[2009] UGCommC 34

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{\insrsid13790573 \chftnsepc \par }}\sectd \pgnid\linex0\endnhere\sectlinegrid360\sectdefaultcl\sectrsid9192034\sftnbj {\footer \pard\plain \s16\ql \li0\ri0\widctlpar\tqc\tx4320\tqr\tx8640\pvpara\phmrg\posxc\posy0\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid14640949 \fs20\lang1033\langfe1033\cgrid\langnp1033\langfenp1033 {\field{\*\fldinst {\cs17\insrsid4357990 PAGE }}{\fldrslt {\cs17\lang1024\langfe1024\noproof\insrsid8732151 - 1 -}}}{\cs17\insrsid4357990 \par }\pard \s16\ql \li0\ri0\widctlpar\tqc\tx4320\tqr\tx8640\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0 {\insrsid4357990 \par }}{\*\pnseclvl1\pnucrm\pnstart1\pnindent720\pnhang {\pntxta .}}{\*\pnseclvl2\pnucltr\pnstart1\pnindent720\pnhang {\pntxta .}}{\*\pnseclvl3\pndec\pnstart1\pnindent720\pnhang {\pntxta .}}{\*\pnseclvl4\pnlcltr\pnstart1\pnindent720\pnhang {\pntxta )}} {\*\pnseclvl5\pndec\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl6\pnlcltr\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl7\pnlcrm\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl8 \pnlcltr\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}{\*\pnseclvl9\pnlcrm\pnstart1\pnindent720\pnhang {\pntxtb (}{\pntxta )}}\pard\plain \qc \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 \fs20\lang1033\langfe1033\cgrid\langnp1033\langfenp1033 {\b\fs24\insrsid3369021\charrsid8732151 THE REPUBLIC OF UGANDA \par }{\fs24\insrsid3369021\charrsid8732151 \par \par IN THE HIGH COURT OF UGANDA AT KAMPALA \par COMMERCIAL COURT DIVISION \par \par \par HCT-00-CC-MA-0645-2008 \par (ARISING FROM HCT-00-CC-CS-0282\endash 2008) \par \par \par }\pard\plain \s15\qc \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 \fs28\lang1033\langfe1033\cgrid\langnp1033\langfenp1033 {\fs24\insrsid3369021\charrsid8732151 MARIA ODIDO \'85\'85\'85\'85\'85\'85 \'85\'85.\'85\'85\'85.\'85 \'85\'85.\'85.. APPLICANT \par }\pard\plain \qc \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 \fs20\lang1033\langfe1033\cgrid\langnp1033\langfenp1033 {\fs24\insrsid3369021\charrsid8732151 \par }{\b\fs24\insrsid3369021\charrsid8732151 VERSUS \par }{\fs24\insrsid3369021\charrsid8732151 \par BARCLAYS BANK OF }{\fs24\insrsid12794498\charrsid8732151 UGANDA }{\fs24\insrsid3369021\charrsid8732151 LTD. \'85\'85\'85\'85\'85\'85RESPONDENT \par \par \par BEFORE: HON }{\fs24\insrsid12794498\charrsid8732151 MR. }{\fs24\insrsid3369021\charrsid8732151 JUSTICE LAMECK N. MUKASA \par }\pard \ql \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid3369021\charrsid8732151 \par }\pard \qc \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\b\fs24\insrsid3369021\charrsid8732151 RULING: \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid3369021\charrsid8732151 \par This is an application by Notice of Motion under Order 36 Rule 4 and Order 52 rule 1 of the Civil Procedure Rules for order}{\fs24\insrsid12794498\charrsid8732151 s}{\fs24\insrsid3369021\charrsid8732151 that: \par \par {\listtext\pard\plain\insrsid3369021\charrsid8732151 \hich\af0\dbch\af0\loch\f0 1.\tab}}\pard \qj \fi-390\li750\ri0\sl360\slmult1\widctlpar\jclisttab\tx750\aspalpha\aspnum\faauto\ls1\adjustright\rin0\lin750\itap0\pararsid8732151 { \fs24\insrsid3369021\charrsid8732151 Unconditional leave be granted to the }{\fs24\insrsid12794498\charrsid8732151 A}{\fs24\insrsid3369021\charrsid8732151 pplicant to file a defence in the above suit. \par {\listtext\pard\plain\insrsid3369021\charrsid8732151 \hich\af0\dbch\af0\loch\f0 2.\tab}Cost of the application be provided for. \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid3369021\charrsid8732151 \par The grounds for the application are that:- \par }{\fs24\insrsid14901997\charrsid8732151 \par {\listtext\pard\plain\insrsid14901997\charrsid8732151 \hich\af0\dbch\af0\loch\f0 1.\tab}}\pard \qj \fi-390\li750\ri0\sl360\slmult1\widctlpar\jclisttab\tx750\aspalpha\aspnum\faauto\ls2\adjustright\rin0\lin750\itap0\pararsid8732151 { \fs24\insrsid14901997\charrsid8732151 The Applicant is a director in the principal debtor Company, to wit, Bee Natural Products Limited (BNP) and is conversant with the way the Respondent handled the loan facility applied for by BNP. \par {\listtext\pard\plain\insrsid4330653\charrsid8732151 \hich\af0\dbch\af0\loch\f0 2.