[2023] UGCommC 106

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT I(AMPALA (CoMMERCIAL DTVISION) Misc CAUSE NO. OO94 OF 2o22

HENRY MITEGYEKO NTARO: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :APPLICANT

#### VERSUS

1. GOLDMINE FINANCE LIMITED ]

2. TAYEBWA ALLAN ]:::::::::::::::::RESPONDENTS

# Before: Hon. Lady Justice Patricia Kahigi Asiimwe

### Ruling

Introduction:

- 1 This Application is brought by way of Notice of Motion under section 89 of the Tier4 Microfinance Institutions and Money Lenders Act, Regulation 26 of the Tier4 Microfinance Institutions and Money Lenders Regulations, section 98 of the Civil Procedure Act, Order 52 Rules 1, 2 & 3 of the Civil Procedure Rules S.l 71-1 seeking for orders that: - a) The Money lending transaction between the Applicant and the Respondent be reopened; - b) The money lending transaction between the Applicant and the Respondent be deemed harsh and unconscionable; - c) The Respondent illegally sold off Motor Vehicle Reg. No. UAW 951V BMW valued at 120,000,000; - d) The Respondents pay the Applicant the market value of the motor vehicle, less of the loan amount and 25%o interest per annum; and - e) Costs for the application.

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R-

- 2. The Application was supported by an Affidavit sworn by the Applicant who deponed as follows: - a) In December 2016 he needed to borrow some money for family engagements and he approached a neighbour, Mark Kabonero who introduced him to a money lender known as Teyebwa Allan; - b) Mr. Tayebwa Allan is a shareholder and director in Goldmine Finance Ltd a money lending company; - c) He informed Mr. Tayebwa that he urgently needed $a$ loan and that he was willing to use his Motor Vehicle BMW Reg. No. UAW 951V as security. The vehicle was valued by a company selected by Tayebwa at 120,000,000; - d) Based on the valuation, Mr. Tayebwa agreed to lend him UGX. 23,000,000 at an interest of 10% per month through Goldmine Finance Ltd; - e) Mr. Tayebwa Allan further told him that he should transfer the vehicle into his name as one of the conditions, before being given the loan, which he reluctantly agreed to as he needed the money urgently; - f) That, however, Tayebwa Allan gave him only UGX 18,000,000 and attributed the difference of UGX. $5,000,000$ to the costs and expenses of comprehensive insurance, valuation of the vehicle, and transfer and installation of a car tracker: - g) That he requested Mr. Tayebwa Allan to furnish him with a copy of the loan agreement which he refused to do and informed me that the company doesn't furnish customers with copies of the loan agreements;

- h) That he later saw the vehicle being advertised for sale on a website known as OLX; and - i) That he was never given a chance to redeem the Vehicle, by the Respondents. - 3 The I"t Respondent liled an aflidavit in reply sworn by Alex Kisolo Herbert the legal marlager of the Respondent Company who stated as follows: - a) That the 1"t Respondent shall raise a preliminary objection that the application is bad ald barred in law as it does not disclose a cause of action against the l"t Respondent and that it should be dismissed with costs, - b) That the 1st Respondent has never had transaction with the Applicant as alleged Applicant shall be put to strict proof. any and loan the - 4 The 2"d Respondent swore an Affidavit in Reply and stated as follows: - a) That the Application is bad and barred in law by the statute of limitation and a preliminary objection to that effect shall be raised at the trial' - b) That sometime in2016, he bought a motor vehicle Reg. No. UAW 951V from the Applicant; - c) He paid for the said motor vehicle and it was effectively transferred to his name; and - d) He has never entered into any money lending transaction with the Applicant.

- 5. The Applicant filed an Affidavit in Rejoinder in which he stated as follows: - a) Even though the time allowed had expired, he was under disability for some time in 2020 when he was undergoing treatment for mental health issues: - b) That he went with his friend Noorali Ebraim Magulu to the Respondent's offices in Nakawa and met the $2^nd$ Respondent who is a director in the $1^{st}$ Respondent company, where the $2^nd$ Respondent made it clear that he had to sign a sale agreement for his car as a condition for the loan which he eventually did; - c) Due to his suspicions as to why the $2^{nd}$ Respondent was not giving him the money lending documents, with the help of Noorali, he managed to take some snapshots of the documents relating to the money lending agreement without the knowledge of the Respondent. - 6. The Applicant filed a supplementary affidavit deposed by Ayebale Jonathan who stated that: - a) He is a former employee of the $1^{st}$ Respondent, who used to work as a credit and collection officer: - b) He is aware of the money lending transaction entered into between the Applicant and the Respondents around December 2016: - c) He is also aware that the Applicant pledged his motor vehicle, BMW Reg No. UAW 951W which was valued at UGX. $120,000,000$ to the Respondents as security for the loan facility that he had taken out with the Respondents; - d) That the Applicant defaulted on the loan and he was sent by the Respondents to impound the said vehicle, which he

