Wakilii

G.S Royal Hardware and Industries & Anor Ltd v Equity Bank (U) Ltd & Anor (HCCS 721 of 2015)

High Court · [2016] UGCOMMC 30 · 2016 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for temporary injunction arising from main civil suit HCCS 721 of 2015 challenging foreclosure proceedings
Decision
Temporary injunction granted restraining sale of mortgaged property pending resolution of main suit; matter referred to mediation

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that the second applicant, as registered proprietor of the mortgaged property, has locus standi under the Mortgage Act 2009 to challenge the foreclosure and seek relief. The court found serious triable issues regarding the legality of the mortgage transaction arising from the tripartite agreement, alleged lack of proper authority for disbursements, and failure to serve statutory notices on the mortgagor. A temporary injunction was granted restraining the respondents from selling the property pending resolution of the main suit, without requiring a deposit under the Mortgage Regulations, because the mortgage itself is challenged for illegality.

Outcome

Temporary injunction granted restraining sale of mortgaged property pending resolution of main suit; matter referred to mediation

Facts

The first applicant, a hardware supply company, obtained loan facilities from the first respondent bank secured by property belonging to the second applicant. The applicants alleged that UGX 100,000,000 was disbursed on 23 January 2014 without proper authority. The first applicant serviced the loan and sought refinancing in November 2014. In April 2015, the bank arranged a tripartite agreement with Sekum General Hard Wares Ltd whereby that company obtained a facility of UGX 180,000,000 (including UGX 102,000,000 to refinance the first applicant's exposure and UGX 78,000,000 working capital), secured by the second applicant's property. Sekum General Hard Wares Ltd allegedly defaulted. The bank issued notices of sale addressed only to Sekum General Hard Wares Ltd and advertised the second applicant's property for sale on 9 September 2015. The applicants commenced proceedings challenging the intended sale, alleging illegality in the disbursement, improper mortgage arrangements, and failure to serve statutory notices on the mortgagor.

Issues

  1. Whether the applicants have locus standi to challenge the foreclosure proceedings relating to a loan facility granted to Sekum General Hard Wares Ltd.
  2. Whether the applicants established a prima facie case with a probability of success.
  3. Whether the applicants would suffer irreparable injury if the temporary injunction is not granted.
  4. Whether the balance of convenience favours the grant of a temporary injunction.
  5. Whether the applicants should be required to deposit 50% of the outstanding loan amount as a condition for granting the injunction under the Mortgage Regulations 2012.

Orders

  • Temporary injunction granted restraining the respondents, their agents and servants or any other party from selling the second applicant's property comprised in Kyadondo Block 222 Plot 1650 land at Namugongo developed with a residential house pending disposal of HCCS 721 of 2015 or until further orders of the court.
  • Costs of the application awarded as costs in the cause.
  • Main suit HCCS 721 of 2015 referred for mediation to be commenced and completed within 45 days from the date of ruling unless extended by court order.
  • Affidavit in reply filed out of time on 22 December 2015 validated with time extended; costs to be borne by the respondent in any event.

