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Law & Justice

A spouse can be spared the dreaded 30% deposit in a mortgage  case if there are strong reasons, Uganda’s High Court says  

But whereas the court made this revelation in the case under review, the applicant did not get the waiver because her case hadn’t been tuned to achieve it

 In August 2013, Constant Mande secured a home improvement loan of Shs37.5 million from the Housing Finance Bank Limited. As security for the loan, Mande mortgaged land found in Munyonyo, Kampala.  

On the land is a residential house that Mande occupied with Margaret Nakato, his wife.  When Mande defaulted on the loan, Housing Finance Bank issued a demand notice and later default notice upon him.   

Mande responded by filing a suit on August 28, 2018, against Housing Finance Bank, seeking a declaration that the notices were unjustified, null, and void in law, which suit was subsequently dismissed by the High Court’s Commercial Division.  

But there was a new dynamic when his wife – Nakato – filed a suit of her own over the matter, on October 14, 2021. She was seeking, inter alia, a declaration that Mande had unlawfully mortgaged their matrimonial home, and that the process of foreclosure undertaken by Housing Finance Bank was unlawful.  

Before the suit could be resolved by the court, Nakato filed an application seeking a temporary injunction restraining Housing Finance Bank from selling off the mortgaged property, until the final determination of the suit. 

Juliet Harty Hatanga, the Deputy Registrar of the Commercial Court, granted the application on November 30, 2021, but on condition that Nakato deposited in the court 30% of the amount claimed by Housing Finance Bank, not later than December 30, 2021.  

Nakato was particularly unhappy about the order to deposit 30% of the money claimed by the bank, and she responded by challenging the registrars’ order. The case went to Justice Stephen Mubiru, the head of the Commercial Division of the High Court. In her appeal, Nakato contended that Hatanga erred in law and fact when she imposed a condition requiring her to deposit 30% of the sum claimed by Housing Finance Bank within 30 days of that order, as part of the order granting a temporary injunction restraining the bank from selling her house. 

Madibo, Mafabi Advocates and Solicitors, who represented Nakato in the suit, hinged her case on Regulation 10 13 (6) of The Mortgage Regulations, which provides that in an application by a spouse, the court has to consider the circumstances and ability of the spouse to deposit the 30%.  

The issue

Nakato’s lawyers accused the registrar Hatanga of not interesting herself in the capacity of their client to deposit the required sum yet there was evidence of her inability to pay, which they said was based on her being illiterate. Had Hatanga considered that Nakato was a housewife and mother of ten children, he would not have imposed the condition, the lawyers argued.  

Nakato insisted that she had nowhere else to live if her marital home was foreclosed on, and that a combination of her being illiterate and having to fend for ten children demonstrated that she was unable to pay the 30%t that the court had required her to deposit with it. 

The lawyer Brian Kajubi, on behalf of Housing Finance Bank, argued that there was no evidence before the court regarding Nakato’s deprivation, asking Justice Mubiru to dismiss that argument since they were in “a court of law, not that of assumption”. It is the duty of the litigant through counsel to convince or persuade the court, Kajubi said, contending that an attempt to fault the Registrar Hatanga in exercising discretion would be an attack on the duties of the judicial officer.  

“Illiteracy, children, and occupancy are not a basis for exercising discretion. Not every illiterate person is unable to pay,” Kajubi said, before asking the court to dismiss Nakato’s appeal with costs. 

Though in her appeal Nakato had listed Mande, her husband, as the second respondent, he was a no-show and he didn’t send lawyers to represent him. But Justice Mubiru still proceeded to determine the case.  

According to Justice Mubiru, regulation 13 of The Mortgage Regulations, 2012, is an enactment of the principle of “pay now, argue later.” According to the judge, it is designed to restrict the ability of the mortgagor to use litigation or the courts, to vexatiously delay the realisation of money due to the mortgagee.  