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did in around 2017, and took the vehicle to the Respondents' premises at Akamwesi in Nakawa;

- e) That after some time, the Applicant called him to find out how he could re-pay the loan and redeem his vehicle; - f) That when he contacted the Respondents' accountant, one Moris, he informed him that the said motor vehicle had already been sold. - 7. The Applicant filed another supplementary Affidavit sworn by Noorali Ebrahim Mangalji who stated as follows: - a) He is a friend of the Applicant and he went with the Applicant to the $2^nd$ Respondents office who he happened to know from his time at Makerere University Business School. - b) That the $2^{nd}$ Respondent made it clear that he would only offer the Applicant financial assistance if he would transfer his vehicle to the $1^{st}$ Respondent's name. - c) Due to his financial situation and the fact that I knew the $2^nd$ Respondent, the Applicant signed the documents but the $2^nd$ Respondent refused to give him copies of the agreement. - d) That since the Applicant kept telling him that he needed copies of the documents, he managed to divert their attention to enable the Applicant to take photos of the contractual documents without being detected. - 8. Both Respondents filed affidavits in reply to the supplementary affidavits whose contents are summarised in the resolution. The Respondents also filed affidavits in surrejoinder to the Applicant's Affidavit in Reply.

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# **Representation:**

9. M/s Erisata & Erisata Advocates represented the Applicant while M/s Walusimbi & Co. Advocates represented the 1^st & $2^nd$ Respondents. The parties filed written submissions.

#### **Issues:**

10. Issue 1: Whether the transaction between the parties was a loan or a sale of the vehicle Issue 2: What remedies are available to the parties?

# **Resolution:**

### Preliminary Objection:

- The Applicant raised a preliminary objection regarding the $11.$ affidavits of the Respondents in surrejoinder to the Applicant's affidavit in rejoinder to the effect that the affidavits are bad in law and should be struck off. - The law on Applications by Notice of Motion is provided for 12. under Order 52 of the Civil Procedure Rules and Rule 7 of the Judicature (Judicial Review) Rules, 2009. In the case of Water & Environment Media Network (U) Ltd & Ano. Vs. National Environmental Management Authority & Ano. Consolidated Misc. Cause Nos.239 & 255 of 2020, **Ssekaana J** held that the law does not provide for filing of the affidavits in surrejoinder and that such affidavits can only be filed with leave of court. - 13. In the present case, the Respondents did not seek leave of court to file the said affidavits in surrejoinder, they are therefore hereby struck off the record. The preliminary objection is therefore upheld.

Issue 1: Whether the transaction between the parties was a loan or *a sale of the vehicle*

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- Counsel for the Applicant submitted that the sale of vehicle $14.$ agreement was entered under duress, misrepresentation, and undue influence. Under section 92 (a) of the Evidence Act such a contract is illegal. Counsel further submitted on the essential elements for a contract to be considered valid and averred that there was no offer and acceptance and no mutuality of intention. Counsel further submitted that there was a loan agreement and that the interest of 10% per month was harsh and unconscionable. - The Respondents in their submissions denied the allegation 15. of undue influence, misrepresentation, or duress in the sale of the Applicant's vehicle. It was further submitted that the 2^nd Respondent does not conduct money lending in an individual capacity thus, the 2^nd Respondent could not ask for a transfer of the vehicle into his name. - It was further submitted that the fact that the Applicant 16. allowed to sign the sale agreement for the car, indicates that the sale transaction was legal between the Applicant and the $2^nd$ Respondent and that the failure to have witnesses to the transaction does not make it illegal. - Counsel for the Respondents challenged the snapshots of the 17. alleged loan agreement produced by the Applicant stating that they were not dated, signed, or sealed by the 1st Respondent. He maintained that there was no loan transaction between the Applicant and the 1st Respondent but rather there was a sale of a vehicle to the $2^{nd}$ Respondent. - In rejoinder, it was submitted for the Applicant that there was 18. no sale but rather a loan agreement and that sufficient evidence was adduced in this regard by the Applicant and his two witnesses. Counsel added that while he was coerced to the sale agreement, unwitnessed car sign the acknowledgment attached was for the loan agreement. It was further submitted that while the 2nd Respondent continues

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$\ell$ to distance himself from the 1st Respondent, courts have the power to lift the veil in certain circumstances such as where there are instances of the director involving themselves in fraudulent dealings.

