THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL COURT DIVISION)

MISCELLANEOUS  APPLICATION NO. 321 OF 2011

(ARISING FROM HCCS NO. 213 OF 2011)

SSEMAKULA AUGUSTINE t/a

SSEMAKULA & CO. ADVOCATES::::::::::::::::::::::::::::::::::APPLICANT

VERSUS

THE COMMISSIONER GENERAL

UGANDA REVENUEAUTHORITY:::::::::::::::::::::::::::::::RESPONDENT

BEFORE: LADY JUSTICE HELLEN OBURA

RULING

This application was brought under Order 41 rules 1 and 9 of the Civil Procedure Rules (CPR) and section 98 of the Civil Procedure Act (CPA). The applicant was seeking for orders that a temporary injunction be issued against the respondent, her servants, agents and workmen restraining them from attaching or levying distress on his property. The applicant was also seeking for orders that costs of this application be provided for.

The application was supported by an affidavit sworn by the applicant on the 15^th of June 2011. The brief grounds of the application as stated therein are that in may 2009, Uganda Revenue Authority (URA) through an agency notice unjustifiably attached Shs. 2,322,079,803/= as tax from the applicant’s back account and subsequently issued to the applicant income tax and value added tax assessment notices of Shs. 974,175,287/= and Shs.722,310,649/= respectively. Further that the applicant objected to the tax assessment but his objections were not considered and the respondent subsequently issued warrants of distress on the basis of which an auctioneer was threatening to attach or levy distress on the applicant’s property.

The applicant further deposed that he had filed a suit against the respondent which had a high chance of success. Further that the applicant was likely to suffer irreparable damage if the respondent’s orders to levy distress on his property were effected by the auctioneers.

An affidavit in reply and opposition to the application was sworn by Ms. Jane Ashaba Kanya an officer in the Domestic Tax Department of URA. She deposed that the agency notice referred to by the applicant was issued in respect of the income tax on the terminal benefits paid to the former workers of the defunct Diary Corporation Ltd through the applicant who represented them and the applicant had no instructions to challenge the same. Copies of the authority to pay and the bank statement were attached as annexture “R1” and the Memorandum of Understanding (MoU) by which the four suits were settled and a copy of a letter indicating that  instruction was withdrawn from the applicant were attached as annextures “R2” and “R3” respectively.

She further deposed that the applicant was entitled to legal fees in accordance with the remuneration agreements between the applicant and his clients that attracted value added tax as well as income tax payable by the applicant to URA. Further that the respondent assessed both taxes which the applicant had refused to pay despite several reminders and the same continue to attract monthly interest of 2%. Copies of the remuneration agreements were attached as group annexture “R4”.

Further that the applicant’s objection to the assessment was false and lacked sound justification why the assessments would not stand so the taxes assessed remained due and payable to the Government of Uganda that risked losing the revenue if the respondent was restrained from recovering the taxes and the applicant lost the suit. Copies of the objection and the decision made thereon were attached as “R5” and “R6” respectively.

At the hearing of this application, the applicant was represented by Mr.  Robert Karigyenda and the respondent by Mr. George Okello. Counsel for the applicant in his submission gave the background of this application. He stated that arising from four suits that were brought against Diary Corporation Ltd,  the Government of Uganda through the Ministry of Finance,  Planning and Economic Development in March 2009 paid terminal benefits amounting to Shs. 10,215,185,303/= to about 300 former employees of the defunct Diary Corporation Ltd through the applicant’s clients bank account. He submitted that on the 15^th May 2011 , after the applicant had paid about 200 beneficiaries their respective claims , the respondent through an agency notice recovered Shs. 2,322,079,803/= from the applicant’s client bank account as income tax on the terminal benefits of the former workers.

He submitted that the respondent subsequently issued income tax and VAT assessment to the applicant who raised an objection which was overruled and a distress warrant issued for recovery of the same. Further that the applicant filed a suit to challenge the tax assessment and the distress warrant and this application for a temporary injunction to preserve the status quo pending determination of the main suit. He submitted further that before this application could be fixed for hearing the respondent locked up the applicant’s office.