“It is intended to reduce the number of frivolous objections to sales by a mortgagee and guarantee that the mortgagee will not be unnecessarily prejudiced by a delay in payments, inevitably occasioned by litigation. It ensures that the mortgagees are not left out of pocket due to the time that lapses over the course of litigation, while on the other hand encouraging a mortgagor to hasten the progress of litigation so as to improve its ability to expand its business, or pay debts, or to mitigate any detrimental effect imposition of the condition may have had on the mortgagor’s liquidity,’’ Justice Mubiru ruled.   

The considerations underpinning the “pay now, argue later” concept enacted in Regulation 13 of The Mortgage Regulations, 2012, Justice Mubiru said, include the public interest in obtaining a full and speedy settlement of commercial disputes, and the need to limit the ability of recalcitrant debtors to use objection and appeal procedures strategically to defer the payment of borrowed funds. 

Justice Mubiru added: “It was argued by counsel for the appellant that a dispute over the legality of the mortgage, the procedure of its enforcement, or the amount outstanding is reason enough not to impose the 30% deposit requirement. If this were to be adopted as a valid reason, then the entire purpose of the provision would be defeated. All it takes is for the mortgagor to raise such a claim in the plaint, however frivolous. The legislative intent on the other hand can be achieved by interpreting “amount outstanding,” to mean the amount as claimed by the mortgagee at the time the suit is filed.”

When a waiver is possible

It is only under Regulation 13 (6) of The Mortgage Regulations, 2012, the Judge said, that discretion is conferred on the court to determine whether or not the 30% requirement should be imposed.  

The regulation stipulates thus: “Where the application is by the spouse of a mortgagor, the court shall determine whether that spouse shall pay the 30% security deposit.” 

In such a scenario, Justice Mubiru said, the court may then take into account such factors as how long the spouses were cohabitating before the default, the financial resources of the spouse applying, the availability of alternative accommodation, how many children there are in the relationship, the amount of debt involved, and the risk of dissipation of the property by the mortgagor during the period of suspension.

The other factors court may consider, the judge said, are whether the applicant is able to provide adequate security for the payment of the amount involved, whether the payment of the amount involved would result in irreparable financial hardship to the applicant, and whether fraud is involved in the origin of the dispute. 

“This may be propelled by the fact that the property in issue also serves as the matrimonial home or family land,” Justice Mubiru added.  

In order to merit a waiver of the requirement to deposit the 30%t of the amount in a dispute where the property about to be sold by the mortgagee is a matrimonial home, Justice Mubiru said, any applicant, like Nakato, ought to satisfy the court that eviction therefrom will occasion the applicant undue hardship.

“It should be hardship which is excessive or disproportionate in all the circumstances of the case, considering the fact that whoever mortgages property ought to foresee the fact that it may be sold upon default,” the judge added.

When determining the magnitude of hardship the eviction from a matrimonial home is likely to cause, Justice Mubiru  said, the court will consider, among other factors, the nature of the transaction that exposed the spouses to eviction therefrom; the size of the family, the period for which they have occupied the home; the availability of alternative, reasonable accommodation, and any unique qualities of the home – whether there are likely to be serious safety or health issues emanating from the eviction, such as those related to childcare, or responsibilities of caring for an elderly, disabled, or sick family member. The court may also be interested to know, the judge added, whether loss of that accommodation might substantially affect the applicant’s viability as a cohesive family.

Dead end 

The burden rested on Nakato, Justice Mubiru said, to provide evidence in respect of these considerations if arguing that loss of possession of the property would cause undue hardship and that those circumstances cannot be inferred from the illiteracy of the applicant, having ten children whose ages and circumstances are undisclosed and a mere averment that it is the only house she can live in, as proposed by counsel for the appellant.

In the end, Justice Mubiru ruled that the Registrar Hatanga had not been availed “any material upon which he ought to have exercised his discretion in favour of Nakato”, and that there was “no basis for the court to interfere in what was a proper exercise of discretion”. He dismissed the case with costs.

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