MTK (U) Limited v Attorney General & 3 Others and DFCU Bank Limited v MTK (U) Limited & Another (Civil Suit 578 of 2022) [2024] UGCommC 159 (13 May 2024)

5 THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION] CIVIL SUIT NO. 578 OF 2022

10 MTK (U) LIMITED ] PLAINTIFF

VERSUS

| | 1.<br>ATTORNEY GENERAL | ] | |----|------------------------------------|--------------| | 15 | 2.<br>NCBA BANK (U) LIMITED | ] | | | 3.<br>DFCU BANK LIMITED | ] | | | 4.<br>HOUSING FINANCE BANK (U) LTD | ] DEFENDANTS |

COUNTERCLAIM

DFCU BANK LIMITED ] COUNTER CLAIMANT

VERSUS

25 1. MTK (U) LIMITED

2. FIONA KITAKA NAKKAZI MIGADDE ] COUNTER DEFENDANTS

Before: Hon. Justice Ocaya Thomas O. R

JUDGMENT

Background

The brief fact of the main suit is that the 1st Defendant is the Attorney General of the Republic of Uganda. The 2nd, 3rd 35 and 4th Defendants are Banks operating in Uganda. The Plaintiff's claim against the 1st Defendant is for General Damages and indemnity for losses arising out of breach of contract, declaration that the 2nd, 3rd and 4th Defendants are obliged to collect


5 loans advanced to finance the Plaintiff's performance under contract with the Government of Uganda from the Government of Uganda.

That the Plaintiff was operating profitably since 1967 in pharmaceutical importation and distribution for both humans and animals. Around August, 2017 the Plaintiff entered into a

10 frame work contract for supply of assorted animal vaccines for a period of 2 years with the Republic of Uganda through the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF/SUPHS/20216-17/0001).

That to finance the supplies and the import loans, the Plaintiff obtained financing from the 2nd, 3rd 15 and 4th Defendants which monies were transferred to the various manufacturers of the products to be supplied under the contract and secured the advances by assignment of the proceeds of the supplies were made to and accepted by the 2nd, 3rd and 4th Defendants.

That in 2019, the Plaintiff was unlawfully and wrongfully accused of supplying the 20 Government of Uganda with fake cattle vaccine and the allegations and ensuing actions by the Government adversely affected the plaintiff's operations and performance and stifled its capacity to honor its financial obligations to many entities inclusive of the 2nd,3rd and 4th Defendants as the plaintiff's contracts with the Government of Uganda was revoked, goods delivered rejected and the MAAIF contract suspended in breach and products that were 25 already procured for supply expired as MAAIF refused to accept the goods. The stock was

destroyed and loss in terms of value, cost of destruction and income from possible sale occurred.

On the 27th December, 2022 the 4th Defendant's lawyers wrote to Court bringing to court's 30 attention that they filed their Defense on the 5th August, 2022 which was admitted on the 27th September, 2022 as did the 3rd Defendant who filed their Defense on the 2nd August, 2022. That after cross-checking with the court record, they established that there is neither an application for taking out summons for Directions nor any Court orders extending time within which to take out summons for directions by the plaintiff.

5 That it was over 15 weeks since the lapse of the 28 days within which the plaintiff was to take out summons for directions as such the matter has abated under Order 11A Rule 1(2) of the Civil Procedure Rules SI 71-1 as amended.

Rule 1(2) provides that – *where a suit has been instituted by way of a plaint, the Plaintiff shall take out summons for direction within 28 days from the date of the last reply.*

10 Rule 1(6) provides that – *If the Plaintiff does not take out summons for directions in accordance with subrule 2, the suit shall abate.*

On the 18th of April, 2023 the Plaintiff having not complied with the provisions of Order 11A Rule 1 (2) of the Civil Procedure Rules SI 71- 1 as amended, court upon perusal of the

15 records of filings of the case in as far as the claims by the Plaintiff against the other 3 Defendants are concerned, Civil Suit No. 578 of 2022 abated.

