310,000,000. - Furthermore, PW2 testified that on 29^th July 2020, the 1^st Plaintiff got an 12. email from the Defendant informing him about other requirements for loan approval, including proof of payment of the Plaintiffs' portion of the purchase price (UGX 60,000,000). The Plaintiffs sold off their car, depleted their savings and borrowed money from relatives to fulfill this requirement. In August 2020, they signed the mortgage deed and facility letter. They were assured that the loan would be disbursed to the vendor's account within 5 working days from the date of signing the said documents. The loan was not disbursed as promised and this left the Plaintiffs devastated. - PW3 was the 1^st Plaintiff. He told the Court that from 7^th August 2017 to 13. 3^rd December 2020, he worked in the Defendant's commercial, corporate and institutional banking department as a credit analyst. In June 2020, he approached the Defendant and requested for a staff mortgage facility to purchase the suit land. PW1 who was then working in the Defendant's retail credit department advised him that he needed to avail the

Defendant with a copies of the certificate of title and the land sale agreement for the suit land. Consequently, on 24th June 2020, the Plaintiffs signed a land sale agreement with a one Kalisa Celestine (the vendor) purchasing the suit land for UGX 300,000,000. All the documents asked for were submitted.

- PW3 stated that he was later advised that if he brings the 2^nd Plaintiff on $14.$ board, they could both qualify for more credit. When her pay slips were submitted, the Defendant confirmed that they jointly qualified for a loan of UGX 312,000,000. On 3^rd July 2020, PW3's line manager recommended him for the loan. On 15^th July 2020, the Defendant issued him with a letter of intent confirming that the mortgage application had been approved and that the process was to then proceed to valuation and search. On 29^th July 2020, the Defendant told PW3 to provide additional documents, including the confirmation that he had paid the UGX 60,000,000 to the vendor. On 5^th August 2020, he was also told to fully clear his personal loan with the Defendant. - PW3 confirmed that the Plaintiffs paid the UGX 60,000,000 plus the 15. balance on his personal loan by borrowing from relatives, depleting their family savings and selling their car. On 25^th August 2020, they signed the loan offer letter and the mortgage deed. They were assured that the loan would be disbursed directly to the vendor's bank account within 5 working days thereafter but this did not come to pass. They eventually learnt that the Defendant had recalled the mortgage because there was an ongoing internal departmental restructuring. - DW1 was Lameck Mike Ssonko, the Chief Operating Officer ("COO") of the 16. Consumer Private and Business Banking department of the Defendant. He confirmed that the Plaintiff applied for a mortgage facility to purchase the suit land when he was still working in the Defendant. At the time of that application, DW1 was the Defendant's credit risk approver. The application was governed by, and subject to, the terms and conditions set

out by the Defendant and in consideration of the 1st Plaintiff's employment.

- DW1 confirmed that, on 15^th July 2020, the Defendant issued a letter of 17. intent indicating the terms to be agreed upon and fulfilled by the $1^{\rm st}$ Plaintiff. This letter clearly stated that it was not a binding document and that the it was at the Defendant's discretion to rescind the approval of the loan. The 1^st Plaintiff was required to fulfil certain ordinary requirements prior to the approval of the loan which included proof of his salary and his wife's salary. He was also required to set off his then existing personal loan balance of UGX 23,548,532, which he did. - 18. DW1 further testified that the parties executed the facility agreement and the mortgage deed but these were not registered because, subsequent to their execution, the Defendant was notified by its holding company of the then intended merger of its commercial banking department and its corporate and institutional banking department. As a result of the need to comply with this Global Banking announcement, the Defendant suspended lending to all its staff members in the affected departments. This naturally affected the Plaintiffs' mortgage. The Defendant recalled the loan but agreed to reimburse all the 1^st Plaintiff's costs of the loan application. - 19. After the conclusion of the trial, counsel filed written submissions to argue their respective cases. I have fully considered all the materials on record, the submissions filed and the laws and authorities cited.