\tab}}{\fs24\insrsid4330653\charrsid8732151 From inception the Respondent, by its conduct through its }{\fs24\insrsid10513785\charrsid8732151 mandated officers}{ \fs24\insrsid4145412\charrsid8732151 agreed to finance the project run by BNP well knowing that the source of repayment of the loan with agreed interest was the project when completed.}{\fs24\insrsid14901997\charrsid8732151 \par {\listtext\pard\plain\insrsid10513785\charrsid8732151 \hich\af0\dbch\af0\loch\f0 3.\tab}}{\fs24\insrsid10513785\charrsid8732151 T}{\fs24\insrsid4145412\charrsid8732151 he Project which the Respondent agreed to finance}{ \fs24\insrsid10513785\charrsid8732151 was completion of a hostel but the Respondent knowingly frustrated the project by disbursement of funds in a manner inconsistent with the Commercial presentation made by the Applica}{ \fs24\insrsid12794498\charrsid8732151 n}{\fs24\insrsid10513785\charrsid8732151 t and the said BNP and by withholding a substantial sum of the contracted amount.}{\fs24\insrsid4145412\charrsid8732151 \par {\listtext\pard\plain\insrsid10513785\charrsid8732151 \hich\af0\dbch\af0\loch\f0 4.\tab}}{\fs24\insrsid10513785\charrsid8732151 The Respondent in breach of a lender\rquote s implied obligation refused to fully disburse the loan thereby frustrating the project. \par {\listtext\pard\plain\insrsid10513785\charrsid8732151 \hich\af0\dbch\af0\loch\f0 5.\tab}The Respondent arbitrarily cha}{\fs24\insrsid12794498\charrsid8732151 r}{\fs24\insrsid10513785\charrsid8732151 ged interest on the facility amount at a rate not agreed upon and on amounts not disbursed. \par {\listtext\pard\plain\insrsid10513785\charrsid8732151 \hich\af0\dbch\af0\loch\f0 6.\tab}The Respondent has sold all assets of BNP but has not accounted for the proceeds of the sale. \par {\listtext\pard\plain\insrsid4130992\charrsid8732151 \hich\af0\dbch\af0\loch\f0 7.\tab}}{\fs24\insrsid4130992\charrsid8732151 T}{\fs24\insrsid10513785\charrsid8732151 he Respondent deliberately sold the assets of BNP at an under value with interest to perpetually keep BNP indebted and to }{\fs24\insrsid4594372\charrsid8732151 unjustifiably}{\fs24\insrsid10513785\charrsid8732151 }{\fs24\insrsid4594372\charrsid8732151 invo}{\fs24\insrsid12794498\charrsid8732151 k}{\fs24\insrsid4594372\charrsid8732151 e}{\fs24\insrsid10513785\charrsid8732151 the personal guarantees. \par {\listtext\pard\plain\insrsid4130992\charrsid8732151 \hich\af0\dbch\af0\loch\f0 8.\tab}}{\fs24\insrsid4130992\charrsid8732151 T}{\fs24\insrsid10513785\charrsid8732151 he suit against the Applicant is misconceived in so far as the purported default by BNP was caused by a breach by the Respondent. The Applicant cannot be held liable under the guarantee when the Respondent breached the facility agreement with }{ \fs24\insrsid4130992\charrsid8732151 BNP on}{\fs24\insrsid4594372\charrsid8732151 which the guarantee was founded.}{\fs24\insrsid10513785\charrsid8732151 \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid4594372\charrsid8732151 In the main suit, brought by summary procedure }{\fs24\insrsid4130992\charrsid8732151 Ms Barclays Bank of Ugan}{\fs24\insrsid4594372\charrsid8732151 da }{\fs24\insrsid4130992\charrsid8732151 Ltd }{\fs24\insrsid12794498\charrsid8732151 (the Respondent) }{\fs24\insrsid4130992\charrsid8732151 claims against Maria Odido (the Applicant) and Antonio Difonzo, jointly and severally as guarantors for the payment of Ugshs2,972,238,392/= }{\fs24\insrsid13785130\charrsid8732151 being monies owed to the }{\fs24\insrsid9254560\charrsid8732151 Respondent} {\fs24\insrsid13785130\charrsid8732151 by BNP, interest thereon at bank rate and costs.}{\fs24\insrsid4594372\charrsid8732151 \par }{\fs24\insrsid13785130\charrsid8732151 \par In an }{\fs24\insrsid9254560\charrsid8732151 application}{\fs24\insrsid13785130\charrsid8732151 of this nature }{\fs24\insrsid9254560\charrsid8732151 the law is that the }{\fs24\insrsid12794498\charrsid8732151 A}{\fs24\insrsid9254560\charrsid8732151 pplicant must show by affidavit or otherwise that there is a bonafide }{\fs24\insrsid5056590\charrsid8732151 triable issue}{\fs24\insrsid9254560\charrsid8732151 of fact or law. At this stage the }{\fs24\insrsid12794498\charrsid8732151 A}{ \fs24\insrsid9254560\charrsid8732151 pplicant is not bound to show that he has a good defence on the merits of the }{\fs24\insrsid14579765\charrsid8732151 case but ought to satisfy court that there is prima facie a triable issue in dispute which the court ought to determine between the parties. The Court is not at this stage required to inquire into the merits of the issue raised. However the issues so raised should be real and not a sham. Court must be certain that }{ \fs24\insrsid12794498\charrsid8732151 if}{\fs24\insrsid14579765\charrsid8732151 the fact alleged by the Applicant were established there would be a plausible defence and if the Applicant has a plausible defence he should be allowed to defen}{ \fs24\insrsid4457470\charrsid8732151 d}{\fs24\insrsid14579765\charrsid8732151 the suit unconditionally. See }{\i\fs24\ul\insrsid14579765\charrsid8732151 Abubaka}{\i\fs24\ul\insrsid12794498\charrsid8732151 r}{\i\fs24\ul\insrsid14579765\charrsid8732151 Kato Kasule Vs Tomson Mu}{\i\fs24\ul\insrsid12794498\charrsid8732151 h}{\i\fs24\ul\insrsid14579765\charrsid8732151 wezi (1992-93) }{\i\fs24\ul\insrsid12794498\charrsid8732151 H}{\i\fs24\ul\insrsid14579765\charrsid8732151 CB 212, Muluku Interglobal Trade Agency Vs Bank of Uganda (1985) HCB 65}{\fs24\insrsid14579765\charrsid8732151 .}{\fs24\insrsid13785130\charrsid8732151 \par }{\fs24\insrsid14579765\charrsid8732151 \par In }{\i\fs24\ul\insrsid14579765\charrsid8732151 Kotecha Vs Mohamed (2002) }{\i\fs24\ul\insrsid12794498\charrsid8732151 I}{\i\fs24\ul\insrsid14579765\charrsid8732151 EA 112 }{\fs24\insrsid14579765\charrsid8732151 Berko JA at page 118 stated: \par \par }\pard \qj \li1440\ri1440\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin1440\lin1440\itap0\pararsid8732151 {\fs24\insrsid14579765\charrsid8732151 \'93 The summary procedure on specifically endorsed plaint under Order 33 (now 36) Civil Procedure Rules is similar to a w}{\fs24\insrsid12794498\charrsid8732151 r}{\fs24\insrsid14579765\charrsid8732151 it specially endorsed under Order 3 rule 6 (Order 14 rule 1) of }{\fs24\insrsid12794498\charrsid8732151 t}{\fs24\insrsid14579765\charrsid8732151 he English Rules of the Supreme Court. Therefore English authorities }{\fs24\insrsid12794498\charrsid8732151 on that rule are of persuasive authority }{\fs24\insrsid14579765\charrsid8732151 and provide useful guide. Under the English Rule the Defe}{\fs24\insrsid93568\charrsid8732151 nd}{\fs24\insrsid14579765\charrsid8732151 ant is granted leave to appear and defend if he is able to show that he has a good defence on the merit, or a difficult point of law is involved, or a dispute as to the facts which ought to be tri}{\fs24\insrsid12794498\charrsid8732151 ed}{ \fs24\insrsid14579765\charrsid8732151 , or a real dispute as to }{\fs24\insrsid16732563\charrsid8732151 the amount}{\fs24\insrsid14579765\charrsid8732151 claimed which requires taking an account to determine or any other circumstances showing }{ \fs24\insrsid12283468\charrsid8732151 reasonable grounds}{\fs24\insrsid14579765\charrsid8732151 of a bonafide defence. \endash \'93 \par }{\fs24\insrsid2376432\charrsid8732151 \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid16466163\charrsid8732151 In }{\i\fs24\ul\insrsid12283468\charrsid8732151 Provincial Insurance}{ \i\fs24\ul\insrsid16466163\charrsid8732151 Co of East Africa Ltd Vs Kivutu (1995 \endash 1998) IEA 283}{\fs24\insrsid16466163\charrsid8732151 the Court of Appeal of Kenya held that in an application for summary judgment even one triable issue, if bonafide would entitle the defendant to have unconditional leave to defend.}{\fs24\insrsid93568\charrsid8732151 \par }{\fs24\insrsid16466163\charrsid8732151 \par }{\fs24\insrsid4339110\charrsid8732151 The Respondent}{\fs24\insrsid12794498\charrsid8732151 \rquote }{\fs24\insrsid4339110\charrsid8732151 s claim}{\fs24\insrsid12794498\charrsid8732151 ,}{\fs24\insrsid4339110\charrsid8732151 in the main suit, is against the }{\fs24\insrsid12794498\charrsid8732151 A}{\fs24\insrsid4339110\charrsid8732151 pplicant as a guarantor for the a su}{\fs24\insrsid7869344\charrsid8732151 m}{\fs24\insrsid4339110\charrsid8732151 of shs2,972,238,392/= As a }{\fs24\insrsid872033\charrsid8732151 guarantor the Applicant}{\fs24\insrsid12794498\charrsid8732151 \rquote }{\fs24\insrsid872033\charrsid8732151 s liability for the non performance of BNP}{ \fs24\insrsid12794498\charrsid8732151 \rquote s obligations is