Wakilii

Mectron Technical Services Ltd v Jevi Media Solutions Ltd & Ors (Civil Suit No. 516 of 2013)

High Court · [2015] UGCOMMC 152 · 2015 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 contractual debt
Decision
Plaintiff awarded contractual sum with reduced interest rate; defendants liable for costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that a contractually agreed penalty interest rate of 6% per week, translating to 288% per annum, is harsh, unconscionable, and unenforceable under section 26 of the Civil Procedure Act. The court exercised its discretion to substitute a penalty interest rate of 24% per annum. The plaintiff was awarded the contractual sum with 24% annual interest from the date of filing until full payment, and costs.

Outcome

Plaintiff awarded contractual sum with reduced interest rate; defendants liable for costs

Facts

The plaintiff and first defendant entered into a sub-contract agreement on 1 September 2012 for construction work valued at UGX 135,824,000. The agreement included clause 2(c) stipulating 6% weekly penalty interest on unpaid amounts after 30 days. The plaintiff completed the works and issued a Certificate of Completion on 2 April 2013. The defendants failed to pay. The plaintiff borrowed UGX 100,000,000 from Orient Bank to finance the works, which liability ballooned to over UGX 266 million. During trial, parties reached a consent agreement on the principal sum of UGX 134,154,377 but reserved the question of the applicable interest rate for court determination. The third party (KCCA) had approved compensation and agreed to make instalment payments into court.

Issues

  1. Whether the contractually agreed penalty interest rate of 6% per week (288% per annum) is harsh and unconscionable under section 26 of the Civil Procedure Act.
  2. What rate of interest should be awarded on the contractual sum of UGX 134,154,377.

Orders

  • Plaintiff awarded UGX 134,154,377 with 24% penalty interest per annum from the date the cause of action arose until payment in full.
  • Plaintiff awarded costs of the suit as against the defendants.

Rules and key headnotes

Penalty Clauses — Harsh and Unconscionable Interest Rates
A contractually agreed interest rate of 6% per week, translating to 288% per annum, is harsh, unconscionable, and unenforceable, notwithstanding that the clause was drafted by the defendant and freely consented to by the parties.
Civil Procedure Act — Section 26 — Unconscionable Interest
Section 26(1) of the Civil Procedure Act confers wide discretionary power on the court to re-open transactions and agreements and award just interest rates, constituting a clear exception to the notion of freedom of contract where the agreed rate is harsh and unconscionable.
Interest — Court's Discretion in Awarding Just Rates
The guiding principle in awarding interest is that the award is discretionary and must be exercised judiciously, taking into account all the circumstances of the case including actual losses suffered by the plaintiff.
Construction Contracts — Default Interest and Pre-Financing Losses
Where a contractor pre-finances construction works through borrowing and the contracting party defaults on payment, the justice of the case may warrant an award of penalty interest that reflects both the commercial rate and the contractor's demonstrable losses, subject to the test of unconscionability.

Legislation cited (2)

Cases cited (16)

  • Godfrey Magezi & Another v Sudhir Ruparelia (SCCA No. 16 of 2001)
  • Excel Construction Ltd v Attorney General (HCCS No. 3 of 2007)
  • Bank of Baroda Ltd v Wilson Buyonja Kamuganda (SCCA No. 10 of 2004)
  • Elson Plastics of (k) Ltd versus National Water Conservation and Pipeline Corporation C.S No.641 of 2009
  • Alice Okiror & Another v Global Capital Save 2004 Ltd & Another (Civil Suit No. 149 of 2010)
  • Mariam Naigaga v Orient Bank Ltd (Civil Suit No. 464 of 2013)
  • Dauson Muruiki Kihara v Amos Gathua Gatuigo [2012]EKLR
  • Anjeline Akinyi Othieno versus Malaba Malakasi Farmers Co-op Union ltd [1998]EKLR
  • Uganda Revenue Authority v Stephen Mbosi (SCCA No. 26 of 1995)
  • Liska Ltd v DeAngelis [1969] E.A 6
  • National Pharmacy Ltd versus KCC [1979] HCB 256
  • Superior Construction & Engineering Ltd v Notay Engineering Ltd (HCCS No. 24 of 1992)
  • Tomas Kalinabiri v George William Kalule (Civil Appeal No. 19 of 2010)
  • Scott v Brown Dowering MC-NABE Co.(1892) 2 QB 724
  • Makula International ltd v His Eminence Cardinal Nsubuga & Another, [1982] HCB 11
  • Jennifer Behingye, Rwanyindo Aurelia, Paulo Bagenzi v School Outfitters (U) Ltd (CACA No. 53 of 1999)

Full judgment

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

Mectron Technical Services Ltd v Jevi Media Solutions Ltd & Ors (Civil Suit No. 516 of 2013) [2015] UGCommC 152 (13 November 2015)
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.