THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 349 OF 2012

(ARISING FROM HCCS NO 159 OF 2012)

STANBIC BANK (UGANDA) LIMITED}.......................................                                                                                                                                               APPLICANT

VERSUS

CANSTAR RAGS (UGANDA) LIMITED} ................................                                                                                                                                                       RESPONDENT

BEFORE HON JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant filed this application under order one rule 10 (2) and rule 13 of the Civil Procedure Rules and section 98 of the Civil Procedure Act for orders that Bahadur Karmali and Riyaz Mithani are joined as co-defendants in High Court civil suit number 159 of 2012 between the respondent as plaintiff and the applicant as defendant. It is also for costs of the application to be provided for.

The grounds of the application are that Bahadur Karmali and Riyaz Mithani were at all material the times shareholders and directors of the respondent. On 29 December 2004 Bahadur Karmali and Riyaz Mithani submitted to the applicant a request in the name of the respondent to open an account with the applicant and the applicant duly opened the said account. In the operational instructions, Riyaz Mithani was mandated to operate the said account alone and the applicant acted on the said mandate by allowing Riyaz Mithani to withdraw money from the account. Fourthly the respondent has now sued the applicant for recovery of damages and losses on grounds of alleged negligence and fraud.

The applicant contends that Bahadur Karmali and Riyaz Mithani are necessary parties to the suit for the court to determine questions inter alia whether the said persons were authorised by the respondent to request the applicant to open the said account; whether the said persons used the money on the said account in the respondents business and whether the said persons have any liability to the respondent in respect of the request to open the said account and operate it. That is in the interest of justice that Bahadur Karmali and Riyaz Mithani are made parties to the suit to determine the said questions.

The application is supported by the affidavit of Amon Rufunda, employed by the applicant as the manager of one of the applicant’s branch branches in Kampala located at Nakivubo (formerly New Taxi Park). He was previously employed by the applicant as a Customer Consultant attached to the said branch when on the 29^th of December 2004 Bahadur Karmali and Riyaz Mithani came and requested him to open an account in the name of the respondent. For purposes of opening the account, Bahadur Karmali and Riyaz Mithani provided him with photocopies of their passports, a copy of the memorandum and articles of Association of the respondent company attached to the affidavit, a copy of the respondent certificate of incorporation also attached to the affidavit, and company form 7 showing that Bahadur Karmali and Riyaz Mithani were the only directors of the respondent.

The Director’s resolution dated 28th of December 2004 is signed by Bahadur Karmali and Riyaz Mithani authorising the applicant to open an account for the respondent and the resolution provides that the account would be operated by Riyaz Mithani alone. A letter from Hydrey Forex Bureau introduced Bahadur Karmali who had 75% of the share holding in the respondent at the material time. The deponent enquired from Bahadur Karmali why his colleague was to operate the account alone and he informed him that he was most of the time outside Uganda. The documents satisfied the applicant's requirements for opening accounts and accordingly account number 0140017688401 was opened in the respondent’s names with the applicant bank. Thereafter Riyaz Mithani operated the account as mandated. On 24 April 2012 the respondent instituted High Court civil suit number 169 of 2012 against the applicant alleging that the applicant negligently opened the said account which was unknown to the respondent. In this suit the respondent seeks recovery of losses and damages allegedly suffered as a result of operation of the account by Riyaz Mithani. A copy of the plaint is attached to the application.

The deponent avers that in the course of hearing the main suit, the following questions would arise namely:

1. Whether in requesting the applicant to open the account the persons who were at the material time the only shareholders and directors of the respondents were authorised by the respondent to request the applicant to open the said account.
2. Whether the said account was known to the respondent and its directors/shareholders; and
3. Whether the money drawn from the said account was used by the respondent for the personal benefit of the said directors/shareholders;
4. Whether in the event that the court was to hold that the said account was not known to the respondent, the said persons are liable to the respondent for damages and losses arising out of the operations in the said account.