Counsel for the applicant contended that the largest part of the Shs. 2,322,079,803/= recovered by the respondent was the applicant’s fees which he would have used to pay the assessed tax. He referred to the case of Godfrey Ssekitoleko & 4 Others v Seezi Peter Mutabazi & 2 Others C.A (2001-2005) HCB Vol.3 at Page 80 where it was held that;

“For a temporary injunction to issue, court must be satisfied that the applicant has a prima facie case with a probability of success, that the applicant must otherwise suffer irreparable damage which would not be adequately compensated in damages, if the court is in doubt it will decide the application on the balance of convenience”.

As regards the first condition, he submitted that his client had shown that the main suit had a prima facie case with a probability of success. He contended that to that end, the applicant had demonstrated that the money that he received from GOU was for onward payment to the respective beneficiaries. He contended further that since the applicant was not the respondent’s withholding agent he never contemplated about deducting the taxes and consequently by the time the agency notice was issued he had already paid over two thirds of the beneficiaries. He submitted that URA erroneously recovered the Shs. 2,322,079,803/= as taxes due on the terminal benefits when the bulk of it actually was legal fees for the applicant.

As regards the second condition of irreparable loss/damage that would not be compensated by an award of damages, counsel for the applicant submitted that the applicant’s chambers had already been locked by the respondent and the number of clients and revenue lost could not be ascertained and quantified as such it would not be adequately compensated by an award of damages.

On the last condition of balance of convenience, counsel for the applicant referred to the case of L.D Cotton International v African Farmers Trade Association BV & Another, HCMA No. 198 of 1998 where it was held that:-

“Before an injunction is granted, court should be convinced that the comparative inconvenience which was likely to issue from withholding the injunction would be greater than that which was likely to arise from granting it”.

He then submitted that if this application was not granted it was very clear that the applicant would be taken out of legal practice and his source of livelihood would be completely shattered. He submitted further that the applicant would also lose his clients as well as their very important documents which are locked in his chambers.

Counsel for the applicant submitted that much as the applicant’s chambers had been locked, distress proceedings could only be completed after sale and recovery of the tax due. He contended that the respondent was likely to attach more of the applicant’s property using the same warrants of distress since the value of the office equipment and furniture already attached would not fully cover the tax claimed. He further contended that the applicant’s money which was being held by URA was more than the tax assessed and therefore if the injunction was granted the respondent would not have anything to lose. He concluded that the balance of convenience favoured the applicant and prayed that the application be granted and costs be in the cause.

Counsel for the respondent opposed the application by first pointing out that it had been overtaken by events since the warrant of distress had already been executed by locking up the applicant’s chambers. He submitted that according to section 39 of the Value Added Tax Act (VAT Act) distress refers to locking up or sealing the business premises of a person liable for tax under that provision and once the premises is sealed or locked, the goods therein are deemed to be attached. He further submitted that the purpose of an injunction as was held in the case ofKiyimba-Kaggwa v Hajji Abdu Nasser Katende (1985) HCB 43 is to preserve matters in status quo until the question to be investigated in the suit can be finally disposed of.

He contended that in the instant application the status quo sought to be preserved had changed since the distress proceedings had been completed by attachment of the office equipment and furniture in the applicant’s chambers. He submitted that what was left was for the respondent and the applicant to make an inventory of the movable property in the chambers for purposes of selling the same to recover the tax due and payable.  He argued that granting an injunction would be contrary to the principle of law that court orders should not be issued in vain.

In the alternative and without prejudice to the foregoing submission, counsel for the respondent contended that this application did not meet any of the three conditions for grant of a temporary injunction that were properly stated by counsel for the applicant. As regards a prima facie case, he contended that the main suit did not raise any triable issues. He submitted that in paragraph 8 of the plaint the applicant stated that he was willing to pay all his taxes after a proper assessment and computation had been done. He contended that the applicant did not anywhere either in the plaint or this application state a figure that represented taxes which he thought were due and payable.

He further contended that by letter dated 24^th November 2010 (attached to the affidavit in reply as “R5”) the applicant informed the respondent that he had appointed an auditor to audit his firm but since then he had never furnished the respondent with the audit report indicating a different tax position from that assessed by the respondent. Counsel for the respondent submitted that there was nothing illegal and irregular with that assessment and the warrant issued for recovery of the same were duly and properly issued in accordance with the law. He referred to section 34 (3) of the value Added Tax which provides that:-

“Where an objection to or a notice of appeal against an assessment has been lodged, the tax payable under the assessment is due and payable, and may be recovered, notwithstanding that objection or appeal”.

