THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL DIVISION),
MISCELANEOUS APPLICATION NO 105 OF 2010
(ARISING FROM CIVIL SUIT NO. 35 OF 2010)
LAKHMAN BHIMJI ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: APPLICANT
VERSUS
MANOR DEVELOPMENTS LTD ::::::::::::::::::::::::::::::::::::::: RESPONDENT/PLAINTIFF
BEFORE HON. JUSTICE CHRISTOPHER MADRAMA
RULING
The Applicant who is also the second defendant in HCCS NO. 35/2010 brought this application under order 36 rules 3, 4 of the Civil Procedure Rules and section 98 of the civil procedure act, for orders that;
1.
Unconditional leave be granted to the applicant to file his defence
2. Costs of the suit be provided for.
The application is supported by the affidavit of the applicant and the grounds briefly are:
1.
That the Applicant/second defendant is not indebted to the Respondent/Plaintiff at all
2. That the applicant/second defendant is not aware of the payments made by the first defendant to the respondent/plaintiff.
3. That the applicant/second defendant is not aware of the recoveries made on the bakery equipment whatsoever.
4. That the applicant/second defendant has not been notified in any way of the default by the first defendant
5. That it is in the interest of justice that the applicant/second defendant is granted leave to file his defence.
The affidavit of the applicant is affirmed the 22nd of February 2010 and avers as follows: “…………
1.
That I am a male adult Kenyan of sound mind and applicant/first defendant herein with capacity to affirm this affidavit.
2. That I am not personally indebted to the respondent/plaintiff at all.
3. That I was a minority shareholder of both the respondent/plaintiff company and the first defendant.
4. That as Director and shareholder in the respondent/plaintiff company, and was directed by the board of directors to facilitate the clearance of the mortgage the first defendant had created with Messrs. STANBIC bank Uganda Ltd. Over her properties.
5. That I did cause the payment of the outstanding sums on behalf of the respondent/plaintiff.
6. That I did resign from the respondent/plaintiff company due to disagreement with the other shareholders of the mode of transfer of assets and general direction of the company.
7. That I am not aware that the first defendant failed/refused to meet her primary obligation.
8. That I am aware that the equipment for the first defendant was ever sold by the respondent/plaintiff upon instructions of the Nairobi based shareholders.
9. But I am aware that one of the directors of the Respondent/Plaintiff the one Varma unilaterally to with 100 KVA generator to Messrs. Steel Works Ltd.
10. But I am not aware of any subsequent transaction after I was forced out of the respondent/plaintiff company.
11. That I am informed by my advocates that the suit is brought in bad faith considering that I was the one warrant transacting for and on behalf of the respondent/plaintiff and could not have guaranteed that that the first defendant was to pay. …”
The Respondents Company Secretary, Mr. Bernard Muhangi Bamwine swore an affidavit in reply on the 19th March 2010 and the Applicant filed a rejoinder on the 1st of April 2010.
John Paul Baigana represented the Applicant/Defendant and Andrew Kahuma represented the Respondent/Plaintiff.
Counsel for the applicant submitted that the application was made under Order 36 rules 3 and 4 and order 52 rules 1 and 2 and section 98 CPA, for unconditional leave to appear and defend the suit and for costs. The Applicants counsel submitted that the Applicant/second defendant was not indebted to the Respondent at all. That he was not aware of recoveries made on bakery equipment owned by the principal borrower Crest Foods Ltd. He was a minority shareholder of the Respondent/Plaintiff Company and the first defendant. In that capacity the plaintiff Company/Respondent resolved that it clears a mortgage the 1st defendant had with Stanbic Bank over her properties. That he is not aware that the first defendant failed to meet its obligations. That he signed a document of guarantee only on behalf of the Manor Development Company Limited. See annexure “D” the Applicant signed on behalf of the company.
