THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA

 AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 476 OF 2012

(ARISING FROM H.C.C.S. NO. 311 OF 2012)

TONY LUBUULWA}...................................................... APPLICANT/DEFENDANT

VS

SEBASTIAN MUSISI SETUBA}........................................RESPONDENT/PLAINTIFF

 BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicants application was commenced under order 36 rules 11 of the Civil Procedure Rules and section 98 of the Civil Procedure Act by notice of motion for the court to set aside the decree as well as the taxed costs in civil suit number 311 of 2012 and for unconditional leave to file a written statement of defence to the suit. Secondly, it is for costs of the application to be provided for.

On 5 June 2013, Arthur Kirumira Counsel for the applicant and Counsel Mugisha Ronald Counsel for the Respondent agreed that the default judgment and taxed costs the subject matter of the application are set aside and the applicants application for leave to defend the suit should be heard on merits. The court accordingly made an order setting aside the default judgement and taxed costs and consequently written submissions were filed on the issue of whether the applicant should be granted leave to defend the suit.

The grounds of the application are that the applicant/defendant is not indebted to the respondent/plaintiff in the sum claimed of Uganda shillings 70,000,000/= together with interest. Secondly that the respondent/plaintiff was never served with a copy of the summons but only discovered existence of the suit after he went to the commercial court for private business and the affidavit of service of summons in the suit was false. The applicant on 15 August 2012 filed an application in the High Court for unconditional leave to appear and defend the suit within the statutory 10 days. Subsequently when the matter came for hearing on the 21st day of November 2012, it was discovered that the court had already entered judgement and issued a decree in suit and costs were taxed in favour of the respondent/plaintiff. He asserts that there are triable issues of law and fact which merit judicial consideration and the applicant/defendant has a plausible defence to the whole of the claim in the suit. Lastly that it is in the interest of justice that the application is granted.

The application is supported by the affidavit of Tonny Lubuulwa which repeats the grounds in the notice of motion. He asserts that he was never served a copy of the summons and only discovered the existence of the suit from the commercial court where he went to the court on private business. He avers that the affidavit of service is false and the process server should be subjected to cross examination on it. Nevertheless the application for leave to appear and defend the summary suit was filed within the prescribed 10 days. His case is that on the 22 September 2011, the respondent/plaintiff approached him and requested for financial assistance to clear a loan with Messieurs Stanbic Bank (U) Ltd for Uganda shillings 40,000,000/= inclusive of accrued interest and arrears. The parties agreed that the applicant would advance the respondent the sum of money indicated which the applicant borrowed from Messieurs Housing Finance Bank (U) Ltd and which was to be paid back within a month failure for which the respondent was to pay a default fine of Uganda shillings 300,000/= on each successful default on top of the agreed monies payable for servicing the loan. The respondent was interested in selling of his property in Kibuga block 29 plots 1568 and 1573 to a purchaser after the lease of securities by the bank. The respondent assured the applicant that he had a ready buyer who would pay Uganda shillings 110,000,000/= as soon as the securities were released and retrieved from the bank. Consequently the respondent was supposed to pay back the applicants money with an additional Uganda shillings 36,000,000/= out of the Uganda shillings 110,000,000/= making a total of Uganda shillings 76,000,000/= as a token of appreciation.

Pursuant to the negotiations, a memorandum of understanding dated 22 September 2011 was executed between the parties whereupon the applicant cleared off the respondents loan of Uganda shillings 40,000,000/= by paying the amount to Messieurs Stanbic Bank (U) Ltd. Upon retrieval of the respondent’s certificates of title, the parties met again and executed a sale agreement for the property on the assurance, representations, warranties and understanding previously arrived at between the parties. The respondent also obtained spousal consent for sale of the property.

