Bank ordered to refund sh15m to retired judge

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The Commercial Division of the High Court in Kampala has ordered Bank of Baroda Uganda Limited to refund sh15m that it took in excess over a fixed mortgage interest rate entered into with retired Justice Anup Singh Choudry 17 years ago.

The court has also ordered the bank to pay 21% per annum over the amount of money from 2009 when the retired judge filed the case in court against the bank until the money is paid in full.

In his judgment, Justice Stephen Mubiru has also ordered the bank to pay the costs of the suit that are yet to be taxed. 

Arriving at the decision, Justice Mubiru ruled that the repayment clause in the contract did not state that the monthly instalments were subject to alterations due to fluctuations in the market and therefore revision could only be done on mutual agreement.

The court also noted that the repayment clause in the contract allowed the bank to alter the rate of interest unilaterally but not to alter the quantum of the equal monthly instalments.

Justice Mubiru said the bank could not rely on the general conditions in its standard contract to unilaterally alter the rate of interest in a residential fixed rate mortgage as the one Justice Choudry took and as the bank’s chief manager Paramod Singhvi had also assured him that the loan would be repaid with a fixed rate on interest in equal monthly instalments over 60 months.

The court further ruled that the bank subsequently acted contrary to the assurances when it unilaterally varied the rate of interest and misrepresented its chief manager’s assurances he gave to the retired judge.

However, the court refused to award him general and special damages he had sought because of the breach of contract, trust, of fiduciary duty, financial loss, suffering mental anguish as a result and defamatory statements, recovery of the main overpaid amount.

Justice Choudry has welcomed the judgment although the case has taken six years to conclude and nearly four years for the court to give its ruling.

“I am happy that while the case has been in the system since 2009, it has ended in my favour,” Choudry said.

Choudry filed the case in 2009 alleging that contrary to the understanding with the bank that the rate of interest would be fixed for 60 months that would be the duration of the loan, the bank, in 2012 surreptitiously varied it by increasing the rates to over 27% per annum despite his protestations.

Background

In 2008, Choudry applied for a loan from the bank by a mortgage of sh360m with a preferential rate of 14% per annum which was 2% less the prevailing prime lending rate of 16% from the bank purposefully to construct a residential house in Entebbe municipality.  

The retired jurist stated that it was his agreement with the bank that the loan was repayable in equal monthly instalments of sh9,056,962 over a fixed term of 60 months per annum.

However, Choudry argued that contrary to the understanding, the bank, thereafter, varied the interest rates without notifying him which was contrary to the bank’s commitment to customers.

He told the court that the bank’s act forced him to fall into unnecessary arrears and the bank served him with a notice of foreclosure that forced him to source funds from elsewhere to finance the mortgage repayments.

Entreating the court to rule in his favour, Choudry submitted that the bank had no right to unilaterally increase the rate on his loan without notifying him in writing and that it was its obligation that it failed to fulfil.

He further told the court that he also discovered later that because of the bank’s breaches and failure to fulfil its obligations, it had debited sh84m from his account without notifying him.

He also told the court that at the signing of the mortgage, he had been assured by the bank’s chief manager that the standard clause in the mortgage deed for the unilateral revision of the applicable clause interest rate would not apply to that particular transaction.

The court also heard that they pitched the mortgage at his salary and that the bank was well aware of the fact that he would be unable to service the loan if the instalments exceeded his monthly salary by virtue of the increased interest rate,

Choudry told the court that by virtue of the variations, he paid sh84m in excess of what he was contractually obligated to pay.

The bank’s defence

The bank in its defence had asked the court to dismiss the suit with costs pleading that the suit did not disclose any cause of action against it.

The bank argued that the offer specifically stipulated that the interest rate was subject to change without notice, implying that the bank was at liberty to vary the interest rate depending on the money market condition prevailing from time to time.

In further defence, the bank averred that the amount specified in the offer was paged to fluctuations in prime lending rate (PLR) that the retired judge duly accepted at the execution of the mortgage deed on December 1, 2009, and he provided the land comprised in LRV 3084 Folio 10 Plot 1 Nambi Road, Entebbe Municipality as security for the loan.

The bank also denied that there was verbal agreement relating to the transaction and that it was under any obligation to notify Choudry of any changes in the interest rates applicable in the contract.

The bank further averred that from time to time, it issued public notices in the print media, notifying all its customers regarding revision of its interest rates and, Choudry was at liberty to access his bank statements and see the debts made on his bank account.