Wakilii

Macdowel Food and Beverages Limited v Stanbic Bank Uganda Limited and Anor (Civil Miscellaneous Application No. 568 of 2020)

High Court · [2021] UGCOMMC 5 · 2021 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application arising from consent decree enforcement dispute in civil suit, seeking declarations of illegality and damages
Decision
Application granted with declarations that the sale violated the Mortgage Act; damages awarded totaling UGX 400 million; partial costs awarded to the Applicant

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court declared the sale of mortgaged securities to a company formed by the mortgagee's employees illegal under Mortgage Act s.30(1). The sale violated prohibitions against mortgagees and their employees purchasing mortgaged property without leave of court. The court pierced the corporate veil, finding the 2nd Respondent was a sham entity created to circumvent statutory restrictions. The court awarded UGX 100 million in general damages and UGX 300 million in exemplary damages to deter future violations.

Outcome

Application granted with declarations that the sale violated the Mortgage Act; damages awarded totaling UGX 400 million; partial costs awarded to the Applicant

Facts

Macdowel Food & Beverages Limited obtained a facility from Stanbic Bank Uganda Limited secured by mortgages over six properties. The parties entered a consent judgment on 22 August 2019 requiring the Applicant to pay UGX 1.060 billion in monthly instalments. The consent provided that upon default, the bank could sell the mortgaged properties after advertisement without further notice or court recourse. On 26 February 2020, Stanbic sold all securities to Myriad Investment Club Limited for UGX 1.050 billion. Myriad was incorporated on 3 February 2020 by seven employees of Stanbic who were also its shareholders and directors. The Applicant challenged the sale, asserting it violated Mortgage Act s.30(1) which prohibits mortgagee employees from purchasing mortgaged property without court leave. On 22 October 2020, the parties entered a partial consent whereby the Applicant paid the outstanding debt and the bank returned the titles, but referred the questions of damages and costs to court for determination.

Issues

  1. Whether the sale of the Applicant's securities by the 1st Respondent to the 2nd Respondent was lawful?
  2. Whether the Applicant is entitled to general damages?
  3. Whether the Applicant is entitled to exemplary and punitive damages?
  4. Whether the Applicant is entitled to costs?

Orders

  • The acts of the Respondents in the bungled illegal sale of the Applicant's securities by the 1st Respondent to the 2nd Respondent in the manner it was done contravened the provisions of Section 30 of the Mortgage Act.
  • The 1st and 2nd Respondents shall jointly and severally pay to the Applicant UGX 100,000,000/= (Uganda Shillings one hundred Million Only) in general damages.
  • The 1st and 2nd Respondents shall jointly and severally pay to the Applicant UGX 300,000,000/= (Uganda Shillings three Hundred Million Only) in exemplary and punitive damages.
  • The 1st and 2nd Respondents shall jointly and severally pay to the Applicant 30% of the costs in this matter.

Rules and key headnotes

Mortgage Law — Sale by Mortgagee — Statutory Prohibition on Purchase by Mortgagee's Employees
Under Mortgage Act s.30(1)(b), an employee of a mortgagee is prohibited from purchasing mortgaged land without leave of court, and a sale in contravention of this section is voidable at the option of the mortgagor under s.30(5).
Corporate Veil — Piercing the Veil — Sham or Conduit Company
Where a company is incorporated by employees of a mortgagee after advertisement of sale and immediately before purchase of the mortgaged property, the court may pierce the corporate veil and treat the company as a sham device created to circumvent statutory prohibitions on purchases by mortgagee's employees.
Interpretation of Statutory Prohibitions — Purposive Construction to Prevent Evasion
Statutory prohibitions protecting mortgagors must be interpreted purposively to prevent circumvention through indirect means. A restriction on purchases by mortgagee's employees extends to companies formed by those employees as vehicles for the prohibited purchase.
General Damages — Mortgage Enforcement — Stress and Business Disruption
General damages may be awarded for stress, business disruption, loss of reputation, and need to deploy security where a mortgagee's illegal conduct in attempting to enforce a mortgage causes the mortgagor to incur such losses, even where the enforcement was ultimately reversed.
Exemplary Damages — Punitive Awards — Circumvention of Statutory Protection
Exemplary or punitive damages may be awarded where a mortgagee and its employees orchestrate an illegal sale by creating a sham company to circumvent statutory protections for mortgagors, in order to deter future violations and express the court's condemnation of such conduct.
Voidable Contracts — Distinction from Illegal Contracts — Effect of Voidability
A contract made in contravention of a statutory prohibition is voidable, not void ab initio, where the statute provides that such contravention makes the contract voidable at the option of the protected party. Voidable contracts remain valid until avoided, but the contravention underlying the voidability may constitute an illegality warranting damages.
Amendment of Issues — Court's Power to Frame Additional Issues
Under Civil Procedure Rules Order 15 rule 1(5), the court may amend issues or frame additional issues at any time before passing a decree on such terms as it thinks fit, provided the parties are afforded an opportunity to address the court on the amended or additional issues.

Legislation cited (11)

Cases cited (22)

  • Human Rights Network for Journalists and Another v Uganda Communication Commission and 6 Ors (HCMC No. 219 of 2013)
  • Mukisa Biscuit Manufacturing Co v West End Distributors Ltd [1969] 701
  • Oriental Insurance Brokers Limited v Transocean (SCCA No. 55 of 1995)
  • Crane Bank v Uganda Revenue Authority (HCT-00-CC-CA-18/2012)
  • Sussex Peerage [1844] 8ER 1034 at 1057
  • Nipun Norattam Bhatia v Crane Bank Ltd (CA No. 35 of 2006)
  • Makula International v Cardinal Nsubuga [1982] HCB
  • Jones v Lipman [1962] 1 W.L.R. 832
  • Nabwami v Attorney General (Civil Suit No. 117 of 2015)
  • Waiglobe (U) Limited v Sai Beverages Limited (High Court Civil Suit No. 0016 of 2017)
  • Kamuntu Anthony v Hajat Zam Sendagire and Attorney General (High Court Civil Suit No. 188 of 2019)
  • Stroms V. Hutchinson [1905] AC 515
  • Obong vs. Municipal Council of Kisumu [1971] EA 91
  • Rookes v Bernard [1964] 1129
  • Future Stars Investment (U) Ltd v Nasuru (High Court Civil Suit No. 0017 of 2017)
  • Firdoshali Madatali Keshwani & Anor v Departed Asians Property Custodian Board & 2 Ors (Miscellaneous Cause No. 11 of 2019)
  • Tse Kwong Lam v Wong Chit Sen and Others
  • Nagongera Millers and Farmers Ltd & Anor v Gold Trust Bank Ltd (HCCS No. 1329 of 1999)
  • Grace Tibihikira Makoha vs. Standard Chartered Bank (U) Limited
  • Butterworth V. Butterworth & Englefield [1920] P 126
  • Rookes V. Barnard [1964] ALLER 367
  • Ismail Karmali & 2 Ors v Shailesh Ruparelia (HCMA No. 121 of 2012)

Full judgment

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

Macdowel Food and Beverages Limited v Stanbic Bank Uganda Limited and Anor (Civil Miscellaneous Application No. 568 of 2020) [2021] UGCommC 5 (12 February 2021)
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.