It was due to the understanding and assurance that the respondent had a buyer that a subsequent sale agreement was executed to act as a lien for the amount owed by the respondent to the applicant. As soon as the respondent's loan burden had been lifted, he refused to procure the purported ready buyer for his property and decided to frame the applicant. The applicant kept on reminding the respondent to look for buyers to pay off the monies until the respondent became elusive. On the 2nd day of March 2012, the applicant obtained a serious buyer for the property and notified the respondent. The purchase price for the property was Uganda shillings 70,000,000/= much less than what was owed the applicant according to the agreement. The respondent agreed to the transaction and the sale was concluded. Out of a consideration of Uganda shillings 70,000,000/= the applicant give the respondent Uganda shillings 3,500,000/= which he never acknowledged. On those grounds the applicant maintains that the respondent cannot approbate and reprobate and is barred by the doctrine of estoppels under the law from doing so. Consequently the applicant contends that there are serious questions of law and fact for trial about the whole transaction beginning with the memorandum of understanding up to the eventual sale of the property to a third party which the honourable court needs to consider before a just decision can be made. Furthermore the applicant claims to have a plausible defence to the suit which ought to be heard on the merits.

In reply the respondent’s averments about the service of summons need not be considered because the decree and taxed costs were set aside by consent of the parties.

As far as the remaining issue of whether the application for unconditional leave to appear and defend the suit is concerned, the respondent confirms that there was a memorandum of understanding about a land sale agreement executed between the parties. He agrees that he was the registered proprietor of Kibuga block 29 plots 1568 and 1573. He agrees that he obtained a loan from Stanbic Bank IPS branch and indeed had an outstanding balance of Uganda shillings 31,540,666/=. He approached the applicant for financial help of Uganda shillings 31,540,666/=. In the return thereof he agreed to pay the applicant Uganda shillings 40,000,000/= inclusive of the charges and accrued interests. On 22 September 2011 he executed a memorandum of understanding with the applicant. One of the conditions under the memorandum of understanding was that the applicant would advance the respondent Uganda shillings 31,540,666/= including the charges and interest directly to Stanbic Bank IPS Branch and to have the respondents mortgage released. It was further agreed that the applicant would have custody of the certificates of title and the respondent was to get his wife's spousal consent agreeing to the sale of the property which the respondent did. The parties further agreed that after the sale, Uganda shillings 40,000,000/= would be deducted from the total consideration price and it will go to the applicant. On 22 September 2011, the applicant deposited Uganda shillings 40,000,000/= to the respondents account at Stanbic Bank IPS Branch. On the same day an agreement for the sale of the respondents land was executed between the applicant and the respondent for a consideration of Uganda shillings 110,000,000/=. The sum of Uganda shillings 40,000,000/= deposited on the account was considered part payment for the respondents land. This left an outstanding balance of Uganda shillings 70,000,000/=. The applicant handed over duly signed transfer forms and passport photos to the applicant. Subsequently before completion of payment of the outstanding balance, the applicant went ahead and sold the property to one Mayanja Mbabali without consent and authority or approval of the respondent and the respondent did not sign the agreement neither did his wife. The respondent got to know about the sale transaction between the applicant and the buyer of the property on 24 July 2012 when he received a letter from the buyer's lawyers for determination of tenancy and increase of rent arrears when the respondent was not a tenant and the property had been transferred by the applicant. Apart from the money that the applicant paid for clearance of the mortgage, the respondent has never received any amount from the applicant. Monies due to the respondent remain unpaid by the applicant. The applicant undertook to pay the outstanding balance of Uganda shillings 70,000,000/= within three months from the date of execution of the sale agreement on the 22nd day of September 2011. The respondent made several demands for payment. Consequently the respondent asserts that the applicant has no defence to the suit. The agreement provided the time within which to make the final payment of Uganda shillings 70,000,000/= which has since expired. The respondent is only interested in the recovering his money. He further asserts that the applicant's application has no merit and is intended to waste the time of the court.

Subsequently counsels filed written submissions for and against the application.