## **Resolution of Issues**

20. Section 101(1) of the Evidence Act Cap 6 provides that whoever desires a court to give judgment as to any legal right or liability dependent on the existence of facts which he or she asserts must prove that those facts exist. Additionally, Section 103 of the Evidence Act provides that the burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.

In civil cases, the burden lies on the Plaintiff to prove the existence of his $21.$ or her rights and the liability of the Defendant for breach of those rights on a balance of probabilities. (See Miller v Minister of Pensions [1947]2 **All ER 372).** I will be guided by these rules and principles in evaluating the evidence adduced at the trial in order to resolve this dispute.

# Issue 1: Whether the Plaintiffs have a cause of action against the Defendant.

- Counsel for the Defendant submitted that the Defendant was not a party $22.$ to transactions between the Plaintiff and 3^rd parties and that, as such, the Defendant cannot bear any fault under those transactions. Counsel added that the instant suit is substantially premised on an unregistered mortgage deed and that, since instruments are not effectual until registered, no claim can arise from an unregistered mortgaged deed. On their part, counsel for the Plaintiff maintained that the Plaintiffs have a cause of action against the Defendant because, having complied with all the terms of the loan, they were entitled its disbursement. - $23.$ A cause of action means every fact which, if traversed, would be necessary for the Plaintiff to prove in order to support his right to a judgment of the court. It refers to a bundle of facts which, taken with the law applicable to them, gives the Plaintiff a right to relief against the Defendant. (See the dictum of Wambuzi, CJ. (as he then was) in Attorney General v Mai. Gen. David Tinyefuza, Constitutional Appeal No. 1 of 1997). In the *locus* classicus decision of the East African Court of Appeal in the case of **Auto** Garage v Motokov (1973) EA 392, it was held that a plaint discloses a cause of action if it shows that the Plaintiff enjoyed a right, that the right has been violated and that the Defendant is responsible for that violation.

- I do not agree with counsel for the Defendant's contention that the first $24.$ element of a cause of action – that the Plaintiffs enjoyed a right – is missing in this case. Although the sale agreement for the suit land was executed by the Plaintiffs and the vendor, the Defendant's role in the completing that sale was expressly prescribed in Clauses 3, 4 and 5 thereof. Besides, this suit does not seek to make the Defendant liable to the vendor *per se*. It seeks compensation from the Defendant for the monies paid to the vendor and other related costs. This is a claim that is maintainable because, while there was no privity of contract between the Defendant and the vendor, there was privity of contract between the Defendant and the Plaintiffs and the Plaintiff contends that it is the Defendant's breach of the loan contract that caused the Plaintiff's breach of the sale agreement. - 25. Furthermore, while the general rule in **Section 54 of the Registration of Titles Act Cap 230** is that instruments are effectual upon registration, it has, for long, been settled that an unregistered instrument creates a right to equitable relief for a party that may be aggrieved by the breach of its terms. Since equity is fairness and it sees as done that which ought to have been done, non-registration of an instrument creating an interest in land cannot frustrate equitable relief under it. The Court cannot just sit by and let a victim of a wrong in a mortgage transaction to go without a remedy simply because the mortgage deed was not registered. - 26. The facility letter and mortgage deed, in and of themselves, are binding contracts within the meaning of Section 10(1) of the Contracts Act, 2010. They can be enforced as contracts irrespective of whether the mortgage deed was registered or not. I am also mindful that Article 126(2)(c) and (e) of the Constitution of the Republic of Uganda, 1995 enjoins this Court to give adequate relief to victims of wrongs and to foster substantive justice without undue regard to technicalities. - $27.$ In any case, the non-registration of the mortgage deed resulted from the Defendant's own decision to recall the loan. It would be absurd for a party who refuses or fails to register an instrument, to the detriment of another party, to frustrate that other party's request for relief on the basis that the instrument was not duly registered. The non-registration of the impugned deed in this case was not the fault of the Plaintiffs. It was solely occasioned by the Defendant. - I also find it strange that the Defendant claimed that contracts between 28. the Plaintiffs and 3^rd parties, like the sale agreement, do not apply to it, yet it turned around and offered compensation to the Plaintiffs as anticipated under those contracts. In one breath, the Defendant said that the sale agreement did not apply to it and, in the next breath, the Defendant argued that it is only obliged to compensate the Plaintiffs to the extent that is anticipated in that sale agreement. This is tantamount to approbating and reprobating the sale agreement. The equitable doctrine of election demands that one cannot take the benefit of a transaction while avoid its other consequences. - In conclusion, I am unable to agree with the Defendant's challenge to the 29. Plaintiffs' causes of action in this issue. As I stated above, the Plaintiffs' case, as I understand it, is that they want this Court to hold the Defendant accountable to them and not to the vendor. I am satisfied that the plaint disclosed causes of action against the Defendant for breach of contract, professional negligence and breach of fiduciary duty. This issue is answered in the affirmative.