c}{\fs24\insrsid872033\charrsid8732151 o-existen}{\fs24\insrsid12794498\charrsid8732151 siv}{\fs24\insrsid872033\charrsid8732151 e }{\fs24\insrsid9123404\charrsid8732151 with BNP}{ \fs24\insrsid12794498\charrsid8732151 \rquote }{\fs24\insrsid9123404\charrsid8732151 s obligation. So if BNP}{\fs24\insrsid12794498\charrsid8732151 \rquote }{\fs24\insrsid9123404\charrsid8732151 s obligation turn}{\fs24\insrsid12794498\charrsid8732151 s }{\fs24\insrsid9123404\charrsid8732151 out not to }{\fs24\insrsid5056590\charrsid8732151 exist or}{\fs24\insrsid9123404\charrsid8732151 is void or dimi}{\fs24\insrsid3291067\charrsid8732151 ni}{\fs24\insrsid9123404\charrsid8732151 s}{ \fs24\insrsid3291067\charrsid8732151 h}{\fs24\insrsid9123404\charrsid8732151 ed or di}{\fs24\insrsid3291067\charrsid8732151 s}{\fs24\insrsid9123404\charrsid8732151 charged so is the Applicant\rquote s obligation in respect thereof. }{ \i\fs24\ul\insrsid9123404\charrsid8732151 See Paul Kasagga & Anor Vs Barclays Bank (U) Ltd HCT-00-CC-MA-0113-2008}{\fs24\insrsid9123404\charrsid8732151 }{\fs24\insrsid93568\charrsid8732151 \par }{\fs24\insrsid9123404\charrsid8732151 \par In his submission Mr. James Nangwala}{\fs24\insrsid3291067\charrsid8732151 ,}{\fs24\insrsid9123404\charrsid8732151 for the }{\fs24\insrsid3291067\charrsid8732151 A}{\fs24\insrsid9123404\charrsid8732151 pplicant}{\fs24\insrsid3291067\charrsid8732151 ,}{ \fs24\insrsid9123404\charrsid8732151 argued that the Applicant had signed the Guarantee upon which she is being sued on the implied understanding that the }{\fs24\insrsid5056590\charrsid8732151 Respondent would}{\fs24\insrsid9123404\charrsid8732151 meet its obligations to the principle borrower, BNP. He contends that the Respondent is in breach of its obligations towards the principle borrower. \par \par In paragraph 3 of the Applicant\rquote s affidavit she avers that the }{\fs24\insrsid5056590\charrsid8732151 Respondent agreed}{\fs24\insrsid9123404\charrsid8732151 to extend three }{\fs24\insrsid3291067\charrsid8732151 c}{ \fs24\insrsid5056590\charrsid8732151 redit facilities}{\fs24\insrsid9123404\charrsid8732151 to BNP as follows: \par {\listtext\pard\plain\f1\insrsid9123404\charrsid8732151 \hich\af1\dbch\af0\loch\f1 -\tab}}\pard \qj \fi-360\li1440\ri0\sl360\slmult1\widctlpar\jclisttab\tx1440\aspalpha\aspnum\faauto\ls1\ilvl1\adjustright\rin0\lin1440\itap0\pararsid8732151 { \fs24\insrsid9123404\charrsid8732151 Apex Loan of Shs850,000,000/= \par {\listtext\pard\plain\f1\insrsid9123404\charrsid8732151 \hich\af1\dbch\af0\loch\f1 -\tab}Apex Loan of Shs475,000000/= \par {\listtext\pard\plain\f1\insrsid9123404\charrsid8732151 \hich\af1\dbch\af0\loch\f1 -\tab}Apex Loan of Shs1,200,000,000/= \par }\pard \qj \li1080\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin1080\itap0\pararsid8732151 {\fs24\insrsid5056590\charrsid8732151 \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid9123404\charrsid8732151 That is a total facility of }{\fs24\insrsid9243531\charrsid8732151 S}{ \fs24\insrsid9123404\charrsid8732151 hs 2,525,000,000/=. In paragraphs 5 and 6 she contends that she signed the guarantee on the understanding that the }{\fs24\insrsid16732563\charrsid8732151 Respondent would}{\fs24\insrsid9123404\charrsid8732151 meet its obligations to BNP and disburse the entire facility funds. In paragraphs 8 and 9 Applicant avers that in breach of its undertaking and banking practice the Respondent refused and failed to disburse to BNP the }{ \fs24\insrsid9243531\charrsid8732151 entire loan}{\fs24\insrsid9123404\charrsid8732151 facility and p}{\fs24\insrsid3291067\charrsid8732151 urpo}{\fs24\insrsid9123404\charrsid8732151 rted to disburse only shs 1,321,000,000/= The Applicant claims that the Respondent }{\fs24\insrsid9243531\charrsid8732151 owed her, as a guarantor, a duty to ensure that it would not be in breach, a duty which the }{\fs24\insrsid3291067\charrsid8732151 A}{ \fs24\insrsid9243531\charrsid8732151 pplicant contends the Respondent breached. }{\fs24\insrsid9123404\charrsid8732151 \par }{\fs24\insrsid9243531\charrsid8732151 \par Further the Applicant contends that she has }{\fs24\insrsid5056590\charrsid8732151 noticed that}{\fs24\insrsid9243531\charrsid8732151 the Respondent has been fraudulent in the way it handled its financing to BNP in that the Respondent: \par {\listtext\pard\plain\insrsid3291067\charrsid8732151 \hich\af0\dbch\af0\loch\f0 (i)\tab}}\pard \qj \fi-720\li1080\ri0\sl360\slmult1\widctlpar\jclisttab\tx1080\aspalpha\aspnum\faauto\ls3\adjustright\rin0\lin1080\itap0\pararsid8732151 { \fs24\insrsid3291067\charrsid8732151 d}{\fs24\insrsid9243531\charrsid8732151 id not }{\fs24\insrsid16732563\charrsid8732151 invite}{\fs24\insrsid9243531\charrsid8732151 the Applicant or any }{\fs24\insrsid5056590\charrsid8732151 other director}{ \fs24\insrsid9243531\charrsid8732151 of BNP }{\fs24\insrsid16732563\charrsid8732151 to discuss}{\fs24\insrsid9243531\charrsid8732151 on the }{\fs24\insrsid16732563\charrsid8732151 interest chargeable}{\fs24\insrsid3291067\charrsid8732151 on the loan but char}{\fs24\insrsid9243531\charrsid8732151 ged arbitrary interest. \par {\listtext\pard\plain\insrsid3291067\charrsid8732151 \hich\af0\dbch\af0\loch\f0 (ii)\tab}}{\fs24\insrsid3291067\charrsid8732151 c}{\fs24\insrsid9243531\charrsid8732151 laims amounts under the facility which it did not disburse to BNP as being due from BNP and accordingly due from her. \par {\listtext\pard\plain\insrsid3291067\charrsid8732151 \hich\af0\dbch\af0\loch\f0 (iii)\tab}}{\fs24\insrsid3291067\charrsid8732151 s}{\fs24\insrsid9243531\charrsid8732151 old the hostel project at an under value and failed to account to BNP for the proceeds of the sale. \par {\listtext\pard\plain\insrsid3291067\charrsid8732151 \hich\af0\dbch\af0\loch\f0 (iv)\tab}}{\fs24\insrsid3291067\charrsid8732151 s}{\fs24\insrsid9243531\charrsid8732151 old machinery and equipment belonging to BNP for a total sum of shs70,460,000= but the said sum is not reflected on the statement. \par {\listtext\pard\plain\insrsid3291067\charrsid8732151 \hich\af0\dbch\af0\loch\f0 (v)\tab}}{\fs24\insrsid3291067\charrsid8732151 c}{\fs24\insrsid9243531\charrsid8732151 redits are reflected on the statement furnished but they are unexplained and are inconsistent with payments made. \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid2242924\charrsid8732151 In the premise the Applicant contends that the Respondent\rquote s claim against her is fictitious and cannot be proved. \par \par Mr. Masembe-Kanyerezi referred to the Guarant}{\fs24\insrsid2964309\charrsid8732151 ee}{\fs24\insrsid2242924\charrsid8732151 Deed, annexture B to the plaint, and argued that it was a Demand Guarantee. He submitted that in a demand guarantee the liability of the guarantor arises upon demand as opposed to the default guarantee. Counsel distinguished a demand guarantee from }{ \fs24\insrsid4457470\charrsid8732151 a }{\fs24\insrsid2242924\charrsid8732151 classic guarantee of suretyship. He distinguished the guarantee in this case from that in }{\i\fs24\ul\insrsid2242924\charrsid8732151 Kassaga Vs Barclays Bank (U) Ltd}{ \fs24\insrsid2242924\charrsid8732151 (Supra) which he argued was a contract of suretyship where the Guarantor}{\fs24\insrsid4457470\charrsid8732151 \rquote }{\fs24\insrsid2242924\charrsid8732151 s liability is co}{\fs24\insrsid2964309\charrsid8732151 -}{ \fs24\insrsid2242924\charrsid8732151 existen}{\fs24\insrsid2964309\charrsid8732151 sive}{\fs24\insrsid2242924\charrsid8732151 with the principal debtor}{\fs24\insrsid2964309\charrsid8732151 \rquote s}{\fs24\insrsid2242924\charrsid8732151 liability. He referred to Paget\rquote s Law of Banking 12}{\fs24\super\insrsid2242924\charrsid8732151 th}{\fs24\insrsid4457470\charrsid8732151 }{\fs24\insrsid2242924\charrsid8732151 Ed page 730 para 34.2 where it is stated: \par \par }\pard \qj \li1440\ri1440\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin1440\lin1440\itap0\pararsid8732151 {\fs24\insrsid16732563\charrsid8732151 \'93The essential deference between a guarant}{\fs24\insrsid2964309\charrsid8732151 ee}{ \fs24\insrsid16732563\charrsid8732151 in the strict sense (i.e. a contact of suretyship) and a demand guarantee is that the liability of a surety is secondary, whereas the liability of }{\fs24\insrsid2964309\charrsid8732151 t}{ \fs24\insrsid16732563\charrsid8732151 he issuer of a demand guarantee is primary. }{\fs24\insrsid2242924\charrsid8732151 A suretyship liability is co-existen}{\fs24\insrsid2964309\charrsid8732151 siv}{\fs24\insrsid2242924\charrsid8732151 e with that of the principle debtor and i}{\fs24\insrsid4457470\charrsid8732151 f}{\fs24\insrsid2242924\charrsid8732151 