THE REPUBLIC OF UGANDA,
IN THE HIGH COURT OF UGANDA
CIVIL SUIT NO 282 OF 2012
BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA
This is ruling arises from an agreement by counsel for determination of the suit on the basis of agreed facts. Counsels also agreed that the only matter for determination was whether the contract between the plaintiff and the defendant was illegal.
The plaintiff's action in the plaint is for recovery of US$30,000 from the defendant with interest, general damages, and costs of the suit. It is averred in the plaint that on 10 December 2011, the plaintiff ventured in a business relationship with the defendant for the defendant to trade for profit the plaintiffs US$40,000 which had already been deposited on the plaintiffs FX-PRO account number 163693 opened up for the same trade. The defendant agreed to run or trade the plaintiffs account professionally, diligently and carefully in bid to avoid making losses. It was agreed by the parties that if the defendant was to incur any losses, the loss should not exceed 25% of the plaintiffs US$40,000 managed by the defendant. Secondly the defendant would not be liable for any loss amounting to 25% of the plaintiffs US$40,000. It was agreed that the defendant shall indemnify any loss beyond the agreed loss of 25% of the US$40,000. It was further agreed that the defendant upon making a loss of up to a total of 25% of the original US$40,000, would cease trading and inform the plaintiff about the losses.
After about one month from the commencement of the agreement, the defendant gradually made losses beyond the agreed 25% loss. Subsequently despite a reminder not to make a loss beyond 25% of the capital, the defendant lost the entire US$40,000 of the plaintiff entrusted to him. Efforts to arbitrate the dispute between the parties were futile. The plaintiff is indebted to the defendant in the sum of US$30,000 which the defendant has neglected or failed to pay back.
In the written statement of defence the plaintiff avers that the suit against him is barred in law, misconceived and a result of an illegal business practised between the plaintiff and the cyber entity called FX Pro. Consequently the defendant avers that the plaintiff is not entitled to the reliefs sought in the plaint. Alternatively the defendant contends in the written statement of defence that the plaintiff at all material times dealt with a cyber entity called FX pro with whom she deposited money and enlisted the defendant as a player in a game based on luck and chance. The defendant was only hired as a player to a virtual game and was only tricked by the plaintiff and her brother to enter into an agreement which is annexed to the plaint. The plaintiff entered the game knowing that it was a high-risk game well aware that it was capable of high profits or losses and that it was investing money in a game only what she was willing to lose. The defendant claims not to be liable on the ground that he was only a player in the game between the plaintiff and a foreign company and has never received any money from the plaintiff.
The defendant also counterclaimed for general damages, punitive damages, interests and costs of the suit and counterclaim. In the counterclaim the defendant avers that on the 8th of March, 2012, when he was called by a brother of the plaintiff for a meeting to discuss how the game was progressing, he was arrested by the police and kept in police custody for three days until he was released on police bond. The defendant alleges that after the arrest he was traumatised, emotionally drained and his family members embarked on frantic searches to establish whereabouts.
In reply the plaintiff avers that there was nothing illegal in the account management agreement entered into with the defendant. Secondly the agreement was witnessed by two advocates of the high court and at all material times the defendant’s lawyers acknowledged the fact that the Forex trading agreement was enforceable. Furthermore the business relationship is an account management agreement as evidenced by the agreement Annexure “B”.
As far as the counterclaim of the defendant is concerned, the plaintiff averred that it was misplaced and misconceived and does not disclose a cause of action and ought to be dismissed with costs. The handling of the defendant/counterclaim and by the police is an entirely different matter from the plaintiff’s cause of action in the suit. There is nothing commercial about the defendants counter claim to be investigated in this court and the plaintiff prays that the defendant’s counterclaim is dismissed with costs.
At the hearing of the suit, the plaintiff was represented by Counsel Edward Mukwaya while the defendant is represented by Counsel Gabriel Byamugisha.
Both counsels filed a joint scheduling memorandum containing agreed facts and documents and issues for trial and also attached agreed documents in the trial bundle. It is agreed that both the plaintiff and the defendant entered into a business relationship wherein the plaintiff deposited US$40,000 on an FX Pro account with the defendant as a player on the same account. The defendant traded on the plaintiff’s account leading to total loss of the business. The agreed issues for trial are as follows:
- Whether there was a breach of contract by the defendant.
- Whether the defendant is liable to refund the plaintiff.
- Remedies available.
Counsels agreed on a document entitled "Account Management Agreement" which was annexed as exhibit P1. Several other documents were exhibited namely exhibit P2, P3 and D1 and D2 which will be referred to in this judgment.
On the agreement of counsels that there were no factual controversies, counsels opted to address the court in writing on the points of law arising from the transaction.
Submissions were commenced by the defendant as an objection to the suit.
The defendants submissions are based on alleged agreed facts which are briefly that the plaintiff opened an FX – Pro account number 163693 with a cyber entity called Fx – PRO, based in Cyprus. After opening the account, the plaintiff deposited US$40,000 and employed the defendant as the player in a game of chance. When opening the account, the plaintiff was availed a document called “Risk of Disclosure for Financial Instruments”. This document provided inter alia as follows:
"The client should unreservedly acknowledge and accepted that, regardless of any information which may be offered by the company, the values of the financial instruments provided by the company may fluctuate downwards or upwards and it is even probable that the investment may become of no value".