He contended that since there was nothing illegal or irregular with the assessment challenging it in the main suit would most likely fail.

As regards the contention by the applicant that the respondent erroneously recovered money from his clients’ bank account when he was not the respondent’s withholding agent, counsel for the respondent submitted that the applicant had no instructions from his former clients to challenge their tax liability on the terminal benefits. He referred to paragraph 5 of the affidavit in reply where this was clearly stated and annexture “R3” to that affidavit being a letter indicating that instructions had been withdrawn from the applicant by his former clients. Counsel for the respondent submitted that the applicant did not furnish evidence to show how much of the lump sum amount deposited on his account was due to his clients and how much he was entitled to as legal fees. He further submitted that the submission that the applicant had already paid over 200 beneficiaries by the time the agency notice was issued was evidence from the bar which should be ignored since it was not stated in the affidavit in support.

Counsel for the respondent submitted that the contention by the applicant that he was not the withholding agent of URA in respect of taxes payable by his clients was misplaced as it was outside the scope of the main suit which was only challenging the warrant of distress for being unlawful allegedly because it was based on an improper and inaccurate assessment of the applicant’s personal tax liability. On the basis of the above submissions, counsel for the respondent concluded that the applicant had not shown that there were serious triable issues in the main suit and as such had failed to meet the first condition for grant of a temporary injunction.

On the contention that the applicant was going to suffer irreparable loss/damage if the injunction was not granted, counsel for the respondent submitted that this was speculative and not supported by any evidence. He submitted that the applicant sought general damages as one of the remedies in the main suit implying that he was alive to the fact that it would atone for any loss that he was likely to suffer. He further submitted that the respondent did not intend to lock the applicant’s chambers permanently but would open the same as soon as an inventory was done. He submitted that the applicant had failed to show that he would suffer irreparable loss that would not be adequately compensated by an award of damages.

On the last condition, counsel for the respondent submitted that the balance of convenience favoured the respondent who would be at a great risk of failing to recover the taxes if the injunction was granted. He pointed out that the applicant’s conduct showed that he was not willing to pay the taxes. He argued that if the applicant was a responsible citizen he would have at least disclosed to the respondent the taxes that he did not dispute and paid the same such that only the contested amount would be the subject of litigation.

He concluded that the applicant had failed to meet the three conditions for grant of a temporary injunction. He also reiterated his submission that this application had been overtaken by events and prayed that it be dismissed with costs.

Order 41 rule 1 under which this application was brought gives court discretionary powers to grant a temporary injunction to restrain such act, or make such other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal or disposition of the property as the court thinks fit until the disposal of the suit or until further orders.

With regard to the discretionary power of court to grant an interlocutory injunction, Phillip Pettit in his book titled Equity and Law of Trusts, 4^th Edition at page 407 stated that:-

“An interlocutory injunction is, however, never granted as a matter of course; it is always a matter of discretion. From one point of view it has accordingly been said that whether an interlocutory injunction should be granted depends upon a great varieties of circumstances, and it is utterly impossible to lay down any general rule about the subject by which the discretion of  the court ought in all cases to be regulated, but from another point of view, the discretion being of course, a judicial discretion, it has been observed that in appropriate circumstances it is a matter “of right that upon proper terms the property shall be maintained in status quo pending the trial”.

John McGhee in Snell’s Equity 13^th Edition at page 721partly quoting the statement by Lord Blackburn in the case of Doherty v Allman (1878) 3 Appeal Cases 709 at 728, 729 stated that:-

“Normally the jurisdiction of the court to grant an injunction is discretionary. Yet “the discretion is not one to be exercised according to the fancy of whoever is to exercise the jurisdiction of Equity”; it must be exercised judicially according to the rules which have been established by precedent”. (Emphasis added).

Upon hearing the submissions of counsels and looking at the chamber summons, the affidavits and the pleadings in the main suit, I find that there are two main issues for determination. The first issue is whether this application has been overtaken by events as submitted and the second one is whether this application merit granting a temporary injunction. I will deal with the issues in that order.

As regards the first issue, I find very instructive the holding in the case of Kiyimba Kaggwa v Hajji Abdu Nasser (supra) that the purpose of a temporary injunction is to preserve the status quo until the main suit is disposed of. In the case of Clovergem Fish & Foods Ltd v International Finance Corp. & 7 Others [2002-2004] UCLR 132 at page 137, Arach Amoko J, (as she then was) stated that:-

“Indeed the court needs to know the status quo intended to be preserved by  the application before applying the three conditions laid down……..if the status quo has changed before the application, then the application would be rendered useless since there will be no status quo to preserve”.