default by }{\fs24\insrsid6952778\charrsid8732151 the principle debtor is disputed by the }{\fs24\insrsid6646093\charrsid8732151 surety;}{\fs24\insrsid6952778\charrsid8732151 it must be pro}{\fs24\insrsid2964309\charrsid8732151 v}{\fs24\insrsid6952778\charrsid8732151 ed by the creditor. Neither propo}{\fs24\insrsid4457470\charrsid8732151 si}{\fs24\insrsid6952778\charrsid8732151 tion applies to a demand guarantee. The principle which underlies demand guarantees is that each contract is autonomous. In particular, the obligations of the }{\fs24\insrsid6646093\charrsid8732151 guarantor are}{\fs24\insrsid6952778\charrsid8732151 not affected by disputes under the underlying contract between the beneficiary and the principal. If the beneficiary makes an honest demand, it matters not whether as between himself and the principal he is entitled to payment. The guarantor must honour the demand, the principal must reimburse the guarantor (or }{\fs24\insrsid9192034\charrsid8732151 counter \endash guarantor), and any disputes between the principal and the beneficiary, including any claim by the principal that the drawing was a breach of the contract between them, must be resolved in separate proceedings to which the bank will not be a party.\'94}{ \fs24\insrsid2242924\charrsid8732151 \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid9192034\charrsid8732151 \par The guarantee Deed provides:- \par }\pard \qj \li1440\ri1440\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin1440\lin1440\itap0\pararsid8732151 {\fs24\insrsid9192034\charrsid8732151 \par }{\fs24\insrsid2964309\charrsid8732151 \'93 In consideration of }{\fs24\insrsid9192034\charrsid8732151 your giving t}{\fs24\insrsid2964309\charrsid8732151 ime}{\fs24\insrsid9192034\charrsid8732151 credit and}{\fs24\insrsid2964309\charrsid8732151 /}{ \fs24\insrsid9192034\charrsid8732151 or Banking facilities and accommodation to BEE NATURAL PRODUCTS LTD of P. O. Box 5318 Kampala (hereinafter referred to as \'93the Principal)\'94 }{\fs24\insrsid4457470\charrsid8732151 I}{ \fs24\insrsid9192034\charrsid8732151 /we the undersigned hereby guarantee to you the payment of and undertake on demand in writing made on the undersigned by your or any of your Directors, General Managers, Manager o}{ \fs24\insrsid2964309\charrsid8732151 r}{\fs24\insrsid9192034\charrsid8732151 Acting Ma nager to pay to you all sums of money which may now be or which hereafter may from time to time become due or owing to you anywhere from or by the Principal either as principal or surety, or jointly with any other person upon current banking account bills of exchange of promissory notes or upon loan or any other account whatsoever or for actual or }{\fs24\insrsid358134\charrsid8732151 contingent}{\fs24\insrsid9192034\charrsid8732151 liability including all usual banking cha}{ \fs24\insrsid2964309\charrsid8732151 r}{\fs24\insrsid9192034\charrsid8732151 ges.\'94 \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid9192034\charrsid8732151 \par In reply Mr}{\fs24\insrsid358134\charrsid8732151 .}{\fs24\insrsid9192034\charrsid8732151 Nangwala referred to }{\fs24\insrsid358134\charrsid8732151 section 16 of the Mortgage Act It provides:}{\fs24\insrsid9192034\charrsid8732151 \par }{\fs24\insrsid358134\charrsid8732151 \par }\pard \qj \li1440\ri1440\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin1440\lin1440\itap0\pararsid8732151 {\fs24\insrsid358134\charrsid8732151 \'93}{\fs24\insrsid6124911\charrsid8732151 T}{\fs24\insrsid358134\charrsid8732151 he obligations of any party to any agreement or ar}{\fs24\insrsid86814\charrsid8732151 ran}{\fs24\insrsid358134\charrsid8732151 g}{\fs24\insrsid86814\charrsid8732151 e}{\fs24\insrsid358134\charrsid8732151 ment collateral }{ \fs24\insrsid4457470\charrsid8732151 t}{\fs24\insrsid358134\charrsid8732151 o a mortgage, whether by way of guarantee, ind}{\fs24\insrsid86814\charrsid8732151 eminity}{\fs24\insrsid358134\charrsid8732151 or otherwise, shall be no greater than the obligations of the mortgag}{\fs24\insrsid86814\charrsid8732151 or}{\fs24\insrsid358134\charrsid8732151 under the mortgage.