The position of the law is that a counterclaim is treated as a separate suit from the action commenced by the plaint. See David Segulani v Rosemary Natukunda & HCMA 61 of 20 1991, Need Sacco Ltd v Lulume Nambi Norah Civil Appeal No. 89 of 2019

The abatement of a suit does not affect a counterclaim except if the law or order of court abating the same explicitly provides so. See Kampala City Council & Anor v James Bwogi & Sons Enterprises Limited CACA 52/2009

The brief facts are that the Counter Claimant, a limited liability Banking Company filed this counterclaim against the 1st and 2nd Counter Defendants jointly and or severally for Breach of loan facility against the 1st Counter Defendant, Breach of the Guarantee against the 2nd Counter Defendant, Recovery of the Outstanding sum and interest thereon at the contractual

30 rate, General Damages for the breach of contract and interest thereon; as well as costs of the counterclaim/suit.

The Counter claimant claims for recovery of the sums outstanding on the credit facility extended to the 1st Counter defendant, which at the time of filing the counterclaim, the

35 counterclaimant claims, stood at USD 6,677,197 accruing from a loan facility fronted to the

1st Counter Defendant and the same guaranteed by the 2nd Counter Defendant.

5 According to the counterclaimant, the 1st Counter Defendant approached the Counterclaimant and applied for a trade finance of USD 3,500,000. The facility was to provide capital to the 1st Counter defendant's business and refinance its existing import loan.

Later, the 1st Counter defendant applied for an increase of the facility by USD 1,500,000 to bring the total facility to USD 5,000,000 and the Application was allowed. As a result, the 1st 10 Counter Defendant was provided an additional facility of USD 1,500,000 totaling USD 5,000,000 for a period of 12 months.

The purpose of the loan was to facilitate working capital in the 1st Counter Defendant's 15 business, purchase of stock and refinancing the 1st Counter Defendant's existing import loan, invoice discounting loan, and short-term loan exposures of approximately USD 3,180,000 held with Ecobank (U) Ltd.

That the loan facility was secured by a number of securities namely a second ranking further 20 charge over land and property comprised in Leasehold Register Volume 2763 Folio 7 Plot 41, Nasser Road, Kampala in the names of Cooper Uganda Limited; Leasehold Register Volume 2763 Folio 8 Plot 43, Nasser Road, Kampala in the names of Cooper Uganda Limited a Legal Mortgage over land and property comprised in Leasehold Register Volume 3240 Folio 15 Plot 11B, High Street, Mbarara Town, Mbarara District in the names of MTK Uganda Limited; and

25 Leasehold Register Volume 3575 Folio 14 Plot 49 & 51, Buikwe Road, Njeru, Mukono District in the names of MTK Uganda Limited.

The facility was secured by a second-ranking fixed and floating debenture charged over the Borrower's current and future movable and immovable assets; and Personal Guarantees of

30 Francis Xavier Ssebampitako Kitaka and the 2nd Counter Defendant which were all registered and all relevant levies and duties paid.

The counter Defendants did not meet their obligations as agreed and in accordance with the facility, despite several demands and reminders; the counter claimant through its agents

35 appointed auctioneers who advertised the properties comprised in Leasehold Register Volume 3240 Folio 15 Plot 11B, High Street, Mbarara Town, Mbarara District in the names of


5 MTK Uganda Limited; Leasehold Register Volume 3575 Folio 14 Plot 49 & 51, Buikwe Road, Njeru, Mukono District in the names of MTK Uganda Limited.

The properties mentioned above were advertised and sold, realizing a total of UGX 1,710,000,000/= leaving an outstanding balance of USD 5,220,009 which remains unpaid 10 hence the counterclaimant's action.

Abatement and Default Judgment

The Counter-Claimant filed their Written Statement of Defense together with the Counterclaim on ECCMIS on the 2nd August 2022 and the same was endorsed by court on the 30th 15 September 2022.