Counsel for the applicant set up the issues for determination of the court. The first issue is whether the applicant should be granted unconditional leave to appear and defend the suit? Secondly and if so what remedies are available in the circumstances?

Counsel submitted on the issue of service of summons under order 36 rules 11 of the Civil Procedure Rules.

In my opinion the question of service of summons ought not to be considered in an application for unconditional leave to appear and defend the suit except for purposes of setting aside the decree. The decree and taxed costs were set aside by consent of the parties and the matter proceeded to consider whether there were triable issues upon the applicant having filed an application within 10 days for unconditional leave to appear and defend the suit. I would therefore refer to the submissions in respect to whether triable issues are disclosed by the applicant’s application.

The applicant's submission is that leave would be given to the defendant to defend the suit unconditionally if the defendant shows a prima facie case or raises triable issues. Counsel relies on Mulla on the Code of Civil Procedure 16th edition page 3650 and also page 3653. His argument is that the evidence reveals that the defendant/applicant is not indebted to the respondent/plaintiff for the sum of Uganda shillings 70,000,000/= which interest is chargeable thereon. The facts in the evidence are that the respondent borrowed money from Housing Finance Bank (U) Ltd for purposes of redeeming the applicant and securing a release of mortgage from Stanbic Bank. If the respondent failed to pay the loan from Housing Finance Bank (U) Ltd, it was liable to pay Uganda shillings 300,000/= for each successful default on top of the instalments payable. This position was voluntarily agreed upon by the respondent.

Counsel submitted that the respondent additionally expressed an intention to sell of his property comprised in Kibuga block 29 plots 1568 and 1573 after release of the securities by Stanbic Bank. The respondent represented that he had a buyer willing to purchase the property at Uganda shillings 110,000,000/=. The respondent offered the applicant for the release of property Uganda shillings 40,000,000/= and that he would out of the sale of the property after the release of mortgage pay the applicant Uganda shillings 36,000,000/=. This was to avoid the foreclosure of the respondents land.

It was only on the basis of the persistent pressure, representation, warranty and assurances to the applicant by the respondent of the existence of a ready buyer that the applicant agreed to execute a land sales agreement to act as security for the payment of the applicant. The total amount payable to the applicant is Uganda shillings 76,000,000/=. The agreement was therefore strictly not a sale agreement but acted as security. Counsel submitted that it is false for the respondent to aver that Uganda shillings 40,000,000/= was deposited as part payment of the consideration for the sale of the land. The applicant on various occasions reminded the respondent of his obligation to source a buyer for the land but failed to do so. This prompted the applicant to source for a buyer whereupon he duly notified the respondent after he got a buyer of the property who offered Uganda shillings 70,000,000/=, which amount was less than that agreed by the parties i.e. of Uganda shillings 76,000,000/= for payment of the applicant. The respondent agreed to the transaction and the evidence of the agreement is that he never lodged a caveat on the title deed. The applicant paid the respondent Uganda shillings 3,500,000/= which never acknowledged.

As far as the law is concerned, all that the applicant needs to demonstrate under order 36 of the Civil Procedure Rules is whether there exist application raises bona fides triable issues of law or fact. Secondly the test of determining whether there is a real and not sham defence is whether the facts alleged by the defendant would, if established, provide a good defence (Mulla on the Code of Civil Procedure refers). The court should not be burdened into investigating the facts alleged as this would be done at the trial. Counsel relied on the cases of Maluku Interglobal Trade Agencies Ltd versus Bank of Uganda HCCS number 950 of 1985 and Mwitweki Boniface versus Onyeko Jimmy Miscellaneous Application number 595 of 2005 in support of his submissions.

In reply counsel for the respondent agrees with the law applicable. The law is that the applicant must demonstrate that there are triable issues of law and fact for the application to be granted. Secondly it would only be granted subject to payment into court by the defendant where there is ground for believing that the defence is a sham (see Republic Motors Ltd versus Atlantic Decoration (1985) HCB at page 80). Counsel agreed with the law as stated in the case of Maluku Interglobal versus bank of Uganda (1985) HCB at page 65 where Odoki J as he then was set down the tests to be applied. Leave to defend is normally granted unconditionally (see Kundal Restaurant versus Deushi and Company (1952) EACA at page 77) except where the defence appears to be a sham.