\'94 \par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid358134\charrsid8732151 \par Section 1 (b) defines \'93mortgage\'94 to mean any mortgage, cha}{\fs24\insrsid86814\charrsid8732151 r}{\fs24\insrsid358134\charrsid8732151 ge, debenture, loan agreement, or other encumbrance, whether legal or equitable which constitutes a cha}{ \fs24\insrsid86814\charrsid8732151 r}{\fs24\insrsid358134\charrsid8732151 ge over an estate or interest in land in Uganda or part}{\fs24\insrsid86814\charrsid8732151 l}{\fs24\insrsid358134\charrsid8732151 y in Uganda and partly elsewhere and which is registered under the Act. \par \par The facility letter annexture M1to the Applicant}{\fs24\insrsid86814\charrsid8732151 \rquote }{\fs24\insrsid358134\charrsid8732151 s affidavit constituted the loan agreement. The facilities were secured by}{\fs24\insrsid86814\charrsid8732151 ,}{ \fs24\insrsid358134\charrsid8732151 among others, a legal mortgage over plot No, 63 Block 261, Lukuli Makindye Hill, first mortgage over Block 9 Plot 371 Kagugube Kibuga, unlimited guarantee by Ms Maria Odido, M/s Di}{\fs24\insrsid86814\charrsid8732151 f }{\fs24\insrsid358134\charrsid8732151 on}{\fs24\insrsid86814\charrsid8732151 z}{\fs24\insrsid358134\charrsid8732151 o an}{\fs24\insrsid6619656\charrsid8732151 d M}{\fs24\insrsid86814\charrsid8732151 s}{\fs24\insrsid6619656\charrsid8732151 A}{ \fs24\insrsid358134\charrsid8732151 chola Odido, and a Debenture over machinery and stocks. \par }{\fs24\insrsid733183\charrsid8732151 \par Mr. Nangwala submitted that for a demand guarantee to be invo}{\fs24\insrsid86814\charrsid8732151 k}{\fs24\insrsid733183\charrsid8732151 ed there must be money owing by the principal debtor to the lender. That proof of advancing money to the borrower }{ \fs24\insrsid86814\charrsid8732151 is}{\fs24\insrsid733183\charrsid8732151 on the lender. He argued that the Respondent had not show}{\fs24\insrsid86814\charrsid8732151 n}{\fs24\insrsid733183\charrsid8732151 that it had advanced all the monies to BNP as per }{\fs24\insrsid86814\charrsid8732151 the }{\fs24\insrsid733183\charrsid8732151 facilities agreement. He argued that for the obligation to pay on demand to arise under clause 1 of the Guarantee t here must be money due from the principal which fact must be proved and not any fictitious amount. Further counsel argued that the Respondent had not adduced any evidence to show that the loan amounts were posted to BNP}{ \fs24\insrsid86814\charrsid8732151 \rquote }{\fs24\insrsid733183\charrsid8732151 s account. Yet clause 9 of the Guarantee provides:- \par \par }\pard \qj \li1440\ri1440\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin1440\lin1440\itap0\pararsid8732151 {\fs24\insrsid733183\charrsid8732151 \'939. Any }{\fs24\insrsid7933223\charrsid8732151 admission}{ \fs24\insrsid733183\charrsid8732151 or acknowledgment in writing by the }{\fs24\insrsid7933223\charrsid8732151 principal}{\fs24\insrsid733183\charrsid8732151 or any person }{\fs24\insrsid7933223\charrsid8732151 on behalf of the Principal of the amount of the indebtedness of the Principal otherwise in relation to the subject matter of this guarantee or any judgment or award obtained by you against the Principal or proof by you in insolvency bankruptcy or liquidation of companies which is admitted or any statement of ac}{\fs24\insrsid8404461\charrsid8732151 count furnished by you }{ \fs24\insrsid1589824\charrsid8732151 the correctness of which is certified by any one of your manager }{\fs24\insrsid86814\charrsid8732151 or acting managers }{\fs24\insrsid1589824\charrsid8732151 shall be binding and conclusive on the undersigned.\'94

\par }\pard \qj \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid1589824\charrsid8732151 \par I have given due consideration to the affidavits by both parties, the documents attached and the able submissions of both counsel. I find the issues raised}{\fs24\insrsid5243144\charrsid8732151 -- w}{\fs24\insrsid1589824\charrsid8732151 hether the Respondent charged interest }{\fs24\insrsid5602098\charrsid8732151 arbitra}{\fs24\insrsid86814\charrsid8732151 rily}{\fs24\insrsid4457470\charrsid8732151 ;}{\fs24\insrsid5602098\charrsid8732151 }{\fs24\insrsid86814\charrsid8732151 w}{ \fs24\insrsid5602098\charrsid8732151 hether the Respondent breached the loan agreement by failing to disburse all the loan monies; whether the Respondent has demanded from BNP more funds than what it actually advanced to BNP; whether the Respondent has breached its duty to the borrower to account for