Rules and key headnotes

Banking & Finance — Mortgage — Locus Standi — Mortgagor's Right to Challenge Sale
A mortgagor, defined under section 2 of the Mortgage Act 2009 to include the registered proprietor of mortgaged land, has locus standi and a statutory right under section 33 of the Act to apply to court for relief against the exercise by the mortgagee of remedies including sale of the property, even where the loan facility is in the name of a third party.
Land & Property — Mortgage — Statutory Notices — Service Requirements
Under section 26 of the Mortgage Act 2009, before exercising a power of sale the mortgagee must serve notice to sell on the mortgagor, any spouse of the mortgagor in respect of a matrimonial home, a surety, and specified other persons, and a sale cannot be completed until 21 working days have lapsed from service. Failure to serve statutory notices on entitled persons is not only a triable issue but, if proved, compromises the applicant's right to challenge the sale.
Civil Procedure — Interlocutory Applications — Temporary Injunction — Prima Facie Case
To obtain a temporary injunction, an applicant must establish a prima facie case with a probability of success or show that there are serious questions to be tried and that the action is not frivolous or vexatious. Where the legality of a mortgage transaction is challenged on grounds including alleged lack of proper authority for disbursements and failure to serve statutory notices, serious triable issues arise sufficient to satisfy this requirement.
Banking & Finance — Mortgage — Review of Mortgage — Grounds for Court Intervention
Under section 34 of the Mortgage Act 2009, the court has power to review a mortgage on the ground that it was procured through fraud, deceit, or misrepresentation or in a manner or containing a provision which is unlawful. Where a mortgagor raises allegations that a mortgage was procured illegally through a tripartite agreement designed to conceal irregular disbursements, there is a case for review of the mortgage's legality.
Civil Procedure — Temporary Injunction — Mortgage Regulations — Deposit Requirement — Exception for Allegations of Illegality
Regulation 13(5) of the Mortgage Regulations 2012 requiring deposit of 50% of the outstanding amount or forced sale value applies where the court for reasonable cause adjourns a sale to another date, presupposing that the right of the mortgagee to foreclose is not in dispute. Where the entire loan transaction and mortgage leading to the advertised sale is challenged as illegal, the deposit requirement may not apply.
Civil Procedure — Injunctions — Preservation of Rights — Preventing Nugatory Appeal or Suit
Where an unsuccessful party is exercising a right of appeal or pursuing a statutory remedy, it is the duty of the court to make such orders as will prevent the appeal or suit, if successful, from being rendered nugatory. This principle extends to temporary injunctions in original suits to preserve the right of hearing or a legal right.
Civil Procedure — Statutory Remedies — Common Law Tests for Injunctions — Applicability
Common law tests for temporary injunctions (irreparable injury and balance of convenience) are not applicable where a statute makes specific provision for the matter in issue. Under section 14 of the Judicature Act, written law takes precedence over common law. Where the Mortgage Act 2009 provides statutory rights and remedies for mortgagors to challenge sales and review mortgages, those provisions govern rather than common law injunction principles.

Legislation cited (14)

Cases cited (17)

  • Kiyimba Kaggwa v Hajji Katende [1985] HCB 45
  • Grace Bamurangye Bororoza and 53 Others v Dr Kasirivu Atwooki and 53 Others (Civil Application No. 44 of 2008)
  • Janmohamad v Kassamali Virji Madhani [1953] 20 EACA 8
  • Godfrey Sekitoleko and Four Others v Seezi Peter Mutabazi and Two Others [2001-2005] HCB Vol 3
  • Rebecca Matovu v Standard Chartered Bank (U) Ltd and Another (HCMA No. 56 of 2012)
  • Kakooza Abdullah v Stanbic Bank Uganda Limited (HCMA No. 614 of 2012)
  • Savours Int (U) Ltd v DFCU Bank Ltd (HCMA No. 283 of 2002)
  • Miao Huaxian v Crane Bank Ltd and Another (HCMA No. 935 of 2015)
  • American Cyanamid Co Ltd v Ethicon [1975] 1 All ER 504
  • Matex Commercial Supplies Ltd and Another v Euro Bank Ltd (in liquidation) [2008] 1 EA 216
  • Maithya v Housing Finance Company of Kenya and Another [2003] 1 EA 133
  • Latigo Samuel v Arinaitwe Joseph Bryan and Centenary Rural Development Bank Ltd (HCMA No. 248 of 2013)
  • Hebert v Housing Finance Limited (HCMA No. 923 of 2010)
  • Nakayaga v FINA Bank Ltd and Another (HCMA No. 471 of 2014)
  • Wilson v Church (1879) 12 Ch D 454
  • Somali Democratic Republic v Anoop Sunderial Trean (C.A.C.A. No. 11 of 1988)
  • Montgomery v Montgomery [1964] All ER 22

Full judgment

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G.S Royal Hardware and Industries & Anor Ltd v Equity Bank (U) Ltd & Anor (HCCS 721 of 2015) [2016] UGCommC 30 (24 March 2016)
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.