## *Resolution:*

- 19. The Applicant stated in the affidavit that he approached the Respondent for a loan in December 2016. He signed a loan agreement and was not given a copy of the agreement. He also reluctantly signed the sale of vehicle agreement because he needed the money. He further stated that he was able to stealthily take photos of the documents with the help of Noorali Ebrahim Mangali. The Applicant submitted photos of documents that he claimed were proof of the loan transaction. These documents include part of what looks like a loan agreement. Part of it is too blurry to read. It also appears that it is not complete. However, clause 10 (e) (i) of the agreement reads that "the $1^{st}$ party shall take legal action against the $2^{nd}$ party if the $2^{nd}$ party defaults in the payment of any instalment of the loan or interest." This clause clearly indicates that the agreement is in respect to a loan transaction. The Applicant also attached the signature page which indicates that one of the parties is Goldmine Finance Limited (the $1^{st}$ Respondent) and was signed by the Applicant Applicant addition, the submitted only. In an acknowledgment form which indicates the particulars as a loan made to the Applicant. The total amount is UGX. 23,000,000 and the Applicant's name and signature appear at the bottom of the form. The form is dated 22^nd December 2016. This is the same date as the car sale agreement. - The Applicant's evidence is corroborated by the evidence of 20. Noorali Ebrahim Mangali who stated in his affidavit that he went with the Applicant to the $2^nd$ Respondent's office whom he happened to know. The $2^{nd}$ Respondent made it clear that he would only offer the Applicant a loan if he would transfer

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the vehicle into his name. The $2^nd$ Respondent in reply stated that the deponent was not a witness to the sale agreement.

- 21. In the supplementary affidavit Jonathan Ayebale stated that he is a former employee of the $1^{st}$ Respondent. He stated that he is aware of the loan transaction between the Applicant and that when the Applicant defaulted on the loan he was sent to impound the vehicle which he took to the Respondent's premises. In the Affidavit in Reply, the $2^{nd}$ Respondent admits that Jonathan Ayebale was a former employee of the $1^{\rm st}$ Respondent. However, he did not send him to impound the vehicle. - The $2^{nd}$ Respondent in his Affidavit in Reply attached an 22. agreement of sale of a motor vehicle between himself and the Applicant signed by both parties and dated $22^{nd}$ December 2016. The $2^nd$ Respondent also attached a log book indicating the $2^nd$ Respondent as the owner of the vehicle. The date of issue of the logbook is $23^rd$ December 2016. - In the sale agreement the contract price is UGX. 60,000,000, 23. however, the Respondent did not submit any evidence of payment of the said consideration to the Applicant. - 24. In the Court of Appeal case of **Waknyira Goeroge David Vs** Ben Kavuya and others CA No. 36 of 2010, whose facts are quite similar to the facts in the present case, the Appellant's case was that he borrowed money from the $2^{nd}$ Respondent and pledged his land as security. He was also required to sign transfer forms for the property which he did. He was not given a copy of the loan agreement. While the Appellant insisted that the transaction between the parties was a loan agreement, the Respondents stated that there was a sale of the property. The Court of Appeal held that "in the absence of evidence that the parties intended to be bound contractually to the sale and transfer, Court should be

$\mathcal{P}$

reluctant in deciding that the executed documents formed that basis of a legal contractual relationship."

- 25. The Court of Appeal further held that "it is now settled law" that one of the essential elements for a valid contract to exist is that there must be an intention to create legal relations which the parties must manifest." - The court went ahead to hold there was no valid contract and 26. stated as follows:

There must be a positive intention to create a legal obligation as an element of the contract; deliberate promise or agreement seriously made. If reasonable people would assume that there is no intention of the parties to be bound with what they are doing, then there is no contract.

- 27. In the case of **Waiga Jacintus Versus Andima Jackson Civil Appeal No. 0020 of 2016** Mubiru J, defined intention to create legal relations "as an intention to enter a legally binding agreement or contract." - 28. In the case of **Olanya Hannington Vs. Acullu Hellen Civil** Appeal No. 0038 of 2016 Mubiru J held that the test of determining whether there was an intention to create a legal contract is whether "a reasonable person would consider that there was an intention so to contract." - 29. In the present case, I note the following: - a) While the Respondent submitted in evidence a sale of vehicle agreement, there is no evidence of payment of the consideration for the vehicle; - b) The sale of vehicle agreement is dated 22^nd December 2016. However, according to Annexture B of the $2^{nd}$ Respondent's Affidavit in Reply to the supplementary affidavit of Jonathan Ayebale, the Applicant filed the notice of change of ownership of the vehicle with the Uganda

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Revenue Authority on the 21^st December 2016 which was the day before the signing of the sale of vehicle agreement. This corroborates the Applicant's assertion that the transfer of the vehicle to the $2^nd$ Respondent was a condition precedent to him getting the loan.