From the above authorities, it follows that where the status quo that is sought to be preserved has changed then an order for an injunction would be issued in vain. I have looked at section 107 (1) of the Income Tax Act (ITA) and section 39 (2) of the VAT Act under which the warrants of distress were issued in respect of the income tax and VAT respectively and I find that both provisions require the Commissioner General to specify the location of the property to be distressed. Section 107 (6) of the ITA read together with section 104  allows the Commissioner General to sue for and recover the balance owed if the proceeds of the distress are not sufficient to meet the cost of the distress and the tax due. Similarly, section 39 of the VAT Act empowers the Commissioner General to proceed under section 35 of the VAT Act to recover the balance owed if the proceeds of the distress are not sufficient to meet the cost of the distress and the tax due.

My understanding of the above provisions is that a warrant of distress should be issued in respect of specific property whose location should be stated therein and once those properties are attached then that warrant is considered executed. In the instant case, I have looked at both warrants of distress in respect of the Income Tax and the VAT and with due respect to the Commissioner General, I am of the considered opinion that the location of the property were erroneously not stated therein as required by the law.

That notwithstanding, I agree with the submission of counsel for the respondent that execution proceedings have been completed upon locking up of the applicant’s chambers particular given that the two warrants of distress were executed concurrently. I do not therefore agree with the argument by counsel for the applicant that more of the applicant’s property could still be attached under the same warrants. If at all the proceeds of distress are not sufficient to cover the taxes due, the law is very clear on the procedure to be followed by the Commissioner General to recover the balance.

Consequently, I agree with the submission of counsel for the respondent that this application has been overtaken by events. In the circumstances, the applicant’s prayer that a temporary injunction be issued against the respondent, her servants, agents and workmen restraining them from attaching or levying distress on the applicant’s property cannot be granted because the status quo which is sought to be preserved has since changed.

On that basis alone, I would be inclined to dismiss this application with costs but just in case I have misdirected myself on this issue which I highly doubt, I will proceed to consider the second issue as to whether this application merit grant of a temporary injunction. In determining this issue I will be guided by the principles that govern grant of a temporary injunction and I will specifically consider the three conditions stated by counsel for the applicant.

As I consider the first condition, I am mindful of the fact that for purposes of grant of a temporary injunction it is sufficient for the applicant to prove that triable issues have arisen that merit judicial consideration. There is no requirement for the plaintiff to establish a strong prima facie case. As per  the holding of Lord Diplock in the case of American Cynamide Co. v Ethicon [1975] 1 ALL E.R. 504 at page 508 paragraphs j – page 509 Para (b), all the plaintiff needs to show by his action is that there are serious questions to be tried and the action is not frivolous or vexatious.

On this condition, it was submitted for the applicant that he had a prima facie case in the main suit with a probability of success. Counsel for the applicant based his submission on the fact that the respondent had erroneously recovered tax on the terminal benefits of the former workers of Diary Corporation Ltd when the applicant was not URA’s withholding agent. He further argued that the respondent subsequently made an improper and inaccurate assessment of taxes payable by the applicant based on an audit that was not authentic.

With due respect, I think the applicant either did not properly address his mind to the two tax claims or deliberately mixed up the two so as to confuse court and hopefully benefit from it. The applicant in his affidavit in support of the application deliberately created a false impression that the respondent had taxed him twice; first by issuing the agency notice and secondly by issuing income tax and VAT assessments.

As clearly stated in the affidavit in reply which was never controverted by the applicant, the agency notice was in respect of the taxes due and payable on the terminal benefits paid in lump sum to the former workers through M/S Ssemakula & Co. Advocates clients’ bank account. It was not tax payable by the applicant personally but by his clients and it is only those clients that could challenge the legality or accuracy of that tax. The applicant could only do so on their behalf with their express instructions, which as stated in paragraph 5 of the affidavit in reply and annexture “R3” thereto, was lacking since the applicant disagreed with his clients and they withdrew instructions from him. I believe that is why the applicant’s prayers in the main suit did not include a declaration that the respondent acted illegally and unlawfully to issue the agency notice.