There is a triable issue as to whether he is personally liable. He admitted that Uganda Shillings 75 million was recovered from the property of Crest Foods Ltd. Counsels view was that it is relevant and a triable issue how property was sold at Uganda Shillings 75 million for goods worth about Uganda shillings 300,000,000/=. The court should examine the process of recovery under the Chattels Transfer Act under a lien. He further submitted that some property of Crest foods was donated to Messrs Steel Works Ltd i.e. a 100 KVA. The applicants counsel further wondered how a company could sue a shareholder and director. Prayed that court allows the applicant to file a proposed defence on record and the suit be heard inter partes.
Counsel Andrew Kahuma in reply strongly opposed the application. He contended firstly that that the application had been filed out of time. Summons were issued on 3rd of February 2010 and served on the second defendant on 11th February 2010.The last day for making the application was Sunday 21st February 2010 consequently in terms of the provisions for reckoning time in the Civil Procedure Rules, the last day for filing the application was Monday the 22nd of February 2010. The Applicant’s application was filed on the 24th of February 2010 outside the prescribed time. (Two days outside the prescribed time)
In the alternative and without prejudice counsel for the Respondent contended that the Applicant had not satisfied the conditions for the exercise of the courts discretion to grant leave for the applicant to appear and defend the suit. His reasons were that the Applicant’s affidavit and draft defence do not show bona fide triable issues. The plaint clearly shows that the plaintiff company advanced money to the 1st Respondent to clear its loan obligations to Stanbic Bank secured with a chattel mortgage agreement. It was the agreement of parties that the money to be advanced by the plaintiff company had to be guaranteed personally by the directors of Crest Foods Ltd. The second defendant is being sued in his personal capacity and the personal guarantee in question is annexure “B” to the plaint. That the applicant does not deny the arrangement to clear Crest Food obligations by Manor Developments Ltd therefore no triable issues have been raised.
Counsel referred Court to an admission by the Applicant that he is aware of recoveries under paragraph 8 of his affidavit. “I am aware that the equipment was ever sold by the Respondent upon instruction of the Nairobi based shareholders of the plaintiff’s company.” It is not true that the applicant was all along acting on behalf of the plaintiff company as there is no resolution to show that actually Manor developments agreed that he settles debts of Crest foods. The applicant agreed that he signed agreements. When the Respondent sold the chattels pledged, the full amount owed was not recovered. Issues raised by counsel for the applicant concern the defence of Crest Foods Ltd and yet it has not filed a defence. There are therefore no triable issues and the application should be dismissed with costs. Counsel referred to the case of Tororo District Administration versus Andalalapo Industries where the trial Judge observed that the applicant did not show triable issues in law or fact. Such defence should be stated with sufficient specificity.
Counsel Paul Baigana in rejoinder sought to make a submission in clarification and stated that according to the affidavit in rejoinder. Mr. Andrew Kahuma called him while he was in Masindi and that he had documents for service on the Applicant Mr. Lakhman. Counsel Baigana told Mr. Kahuma to give the said documents on his colleague Mr. Lawrence Tumwesigye. He submitted that he had several suits. Referred to annexure “A; to Bamwine’s affidavits and stated that he did not have personal conduct of the matters which were served and he could therefore not receive service. He called the Applicant on the 21st of February 2010 after he had come back from Masindi and informed him that his documents had been deposited in chambers. The Applicant appeared and received the documents on the 21st of February 2010. Application filed on the 24th of February 2010 about four days later.
Concerning annexure “B” to the plaint, the date at page 1 is not of the character of the original documents. Also the second page the year has been doctored. The original character was 2004 and to suit what they wanted they put 2007. He invited court examine evidence on record selectively. Mr. Bernard Bamwine affidavit talks about annexure “D” which is an irrevocable undertaking. All the documents are authored by Kwesigabo Bamwine and Walubiri Advocates. Annexure B is purportedly coming from Crest Foods is doctored. He submitted that the court cannot disregard annexure “D” in favour of annexure “B” to the plaint. Alternatively even if the applicant was held by court to be a guarantor, the procedure of recovery from a guarantor has to be transparent. The plaintiff must show failure to recover the money from the principal debtor. It must also be shown that there was transparent sale of the security i.e. the chattel. Annexure “C” to the plaint shows payment of 75 million to Bamwine Walubiri and Company advocates. Money cannot be demanded without showing due process of recovery.