The deponent avers from the advice of his lawyers that the court cannot determine the above questions and Bahadur Karmali and Riyaz Mithani ought to be joined as co-defendants in the suit. Finally that it is in the interest of justice that Bahadur Karmali and Riyaz Mithani are joined as Co-Defendants to the main suit.

On 28 November 2012 when the application came for hearing, the applicant was represented by John Fisher Kanyemibwa while the respondent was represented by Yiga Roscoe on holding brief for Hebert Kiggundu.

John Fisher Kanyemibwa Counsel for the Applicant submitted that Mr. Bahadur Karmali and Mr. Riyaz Mithani who represented themselves as directors of the respondent presented a request to the applicant for opening an account in the name of the respondent which account is the same account where it is alleged in the main suit that it had been used to defraud the respondents of money. The applicant is the only defendant in the suit. The plaint avers that Riyaz Mithani and Bahadur Karmali and others fraudulently opened the account in question.  Counsel submitted that questions arise about the alleged participation of Riyaz Mithani and Bahadur Karmali in the alleged fraud. The Court cannot determine the questions of their involvement in the alleged fraud when they are not parties before court as co-defendants. Secondly the applicant cannot effectively defend itself against allegations of fraud, unless Bahadur Karmali and Riyaz Mithani who requested the applicants to open the account are made co-defendants.  Counsel relied on the case of Departed Asian Property Custodian Board v Jaffer Brothers ltd SCCA No. 9 of 1998. Particularly the judgment of Justice Mulenga where he states that:

“For a person to be joined on the ground that his presence in the suit is necessary for effectual and complete settlement of all questions involved in the suit, one of two things has to be shown. It has to be shown that the orders which the plaintiff seeks in the suit would legally affect the interest of that person and it is desirable to avoid multiplicity of suits to have such person joined so that he is bound by the decision in that suit. Alternatively a person qualifies on application of  a defendant to be joined as a co-defendant where it is shown that the defendant cannot effectively set up a defence he desires to set up unless that person is joined, or unless the order is made to bind that person.”

 There is an allegation that Ryaz Mithani committed fraud.  So if the court was to hold that he had committed fraud when he is not even a party to the suit, it would be a very serious matter. Alternatively counsel submitted that it has been shown that a person qualifies on the application of a defendant to be joined as a co-defendant where it is shown that a defendant cannot effectually set up the defence he desires to set up unless the person is joined in it. 

The two persons/directors the applicant wants in this matter as co-defendants are the persons who presented a request to the applicants to open the account. The respondent is complaining about the same account and it is in the interest of justice that these two persons are made co-defendants in the suit. When this is done all the questions that may arise in course of the trial can effectually completely determined. Finally counsel submitted that it was in the interest of justice that these two directors are made defendants in the suit.

In reply the respondents Counsel Roscoe Yiga submitted that it is a fact that the applicant intends to add on the two parties as co-defendants. However he contended that it is a well established law that a plaintiff can chose to sue whoever he or she chooses to sue. A plaintiff cannot be compelled to sue anybody.  It is therefore wrong for the defendants to wish that the plaintiff sues a particular party. The applicant has so many other remedies in this matter and they could chose to file a suit against the parties they want and claim if they have any problem with person they intend to add on as a co-defendant.  They have another option of applying for a 3^rd party notice and to be indemnified in case of a loss or condemnation to costs.  He prayed that the application is dismissed with costs in the interest of justice.

 In rejoinder the Applicants counsel submitted that the Supreme Court authority gives an exception where the court is satisfied that the presence of a particular person is necessary in court as a co-defendant for the purposes of properly adjudicating all questions that may arise.  He invited the court to examine paragraph 4 of the plaint and annexure “SBU 8” to the affidavit in support of the application.  The plaint indicates that the directors and other persons committed fraud.  As far as the applicant is knows it is Riyaz Mithani and Bahadur Karmali who opened this account with the applicant. Therefore the applicant cannot properly set up its defence unless the persons whom the respondent alleges committed fraud in opening the account are joined to the suit as co-defendants.