## Issue 2: Whether there was breach of contract by the Defendant.

'Breach of contract' means 'the breaking of an obligation that a contract 30. imposes which confers a right of action for damages on the injured party' (See Mogas Uganda Limited v Benzina Uganda Ltd, HCCS No. 88 of 2013). Breach of contract occurs when one or both of the parties fail to fulfil the

obligations imposed on them by the contract (See **Mwesigye Warren v** Kiiza Ben, HCCS No. 320 of 2015).

- 31. It is an agreed fact that the Plaintiffs executed the mortgage deed and the facility letter with the Defendant. These 2 documents were exhibited as P. Ex.13/D. Ex.13 and P. Ex.14/D. Ex.14 respectively. The Court reiterates that it found that these two documents constitute binding and enforceable contracts within the meaning of Section 10(1) of the Contracts Act, 2010. The mortgage deed and the facility letter created binding and enforceable legal obligations. It is not disputed that the Plaintiffs complied with all their duties under the 2 contracts. It is also not disputed that the Defendant did not to perform its duty of disbursing the loan sum. - 32. The Defendant's explanation for not disbursing the loan is that it received instructions from its holding company that the department in which the 1^st Plaintiff was deployed was to be merged with another department, which meant that all staff loans in the 2 departments had to be suspended. This departmental restructuring eventually led to the termination of the 1^st Plaintiff's employment in the Defendant. DW1 explained that since this was a salary loan whose terms had been exclusively customised and structured to suit an employee of the Defendant, the termination of the 1^st Plaintiff from work meant that the Defendant could not continue with the loan. - My first observation is that although the Defendant severally used the 33. term "suspension" while referring to its decision not to disburse the loan, the Defendant actually recalled the loan. If the loan had only been suspended and not recalled, its disbursement would simply have been postponed to a future date. The Defendant left no room for any future disbursement of the loan and even proposed a reimbursement of some of the expenses arising from the Plaintiffs' loan application.

- It is also critical for me to clarify that while the Defendant purported to "withdraw the loan offer letter" in its $4^{\rm th}$ September 2020 email to the $1^{\rm st}$ 34. Plaintiff, it is not possible in law to withdraw, or otherwise revoke, a loan offer which has already been accepted by the borrower. Under Section 5(1) of the Contracts Act, 2010, an offer can only be revoked before the communication of its acceptance is completed. Section 8 of the Contracts Act also provides that the acceptance of any consideration for a reciprocal promise which may be offered with an offer constitutes an acceptance of that offer. In this case, the parties executed the mortgage deed and the facility offer letter on 25^th August 2020. - That execution constituted an absolute and unqualified communication of 35. acceptance of the terms of the facility offer letter and the mortgage deed. Thereafter, it was not legally possible for the Defendant to withdraw the loan offer because it had already crystallised into a binding contract with attendant enforceable legal obligations. After the acceptance of an offer is communicated to the offeror, the offer is extinguished. The parties to the resultant contract cannot just walk out of it as and when they wish. - The Defendant's further explanation for its failing to perform its 36. contractual duty of disbursing the loan is that the facility letter and the mortgage deed were both frustrated by receipt of the news of the intended departmental restructuring from the Defendant's holding company. Frustration is a form of discharge of contractual obligations in which discharge is occasioned by occurrence of a supervening and unforeseen factor or event that renders performance of the contract impossible. The factor causing the frustration must not be the fault of any of the parties. (See Section 66 of the Contracts Act, 2010 and Tsakiroglou & Co. Ltd v Noblee Thorl GmbH [1962] AC 93). - DW1's testimony was that the Defendant was obliged to comply with the 37. restructuring instructions issued by its holding company. At paragraph 2.16 of his witness statement, DW1 then explained:

"... Due to the surrounding circumstances and the sensitivity of the integration and compliance with the Global Banking announcement, the Defendant suspended lending to all internal staff members within the two departments. The $1^{st}$ Plaintiff being an employee under the Commercial banking department was affected by the integration."

It is not difficult to understand why, in principle, a subsidiary bank would comply with instructions from its holding company to restructure its departments. However, not all restructuring instructions would inevitably frustrate prior staff loan agreements in that subsidiary bank. The Court must, therefore, examine the restructuring instructions in this case to find out if they actually frustrated the loan contract.

- On many occasions, disputes concerning the enforceability of salary loan 38. obligations after a borrower's loss of employment, have come before this Court. This Court has always taken the view that loss of employment does not frustrate salary loan agreements because the borrower's salary is taken only as an indicator of creditworthiness and not as security (See Standard Chartered Bank (U) Ltd v Bob Ssekamatte Nsereko, HCCS No. 0873 of 2020). Nevertheless, I am alive to the fact that the said precedents dealt with situations in which borrowers lost their jobs after disbursement of the salary loans. The present dispute presents a slightly more unique and novel issue. The Court is now called upon to determine whether or not news of an intended departmental restructuring within the borrower's employer, which restructuring could affect the borrower's job, inevitably frustrates the loan agreement and justifies the lender's refusal to disburse the loan. - From the decision in Tsakiroglou & Co. Ltd v Noblee Thorl GmbH (supra), 39. frustration can only arise when the factor causing it was not reasonably foreseeable at the time of entering into the contract. The factor must also have rendered performance of the contract impossible and not simply

onerous. I have observed that that the Defendant did not adduce any oral or documentary evidence proving the date and time when its holding company issued the restructuring instructions and the date and time when the Defendant received them. Without the certainty that the Defendant received the instructions after the execution of the loan agreement on 25^th August 2020, the Court is unable to conclusively find that the restructuring was not reasonably foreseeable when the loan agreement was entered into, as the Defendant asserted.

- 40. Additionally, the Defendant had to prove that the news of the restructuring made performance of the contract impossible. In Tsakiroglou & Co. Ltd v Noblee Thorl GmbH (supra), the House of Lords held that the true test for impossibility of performance is whether or not asking for such performance after the occurrence of the frustrating event would be to impose upon the parties a duty that is fundamentally and radically different from the one they contemplated when they were entering into the contract. Having seen all the evidence in this case, I am not persuaded that the news of the restructuring, in and of itself, radically transformed the duties of the parties in the loan agreement from the ones initially contemplated. - I reiterate that the Defendant did not adduce documentary proof of the 41. restructuring instructions to corroborate DW1's testimony and prove to the Court what the scope of these instructions actually were. It remains unclear, for example, whether or not the instructions required the termination of specific employees like the $1^st$ Plaintiff. It also remains unclear whether or not the instructions expressly required the suspension of all staff loans even before the merger started. The impression I got from DW1's testimony was that the instructions simply required a merger of the 2 departments. Decisions on who would be terminated, if any, were to be made by the Defendant locally. I also gathered that the decision to suspend staff loans, even before the restructuring commenced, was made by the Defendant locally.