I have reviewed the pleadings of the parties and submissions of both counsels. Before handling any other matter I shall first deal with the question of whether the Applicants application for leave is time barred. At the hearing I intimated to the parties that I did not think so because there was no effective service on the Applicant since the documents were served on the applicants lawyers and because it was as fresh matter. Application for leave has to be made within 10 days as stated in the summons and as provided under order 36 rule 3 of the Civil Procedure Rules.
I agree with Paul Baingana that he could not receive service of summons for a fresh suit on behalf of the Defendant. Firstly, being a fresh matter, he would need instructions of his client in terms of the contents and merits of the application in order to represent him effectively. Secondly, and more fundamentally, is the ethical question of how an Advocate can take up any matter without instructions of a client. A lawyer has no authority to act for anybody without instructions.
The Advocates (Professional Conduct) Regulations, Statutory Instrument 267—2, regulation 2 (1) forbids an advocate from acting without instructions: it provides:
“2. Manner of acting on behalf of clients.
(1) No advocate shall act for any person unless he or she has received instructions from that person or his or her duly authorised agent. ..”
Consequently, Paul Baingana had not been instructed by the 11th of February 2010. In any case he could not be instructed because the defendant/applicant had not yet been served. In terms of the rules of procedure, there was no effective service on the Applicant. To put it simply he had not yet received the documents of service from the plaintiff and he was incapable of giving instructions to any lawyer of his choice. Order 36 rule 11 requires that service of summons under the order 36 has to be effective. In the absence of effective service, any decree entered ex parte will be set aside.
Order 36 rule 11 of the CPR provides:
“11. Setting aside decree
After the decree the court may, if satisfied that the service of the summons was not effective, or for any other good cause, which shall be recorded, set aside the decree, and if necessary stay or set aside execution, and may give leave to the defendant to appear to the summons and to defend the suit, if it seems reasonable to the court so to do, and on such terms as the court thinks fit.”
In a recent case namely MA No. 406 of 2010 David Ssesanga versus Greenland Bank (In Liquidation), I had occasion to consider a similar question on whether service of summons was effective or not and had to be set aside under order 36 rule 11 of the Civil Procedure Rules. I quoted extensively from the case of Geoffrey Gatete and Angela Maria Nakigonya versus William Kyobe Supreme Court Civil Appeal No. 7 of 2005 to which had been referred. In the judgment of the Supreme Court delivered by Hon. Justice Mulenga JSC at pages 8 second paragraph to page 9 effective service was defined, his Lordship stated:
“It is apparent that in concluding that assumed service on Matsiko Kasiimwe was effective service, the courts below took the expression “deemed good service” referred to in order 30 rule 3 and the expression “effective service” referred to in order 36 rule 11 to mean the same thing and actually use them interchangeably. In my view, the two expressions are significantly different.
The Oxford advanced learner’s dictionary defines the word “effective” to mean “having the desired effect; producing the intended result”. In that context, effective service of summons means service of summons that produces the desired or intended result. Conversely, in ineffective service of summons means service that does not produce such result. There can be no doubt that the desired and intended result of serving summons on the defendant in the civil suit is to make the defendant aware of the suit brought against him so that he has the opportunity to respond to it by either defending the suit or admitting liability and submitting to judgment. The surest mode of achieving that result is serving the defendant in person. Rules of procedure, however, provide for such diverse modes for serving summons that the possibility of service failing to produce the intended result cannot be ruled out in every case.
For example, in appropriate circumstances service may be lawfully made on the defendant’s agent. If the agent omits to make the defendant aware of the summons, the intended result cannot be achieved. Similarly, the court may order substituted service by way of publishing the summons in the press. While the publication will constitute lawful service, it will not produce the desired result if he does not come to the defendants notice. In my considered view, these examples of service envisaged in order 36 rules 11 as “service (that) was not effective.” Although the service on the agent and substituted service would be “deemed good service” on the defendant entitling the plaintiff to a decree under order 36 rule 3, if it is shown that the service did not lead to the defendant becoming aware of the summons, the service is “not effective” within the meaning of order 36 rule 11. (See Pirbhai Lalji vs. Hassanali (1962) EA 306).