On the 18th of April,2023 this Court abated Civil Suit No. 578 of 2022 in line with Order 11A Rule 1 (2) of the Civil Procedure Rules SI 71- 1 as amended. The effect of this order was that what was left to be determined was the counterclaim filed by the 3rd Defendant/counterclaimant against the 1st 20 and 2nd Counter defendants. The Counter defendants did not file a defense to the counterclaim or participate in the post pleadings process of this suit. As a result, counsel for the Applicant applied for default judgment and the suit was set down for formal proof in accordance with Order 9 Rule 8 of the Civil Procedure Rules upon application of Counsel for the counterclaimant vide their letter dated

25 10 July 2023.

Order 9 Rule 6 provides thus

"Where the plaint is drawn claiming a liquidated demand and the defendant fails to file a defense, the court may, subject to rule 5 of this Order, pass judgment for any sum not 30 exceeding the sum claimed in the plaint together with interest at the rate specified, if any, or if no rate is specified, at the rate of 8 percent per year to the date of judgment and costs."

Order 9 Rule 8 provides thus

"Where the plaint is drawn with a claim for pecuniary damages only or for detention of goods 35 with or without a claim for pecuniary damages, and the defendant fails or all defendants, if more than one, fail to file a defense on or before the day fixed in the summons, the plaintiff


- 5 may, subject to rule 5 of this Order, enter an interlocutory judgment against the defendant or defendants and set down the suit for assessment by the court of the value of the goods and damages or the damages only, as the case may be, in respect of the amount found to be due in the course of the assessment." - 10 In the present case, the Counterclaim contains two types of claims namely, a claim for the sums outstanding on the loan facility advanced and guaranteed and a claim for damages.

A liquidated claim is a sum certain in money, including a sum capable of ascertainment by simple arithmetic. See Uganda Baati v Patrick Kalema HCCS 126 of 2010, Transtel

15 Limited & Anor v Mahi Computers & Appliances Ltd & Anor HCCS397/2015, Valery Alia v Alionzi John HCCS 157/2010, Abbey Panel & Sheet Metal Co Ltd vs. Barson Products (a firm) [1947] 2 All ER 809

Where a Plaint or counterclaim contains both a liquidated claim and an unliquidated claim 20 and a defense is entered, default judgment may be entered on the liquidated claim and the unliquidated claim set down for formal proof. See Uganda Baati v Patrick Kalema HCCS 126 of 2010, Transtel Limited & Anor v Mahi Computers & Appliances Ltd & Anor HCCS397/2015.

25 Accordingly, and in response to the above-mentioned application by counsel for the counterclaimant, on 3rd August 2023 court entered a default judgment for the liquidated claim and set this suit down for formal proof of the unliquidated claim.

The Counter Claimant filed a Scheduling Memorandum in Court whereas the Counter 30 Defendants did not.

Representation:

The Counter Claimant was represented by M/s AF Mpanga Advocates. Whereas M/s Kavuma Kabenge & Co. Advocates as at the time of the existence of C. S 578 of 2022 whereas the 2nd

35 Counter Defendant has no advocate on record and Counter Defendant's did not enter appearance.

 ### 5 Issues:

The following issues were arrived at for determination.

- 1. Whether the Counter Defendants are indebted to the Counter Claimant to the tune of USD 5,220,009? - 2. What are the remedies available to the Parties?

10

Evidence:

The Counter Claimant adduced one witness, Mr. Andrew Nateeraho, the Special Assets Manager of the Counter Claimant's Company who led his evidence in chief by witness statement which was admitted on to the court record and marked as PW1a and a 15 supplementary witness statement which was admitted on to the court record and marked PW1b.