Ruling

I have duly considered the applicants application and the submissions of counsels. The applicants application is filed under order 1 rule 10 (2) of the Civil Procedure Rules which provides as follows:

"The court may at any stage of the proceedings either upon or without the application of either party, and on such terms as may appear to the court to be just, order that the name of any party improperly joined, whether as plaintiff or defendant, be struck out, and that the name of any person who ought to have been joined, whether as plaintiff or defendant, whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit, be added."

It is the latter part of the rule which is relevant namely " the name of any person who ought to have been joined, whether as plaintiff or defendant, whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit, be added." The general rule is that a defendant cannot be added upon the application of another defendant against the will of the plaintiff. The rationale for this was stated by the High Court of Tanzania in the case of Santana Fernandes v Kara Arjan & Sons and Two others [1961] 1 EA 693 (HCT) at page 697:

“It appears from the latter case that a plaintiff, being the dominus litis, cannot be compelled to sue a person, for damages in respect of a tort, whom he does not wish to sue. The instant case has demonstrated only too clearly the impossible situations in which an unwilling plaintiff is likely to find himself at the trial where a defendant is forced upon him against his will. Moreover, the instant case has shown forcibly what little benefit such addition would be likely to afford the original defendant.”

According to Devlin J in Amon v Raphael Tuck & Sons Ltd [1956] 1 All ER 273 at page 279, the jurisdiction to join a defendant turns on the true construction of the words in the rule as to whether that party is a necessary party. He said:

“The question of jurisdiction must depend on the meaning and scope of the rule. One cannot say that the court has no power to join a party against whom the plaintiff has no cause of action, unless the requirement that he should have one is contained expressly or impliedly in the rule. Nor can one say that some counterclaims, such as that in Montgomery v Foy, Morgan & Co are permissible, and that others, such as that in Bentley Motors (1931) Ltd v Lagonda Ltd, are not, unless the line between them is drawn somewhere in the rule. Accordingly, this case, in my view, really turns on the true construction of the rule, and, in particular, the meaning of the words

“… whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter … ”

The beginning and end of the matter is that the court has jurisdiction to join a person whose presence is necessary for the prescribed purpose and has no jurisdiction under the rule to join a person whose presence is not necessary for that purpose.”

I have carefully considered the judgement of the Supreme Court in Departed Asians Property Custodian Board versus Jaffer Brothers Ltd Supreme Court Civil Appeal No. 9 of 1998. Particularly the judgment of Mulenga JSC relied upon by the applicant’s counsel. The honourable judge noted that for a person to be joined on the ground that his presence in the suit is necessary for effectual and complete settlement of all questions involved in the suit, one of two things has to be shown. Firstly it has to be shown that the orders, which the plaintiff seeks in the suit would legally affect the interest of that person and that it is desirable, for avoidance of multiplicity of suits, to have such a person joined so that he is bound by the decision of the court in that suit. This first observation of the Supreme Court does not perfectly apply to an application to join a party as a co-defendant on application made by a defendant. In fact counsel for the applicant did not rely on this portion of the Supreme Court judgment. Joining parties to avoid a multiplicity of actions is governed by order 1 rule 3 of the Civil Procedure Rules. There is no need in such cases to proceed under order 1 rule 10 (2) of the CPR. Such an application is made by the plaintiff who has a right to sue whomsoever he chooses especially such defendants as are necessary. Co-plaintiffs may also be joined. The court did not hold that such an application has to be made by a defendant. In any case would the orders sought by the plaintiff in this case affect the defendants sought to be joined as co-defendants? That is the first test formulated in that decision. The second test was that it must be shown that the defendant cannot effectually set up a defence he desires to set up unless that person is joined in it, or unless the order to be made is to bind that person.