The word “deemed” is commonly used in legislation to create legal or statutory fiction. It is used for the purpose of assuming the existence of the fact that in reality does not exist. In St Aubyn (LM) vs. Attorney General (1951) 2 All England reports 473, at page 498 Lord Radcliffe describes the various purposes for which the word is used where, he says –
“the word “deemed” is used a great deal in modern legislation. Sometimes it is used to impose for the purpose of the statute an artificial construction of the word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is of use, what is and certain and what is, in the ordinary sense, impossible.”
In my view, the expression “service that is deemed to be good service” is so broad that it includes service that would not produce the intended result, which therefore is not effective.”
The court concluded that effective service must produce the desired effect, which is to make the defendant aware of the suit. Special provision is made for service on agents under Order 5 rule 10. The rule provides that wherever it is practicable, service shall be made on the defendant in person, unless he or she has an agent empowered to accept service, in which case service on the agent shall be sufficient.
The Defendant/Applicant had not been served in person. No evidence has been shown that Paul Baingana is the agent of the Applicant with instructions to receive service in terms of being a recognised agent under order 3 of the Civil Procedure Rules. Under this order service may be made on recognised agents under rule 3 thereof. However which Advocate may be held to be a recognised agent is defined in order 3 rule 2. In this particular case rule 2 applies and provides that: “The recognised agents of parties by whom such appearances, applications and acts may be made are- (a) persons holding powers of attorney authorising them to make appearances and applications and do such acts on behalf of parties; and ...”
No power of attorney if any has been adduced in evidence to show that the Applicants Advocates were agents capable of receiving summons on behalf of the applicant. The Civil Procedure Rules provide for service on the Defendant in person or on an agent empowered to accept service. Order 5 rule 13 of the Civil Procedure Rules makes this clearer. It permits service on the defendant’s agent empowered to accept service. It provides:
“Where in any suit the defendant cannot be found, service may be made on an agent of the defendant empowered to accept service or on any adult member of the family of the defendant who is residing with him or her.”
I have emphasised the word empowered. Empowered means as provided for under order 3 rule 2 of the Civil Procedure Rules. Consequently I agree with the Applicants counsel that the applicant effectively received summons on or about the 21st of February 2010 and the current application was filed immediately thereafter on the 24th of February 2010. The preliminary objection to the application is therefore overruled.
Concerning the issue of whether the applicant has raised triable issues, I have carefully considered the submissions of both counsel and the pleadings. An application for leave to appear and defend a summary suit must show by affidavit that there is or are bona fide triable issues that merit judicial consideration (the case of Souza Figuerido & Co Ltd v Moorings Hotel Co Ltd [1959] 1 EA 425 (CAK)) refers. Counsel for the Respondent also referred me to the case of Tororo District Administration versus Andalalapo Industries Ltd HCMA 12/1997 Before Justice Kania, [1997] IV KALR 126. The learned judge stated at page:
“The Appellant is also seeking that this court grants it unconditional leave to appear and defend the suit. Unconditional leave to appear and defend a suit brought under summary procedure, like the instant one, is granted along well established principles as exhaustively set out in Moluku Interglobal Trade Agencies Ltd vs. Bank of Uganda [1985] HCB 65. The applicant for such leave must show by affidavit or otherwise that there is a Bona fide triable issue of fact or law. Though the applicant is not bound to show a good defence on the merits, the court should be satisfied that there is an issue or question which ought to be tried. Whatever defenses are raised shall also be stated with sufficient particularity as to appear genuine, because general or vague statements denying liability will not suffice.”
The question for me to consider stems from the order sought in the plaint itself because the order sought relies on a written agreement. Counsel Baigana asked the court to review this evidence selectively, however whatever defence the Applicant is supposed to plead must answer the cause of action in the plaint. Paragraph 7 of the plaint is very explicit. It provides as follows:
“The 2nd and 3rd defendants provided personal guarantees for the due payment of the loan and interest thereon. A copy of the guarantee is attached and marked “B”.