- It is deeply concerning that the Defendant informed the 1^st Plaintiff on 4^th 42. September 2020 that it had decided to recall the loan yet his employment was terminated on 3^rd December 2020. The loan was called off when the 1^st Plaintiff was still employed in the Defendant. He was still earning his salary from the Defendant in September 2020 and, unless the instructions from the Defendant's holding company expressly demanded his termination, there was still a possibility that his job could still have survived the merger. For clarity, the Court's position is not that a bank which is processing a salary loan is still required to disburse that loan when the borrower loses his job before the disbursement. The Court is simply saying that it would be unfair for such a bank to decline to disburse that loan when the borrower still has his job. - In his re-examination, DW1 emphasised that one of the cardinal principles 43. of lending (the "7Cs") is the borrower's capacity to pay. While I appreciate these principles as forming the bedrock of credit risk assessment and evaluation in the ordinary banking parlance, I remain convinced that the Defendant's receipt of the restructuring instructions around September 2020 did not inevitably negate the 1^st Plaintiff's capacity to pay. He staved on as an employee and kept earning salary from the Defendant for another 3 months. His capacity to pay was only negated, if at all, in December 2020 yet the decision to recall his loan in September 2020 when he was still yielding to the 7Cs was premature, unwarranted and unfair. - In addition to all the above, I am persuaded by the 2^nd Plaintiff's testimony 44. that it was still possible to salvage the loan contract and that the same could still have been performed. A first key distinctive factor in this case is that the facility letter reflected 2 joint borrowers (the Plaintiffs) and not just one borrower (the 1^st Plaintiff). Therefore, even though the 1^st Plaintiff lost his job, the 2^nd Plaintiff, who was still employed and earning her salary, remained credit worthy but the Defendant completely ignored her. This Court holds the view that where 2 employed persons jointly take out a

salary loan, the loss of employment by one of those persons could render repayment of the loan cumbersome but it does not frustrate that contract.

- Another key distinctive factor in this case is that, even though one of the 45. joint borrowers lost his job, the disbursement of the loan would instantly have given the two borrowers access to regular monthly rental income as the suit land is developed with rental units. This could have evened out the loss of employment income by the $1^{st}$ Plaintiff, one of the joint borrowers. The disbursement of the loan as agreed could effectively have enabled both Plaintiffs to remain liquid and to repay the loan conveniently. - DW1's testimony was that the 2^nd Plaintiff's suggestions were not feasible 46. since she was not an employee in the Defendant. However, while the 2^nd Plaintiff was not employed in the Defendant, she was working at the time and her salary pay slips had actually been considered by the Defendant before approving the loan. The 2^nd Plaintiff was not merely a busy body in this transaction. She was one of the two borrowers who evenly shared in the liability to repay the loan. - If the 2^nd Plaintiff's lack of employment in the Defendant was such a deal 47. breaker from the onset as DW1 claimed, the Defendant should never have considered her pay slips as one of the justifications for approving the loan or even included her as one of the borrowers in the loan documents. Although DW1 asserted that the 1^st Plaintiff was the principal borrower, it is clear the Defendant had undoubtedly been motivated by the Plaintiffs' joint employment income in approving the loan, with the understanding that the Plaintiffs could utilise either or both of their salaries to clear the regular monthly instalments. - DW1 also retorted that the $2^{nd}$ Plaintiff had not requested to be 48. considered alone as the sole borrower. However, there is no evidence that the Defendant ever wrote to the $2^nd$ Plaintiff personally notifying her about the reasons for cancelling the loan. All the evidence showed that

the Defendant only addressed its communication to the 1^st Plaintiff. Without such express notification, the 2^nd Plaintiff cannot be blamed for failing to make proposals for restructuring the loan facility. The Defendant ought to have notified her personally, just as it had required her to personally sign the facility letter and the mortgage deed. In any case, in his 2^nd September 2020 email, the 1^st Plaintiff still proposed adjustments to the loan which the Defendant sternly rejected.