In the case of Zola And Another versus Ralli Bothers Ltd And Another (1969) EA at page 691 the Court of Appeal observed that summary procedure is intended to enable a plaintiff with a liquidated demand to which there is clearly no good defence to obtain a quick and summary judgement without being kept from it due to delay tactics of a defendant.

In the instant case the applicant does not deny the memorandum of understanding and land sale agreement in respect of Kibuga Block 29 Plots 1568 and 1573. The applicant assisted the respondent to clear the loan at Stanbic Bank amounting to Uganda shillings 31,540,666/= and the respondent agreed to pay back Uganda shillings 40,000,000/= including the charges and interests that had accrued. The applicant was presented with the respondents land title and the applicant subsequently transferred and sold the respondents property. The memorandum of understanding between the parties was superseded by the land sales agreement executed between the applicant and the respondent. In the land sales agreement there is no provision for looking for buyers. Counsel submitted that the applicant freely agreed to purchase the respondents land for the consideration of Uganda shillings 110,000,000/= out of which Uganda shillings 40,000,000/= in the form of interest, charges and outstanding balance at Stanbic bank leaving an outstanding balance of Uganda shillings 70,000,000/= that remains unpaid by the applicant to the respondent.

Counsel further submitted that all transactions between the parties were governed by the memorandum of understanding and the land sale agreement. It was on the basis of the agreement that the respondent handed over the duplicate certificate of title, obtain spousal consent, photos, and duly signed transfer forms and authorisation to have possession of the land titles by the applicant which titles were obtained from the bank. This demonstrated that the applicant was a willing buyer of the property.

Apart from releasing the mortgage, the applicant never paid any further monies to the respondent. The applicant got to know about the sale of the property from one Mohammed Mbabali on 24th of July 2012. The applicant ought to have paid the outstanding balance within three months from the date of execution of the land sale agreement. In any case the applicant has since disposed of the property without the knowledge of the respondent. In those circumstances the applicant has no defence to the respondents claim. The respondent never allowed the applicant to sell the property to another person as alleged in the applicant’s submissions. Furthermore it is untrue for the applicant to allege that the respondent received Uganda shillings 3,500,000/= and that he sold the properties at a loss and that the applicant received Uganda shillings 36,000,000/=. The respondent was not even aware that his property had been sold. The respondent waited for payment in vain and he was almost evicted from his premises until eviction was halted by the police. Counsel submitted that on the basis of paragraph 3 – 28 of the affidavit in reply and attachments thereto, the applicant's application should be dismissed because he is not entitled to appear and defend the suit as he has no defence. The applicant's application does not raise any issues for trial and there is no question to be investigated by this honourable court.

In rejoinder the applicants counsel submitted that the respondent’s submissions revealed that there are triable issues. In the case of Nsambu Nsubuga vs. Ntume Nyanzi (1985) HCB at page 80, where contentions of both parties raised triable issues, leave to appear and defend ought to be granted. The applicants counsel reiterated his submissions based on the authority of Maluku Interglobal Trade Agencies Ltd versus Bank of Uganda (supra). Secondly he cited the case of Libyan Arab (U) Ltd versus Kasiko [1983] HCB at pages 72 and 73 that denial of indebtedness in the amount claimed by the plaintiff is a proper defence which raises triable issues of law and fact.

It was not true that the respondent got to know Mr Mohammed Mbabali on the 24th of July 2012. The respondent knew the purchaser because on 2 March 2012 the applicant after the memorandum of understanding sourced for and obtained a serious buyer for the property and duly notified the respondent on the same that the buyer was willing to purchase the property at Uganda shillings 70,000,000/= much less than was anticipated. The respondent gave his blessing to the transaction and the sale was concluded. If the applicant was to make payment within the period of three months, why did the respondent file a suit after eight months? The only reasons for this can be investigated at the trial of the suit.