"The client should unreservedly acknowledge and accept that he runs a great risk of incurring losses and damages as a result of the dealing in financial instruments and accepts and declares that he is willing to undertake the risk".
The plaintiff voluntarily opened an account and deposited thereon US$40,000. The defendant was then hired by the plaintiff as the player on the said account. He was not a signatory to the account but was only supposed to play and trade with the money on the cyber market.
Finally counsel submitted that the contract that the defendant entered into with the plaintiff on 10 December 2011 was an illegal contract devoid of any consideration and unenforceable. The defendant undertook to exercise his skill and experience in the trading of currencies on the FX – Pro account in the names of the plaintiff. Therefore the defendant was only acting as an agent of the plaintiff in trading online on the account. The concession of 25% as offered in the agreement was in recognition of the risks involved. The defendant was recruited to run the account when the plaintiff had already opened the account. The plaintiff was fully knowledgeable in the trade and well aware of the risks it contained. The agreement is unenforceable for lack of consideration. Section 10 (i) of the Contracts Act, 2010 provides that a contract is an agreement made with the free consent of the parties with capacity to contract for a lawful consideration and with a lawful object and with an intention to be legally bound. Under section 19 (i), the consideration or an object of an agreement is lawful except where it is forbidden by law. Furthermore the subject of the contract in issue offends the provisions of sections 19 (a) and (b) in that it offends the provisions of statute law. The subject matter of the contract offends the provisions of the Gaming and Betting (Control and Taxation) Act Cap 292. The transaction of forex trading without a licence offends the Gaming and Betting (Control and Taxation) Act. Section 1 (b) thereof defines pool as playing of a game of chance for winnings in money or moneys’ worth. Section 2 prohibits promoting games and pools, acting as an agent of the promoter without a licence and contravention thereof is an offence.
In the premises the defendants counsel contends that the contract is illegal because it promoted games and pools without a licence and without any tangible consideration to the defendant and therefore this suit arising or based on it is a nullity. Furthermore the defendant had no direct contract with Messieurs FX Pro Financial services Ltd and could not access the money on the account. His duty was only to place bets online. The defendant was playing for no pay and would only gain as and when a profit was realised. It was entirely a game of chances. Counsel contends that the defendant is not enabled to control the FX – Pro account. He could neither deposit nor withdraw on the said account. He could only place bets on the cyber market and either win or lose. The account holder was the plaintiff and any loss or gain went to the plaintiff. In this case a total loss happened and the plaintiff has to inevitably meet it. It would be rather unthinkable and unjustified for such loss to be shifted to the defendant who was an agent of a disclosed principal namely the plaintiff. In the premises the defendants counsel contends that the plaintiff's suit is barred in law and incompetent as against the defendant.
In reply the plaintiff's counsel submitted that the facts presented by the defendants counsel were not exhaustive and do not reflect what actually transpired. The plaintiff's counsel relied on the agreed facts in the joint scheduling memorandum and documents admitted in evidence by consent. The brief facts are that the parties entered into a business relationship evidenced by the account management agreement where the plaintiff deposited US$40,000 on an FX Pro account with the defendant as a player on the same account. The defendant traded on the plaintiff’s account leading to total loss of business. Under clause 7 of the agreement, the defendant was not be liable for any loss amounting to 25% of the sum initially be posted and would only be liable for any loss which was beyond 25% thereof. The plaintiff’s action is for recovery of US$30,000 being the loss beyond 25% occasioned to the plaintiff which loss amounts to US$30,000.
It is not in dispute that the defendant breached the contract by causing a total loss of the money deposited. However the defendant and its counsel’s submissions are that he is not liable to refund the plaintiffs money since the account management agreement which give rise to the business relationship between him and the plaintiff was illegal and contravened the Gaming and Pool Betting (Control and Taxation) Act and the provisions of the Contract Act 2010. The plaintiff's counsel submitted that under section 10 (1) of the Contracts Act 2010 there should be evidence of meeting of minds, made with the free consent and with a lawful object for there to be a contract. The parties executed an account management contract with the lawful object of transacting business and at all times knew and acknowledged that the contract is legally binding and this is evidenced by various correspondences between the parties.
The contract attached as annexure "A" to the plaint is self explanatory and shows that it is an account management agreement governed by the Contracts Act cap 73 which was in force at the time of its execution. It is not a bet or a game of chance. It is apparent from the agreement that the defendant has a high level of skill and experience in trading in currencies online. The defendant ought not to turn around and allege that the contract in issue is illegal and unenforceable yet he used his expertise and skill to engage in the plaintiffs business.
The Plaintiff's Counsel contends that the provisions of the Gaming and Pool Betting (Control and Taxation) Act Cap 292 are not applicable since the contract in issue was neither a game nor a pool within the meaning of the Act but rather an account management agreement.
The plaintiff's counsel further submits that whoever comes to equity must come with clean hands. He contends that the defendant cannot be seen to say that they cannot refund the plaintiffs money on the ground that the contract is unenforceable yet he represented to the plaintiff that they had a high level of skill and experience and that he owed a duty of care not to cause a loss beyond 25% of the plaintiffs money at his disposal and he breached that duty of care through recklessness. Furthermore, some of the defendant's submissions are submissions from the bar and not on the basis of agreed facts in the scheduling memorandum and joint trial bundle. For instance the defendants counsel cannot claim that the plaintiff was availed annexure "A" to the WSD. In any case every business has expectation of loss and the fact of loss cannot render the business illegal.
In the alternative the plai