- 49. I am convinced that all that the Defendant needed to do in this case was to, firstly, wait to recall the loan until after the restructuring was complete so that there is certainty as to whether or not the $1^{st}$ Plaintiff would lose his job. Second, or in the alternative, the Defendant could have renegotiated the some of the loan terms with the Plaintiffs, like the interest rate, the repayment period and the instalment amount, in order to effectuate the legal implications of the loan contract. - 50. Finally, my considered position is that while the Defendant had the sole discretion to recall the loan, that discretion was delimited by Clause 3.3 of the facility letter which prescribed the grounds under which the Defendant could recall the loan. That provision did not expressly anticipate that the Defendant could recall the loan due to restructuring instructions from its holding company even before those instructions were implemented. It is, therefore, clear to me that the Defendant travelled beyond the scope of its contractual discretion when it recalled the Plaintiffs' loan. - 51. For all the above reasons, the Court rejects the Defendant's claim that the loan agreement had been frustrated by 4^th September 2020. The Court finds that, in declining to disburse the loan at a time when the 1^st Plaintiff still had his job in the Defendant, the Defendant breached the facility letter and the mortgage deed.

## Issue 3: Whether there was breach of statutory duties by the Defendant. - On this issue, the Plaintiffs claimed that that the Defendant's refusal to 52. disburse the loan contravened Section 4(1) of the Mortgage Act, 2009 and Clause 6(1) of the Bank of Uganda ("BOU") Financial Consumer Protection Guidelines, 2011. These legal provisions enjoin the Defendant to treat its customers honestly, fairly, reasonably and with good faith in all mortgage transactions. Counsel for the Defendants pointed out that both PW1 and DW1 acknowledged that they did not know about the restructuring before the loan documents were executed. He maintained that the Defendant's decision to recall the loan was not motivated by any bad faith. - 53. I reiterate my earlier finding that, unless the restructuring instructions were accompanied by a list of people who would definitely lose their jobs in the merger, there was no fair and reasonable justification for recalling the loan when the 1^st Plaintiff still had his job in the Defendant and when there was still a possibility of him keeping that job after the merger. That decision was not only premature but also arbitrary, especially after the Plaintiffs had gone to considerable lengths to fulfill the Defendant's numerous loan requirements. The uncertainty over how the merger would affect the staff members under the two departments to be merged ought to have restrained the Defendant from making a final decision on the loan before the conclusion of the merger process. Instead, the Defendant based on that uncertainty to make a final decision concerning the loan, acting as though the $1^st$ Plaintiff had already lost his job by $4^th$ September 2020. - 54. The Plaintiffs dedicated a large part of their submissions on this issue to arguing that the Defendant was already aware of the restructuring when it executed the loan agreements with them. These assertions were strongly contested by counsel for the Defendant who maintained the Defendant's innocence and lack of prior knowledge of the restructuring. The Plaintiffs did not satisfactorily prove this prior knowledge and the Court is unable to confirm that the restructuring instructions were received by the Defendant before the execution of the loan documents.

