Wakilii

Parombo Cotton Farmers Limited and Another v DFCU Bank (U) Limited (Civil Suit No. 701 of 2016)

High Court · [2026] UGCOMMC 311 · 2026 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for breach of contract and damages arising from alleged overcharge of interest on a trade finance facility
Decision
Matter referred to official referee appointed by the Registrar to calculate outstanding sums owed to the plaintiff arising from overcharged interest

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that the defendant bank breached the trade finance facility agreement by charging interest rates of 25%, 26%, and 38% without notifying the plaintiff, contrary to the agreed 19% rate. Although the loan agreement contained an escalation clause permitting the bank to vary interest rates, the principle of mutuality requires that any modification to material terms must be with the consent of both parties. The bank's unilateral increase violated this principle. The court ordered the appointment of an official referee to calculate the exact amount of overcharged interest owed to the plaintiff.

Outcome

Matter referred to official referee appointed by the Registrar to calculate outstanding sums owed to the plaintiff arising from overcharged interest

Facts

The 1st plaintiff, a limited liability company, obtained a trade finance facility from the defendant bank totalling UGX 2,000,000,000, secured by cotton seed and lint stock and guaranteed by the 2nd plaintiff. The facility agreement stipulated an interest rate of 19%. The plaintiff discovered that the defendant had charged interest at rates of 25%, 26%, and 38% without prior notification. The plaintiff complained in July 2011, and the defendant acknowledged the overcharge, reversing UGX 28,266,495 but leaving unreversed amounts. The plaintiff claimed the balance of overcharged interest plus accrued compound interest. The defendant argued that the facility agreement contained an escalation clause permitting it to vary interest rates at its sole discretion. The parties were ordered to obtain an independent audit report but failed to file it.

Issues

  1. Whether the plaint discloses a cause of action?
  2. Whether the defendant breached its contract with the plaintiff?
  3. What remedies are available to the parties?

Orders

  • The plaintiffs are not indebted to the defendant.
  • The defendant breached the contract it had with the 1st plaintiff.
  • The 1st plaintiff is awarded any outstanding sums calculated by the official referee to be appointed by the Registrar following the guidelines in this judgment.
  • The overcharged interest shall continue to accrue from the date of the judgment till final payment.
  • Costs of the suit awarded to the plaintiffs.

Rules and key headnotes

Contract Law — Breach of Contract — Variation of Material Terms — Principle of Mutuality
A contract containing a condition which makes its fulfilment dependent exclusively upon the uncontrolled will of one of the contracting parties is void. An escalation clause allowing one party to unilaterally adjust material terms such as interest rates without the consent of the other party violates the principle of mutuality, even where the contract purports to reserve such a right.
Banking & Finance — Floating Interest Rates — Notification Requirement
Where a loan agreement provides for a floating or variable interest rate, any modification to the rate must be communicated to the borrower prior to implementation. A bank cannot unilaterally increase interest rates without notifying the customer, even where the agreement contains an escalation clause, as this would be unfair and contrary to the principle of mutuality in contracts.
Banking & Finance — Compound Interest — Prohibition Under Tier 4 Microfinance Institutions and Money Lenders Act
Section 86(1)(a) of the Tier 4 Microfinance Institutions and Money Lenders Act 2016 makes a money lending contract illegal and unenforceable if it directly or indirectly provides for the payment of compound interest. The rationale for this prohibition extends to claims by borrowers for compound interest against financial institutions, as the law generally prohibits the charging of compound interest.
Civil Procedure — Preliminary Objections — Disclosure of Cause of Action
A plaint discloses a cause of action where it shows that the plaintiff enjoyed a right, that the right has been violated, and that the defendant is liable. Where a plaintiff properly pleads and particularises a breach of contract arising from overcharged interest, the plaint discloses a cause of action and a preliminary objection challenging it must fail.
Civil Procedure — Reference to Official Referee — Calculation of Interest
Where the calculation of interest owed involves complex accounting that the court cannot resolve without expert assistance, the court may appoint an official referee under section 27(c) of the Judicature Act to determine the amount due. This procedure is appropriate where parties dispute the quantum of overcharged interest and have failed to file an agreed independent audit report.
Contract Law — Interest as Remedy — Discretionary Award
Interest is awarded as a discretionary remedy where a wrongdoer deprives a party of money which it needs for use in its business. The basis of an award of interest is that the defendant has kept the plaintiff out of its money and has had the use of it, and therefore ought to compensate the plaintiff accordingly. Mere replacement of the money years later is inadequate compensation, especially in times of inflation.

Legislation cited (8)

Cases cited (22)

  • Crane Bank Limited (in receivership) v Sudhir Rupaleria and Another (Court of Appeal Civil Appeal No. 252 of 2019)
  • Attorney General v Uluoch (1972) EA 392
  • Mukisa Biscuits v Western Distributors (1969) EA 696
  • Bank of Uganda and Another v Kaweesi Sulaiman and 26 Others (Miscellaneous Application No. 1047 of 2022)
  • Read v Brown (1888) 22 QBD 128
  • Central Electricity Generating Board v Halifax Corporation [1963] AC 785
  • Auto Garage v Motokov (No.3) (1971) EA 514
  • Elly B Mugabi v Nyanza Textile Industries Ltd [1992-93] HCB 227
  • Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462
  • Miller v Minister of Pensions [1947] 2 All ER 372
  • Nakawa Trading Co. Ltd v Coffee Marketing Board (Civil Suit No. 137 of 1991)
  • Stanbic Bank Uganda Limited v Haji Yahaya Sekalega T/A Sekalega Enterprises (Civil Suit No. 185 of 2009)
  • Hon. Mr. Justice Anup Singh Choudry v Bank of Baroda (U) Limited (Civil Suit No. 809 of 2016)
  • Eden International School Ltd v East African Development Bank Ltd (High Court Civil Suit No. 271 of 2015)
  • Attorney General v Virchand Mithalal & Sons (Supreme Court Civil Appeal No. 20 of 2007)
  • Sarah Kayaga Farm Ltd v Attorney General (High Court Civil Suit No. 351 of 1991)
  • Attorney General v Virchand Mithalal & Sons Ltd [2009] UGSC 13
  • Golf View Inn (U) Limited v Barclays Bank (Civil Suit No. 358 of 2009)
  • Excel Construction Ltd v Attorney General (Civil Suit No. 3 of 2007)
  • Haji Asuman Mutekanga v Equator Growers (U) Ltd (Supreme Court Civil Appeal No. 7 of 1992)
  • Wallersteiner v Moir [1975] QB 373
  • Harbutt's Plasticide Ltd v Wayne Tank & Pump Co. Ltd [1970] 1 QB 447

Full judgment

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Parombo Cotton Farmers Limited and Another v DFCU Bank (U) Limited (Civil Suit No. 701 of 2016) [2026] UGCommC 311 (21 May 2026)
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.