the proceeds from the sale of the securities deposited and whether the }{\fs24\insrsid86814\charrsid8732151 r}{\fs24\insrsid5602098\charrsid8732151 espondent ha}{\fs24\insrsid86814\charrsid8732151 s}{ \fs24\insrsid5602098\charrsid8732151 acted fraudulently in respect to the }{\fs24\insrsid12079874\charrsid8732151 loan}{\fs24\insrsid5602098\charrsid8732151 agreement}{\fs24\insrsid5243144\charrsid8732151 }{\fs24\insrsid4457470\charrsid8732151 -}{ \fs24\insrsid5243144\charrsid8732151 - }{\fs24\insrsid5602098\charrsid8732151 are issues privy to the Principal (BNP) and not to the }{\fs24\insrsid86814\charrsid8732151 A}{\fs24\insrsid5602098\charrsid8732151 pplicant as guarantor. A guarantor is only } {\fs24\insrsid12079874\charrsid8732151 liable}{\fs24\insrsid5602098\charrsid8732151 if the}{\fs24\insrsid12079874\charrsid8732151 }{\fs24\insrsid16732563\charrsid8732151 Principal debtor}{\fs24\insrsid5602098\charrsid8732151 }{ \fs24\insrsid12079874\charrsid8732151 fails to pay. T}{\fs24\insrsid5602098\charrsid8732151 h}{\fs24\insrsid12079874\charrsid8732151 e}{\fs24\insrsid5602098\charrsid8732151 guarantors liability arise where the }{\fs24\insrsid12079874\charrsid8732151 Principal}{\fs24\insrsid5602098\charrsid8732151 }{\fs24\insrsid1589824\charrsid8732151 \par }{\fs24\insrsid12079874\charrsid8732151 fails to discharge its obligations to pay. }{\fs24\insrsid16732563\charrsid8732151 In light of the above identified issues BNP}{\fs24\insrsid86814\charrsid8732151 \rquote }{\fs24\insrsid16732563\charrsid8732151 s liability is }{\fs24\insrsid86814\charrsid8732151 put}{\fs24\insrsid16732563\charrsid8732151 in issue. }{\fs24\insrsid12079874\charrsid8732151 If default by the principa l debtor is disputed by the Guarantor it must be proved by the Creditor. However, it is the Respondent}{\fs24\insrsid86814\charrsid8732151 \rquote }{\fs24\insrsid12079874\charrsid8732151 s case that the Applicant}{\fs24\insrsid86814\charrsid8732151 \rquote }{\fs24\insrsid12079874\charrsid8732151 s Guarantee is a demand guarantee whereby it is not affected by the disputes underlying the agreement between the borrower and the lender. In respect of a demand guarantee}{ \fs24\insrsid86814\charrsid8732151 ,}{\fs24\insrsid12079874\charrsid8732151 if the }{\fs24\insrsid6759400\charrsid8732151 beneficially}{\fs24\insrsid12079874\charrsid8732151 makes an honest demand, it matters not whether between the l}{ \fs24\insrsid6759400\charrsid8732151 e}{\fs24\insrsid12079874\charrsid8732151 nder and the borrower the lender is entitled to payment. The guarantor must honour the demand. But the Statutory provisions of section 16 of the Mortgage }{ \fs24\insrsid16732563\charrsid8732151 Act tend}{\fs24\insrsid6759400\charrsid8732151 to limit the obligations of the guarantor to the obligations of the principal debtor. }{\fs24\insrsid16732563\charrsid8732151 So an issue arises as to the nature of the guarantee whether it is }{\fs24\insrsid86814\charrsid8732151 an }{\fs24\insrsid16732563\charrsid8732151 on demand guarantee and if so what is the effect of the provisions of section 16 of the Mortgage Act. }{ \fs24\insrsid6759400\charrsid8732151 The}{\fs24\insrsid86814\charrsid8732151 s}{\fs24\insrsid6759400\charrsid8732151 e are two traible issues which need to be resolved to determine the Applicant}{\fs24\insrsid86814\charrsid8732151 \rquote }{ \fs24\insrsid6759400\charrsid8732151 s liability to pay. }{\fs24\insrsid733183\charrsid8732151 \par }{\fs24\insrsid6759400\charrsid8732151 \par In the premises I find that the Applicant has established circumstances which entitle her to be granted leave to defend the suit. Leave is accordingly granted and the Applicant is to file a Written Statement of Defence within 14 days from the date hereof. She is awarded costs of the application. \par \par }\pard \ql \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid6759400\charrsid8732151 \par \par }\pard \qc \li0\ri0\sl360\slmult1\widctlpar\aspalpha\aspnum\faauto\adjustright\rin0\lin0\itap0\pararsid8732151 {\fs24\insrsid6759400\charrsid8732151 Hon. Mr. Justice Lameck N. Mukasa \par }{\b\fs24\insrsid6759400\charrsid8732151 JUDGE \par }{\fs24\insrsid6759400\charrsid8732151 19}{\fs24\super\insrsid6759400\charrsid8732151 th}{\fs24\insrsid6759400\charrsid8732151 June, 2009}{\fs24\insrsid11354743\charrsid8732151 \par }}