Ferdsult v. Attorney General & Absa Bank — Constitutional Court Upholds the 30% Deposit Rule

Dispute Resolution — Constitutional Litigation · Banking & Finance

K&K Advocates successfully represented Absa Bank Uganda Limited before the Constitutional Court, defending the validity of Regulation 13 of the Mortgage Regulations in a challenge brought by a defaulting borrower seeking to frustrate security enforcement.

Judgment: 6 October 2023 | Supreme Court Appeal: Pending

Background

Regulation 13(1) of the Mortgage Regulations No. 2 of 2012 requires a mortgagor wishing to halt or postpone a mortgagee's sale to first deposit 30% of the forced sale value or outstanding loan amount. Ferdsult Engineering Services Limited and its director, defendants in High Court proceedings brought by Absa Bank for recovery of outstanding loan obligations, filed a constitutional petition challenging the Regulation on grounds that it violated their rights to property and access to justice under Articles 26, 28, and 44 of the Constitution.

Decision of the Constitutional Court

• Regulation 13(1) and (4) does not contravene Articles 21, 26, 28, 44, 126(1) or 128 of the Constitution.
• The right to property under Article 26 was not promulgated to govern private contractual disputes. A mortgagor's risk of sale flows from their own default, not from any unconstitutional state act. The mortgagee equally holds a proprietary interest entitled to constitutional protection.
• Regulation 13 strikes a constitutional balance between the competing interests of mortgagors and mortgagees, imposing a 'pay now, argue later' discipline while still affording defaulting borrowers a mechanism to halt a sale.
• The petition was characterised as a disguised appeal against the High Court's refusal to grant an injunction without compliance with Regulation 13.