- I have already found that the Defendant's omission to formally inform and 55. explain to the 2^nd Plaintiff about recalling the loan was irregular and unfair. As one of the joint borrowers, she was also entitled to an explanation as to how the Defendant came to recall the loan, in the same spirit that the Defendant had earlier asked her asked her to personally execute the loan documents in her own name and right. The Defendant's refusal to fairly consider the Plaintiffs' other available sources of cash flow was also unfair. Apart from the 2^nd Plaintiff's salary, the disbursement of the impugned loan to complete the purchase of the suit land would have instantly created another income stream for the couple through rent collections. - Furthermore, the Court is convinced that the Defendant was not 56. forthright with the Plaintiffs after 25^th August 2020. The Defendant ought to have had the courtesy to inform the Plaintiffs, as soon as the news of the intended restructuring came in, that the disbursement of the loan would be affected. Instead, the Defendant simply kept quiet and declined to disburse the loan. With no prior warning of the shock that would befall them, the Plaintiffs were left to wallow in anxiety and uncertainty as the vendor pressured them for failing to pay the balance of the purchase price. The 1^st Plaintiff's attempts to get a conclusive explanation on the matter were initially unsuccessful. Indeed, the fact that the Defendant's 4^th September 2020 email was only in response to an earlier email from the $1^st$ Plaintiff on 2^nd September 2020 suggests that the Defendant may never have formally reached out if the 1^st Plaintiff had not taken the initiative to do so at first. - It is also suspiciously convenient that it was only after the 1^st Plaintiff fully 57. repaid his prior personal loan that the Defendant decided to recall the new loan. The 1^st Plaintiff testified that he still had another 3 and a half years to fully repay the personal loan. Requiring him to fully repay it on the promise that the new loan would then be disbursed, and then thereafter declining to disburse the new loan, put the 1st Plaintiff into significant disadvantage because he had to come up with the entire balance of the

personal loan in a short time, yet the disbursement of the new loan did not come to pass.

The Court is satisfied that the Defendant did not act fairly, reasonably or 58. in good faith. This contravened Section 4(1) of the Mortgage Act, 2009 and Clause 6(1) of the BOU Financial Consumer Protection Guidelines, 2011.

# Issue 4: Whether the Plaintiffs are entitled to the remedies sought.

### Declarations

59. In view of my findings on Issues 2 and 3, the Court shall issue declarations to the effect that the Defendant breached the loan agreement by declining to disburse the loan and that the Defendant breached its statutory duties of good faith, fairness and reasonableness.

## **Special damages**

- 60. In paragraph 6 of the plaint, the Plaintiffs pleaded and particularised special damages of UGX 95,000,000 which they claimed to have lost when the loan was recalled. In Stanbic Bank (U) Ltd v Hajji Yahaya Sekalega t/a Sekalega Enterprises, HCCS No. 185 of 2009, it was held that special damages must be specifically pleaded and proved, but that strict proof does not mean that that proof must always be documentary evidence. In my opinion, that flexibility is typically intended for claims for special damages arising from informal and undocumented transactions. Where special damages are said to arise from formal transactions involving the execution and, or, exchange of documents, it is unlikely that a court would readily relax the need for documentary proof since those documents would be the best possible evidence of such claims. - I will now deal with the different items pleaded under special damages. 61. First, the Defendant's 4^th September 2020 email clarified that the claimed life insurance cost of UGX 1,105,000 was in respect of House Owner's Insurance. The actual life insurance costs of UGX 744,000 had already been credited back to the 1^st Plaintiff's account. The email also clarified

that since the loan had not been disbursed, the sum of UGX 23,700,000 claimed for early settlement charges could not arise. Since the Plaintiffs relied on this email at the trial, I find that these 2 items are unrecoverable.

- The UGX 3,000,000 claimed as the projected lost monthly rent cannot also 62. be recovered. This loss is too remote because rent would only have become collectible by the Plaintiffs once the purchase of the suit land was complete through the full payment of the consideration agreed with the vendor. The right to the rent had not yet crystallised by the time the loan was recalled. Additionally, the UGX 60,000,000 paid by the Plaintiffs to the vendor as their contribution to the purchase price of the suit land is legally recoverable from the vendor and not from the Defendant. This was money which the Plaintiffs paid towards acquiring legal ownership of the suit land which is an independent proprietary interest which would even have outlived the Defendant's mortgage interest. Due to the total failure of consideration on the vendor's part, equity would not allow him to keep the UGX 60,000,000. - The 4^th September 2020 email promised that the Defendant was going to 63. settle the Plaintiffs' valuation fees of UGX 940,000 and the legal fees of UGX 8,071,000. Unfortunately, the Defendant did not prove that these 2 items have since been settled in full. The Court shall, therefore, issue an order for recovery of these valuation and legal fees as special damages.

