[2024] UGCommC 167

## THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) **MISCELLANEOUS APPLICATION NO. 0538 OF 2024** (ARISING FROM CIVIL SUIT NO. 0065 OF 2024) <table> NAKAMYA BARBRA ::::::::::::::::::::::::::::::: **VERSUS** <table> KINYERA JULIUS WILFRED ::::::::::::::::::::::::::::::::::::

## (Before: Hon. Justice Patricia Mutesi)

**RULING**

#### **Background**

The Applicant brought this application by notice of motion under Section 98 of the Civil Procedure Act Cap 71 and Order 9 rules 11 and 27 and Order 52 rules 1 and 3 of the Civil Procedure Rules S. I. 71-1 seeking for orders that:

- 1. The default judgment in $Civ$ Suit No. 65 of 2024 be set aside. - 2. Miscellaneous Application No. 142 of 2024 be heard and determined. - 3. Costs of this application be provided for.

Briefly, the grounds of this application are that:

- 1. The Applicant filed Misc. Application No. 142 of 2024 for leave to appear and defend Civil Suit No. 65 $\phi$ f 2024 ("the main suit") on 30^th January 2024. - 2. The Respondent applied for a default judgment on $31^{st}$ January 2024. - 3. Misc. Application No. 142 of 2024 was filed within the prescribed time but it was not fixed for hearing $u$ til after default judgment had been entered. - 4. It is fair and just that the default judgment be set aside. - 5. This application has been made without any delay. - 6. It is fair and equitable that the application be granted.

The application is supported by an affidavit sworn by the Applicant. Therein she stated that on 30^th January 2024, she filed Misc. Application No. 142 of 2024, seeking leave to appear and defend Civil Suit No. 65 of 2024. She asserted that the said Application was filed within the designated time and her lawyers

followed up for the application to be fixed for hearing but all in vain. She was later surprised to learn that a default judgment had been entered against her, yet her application for leave to appear and defend the main suit was still pending before the Court.

The Respondent filed an affidavit in reply opposing the application. Therein he stated that since the Applicant was served with summons on 19^th January 2024, the time allowed for her to file her application for leave to appear and defend lapsed on 29^th January 2024. However she filed Misc. Application No. 142 of 2024 on 30^th January 2024 without obtaining leave to file the same outside the prescribed time. He asserted that even if Misc. Application No. 142 of 2024 was filed within prescribed time, it would still fail as the only complaint of the Applicant was that the interest in the suit agreement was unconscionable and oppressive to the Applicant yet the same was self-imposed. He also contended that the Court that is already functus officio after passing the default judgment in the main suit.

#### **Issue arising**

Whether the default judgment in $C_{\gamma}$ Suit No. 65 of 2024 should be set aside.

## **Representation and hearing**

At the hearing, the Applicant was represented by Mr. Mbalire Mohammed of M/s Regalex Advocates while the Respondent appeared in person. I have considered the parties' submissions, the laws and authorities cited therein and all the other materials on record while deciding this application.

### Determination of the issue

# Whether the default judgment in Civil Suit No. 65 of 2024 should be set aside.

Ordinarily, once a court has passed a judgment, the only course of action for the losing party is to lodge an appeal against the judgment in an appellate court. However, Order 36 rule 11 of the Civil Procedure Rules S. I. 71-1 gives a court discretionary power to set aside its $\phi$ wn decree, stay or set aside execution of the same, and grant leave to the defendant to appear and defend the suit, if the court is satisfied that the service of the summons was not effective or for any other good cause. (See Post Bank (U) Ltd v Abdu Ssozi, SCCA No. 08 of 2015).

$\overline{2}$

Effective service of summons means that service which produces the desired or intended result of service of summons. (See Geoffrey Gatete & Anor v William Kyobe, SCCA No. 7 of 2005). The intended result of service of summons is to bring to the notice of the party served the suit that has been filed against him or her and to require such a party to file a defence to the suit or an application for leave to appear and defend the suit within the prescribed time, whichever applicable. (See Crane Bank Ltd v Kabuye Victoria, HCMA No. 719 of 2007).

In the instant application, there is no dispute as to whether or not the summons to file an application for leave to appear and defend the main suit was effectively served on the Applicant. According to the affidavit of service on the record in the main suit, the Applicant was served with the said summons on $19^{th}$ January 2024. The summons directed the Applicant to file her application for leave to appear and defend the main suit, if any, on or by 29^th January 2024.