The contention that the applicant was not the respondent’s withholding agent and so it never contemplated deducting taxes and as such by the time the notice was issued he had already paid over 200 beneficiaries was evidence from the bar without any supporting document. If indeed the applicant had paid over 200 beneficiaries as alleged I do not see why he could not categorically state so in his affidavit and attach a document as proof. In the absence of that it remains evidence from the bar which I will safely ignore.

In any case, even if he had stated so, the applicant as a senior advocate could not be heard to argue that he did not contemplate that tax was payable on the terminal benefits. He was a signatory to the MoU that settled the four suits at a lump sum amount of Shs. 10,214,366,302.74/= and Shs. 10,215,185,303/= was subsequently paid through M/S. Ssemakula & Co. Advocates clients’ account at Stanbic Bank on 24^th March 2009 without any deduction of taxes. 

If the applicant was being honest he would have known that income tax was payable on that lump sum amount and cooperated with the respondent by providing the necessary information to facilitate accurate assessment of the taxes and remitting the same without any need for an agency notice. He did not do so and the respondent was forced to issue the agency notice and as stated earlier the applicant does not have instructions to challenge the issuance of the agency notice on behalf of his former clients.

As regards the applicant’s personal taxes, he did not disclose to the respondent the amount he was entitled to in legal fees that could have assisted her to assess his tax liability. His failure to controvert what was stated in the affidavit in reply that the tax assessments were based on the client-advocate remuneration agreements that he entered into with the former workers in respect of the four suits implies that his fees were the percentages stated in those agreements.

The sum total of the above analysis is that the applicant in my opinion has not shown that there are serious questions to be tried in the main suit that would warrant grant of a temporary injunction. Consequently, I find that the applicant has not met the first condition for grant of a temporary injunction.

As regards the second condition, in the case of Kiyimba-Kaggwa v Hajji Abdu Nasser Katende (supra) it was held that:-

“Irreparable injury does not mean that there must not be physical possibility of repairing injury, but means that the injury must be a substantial or material one, one that cannot be adequately compensated for in damages”.

It was contended that the applicant was likely to suffer irreparable loss because his chambers had already been locked by the respondent and the number of clients and revenue lost could not be ascertained and quantified as such it could not be adequately compensated by an award of damages. I find this argument rather speculative as it was not based on any data that was made available to court.

First of all, I do not think the respondent intend to lock the applicant’s chambers permanently. This was confirmed by counsel for the respondent who submitted that his client was due to make an inventory of the office equipment and furniture and vacate the chambers. All that was required was the applicant’s presence to witness the exercise and he would be at liberty to resume his normal legal practice.

Secondly, the applicant prayed for general damages in the main suit and I believe that if he won the case this court would be in a position to evaluate the evidence on record and award adequate damages that would atone for any loss whether financial or otherwise for the short period the chambers was locked. For the above reason, I find that the applicant has also not met the second condition for grant of a temporary injunction.

Finally, as regards the third and last condition, given my findings and conclusion on the two conditions, this court is not in doubt and therefore ordinarily there would be no need to consider this condition. However, the submission by counsel for the applicant that if an injunction was not granted his client would be taken out of legal practice and his source of livelihood would be shattered is worth considering.

I find this argument very simplistic and ridiculous because as far as I know the only action that would take an advocate out of legal practice is when he/she is suspended or struck off the roll of advocates by the Law Council.  I do not see how temporary locking of the applicant’s chambers by the respondent to recover tax would take the applicant out of legal practice and shatter his source of livelihood.

The argument is completely misplaced and since it is the only reason given to support the contention that the balance of convenience favours grant of a temporary injunction, I find it neither impressive nor convincing. Instead I am more inclined to believe the submission by counsel for the respondent that given the applicant’s conduct, the respondent stood to lose government revenue if the injunction was granted. Consequently, I find that the balance of convenience favours refusal to grant an injunction.

In the circumstances, the applicant has failed to fulfill all the conditions for grant of a temporary injunction. In the result, I find that this application does not merit grant of a temporary injunction and since it was also overtaken by events, I accordingly dismiss it with costs.

I so order.

Dated this 22^nd day of November, 2011

Hellen Obura

JUDGE

Ruling delivered in the presence of Mr. Robert Karigyenda for the applicant and Mr. George Okello for the respondent.

JUDGE

22/11/2011