The question of whether interest can be charged on a debt is a fundamental aspect of commercial and civil transactions. In Uganda, the legal principles governing the imposition of interest are well-established, drawing from the common law tradition, statutory provisions, and local judicial precedent. This analysis considers whether a creditor can unilaterally impose an interest charge, without the knowledge of the debtor, and then successfully claim that interest. It will be argued that such a unilateral imposition is generally unenforceable, as the primary basis for charging interest is an agreement between the contracting parties. While a court may award interest, this is a separate judicial power and does not validate a term that was never mutually agreed upon.
The principal foundation for charging interest on a debt in Ugandan law is contractual agreement. Under the doctrine of freedom of contract, which is a cornerstone of the Contracts Act 2010, parties are at liberty to negotiate and agree upon the terms of their engagement (Contracts Act, 2010). This includes the right to stipulate a clause providing for interest to be paid in the event of late payment. For such a term to be binding, however, it must form part of the contract agreed to by both parties. There must be a meeting of the minds, or *consensus ad idem*, on all essential terms, including any provision for interest. If a creditor purports to include an interest charge on an invoice or demand letter after the initial agreement has been concluded, and without the debtor’s prior knowledge or consent, this term has not been incorporated into the contract. The Supreme Court of Uganda has affirmed that interest can be awarded based on agreement or trade custom, neither of which exists where one party is unaware of the term (Odoki, 2011).
Given that agreement is the primary basis, an attempt to impose interest without the other party’s knowledge is legally ineffective. Such an action amounts to a unilateral variation of the contract, which is not permitted in law. A contract cannot be altered by one party to the detriment of the other without fresh consent or consideration. In *Crane Finance Company Ltd v Makerere Properties Ltd* [2001] UGSC 9, while the case concerned the variation of interest rates by a bank, the underlying principle is that the power to do so must itself be founded in the original agreement. Where no term for interest exists in the first place, a creditor cannot simply invent one. The debtor’s lack of knowledge means that they never assented to paying interest, and therefore, no obligation to pay the specific interest imposed by the creditor arises. A court would not enforce a term that one party was never given the opportunity to accept or reject.
However, this does not mean that a creditor is left without any remedy to claim interest on a late payment. The law provides an alternative route through judicial discretion. Section 26(2) of the Civil Procedure Act (Cap. 71) grants courts the power to award interest in a decree for the payment of money. It states that the court may order interest at such rate as the court deems reasonable to be paid on the principal sum, from the date of the suit to the date of the decree, in addition to any interest on such principal sum for any period prior to the institution of the suit. This is a discretionary power exercised by the judge. The key distinction is that the interest is awarded by the court, not “imposed” by the creditor as a matter of right. A creditor can sue for the principal debt and ask the court to award interest, but they cannot successfully claim entitlement to an interest charge that they unilaterally created. The court in *Sietco v Noble Builders (U) Ltd* [1996] UGSC 6 confirmed that where there is no provision for interest in an agreement, it is payable if the circumstances warrant a judicial award.
In conclusion, a party in Uganda cannot successfully impose an interest charge on a payment where the other party had no knowledge of it. The lack of knowledge signifies a lack of agreement, rendering the purported term unenforceable as it was not part of the contract. The creditor’s remedy is not to enforce this non-existent term, but to apply to a court to exercise its statutory discretion under the Civil Procedure Act to award interest on the principal sum owed. Therefore, while interest may ultimately be earned, it is not by virtue of the creditor’s unilateral imposition but rather as a result of a judicial award.
References
* *Crane Finance Company Ltd v Makerere Properties Ltd* (SCCA No. 1 of 2001) [2001] UGSC 9 (26 April 2001).
* *Sietco v Noble Builders (U) Ltd* (SCCA No. 31 of 1995) [1996] UGSC 6 (26 January 1996).
* Civil Procedure Act, Chapter 71 of the Laws of Uganda.
* Contracts Act, 2010 (Act 7 of 2010) (Uganda).
* Odoki, B.J. (2011) *A guide to civil procedure in Uganda*. Law Development Centre Publishers.