The Counter Claimant filed a trial bundle and a supplementary trial bundle and exhibited 18 documents, namely a copy of the Facility Offer letter dated 26th November, 2019 (CCEX 1), 20 The Personal Guarantee dated 6th December, 2019(CCEX 2), The Facility Offer letter dated 20th December 2019(CCEX 3), Copies of Demand Notices issued by the Counter Claimant/3rd Defendant to the 1st Defendant together with the evidence of service(CCEX 4), Copies of Demand Notices issued by the Counter Claimant/3rd Defendant's Advocate to the 2nd Counter Defendant together with evidence of service(CCEX 5), Notice of sale of the mortgaged 25 property dated 18th March 2022(CCEX 6), Copies of the Loan account statement(CCEX 7), Copy of the resolution from Director's meeting dated 27th January 2020(CCEX 8), Copy of the resolution from the Directors meeting dated 12th August 2021(CCEX 9), Copy of the further charge dated 23rd December, 2019(CCEX 10), Copy of the 2nd Ranking further charge dated 26th November 2019(CCEX 11), Copy of the Security sharing Agreement dated 24th January 30 2020(CCEX 12), Copy of the letter of extension of repayment tenor of the invoice discounting loan dated 25th April 2020(CCEX 13), Copy of the letter requesting for confirmation of balances dated 9th February 2021( CCEX 14), Notice of sale of mortgaged property dated 18th

March 2022(CCEX 15), Copy of letter of acceptance to sale properties dated 22nd July 2022(CCEX 16), Agreement for sale and purchase of land and development comprised in LRV

35 3240 Folio 15 Plot No. 11B, High street, Mbarara City/District(CCEX 17), Agreement for sale


5 and purchase of land comprised in LRV 3575 Folio 14 Plot 49 & 51, Buikwe road, Njeru Township, Mukono(CCEX 18).

Analysis:

As noted, the Counter Defendants did not enter an appearance in this matter for the 10 counterclaim and the court proceeded to hear the case and the evidence adduced. Due to the nature of the prayer made under Order 9 rule 8, the Court shall resolve the two issues jointly.

In Civil proceedings, the burden of proof lies upon the party who alleges, and said party must prove their case on a balance of probabilities if they are to obtain the remedies sought. see

15 *Lord Denning in Miller versus Minister of Pensions (1947)2 ALL ER 372 at page 373*. *See Section 101 and Section 103 of the Evidence Act*.

The crux of the counterclaim is the loan facility in the letters CCEX 1 and CCEX3 granted to the 1st Counter Defendant which were secured by, among other securities, the personal 20 guarantee of the 2nd Counter Defendant in CCEX 2 of the Counter Defendant's trial bundle.

Having entered Judgment for the counterclaimant for the sum outstanding on the loan, a review of the counterclaim that only the following claims remain alive for determination, as unliquidated claims

- 25 (a) General Damages - (b)Interest on the decretal amount - (c) Costs

General Damages

The counterclaimant claimed for general damages. In its pleadings, the counterclaimant did not indicate the quantum of general damages prayed for. *Black's Law Dictionary 9th Edition page 445* defines damages as the sum of money which a person wronged is entitled to receive from the wrongdoer as compensation for the wrong.

Accordingly, damages are usually measured by the material loss suffered by the plaintiff. As a general rule, the plaintiff must not receive more, nor should he receive less than the appropriate measure of damages commensurate with his or her 'material loss'. It is trite law that damages are the direct probable consequence of the act complained of. see *Storms versus Hutchinson (1905) AC 515* and Section 61(1) of the Contracts Act, 2010.

In this present case, the letter from the counter claimants dated 10th July 2023 prayed for judgment under Order 9 rule 8 which in light of the aforementioned decision, Court shall strictly proceed under Order 9 rule 8 and ascertain the claim for damages only. See Hon. Mr Justice FMS Egonda-Ntende in Dembe Trading Enterprises Ltd V Uganda Confidential 10 Ltd and Teddy Ssezi Cheeye Civil Suit No. 0612 of 2006

CCW 1 in paragraphs 13 and 14 of his witness statement stated that the 2nd Counter Defendant secured the facility by issuing to the counter claimant a personal guarantee undertaking to pay, on demand, all monies due to the counter claimant at any time when called upon, and any other expenses incurred by the counter claimant in connection with the recovery of the outstanding sum.