- c) The Applicant submitted an acknowledgment of receipt of the UGX. 23,000,000 which clearly indicates that the money received was a loan. - d) The Applicant filed 2 supplementary affidavits both deponents confirming that there was a loan agreement. The supplementary affidavit by Ayabare Jonathan is persuasive since the Respondents admit that he was once an employee of the 1^st Respondent notwithstanding the statement that he was dismissed for gross misconduct. - e) The loan agreement submitted by the Applicant is not signed by the $1^{st}$ Respondent. As noted earlier part of the submitted loan agreement is not legible and does not appear to be complete. However, given the circumstances under which the said photos were taken this is not surprising. - 30. In view of the above findings, I find that there was clearly no meeting of minds. I further find that a reasonable person would find that there was no intention on the part of the Applicant to transfer his vehicle to the $2^{nd}$ Respondent. - In conclusion I find that the transaction between the parties 31. was a loan agreement and not a sale of property. - 32. Before I take leave of this matter, I further note that there seems to be a growing practice by money lenders to require borrowers to sign sale agreements and sign transfer forms in respect to security provided for a loan. Out of desperation borrowers sign those agreements and transfer forms in the

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hope that they will pay back the loan and redeem the property. In some cases, they are not able to redeem the property. On the other hand, lenders have probably been forced to take such underhand measures because some borrowers take money without the intention to pay it back. However, this practice of money lenders requiring borrowers to transfer their security to the lenders is not only manifestly unfair but also illegal and courts must do the utmost to stamp this practice out.

Issue 2: What remedies are available to the parties?

- 33. The Applicant prayed that the money lending transaction be reopened. The law governing the reopening of money lending transactions is spelled out in section 89 of the Tier 4 Microfinance Institutions and Money Lenders Act, 2016 which provides as follows: - 1) *Where a borrower or a money lender applies to court for* the recovery of money lent or the enforcement of a *money lending agreement or security made or taken in* respect of money lent, the court may reopen a *transaction if it is satisfied that* - a) the interest charged in respect of the sum actually *lent is excessive;* - b) the amount charged for expenses, inquiries, fines, bonus, premium, renewals or any other charges, is *excessive:* - *c) the transaction is harsh and unconscionable; or* - *d) the transaction is such that a court of equity would* give relief.

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- 2) Where the court reopens a transaction, the court shnll take into account the agreement betuteen the money lender and the borrouter and mag, notwithstanding ang statement or settlement of account or anA agreement to close pre uious dealing s - a) relieue the borrouer from pagment of a sum in excess of the sum adjudged bg the court to be fairly due in respect ofthe pincipal, interest and charges, as the court, hauing regard to the risk and all the circumstances, mag adjudge to be reasonable; - b) order the money lender to repaA the excess sum paid, by the bonouter; - c) set aside, either uthollg or in part, or reuise or alter ang secuitg giuen or agreement made in respect of moneA lent; and - d) mant order the moneu lender to indemnifu the borouter if the moneu lender has realjze<l 4'e secun mphasis added) - 34. I have already determined that the transaction was a money lending transaction and not a sale of vehicle agreement. I do however note that the Applicant did not repay the money that was loaned to him. It is only just and fair that the said money is repaid. The applicant claimed that the interest was 107o per month. It is also not clear at what point the vehicle was impounded. However, the Applicant states that the vehicle was impounded after 2 months. Since the 2"d Respondent stated in his affidavits that the vehicle is in his name, the assumption is that it is still in his possession. I do however note that Jonathan Ayabare in his affidavit stated that the accountant told him that the vehicle was sold off. The other challenge with this case is that there is no evidence of a valuation report. However, the Applicant submitted as

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Annexture C to his affidavit in Reply a screenshot of the vehicle being advertised for sale at UGX. 90,000,000. I am inclined to assume in the absence of a valuation report that at the time the vehicle was impounded the value was UGX. 90,000,000.

- 35. In the final result the Application is successful with the following orders: - a) The Applicant shall repay the loan of UGX. 23,000,000 and interest at a rate of lOok per month for 2 months. - b) The sale agreement entered into between the 1"t Respondent and the Applicant is null and void; - c) The Respondents shall pay the Applicant UGX. 90,000,000 as the value of the vehicle less the money under a) above; - d) Interest of 2O%o per annum on c) above from the date of this ruling until paS,nnent in full; and - e) The Applicant is awarded costs.

## Dated this 13th October 2O23

&s

## Patricia Kahigi Asiimwe

Judge

Delivered on ECCMIS