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In Biyinzika Farmers v Biyinzika Enterprises, the Supreme Court delivered a significant ruling on pre-judgment interest in non-contractual claims. The appellants sought restitution of monies paid under a void contract. The court expressly affirmed that the award of interest addresses the time value of money recognizing that a sum owed today is worth more than the same sum paid years later. The Court awarded 12% per annum, rejecting the 22–25% commercial rate proposed by lower courts as “exorbitant” and “unconscionable” for a restitutionary claim. Critically, interest was to run from the date the monies were received by the respondents until the date of payment, a period going back 22 years.
The decision establishes that the nature of the claim matters: the rate of interest awarded should reflect fairness and the cost of borrowing, not simply the highest commercial rate.
Legal basis for pre-judgment interest
The Civil Procedure Act empowers the court, where a decree is for payment of money, to order interest at such rate as it deems reasonable. This discretion applies from the date of suit to the date of decree, in addition to any interest adjudged for the period before suit was filed. The court may also award further interest on the aggregate sum from the date of decree until payment. There are three distinct markers here; the date of the cause of action; the date of filing of the suit; and the date of judgment. A court may apply all of them.
In Biyinzika, the Court stated that interest is discretionary but must ensure fair financial restitution. The Court held that interest is awarded “not as a penalty against the Defendant but as compensation to the Plaintiff, ensuring restitutio in integrum by reflecting the cost of borrowing to replace funds wrongfully withheld.”
Interest as time value for money and the coerced loan theory
The Biyinzika decision adopts the English law principle drawn from Tate & Lyle Food Distribution Ltd v Greater London Council that courts should look not at the profit the Defendant wrongfully made, but at the cost to the Plaintiff of being deprived of the money which they should have had.
It is curious that the Supreme Court had to look to England for this principle. In the High Court, it has long been applied through what Mubiru J. has termed the “coerced loan theory” (see Dr. Warren Naamara v James Diers Mwangusya and Rocks Plus v DFCU Bank). The theory holds that the plaintiff was effectively coerced into providing the defendant with a loan at the date of breach and therefore deserves to earn interest on this “forced loan” at the unsecured borrowing rate. Compensation is measured by reference to the claimant’s presumed borrowing rate in the relevant currency because that rate represents fairly the loss of use of that currency.
Factors governing the rate of interest
The nature of the claim: Restitutionary and tort claims tend to attract lower rates than commercial lending claims. In Biyinzika, the court awarded 12% for a fraudulent land dealing. In Barclays Bank v CB Richard Ellis, only 8% was awarded for a valuer’s negligence. However, this raises the question: if the underlying principle is to compensate the claimant for the cost of being deprived of money, should the rate really differ so significantly from commercial borrowing rates?
In Biyinzika, after citing all the correct principles and considerations, the Court simply labelled the claims for interest at commercial rates of 22% to 25% as unconscionable, unjustifiable and constituting unjust enrichment. The Court then awarded 12% as fair and equitable. The judgement does not mention any relevant markers for its calibration of the interest rates.
The nature of the Plaintiff: Banks, in recognition of their lending role, tend to receive higher rates reflecting their cost of capital. In Centenary Rural Development Bank v Namulondo Hasifa, the Court awarded 20%, using the bank’s own 19.5% prime rate as a benchmark. Similarly, in KCB Bank v Sendagire, the court awarded 20%, expressly referring to the Plaintiff’s nature as a lending institution.
The claimant’s presumed borrowing rate: A related consideration is what it would cost the claimant to replace the funds withheld. This is the essence of the coerced loan theory: the Defendant has, in effect, borrowed money from the claimant without consent, and should pay interest at the rate the claimant would have incurred to borrow equivalent funds.
The currency of the claim: Interest rates should reflect the currency in which the loss occurred. In Dr. Naamara v Mwangusya, Mubiru J awarded 6% on claims denominated in US dollars or British pounds, but 20% on claims in Ugandan shillings reflecting the significantly higher cost of borrowing in the local currency.
The historical statutory interest rates
The CPA prescribes a default post-judgment rate of 6% per annum and the Civil Procedure Rules provide 8% on liquidated demands in default. These rates were set on 1st January 1929 when the CPA came into force, and bear no rational relationship to current commercial reality.
Today, the Bank of Uganda’s Central Bank Rate stands at 9.75%, while the weighted average shilling lending rate is approximately 18.73% (and 7.09% for foreign currency lending). Commercial bank prime rates range from 19–25%.
Even the foreign currency lending rate exceeds the 6% statutory default rate. For shilling-denominated claims, the 6% default means the claimant recovers less than one-third of the actual cost of being deprived of money. The practical effect is that Defendants have a perverse incentive to delay settlement, knowing that the cost of keeping the claimant out of money (6–8%) is far below the commercial cost of borrowing.
Reform is overdue. The CPA should be amended to link the default rate to the Central Bank Rate (for example, CBR + 2%), ensuring automatic adjustment to prevailing conditions. In the meantime, courts exercising discretion under Section 26(2) should reference actual Bank of Uganda lending rate data rather than defaulting to outdated statutory benchmarks.
Interest as a reduction of general damages
Where interest adequately compensates the claimant for the loss of use of money, a separate award of general damages for the same deprivation amounts to double recovery. In Biyinzika, the Court made clear that interest serves the same compensatory function as general damages. They are two sides of the same coin.
This was reinforced by Mubiru J in Rocks Plus “an award of interest in commercial disputes serves the same purposes as an award of general damages… an additional award of general damages would be tantamount to overcompensation.” The Supreme Court in Dr. Maj. (Rtd) Anthony Jallon Okullo v Attorney General (2025) and Francis Sembuya v All Ports Services (U) (1999) confirmed this principle.
Conclusion
More consideration can and should be given to interest claims by counsel for the Plaintiff. Interest claims should be framed by reference to the claimant’s nature and nature of claim. The coerced loan theory provides a principled basis for claiming rates above the statutory default and should be supported by lending rate data. Where courts award interest, the general damages claims should be calibrated to avoid overlapping with interest awards.
A primary recommendation is that this 1929 court interest rate needs to be updated and calibrated to reflect the commercial reality of the day.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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