Ruling

I have duly considered the applicants application and the affidavit evidence of both parties.

Annexure "E" to the affidavit of the applicant is the deed of commitment/understanding between the applicant and the respondent. The agreement provides that the applicant was desirous of retiring his loan under a mortgage obtained from Messieurs Stanbic Bank (U) Ltd IPS Branch Kampala in the sum of Uganda shillings 31,540,606/= inclusive of accrued interest. It specifically provides that the second party who is the respondent was desirous of selling properties comprised in Kibuga block 29 plots 1568 and 1573 at Kamwokya in Kampala, the subject matter of the mortgage to the first party upon the terms stipulated under the deed.

Clause 1 of the agreement required the first party who is the applicant to make advance payment of Uganda shillings 31,540,666/= inclusive of all charges and accrued interest directly to Messieurs Stanbic bank (U) Ltd, IPS Branch, Kampala on behalf of the second party (the respondent) to extinguish the loan and have the mortgage released. Paragraph 2 of the agreement provides that the second party would sign a letter of authorisation and which he presented to the bank introducing the applicant for the purposes agreed to. Upon release of the mortgage, the bank was to hand over two duplicate certificates of title upon a letter of authorisation signed by the respondent and presented to the bank for that purpose. Thereafter the applicant was to execute a sale agreement for the released property in favour of the applicant according. It was also agreed that the respondent's wife would give spousal consent/or agree to the sale of the properties and would also be a witness to the sale agreement. Paragraph 7 of the deed of commitment/understanding provides that the applicant would sell the property to any purchaser whereupon the consideration there from shall be split between the parties. A sum of Uganda shillings 40,000,000/= was to be deducted from the purchase price and paid to the applicant. Secondly in case of any dispute arising between the parties, it would in the first instance be referred to an arbitrator to help the parties solve the dispute amicably and where arbitration fails, the aggrieved party shall be at liberty to seek redress in courts of law.

On the same day the parties signed an agreement of sale of land dated 22^nd of September 2011. The agreement was witnessed by the spouse of the respondent one Nalutaaya Teddy. The agreement provides that the consideration for both properties respectively shall be Uganda shillings 110,000,000/=. The sum of Uganda shillings 40,000,000/= was to be part payment for the property and was paid by the purchaser to the vendor who upon receipt was supposed to process the release and retrieval of the original duplicate certificate of title to the mortgaged land with Messieurs Stanbic Bank (U) Ltd, IPS Branch Kampala. He was also supposed to obtain release of mortgage. In the agreement the respondent is described as the vendor while the applicant is described as the purchaser. The parties agreed that the respondent/vendor shall submit signed transfer forms and two coloured passport size photographs to the purchaser's lawyers to enable the process of conveyance by the purchaser.

I have carefully considered the submissions and the evidence to the effect that the sale agreement was security. I am particularly intrigued by the memorandum of commitment which provides that the applicant upon obtaining clearance or the release of mortgage from Stanbic bank shall sell the property to any purchaser. Paragraph 7 of the memorandum of understanding reads as follows:

"It is further agreed between the parties that after the sale of the said properties by the first party to any purchaser the consideration there from shall be split between the parties as follows:…" (Emphasis added)

