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HCH Financial Services Limited v Lisma Investments Limited and Another (Civil Suit No. 831 of 2023)

High Court · [2024] UGCOMMC 404 · 2024 Judgment for Plaintiff (Interest Rate Reduced) AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of debt under financing agreement, heard ex parte after defendants' non-appearance at scheduling conference
Decision
Judgment entered for the plaintiff against both defendants jointly and severally for breach of contract, with adjusted principal, reduced interest rate, general damages, and costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that both defendants breached the financing agreement by failing to repay the loan by the maturity date of 28 February 2021. However, the court found the contracted interest rate of 6% per month (72% per annum) to be harsh and unconscionable. Exercising its discretion under the Civil Procedure Act s.26, the court reduced the interest to 24% per annum from the date of default, applied to the outstanding principal of UGX 280,000,000 (adjusted for partial payments received).

Outcome

Judgment entered for the plaintiff against both defendants jointly and severally for breach of contract, with adjusted principal, reduced interest rate, general damages, and costs

Facts

On 29 December 2020, the plaintiff advanced a credit facility of UGX 250,000,000 to the 1st defendant under a Master Assignment of Accounts Receivable Agreement to finance road works in Moyo District. The 2nd defendant guaranteed repayment by letter of undertaking. The parties also executed a Deed of Assignment dated 9 July 2021 assigning unpaid invoices worth UGX 294,797,468 to the plaintiff. The loan matured on 28 February 2021 but the defendants failed to repay. Moyo District Local Government paid UGX 228,240,205 to the 1st defendant on 6 May 2021, but the 1st defendant remitted only UGX 30,000,000 to the plaintiff. The defendants made only two payments totalling UGX 90,000,000 (UGX 30,000,000 on 7 May 2021 and UGX 60,000,000 on 10 March 2022). The plaintiff issued demand notices in November 2021, May 2022, June 2022, March 2023 and April 2023, claiming amounts up to UGX 569,000,000 including accrued interest. The defendants failed to appear at the scheduling conference and the suit proceeded ex parte.

Issues

  1. Whether the Plaintiff is entitled to the sum of UGX 569,000,000 from the 1st and 2nd Defendants under the Loan Agreement and the Deed of Assignment dated 29th December 2020?
  2. What remedies are available to the parties?

Orders

  • Declaration that the defendants breached the contract with the plaintiff.
  • The defendants to pay the plaintiff the outstanding principal sum and interest under the Facility Agreement as at the date of repayment of UGX 280,000,000 as adjusted for the UGX 90,000,000 that was paid.
  • Interest of 24% per annum awarded on the outstanding sum from the date of default of 28th February 2021 until payment in full.
  • General damages of UGX 30,000,000 awarded to the plaintiff.
  • Costs of the suit awarded to the plaintiff.

Rules and key headnotes

Contract Law — Breach of Contract — Indebtedness — Test for Establishing
To establish indebtedness under a contract, the plaintiff must prove (a) the existence of a contract and its essential terms, (b) a breach of a duty imposed by the contract, and (c) resultant damages.
Contract Law — Guarantee — Liability of Guarantor — Extent
Under the Contracts Act s.71, the liability of a guarantor is coextensive with that of the principal debtor unless otherwise provided by contract, and the guarantor's liability takes effect upon default by the principal debtor.
Banking & Finance — Money Lending — Interest Rates — Unconscionable Interest
Where a court is of opinion that an agreed interest rate is harsh and unconscionable, it may refuse to enforce it and instead give judgment for interest at such rate as it thinks just. An interest rate of 6% per month (equivalent to 72% per annum) charged by a licensed money lender is harsh and unconscionable and ought not to be enforced by legal process.
Banking & Finance — Money Lending — Interest After Maturity — Application of Simple Interest
Where a financing agreement specifies an interest rate applicable up to the date of repayment (maturity date) on a short-term loan, that contractual rate ceases to apply after the maturity date. Under the Tier 4 Microfinance Institutions and Money Lenders Act s.86(2), where a borrower defaults on the due date, the money lender is entitled to charge simple interest on that sum from the date of default until payment.
Contract Law — Breach of Contract — General Damages — Assessment
Measurement of general damages for breach of contract is a matter for the court's discretion exercised judicially with regard to the economic inconvenience suffered and the nature and extent of the breach. Under the Contracts Act s.61(1), a court may award compensation for any loss or damage caused to one party by another's breach of contract.

Legislation cited (9)

Cases cited (9)

  • United Building Services Limited v Muzira T/A Quickset Builders & Co (Civil Suit No. 154 of 2005)
  • Barclays Bank Uganda Limited v Alex Musinguzi (Civil Suit No. 349 of 2015)
  • Bank of Uganda v Banco Arabe Espanol (Court of Appeal Civil Appeal No. 23 of 2000)
  • Stanbic Bank (U) Ltd v Atyaba Agencies Ltd (Miscellaneous Application No. 235 of 2006)
  • MTN Two One Two Staff Cooperative and Credit Society Limited v Majwega Musoke (Civil Suit No. 82 of 2021)
  • Francis Kiyaga v Josephine Segujja and Another (Court of Appeal Civil Appeal No. 37 of 2010)
  • Alice Okiror and Another v Global Capital Save and Another (High Court Civil Suit No. 149 of 2010)
  • Juma v Habibu [1975] 1 EA 108
  • Stanbic Bank Uganda Limited v Haji Yahaya Sekalega T/A Sekalega Enterprises (High Court Civil Suit No. 185 of 2009)

Full judgment

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

HCH Financial Services Limited v Lisma Investments Limited and Another (Civil Suit No. 831 of 2023) [2024] UGCommC 404 (29 October 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.