Further that the Counter Defendants defaulted on their loan repayment obligations which constituted an event of default and entitled the Bank to, under clause 12.2 of the facility letters, demand immediate repayment of the facilities, exercise its rights under any security instrument, or institute legal action for repayment as well as breach of guarantor obligations.

15 See also Dr. Warran Namara v James Mwangushya HCCS 338/2019

It goes without saying that the Counter Claimant suffered losses and financial inconveniences as a result of the 1st Counter Defendant's action*.* In the assessment of general damages, the court should be guided by the value of the subject matter, the economic

20 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).

I recognize that the counterclaimant, as a lender, faces hardship when a facility is unpaid/non-performing. For instance, the lender has to make provision for that facility as

25 required by the central bank. In essence then, the lender takes out their money and covers the extent of the exposure. In other words, when the loan is unpaid, the lender "pays it to


- 5 themselves" by providing for the non-performing facility using their money/capital. This constrains the lender's capital available for lending and therefore typically affects their profitability. Moreover, the lender has to sometimes commit staff to engage the creditor, engage third parties (lawyers/bailiffs), prepare reports and so on. Whereas this is loss/discomfort, it is important to consider the common law position on damages in respect - 10 of such scenarios.

The position at common law is that a delay in the repayment of a debt beyond the contractually agreed period of time does not entitle a party to general damages except if the loss for which general damages are sought did not arise from the ordinary course of events

- 15 and in such cases, general damages are only awarded for losses which the adverse party would have had actual knowledge of. See President of India v. La Pintada Compagnia Navigacia SA ('La Pintada') [1985] AC 104, Hungerfords v. Walker (1989) 171 CLR 125, Barore Company Limited v Katamba Samuel Muhozi & Anor HCCS 11/2019, Dr. Warren Namaara v James Mwangusya HCCS 338/2019 - 20

Accordingly, I find that this is not a circumstance for the grant of General damages in light of the origin of the counterclaimant's claim and as such, the prayer is denied.

*Interest:*

25 Section 26 (2) of the Civil Procedure Act, provides for the awarding of interests by court at its discretion.

Bart Katurabe [Chief Justice Emeritus] in Principles Guiding awarding of Damages(supra) quoted a passage of Oder, JSC in Premchandra Shenoi & Anor v. Maximov Oleg Petrovich, Supreme Court Civil Appeal No. 9 of 2003

30 "*In considering what rate of interest the respondent should have been awarded in the instant case, I agree that the principle applied by this Court in SIETCO v. NOBLE BULDERS (U) Ltd Supreme Court Civil Appeal No. 31 of 1995 to the effect that it is a matter of the Court's discretion is applicable. The basis of awards of interest is that the defendant has taken and used the plaintiff's money and benefited*.

5 In the present case, I find that the Counterclaimant has made out the requirements for grant of the order of interest on the decretal amount. Accordingly, I award interest of 12% per annum on the decretal amount from the date of filing this suit to payment in full.

*Costs:*

- 10 Section 27 of the Civil Procedure Act provides that costs follow the suit unless there is a strong reason to suggest the contrary and are awarded at the court's discretion. See Anglo-Cyprian Trade Agencies Ltd v. Paphos Wine Industries Ltd, [1951] 1 All ER 873. Harry Ssempa v Kambagambire David HCCS 408/2014, Iyamuleme David vs. AG SCCA NO.4 of 2013, Kwizera Eddie v Attorney General SCCA 1/2008. - 15 The Counter Claimant having succeeded in this action, I have seen no reason not to grant an order as to costs.

In Conclusion:

I accordingly make the following orders,

- 20 a) Judgment is entered for the counterclaimant against the counter defendants jointly and severally for - i. Recovery of the outstanding sum of USD 5,220,009 and accrued interest thereon up to the date of filing of this suit. - ii. Interest on the above sum at a rate of 12% per annum from the date of filing 25 this suit until repayment in full. - b) The Counter Claimant is awarded the costs of the suit to be borne by the Counter Defendant jointly and severally.

I so order.

30 Dated this\_\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_2024, delivered electronically and uploaded on 13th May


35 13th May 2024