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Create Consult Limited v Adraiga (Civil Suit 20 of 2021)

High Court · [2024] UGHC 806 · 2024 Judgment for Plaintiff (Reduced Amount) AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Summary suit for loan recovery brought under Order 36 rule 2(a) Civil Procedure Rules
Decision
Judgment for plaintiff with reduced recovery amount based on lawful simple interest only; penalty clause declared unenforceable

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court held that penalty clauses in money lending contracts providing for increased interest on default are illegal and unenforceable under the Tier 4 Microfinance Institutions and Money Lenders Act 2016 s.86. The court further held that an interest rate of 120% per annum (10% per month) is harsh, unfair and unconscionable. The plaintiff was entitled only to simple interest at 4% on the outstanding principal and interest balance. Court ordered recovery of UGX 43,421,600 as balance on principal and interest, simple interest of UGX 4,464,864 for default, general damages of UGX 10,000,000, and interest of 20% per annum until payment in full.

Outcome

Judgment for plaintiff with reduced recovery amount based on lawful simple interest only; penalty clause declared unenforceable

Facts

The defendant borrowed three loans from the plaintiff: UGX 20,000,000 on 29 December 2019, UGX 20,000,000 on 31 January 2020, and USD 14,000 on 2 July 2020. All loans carried 10% monthly interest. On 2 July 2020 the parties executed a joint loan agreement consolidating all three loans, payable within two months with 10% monthly interest and a 4% daily penalty on default. The defendant defaulted and paid UGX 68,200,000 before and during proceedings. The total principal and interest due was UGX 111,621,600. The plaintiff initially claimed UGX 219,800,000 including the daily penalty, and alternatively claimed UGX 47,886,464 with flat 4% penalty. The defendant contested the penalty clause as excessive, extortionate, unconscionable and illegal.

Issues

  1. Whether the 4% penalty clause in clause 8 of the loan agreement is lawful and enforceable against the Defendant.
  2. Whether the Plaintiff is entitled to recover UGX 219,800,000 from the Defendant.
  3. Whether the Plaintiff is entitled to the reliefs sought.

Orders

  • Judgment entered for the Plaintiff against the Defendant.
  • Payment of UGX 43,421,600 as balance owed on the principal and interest from the three loans.
  • Payment of simple interest sum of UGX 4,464,864 as an amount for default in payment of sums owed.
  • Payment of UGX 10,000,000 as general damages.
  • Interest on (a) above of 20% per annum until payment in full.
  • Costs of the suit awarded to the Plaintiff.

Rules and key headnotes

Money Lending — Penalty Clauses — Prohibition Under Tier 4 Microfinance Institutions and Money Lenders Act 2016
Under section 86 of the Tier 4 Microfinance Institutions and Money Lenders Act 2016, a money lending contract is illegal and unenforceable if it directly or indirectly provides for the rate or amount of interest being increased by reason of a default in payment of sums due under the contract. Penalty clauses providing for increased interest on default are therefore unenforceable.
Money Lending — Interest on Default — Simple Interest Entitlement
Where a borrower defaults to pay the sum payable to a money lender on the due date, section 86(2) of the Tier 4 Microfinance Institutions and Money Lenders Act 2016 entitles the money lender to charge simple interest on that sum from the date of default until the sum is paid, but not compound interest or penalty interest.
Money Lending — Unconscionable Interest Rates
An interest rate of 120% per annum (10% per month) is harsh, unfair and unconscionable when compared to commercial and Central Bank lending rates which range from 18% to 25% per annum.
Application of Current Law — Repealed Statutes
Where a statute has been repealed and replaced by a new Act in force at the time of filing suit, parties and counsel must apply the new law. Reliance on a repealed statute or foreign law when a domestic statute governs the transaction is unacceptable and inexcusable.
General Damages — Business Inconvenience from Litigation
General damages may be awarded to a plaintiff whose business was inconvenienced by lengthy court proceedings, to compensate fairly for the inconveniences accrued as a result of the defendant's actions.

Legislation cited (7)

Cases cited (5)

  • Ssempa v Kambagambire (Civil Suit No. 408 of 2014)
  • Charles Athembu v Commercial Microfinance Ltd & 2 Others (Civil Revision No. 1 of 2014)
  • Alice Okiror v Global Capital Save 2004 Ltd (Civil Suit No. 149 of 2010)
  • Alpha International Investments Ltd v Nathan Kizito (High Court Civil Suit No. 131 of 2001)
  • Mohammed Tumusiime v Uganda Revenue Authority (High Court Civil Suit No. 480 of 2016)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Create Consult Limited v Adraiga (Civil Suit 20 of 2021) [2024] UGHC 806 (29 August 2024)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.