Learned counsel for the applicant proceeded on the premise that allegations of fraud were being made against the two persons who purported to be directors of the respondent. The suit is for a declaration that the opening of the account by unscrupulous persons was unlawful. It is also for a declaration that the bank acted negligently in the opening of the account. And an order directing the bank to refund monies lost by the plaintiff on account alleged illegality and negligence. It is alleged that it is Riyaz Mithani who fraudulently opened up an account with the applicant bank. That allegation of fraud is made against a third party and not the defendant specifically. The only allegation that directly bears on the applicant is the negligence alleged in the plaint. The statement of defence of the defendant which is also attached to the application is that opening the account was not negligent because the applicant duly carried out a due diligence on the respondent company to verify relevant matters for opening the account. That is that the due diligence verification shows firstly that the respondent company had two directors who are also the signatories. The company documents attached is certified by the registrar of companies. Secondly the attached resolution opening the account by the two directors and shareholders were also the persons who authorised the opening of the account with the applicant. The cause of action in negligence can stand on its own and the applicant can defend itself against it.

I agree with the submissions of the respondents counsel that the applicant in case of doubt can seek indemnity from the said directors who opened the account with the applicant. Most importantly, the presence of Riyaz Mithani and Bahadur Karmali is not necessary for the applicant to prove that it complied with all the procedures necessary to set up an account and that it carried out a due diligence on the respondent company when it agreed to open the account in question. The applicant even has copies of the passports of the persons who opened the account and the memorandum and articles of Association of the respondent showing that there are signatories/shareholders. The applicant further shows that it was convinced that these documents were genuine. The plaint itself does not aver forgery of the memorandum and articles of association or company form 7 which introduce Bahadur Karmali and Riyaz Mithani as directors. The crux of the plaint avers negligence by opening an account without due diligence.

One of the parties who was involved in opening the account is Mr Bahadur Karmali who is also alleged in the plaint to be a shareholder and director of the respondent company which brought the action. The respondent has opposed the application to join this director and Riyaz Mithani. The respondent cannot be forced to sue its own director as it is their internal matter. In any case it would be a defence for the applicant in the main suit to assert that one of the directors authorised the opening of the account on the basis of documents certified by the registrar of companies.

Among the questions which have been discussed by the authorities is the fact that a plaintiff cannot be made to allege what he does not want to allege against other persons it/he/she does not want to sue. The other persons will just come on board and have the suit dismissed against them for disclosing no cause of action. As I have noted above, the applicant can defend itself and does not require the presence of the alleged directors of the respondent who opened an account to set up a defence. In case the applicant seeks indemnity, it can take out third party proceedings. The applicant does not allege that it was misled about the status of Bahadur Karmali and Riyaz Mithani when it opened the account. It cannot further be said that the order likely to be made will bind the persons who opened the account. According to Devlin J in Amon v Raphael Tuck & Sons Ltd [1956] 1 All ER 273 at page 280

“When court orders a defendant to pay damages, no other person is, as a rule, legally affected by the order. Someone else may be commercially affected, because if there is a similar cause of action pending against him, he may have good reason to think that another court may make him liable to pay damages in another action. Nevertheless, until that other action is decided his legal rights are unimpaired.”

I agree. The respondent can bring an action against the alleged unscrupulous persons if they so wish. In other words the rights of alleged directors who opened an account with the applicant would remain unaffected by the present main suit. If the respondent does not want any remedy against them, it is their own problem. I further doubt whether it is proper to join a defendant to a suit against the will of the plaintiff and without joining the intended defendants as parties to the application to determine the question whether they/he/she should be joined.

In the premises the applicant does not meet the requirements set up by the Supreme Court inDAPCB vs. Jaffer Brothers (Supra) for the addition of a defendant on application of a defendant. The general rule that a plaintiff cannot be forced to sue a defendant will be applied in this case. The applicant’s application is accordingly dismissed with costs.

Ruling delivered in open court this 21st day of December 2012

Hon. Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

John Fisher Kanyemibwa for the Applicant

Roscoe Yiga for the respondent

Charles Okuni: Court Clerk

Hon. Christopher Madrama Izama

Judge

21^st December 2012