The Applicant has asserted that she filed her application for leave to appear and defend the main suit within the prescribed time. However, this is evidently not true. In paragraph 2 of her affidavit $\vert i \vert n$ support, the Applicant acknowledged that she filed her application for leave to appear and defend the main suit on $30^{\rm th}$ January 2024. This was one day after the lapse of the prescribed time. It is, thus, clear that the Applicant neither filed an application for leave to appear and defend within the prescribed time nor an application for leave to file her application for leave to appear and defend the main suit outside the prescribed time. The Court cannot, therefore, set aside the default judgment on the ground that service of the summons was not effective because the Applicant was served with the summons but she elected to file her application late.

The only other ground upon which the default judgment in issue can be set aside is good cause. What courts have consistently held to amount to good cause is evidence that the defendant has a triable defence to the summary suit. (See Geoffrey Gatete & Anor v William Kyobe (supra)). If an a pplicant demonstrates that he or she has a triable defence to the claims in the summary suit, the Court can exercise its discretion to set aside the default judgment and/ or decree and allow the applicant to appear and defend the summary suit.

To this end, counsel for the Applicant submitted that the main suit arose from a claim for the balance of the purchase price in a motor vehicle purchase contract. In that contract, the Applicant purchased a motor vehicle from the Respondent

at a price of UGX 15,500,000 on $15$ ^th November 2021. She paid UGX 14,800,000 and committed to pay the balance (UGX 700,000) 3 days later on $18^{\text{th}}$ November 2021. The parties agreed that if that balance was not paid, it would attract default interest at the rate of 10% per day until payment in full.

The Applicant insists that she $\text{dul}\gamma$ paid the balance to the Respondent through her broker in the transaction. The Respondent claims not to have received that balance and this is what prompted him to bring the main suit in order to recover it along with accrued default interest on 18^th January 2024, all totalling to UGX 55,300,000. The default judgment was entered against the Applicant in favour of the Respondent for the recovery of that sum.

In view of this background, it appears to me that there is good cause justifying setting aside the default judgment Section 26(1) of the Civil Procedure Act Cap 71 provides that:

"Where an agreement for the payment of interest is sought to be enforced, and the court is of opinion that the rate agreed to be paid is harsh and unconscionable and ought not to be enforced by legal process, the court may give judgment for the payment of interest at such rate as it may think just." Emphasis mine.

It follows that this Court need not always enforce a contractually-agreed interest rate if the Court considers it to be harsh and unconscionable. Section 26(1) of the Civil Procedure Act allows the $\mathsf{C}\mathsf{p}^{\mathsf{u}}$ urt, on a case by case basis, to strike down an interest rate for being harsh and unconscionable. The question of whether the interest prescribed in the agreement by the parties as the consequence of non-payment is harsh and unconsciphable can be considered from the point of view of whether it is a genuine covenanted pre-estimate of the damage flowing from the breach. If is not a genuine pre-estimate of that damage, it should be struck down for being harsh and unconscionable. (See R. L. Jain v Loy Komugisha & 2 Ors, HCCS No. 98 of 2013.)

In the instant case, the motor vehicle purchase contract provided for a default interest rate of 10% per day until full payment. This would culminate into a rate of approximately 300% per month and 3,600% per annum. This explains why a debt of only UGX 700,000 grew into one of UGX 55,300,00 in a little over 3 years. On the face of it, the contractual default interest rate appears to be harsh and

unconscionable, and there seems to be good reason for it to be revisited and reconsidered in the main suit.

In the premises, it is fair, just and reasonable for the default judgment to be set aside and for the Applicant to be granted leave to appear and defend the main suit so that the Court can fully investigate the question of whether or not the contractual default interest rate of 10% per day until full payment is a genuine pre-estimate of the damage flowing from the delayed payment, if any, of the purchase price for the vehicle. Consequently, this application succeeds and I make the following orders:

- The default judgment entered in Civil Suit No. 65 of 2024 is set aside. Ĩ. - ii. The Applicant is granted leave to appear and defend Civil Suit No. 65 of 2024. - The Applicant shall file her written statement of defence in Civil Suit III. No. 65 of 2024 within 10 (ten) days from the date of this order. - Miscellaneous Application No. 142 of 2024 and Misc. Application No. iv. 537 of 2024 are overtaken by events and, accordingly, dismissed with no order as to costs. - Costs of this application shall abide by the cause. $V$ .

eadenles

**Patricia Mutesi**

**JUDGE**

$(31/05/2024)$