Annexure “B” to the plaint is an agreement entitled “Irrevocable Guarantee”. It is addressed to Messrs Manor Developments P.O. Box 33821 Kampala of which paragraph 1 thereof reads:
“In consideration of your acceptance, at our request and instance, to extend a loan to M/S Crest Foods Limited (The Borrower), WE HEREBY JOINTLY AND SEVERALLY GUARANTEE the prompt, punctual and full payment of all monies with interest thereon now hereinafter due to you from the Borrower under the Chattel Mortgage dated 18th October 2007 between you and the said Borrower.”
The guarantee agreement is dated 18th of October 2007 and is signed among others by the Applicant. What is interesting is that he describes his position as Director in the agreement itself. I do not agree with counsel Baigana that the agreement was doctored. The number 4 was crossed out from a typed script by the persons who signed and it was substituted by number 7 to read 2007. I believe this was obviously done to indicate the proper date of signature which also agrees with the face of the document. The typed script must have had a wrong year typed. Consequently, the basis of the plaint as against the applicant is a guarantee document as stipulated in paragraph 7 thereof. Consequently any plausible grounds of defence are supposed to address the guarantee arrangement itself. Are any matters arising there under? Are there any issues to be tried concerning the legality of the agreement? Are there any matters raised concerning the mode of implementation of the guarantee? Is the applicant suggesting that he never signed the guarantee agreement? Last but not least are there any matters concerning liability under the guarantee agreement which ought to be tried?
Among other things, the Applicant avers that he could not have guaranteed the repayment of the loan as he was acting for and on behalf of the Respondent/plaintiff (See paragraph 11 thereof). This is a very curious averment. It is made more curious by the fact that annexure “B” to the plaint seemed to be signed by the applicant personally. However he gives his position as that of director. Whatever the implications or legalities of this there is in my opinion a plausible or arguable defence that may be presented for judicial consideration. The defence is also stated in paragraph 5 of the proposed written statement of defence. It is averred therein: “The 2nd Defendant denies that he executed a personal guarantee knowingly” Last but not least Counsel Baigana submitted that the Applicant did not know that the loan was not paid. It is a glaring fact that the Applicant is faulted for the manner in which he obtained the loan while he was a director. Secondly the Applicant would like to know about the assets of the principal debtor which could have offset the debt. Thirdly guarantors or sureties may have rights to require the principle borrower to pay off the debt.
The Law and Practice of Banking, by Milden Holden volume 2. Among other things outlines common law rights of a guarantor. These include rights against the creditor, rights against the principal debtor and rights against co - sureties, if any. The rights against the principal debtor include between pages 207 – 208:
“First, when the creditor acquires, as against the guarantor, a right to immediate payment of the debt, the guarantor is entitled to call upon the principal debtor to pay the amount of the debt guaranteed so as to relieve him from his obligations, even though he has, as yet, paid nothing under the guarantee and even to the creditor has not demanded payment from him or from the principal debtor. The guarantor may ask the court for a declaration that he has a right in equity to require the principal debtor to exonerate him from his liability under the guarantee by paying off the debt. (Thomas verses Nottingham incorporated football club limited [1972] Chancery Division 596).”
The guarantee agreement annexure “B” inter alia expressly states that the obligations of the guarantor is at the election of the Creditor who need not exhaust its remedies as against the customer prior to enforcing its rights under the guarantee. Even if that were the case the guarantor would be entitled to establish how his liability was arrived at. How for instance the 75 million was established among other things. The Applicant’s situation is precarious. He does not know whether the entire amount is due. He is entitled to ascertain the same. He should be given an opportunity to defend himself as against the plaintiff, the principal borrower and even against his co surety. He can only do this if he is given an opportunity to be heard. The only way he can be heard is where he is given leave to defend the suit. Consequently, the Applicants application is granted in the following terms:
1.
Unconditional leave to file a defence is granted to the applicant to file his defence within 15 days.
2.
Costs shall abide the outcome of the suit.
Christopher Madrama
Judge
Ruling delivered in the presence of:
Baingana John Paul for Applicant
Andrew Kahuma for Respondent,
Both Parties absent
Patricia Akanyo Court Clerk
Signed:
Christopher Madrama
Judge