I am also intrigued by the fact that it was initially the respondent to process release of mortgage from the bank after payment by the purchaser in the sale agreement of Uganda shillings 40,000,000/=. On the other hand the deed of commitment provided that the applicant would pay direct to Stanbic Bank Uganda shillings 31,540,666/=. The agreements are both dated 22^nd September 2011. The applicant has therefore raised a major triable issue as to whether the sale agreement executed between the parties on 22 September 2011 was meant to sell the property to him as an absolute purchaser or as a trustee for the purposes of recovering the monies agreed upon. This is because the memorandum of commitment is dated 22nd of September 2011. The sale agreement between the applicant and the respondent is also dated 22nd of September 2011 and is duly witnessed by the respondent’s wife. If the sale was meant to transfer title absolutely to the applicant, why does clause 7 of the memorandum of understanding provide that the applicant was to sell the same property or any purchaser? On the other hand, the sale agreement specifically provides that a sum of Uganda shillings 40,000,000/= has been paid by the purchaser/applicant to the vendor/respondent. Secondly that there was an outstanding balance of Uganda shillings 70,000,000/= which shall be paid by the purchaser/applicant to the vendor/respondent within a period of three months from the date of the agreement.

Even if the applicant was supposed to be a transient owner and thereafter transfer title to another purchaser, it can be submitted that he was obliged to sell the property and fulfil his part of the bargain which is to deduct 40,000,000/= from the sale of the property and pay to the vendor the balance of Uganda shillings 70,000,000/=. Therefore the amount of money at which the applicant could have sold the property would be immaterial in the sense that if he sold the property at a higher price than 110,000,000/=, the respondent would not be entitled to claim beyond the 70,000,000/= he was entitled to. However such a conclusion should not be based on an interpretation of the express terms of the memorandum of understanding and the sale agreement. There is a need for evidence notwithstanding the exclusion of oral evidence by written agreements. The two agreements are not exactly consistent and additional evidence may be required.  In any case let it be tried first before a conclusion is reached.

On the basis of the above findings of fact based on the express agreement of the parties namely the deed of commitment/understanding dated 22nd of September 2011 and the agreement of sale of land dated 22nd of September 2011, I am satisfied that the applicants application raises triable issues which merit judicial consideration. The applicant would have been entitled to unconditional leave to defend the summary suit brought against him by the respondent on the merits. However, the memorandum of understanding between the parties paragraph 4 thereof envisages the execution of a sale agreement. As to why the sale agreement was executed on the same date as the memorandum of understanding leaves a lot to be desired by way of clarity. On the other hand clause 8 of the memorandum of understanding clearly provides that any dispute arising between the parties, shall in the first instance be referred to an arbitrator to help the parties resolve their disputes amicably and where the same fails, the aggrieved party shall be at liberty to seek redress in courts of law.

An arbitrator does not resolve any dispute amicably but only arbitrates and comes up with a decision/award. Consequently the second controversy is procedural and is whether the dispute between the parties should be referred to an arbitrator in accordance with clause 8 of the memorandum of understanding and section 5 of the Arbitration and Conciliation Act cap 4 laws of Uganda. Where an agreement which is the basis of a summary suit contains an arbitration clause, it cannot be said that a summary suit has been commenced in accordance with the agreement and the law unless and until the contractual clause to refer the dispute to arbitration has been engaged.

In those circumstances, conditional leave is granted for the applicant to appear and defend the suit on the following terms:

1. The Applicant shall file a defence to the summary suit within 14 days from the date of this order without prejudice to a right to proceed for arbitration/mediation.

2. The applicants defence shall not be heard or the plaintiffs suit heard unless and until after the parties address the court and the parties agree or the court decides on whether this dispute should be referred for arbitration in accordance with clause 8 of the deed of commitment/understanding between the parties and section 5 of the Arbitration and Conciliation Act.

3. The ruling of the court on the above question or the consent of the parties shall determine whether the suit shall be tried in the ordinary way or shall abide the outcome of reference to arbitration.

4. The costs of the application shall abide the outcome of the arbitration or main suit whichever mode of dispute resolution is undertaken.

Ruling delivered in Kampala this 23^rd day of August 2013

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

Charles Okuni: Court Clerk

Arthur Kirumira for the Applicant

Applicant in court

Respondent not in court neither is his counsel. They were served with ruling notice

Christopher Madrama Izama

Judge

23^rd August 2013