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The Co-operative Bank Ltd (In Liquidation) v Shell Kasese Services Ltd & Ors (HCT-00-CC-CS 140 of 2005)

High Court · [2005] UGCOMMC 8 · 2005 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of debt on mortgage following exercise of power of sale, with counterclaim alleging sale at undervalue in bad faith.
Decision
Judgment entered for plaintiff bank for outstanding debt after mortgaged property sold; defendants' counterclaim alleging sale at undervalue dismissed.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that a mortgagee exercising power of sale must act in good faith and take reasonable care to obtain true market value, but is entitled to sell when it chooses and accept the best bid received. The bank fulfilled its duties by advertising, obtaining a valuation, and accepting the highest bid at auction. No bad faith was established where the sale price slightly exceeded forced sale value assessed by professional valuers. The defendants' counterclaim alleging sale at undervalue failed. Judgment for the plaintiff for the outstanding debt.

Outcome

Judgment entered for plaintiff bank for outstanding debt after mortgaged property sold; defendants' counterclaim alleging sale at undervalue dismissed.

Facts

The plaintiff bank in liquidation granted a loan of Shs.200,000,000 to Shell Kasese Services Ltd in June 1997, secured by mortgage over commercial property in Kasese and personal guarantees. Upon default, the bank exercised its power of sale and sold the mortgaged property for Shs.82,000,000 following advertisement and auction. Two bids were received; the highest was accepted. The sale price was slightly above the forced sale valuation of Shs.80,000,000 obtained from professional valuers but substantially below a 1997 valuation of Shs.500,000,000 commissioned by the borrower. After crediting the sale proceeds and a further payment, a balance of approximately Shs.239,893,137 remained outstanding. The defendants counterclaimed alleging the property was sold at gross undervalue in bad faith.

Issues

  1. Whether the property mortgaged to the plaintiff was sold at an undervalue.
  2. How much money was paid by defendant no.1 towards the debt.
  3. What remedies are available to the parties.

Orders

  • Counterclaim dismissed.
  • Judgment entered for the plaintiff in the sum of Shs.239,893,137.00 less Shs.2,000,000.00.
  • Interest awarded at court rate from the date of filing suit until realisation in full.
  • Costs of both the main suit and the counterclaim awarded to the plaintiff.

Rules and key headnotes

Banking & Finance — Mortgages — Duties of Mortgagee Exercising Power of Sale — Good Faith and Reasonable Care
A mortgagee exercising the power of sale is not a trustee for the mortgagor but must sell in good faith and take reasonable care to obtain the true market value at the date of sale chosen by the mortgagee. The mortgagee may choose the moment to sell to suit his own interests and may accept the best bid at auction even if poorly attended or the bidding exceptionally low, provided none of those adverse factors is due to any fault of the mortgagee.
Banking & Finance — Mortgages — Sale at Undervalue — Burden of Proof — Bad Faith
Where a defendant counterclaims that mortgaged property was sold at such gross undervalue as to entitle the defendant to a remedy, the defendant bears the burden of proving on a balance of probabilities that the mortgagee sold the property either in bad faith or with such negligence as to warrant relief. Mere allegation of undervalue without proof of bad faith or negligence is insufficient.
Banking & Finance — Mortgages — Valuation Methods — Property Valuation — Investment Basis
The depreciated replacement cost method is inappropriate for valuing income-generating commercial property. For business premises that generate rental income, the investment basis method based on actual rental value is the appropriate valuation approach. A mortgagor has no entitlement to select the most favourable valuation method where the mortgagee has obtained a professional valuation using an appropriate method for the property type and location.
Evidence — Documentary Evidence — Admission at Scheduling — Effect on Content and Evidential Value
Admission of documentary evidence at a scheduling conference without objection dispenses only with the duty to prove the making of the document. It does not constitute admission of the truth of the document's contents or agreement as to its evidential value. Where parties submit conflicting expert reports, each supporting opposing positions, the evidential value of such documents remains in issue and must be determined through examination and weighing of all evidence adduced.
Banking & Finance — Mortgages — Power of Sale — Acceptance of Previous Valuation — Estoppel
A mortgagee is not estopped from acting on a current market valuation at the time of exercising power of sale merely because it previously accepted a higher valuation when the loan was granted. Property values are not static, and the mortgagee's duty is to obtain a proper valuation at the time of sale and conduct an open and transparent sale process.

Cases cited (6)

  • Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633
  • Waring (Lord) v London and Manchester Assurance Co Ltd [1934] All ER 642
  • Yosiya Sajabi v Musa Umar Amerliwalla and Matia Wamala (Civil Appeal No. 72 of 1955)
  • Kennedy v de Trafford
  • Tomlin v Luce (1889) 43 ChD 191
  • Reliance Permanent Building Society v Harwood-Stamper [1944] 2 All ER 75

Full judgment

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

The Co-operative Bank Ltd (In Liquidation) v Shell Kasese Services Ltd & Ors (HCT-00-CC-CS 140 of 2005) [2005] UGCommC 8 (29 March 2005)
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.