#### **General damages**

64. The Plaintiffs also sought an award of general damages. General damages are what the law presumes to be the direct, natural or probable result of the breach of a right (See Opia Moses v Chukia Lumago Roselyn & 5 Ors, HCCS No. 0022 of 2013). General damages are awarded at the discretion of the Court. (See Hadley v Baxendale (1894) 9 Exc. 341). In assessing general damages, the Court should be guided by the value of the subject matter, the economic inconvenience that the Plaintiff may have been put through and the nature and extent of the injury suffered. (See Uganda

Commercial Bank v Kigozi [2002]1 EA 305). The Court should look into the future so as to forecast what would have been likely to happen if the contract had not been entered into or breached by the Defendant. (See Bank of Uganda v Fred William Masaba & 5 Ors, SCCA No. 3 of 1998).

- I am convinced that the natural or probable consequence of the breaches 65. detailed in Issues 2 and 3 above is that the Plaintiffs suffered anxiety, mental anguish and emotional distress when the loan was recalled after they had gone through great expense, in regard to their circumstances, to fully comply with the Defendant's loan requirements. The Defendant made matters worse when it omitted to promptly and effectively communicate its decision to recall the loan, leaving the Plaintiffs to endure the agony of anxiety and uncertainty along with the vendor's fury. - 66. Nevertheless, I am also mindful of the Defendant's reasons for declining to disburse the loan. The loan in issue was a long-term loan repayable in 300 months. Any lender would be apprehensive if he receives information that there is a likelihood that the person he is about to disburse a such a long-term salary loan to could soon lose his job. While such information does not render the lender's performance of the contract impossible, and the lender could still elect to disburse the loan anyway, the attendant hesitation is only natural and understandable. - 67. The Defendant's proposal to only pay the UGX 4,000,000 penalty prescribed for breach of the sale agreement cannot arise since the Defendant was not a party to the sale agreement. Besides, such a sum would not give the Plaintiffs adequate compensation. Considering all the circumstances of this case, I find that an award of general damages of UGX 50,000,000 is fair, just and adequate to compensate the Plaintiffs for their injury.

#### **Interest**

- Under Section 26 of the Civil Procedure Act, the Court has power to award 68. interest on damages. Ordinarily, a successful Plaintiff is entitled to interest at a rate which would not neglect the prevailing economic value of money but which would also insulate him or her against further economic vagaries, like inflation and depreciation of the currency, in the event that the money ordered to be recovered is not paid promptly. (See Mohanlal Kakubhai Radia v Warid Telecom Uganda Ltd, HCCS No. 0224 of 2011). - Basing on the above principles, the Court shall award interest on the 69. special damages at the rate of 21% p.a. from 4^th September 2020 when the Defendant committed to pay the legal and valuation fees until full payment. The Court shall also award interest on the general damages at the rate of 16% p.a. from the date of judgment until full payment.

#### Costs

The general rule that costs must follow the event means that an award of 70. costs will generally flow with the result of litigation (See Section 27(1) of the Civil Procedure Act Cap 71 and Kwizera Eddie v Attorney General, Supreme Court Constitutional Appeal No. 01 of 2008). Since the Plaintiffs have succeeded, the Court shall award them the costs of the suit.

## **Reliefs**

- Consequently, I make the following orders: 71. - A declaration is hereby issued that that the Defendant breached the í. loan agreement when it declined to disburse the loan. - A declaration is hereby issue that the Defendant breached its statutory ii. duties of good faith, fairness and reasonableness. - The Plaintiffs are awarded special damages of UGX 9,011,000, being iii. unpaid valuation and legal fees, plus interest thereon at the rate of 21% p.a. from 4^th September 2020 until full payment.

- The Plaintiffs are awarded general damages of UGX 50,000,000/= with iv. interest thereon at the rate of 16% p.a. from the date of judgment until full payment. - Costs of the suit are awarded to the Plaintiffs. $\mathsf{V}$ .

Patricadenter

Patricia Mutesi

**JUDGE** $(17/02/2025)$