Begumisa Financial Services Limited v General Mouldings Limited and Another (Civil Appeal 86 of 2002) [2007] UGCA 72 (16 March 2007)

Full Case Text

## THE REPUBLIC OF UGANDA IN THE COURT OF APPEAL OF UGANDA HOLDEN AT KAMPALA

# CORAM: HON. JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ HON. JUSTICE S. G. ENGWAU, JA HON. JUSTICE S. B. K. KAVUMA, JA

### CIVIL APPEAL NO.86 OF 2OO2

### BETWEEN

#### BEGUMISA FINANCIAL SERVICES LTD CROSS APPELLANT

#### AND

- 1. GENERAL MOULDTNGS LTD. ) - 2, KIBOKO ENTERPRISES LTD. ) RESPONDENTS

[Appeal from a decision and orders of the High Courts of Judicature At Kampata (Katutsi, J.) dated 25th February, 2002 In HCCS No.804 of 19951

# JUDGMENT OF ENGWAU JA

The cross-appellant was the plaintiff in HCCS No. 804 of 1995 and the respondents were the 1"t and 2nd defendants respectively. Briefly, the facts of the suit were that crossappellant carries on business of financial consultancy services. On the 17th lVay, 1995 both respondents contracted him to negotiate a loan of Shs.235,000,000/= for them from East African Development Bank, including ancillary services like consultancy services and appraisal studies at an agreed cost of Shs.3,993,750/=. The appellant also secured a bank guarantee from lnternational Credit Bank Limited by obtaining an insurance guarantee from National lnsurance Corporation. As collateral for the loan the appellant procured land titles at an

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agreed cost of Shs.14,500,000/=. The appellant did all the above tasks on the instructions of the respondents.

ln short the terms of the contract were for the appellant to;-

- (a) provide land titles for collateral security for bank loan of Shs.235,000,000/=; - (b) prepare an appraisal report regarding manufactured products and marketing including cash flow projection for the use and repayment of the loan; - (c ) access and study the factory premises of the respondents; - (d) be a consultant in the negotiations with the East African Development Bank for a loan; and - (e) carry out a market survey of the distribution points for the respondents' products.

At the trial, the learned judge dismissed the case with costs against the 2nd respondent on the ground that the 2nd respondent had nothing to do with the arrangements the subject of the suit. ln conclusion, the appellant was awarded (a) Shs.4,719,340/= less 1/s on the amount of man-hours award; (b) special damages of Shs.11,31O,41Q1= and (c ) general damages of Shs.500,000/=. lnterest on (a), (b) and

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agreed cost of Shs.14,500,000/=. The appellant did all the above tasks on the instructions of the respondents.

ln short the terms of the contract were for the appellant to:-

At the trial, the learned judge dismissed the case with costs against the 2nd respondent on the ground that the 2nd respondent had nothing to do with the arrangements the subject of the suit. ln conclusion, the appellant was awarded (a) Shs.4,719,340/= less 1/5 on the amount of man-hours award; (b) special damages of Shs.11,310,4101= and (c ) general damages of Shs.500,000/=. lnterest on (a), (b) and

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(c ) at current bank rate from the date of judgment till payment in full.

There were 3 grounds of cross-appeal. The 1"t ground was, however, abandoned. The remaining grounds 2 and 3 read as follows:-

### Ground 2:

The learned trial judge erred in law when he awarded interest at bank rate on Shs.4,719,340/= and special damages of Shs.11,310,41O1= from date of judgment till payment in full.

### Ground 3:

The learned trial judge erred in law and fact when he dismissed the suit against the 2nd respondent with costs.

lV/S Tashobya, Byarugaba & Co. Advocates and M/S Kaweesa & Co. Advocates represented the appellant while the respondents were represented by tt//S Byenkya, Kihika & Co. Advocates.

On ground 2, it was contended that the cross-appellant had executed its duties and the East African Development Bank was ready to grant the respondents the loan but on 1517t1995 the 1"t respondent wrote to the Bank a letter (Exhibit P9) not to process the loan. ln counsel's view, the appellant was entitled to getting its remuneration to be awarded in Shs.4,719,340/= and Shs.11,31O,4101= as from

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151711995. The suit was concluded on 25 - 2 - 2002afler around 71 12 years from the date when the money was due and the suit was filed. Therefore, according to counsel, interest should have commenced from the date of filing the suit (21l9/'1995) till payment in full. The reason being the appellant's money would have made profits for its economic empowerment. Counsel in support cited and relied on J. K. Patel vs Spear Motors Ltd., SCCA No. 4 of 1991 (unreported) in which it was held, inter alia, that the time when the amount claimed was due is the date from which interest should be awarded.

M/S Byenkya, Kihika & Co. Advocates did not agree. They based their argument on the principles which govern award of interest by courts as provided in section 26 (2) of the Civil Procedure Act thus:

"26 (21. Where in so far as a decree is for payment of money, the court may, in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the Court deems reasonable on the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit."

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Counsel pointed out that in the case of Milly Masembe vs Sugar Corporation & Anor, CA Civil Appeal No. 1 of 2000 (unreported) it was held that the above section leaves the discretion to the court to award interest and that the interest must be reasonable. Learned counsel further submitted that the discretion of a trial judge should not be tampered with unless it has been demonstrated that his/her award has been unduly excessive with regard to the circumstances of the case, and that he/she has acted on a wrong principle.

Counsel pointed out further that at page 99 of the record of appeal the learned trialjudge said thus:

"The plaintiff pleaded special damages being the amount of money he expected to reap from the contract and out of pocket expenses. These have been allowed him thus putting him in the state in which he should have been in if the contract had not been broken ..."

According to counsel, the above extract clearly shows that the trial judge was alive to the fact that the cross-appellant had been put back in the state in which he should have been if the contract had not been broken and hence exercised his discretion to award interest from the date of judgment. He argued that the discretion should not be interfered with.

ln its cross appeal, the respondent claimed that the learned trial judge erred in awarding only interest from the date of judgment till payment in full instead of awarding interest from

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the date of filing the suit to the date of payment as prayed in the plaint.

Counsel for the cross-appellant relied on the provisions of section 26 of the Civil Procedure Act. The provisions of section 26 (2) C. P. A. have already been set out in this judgment. The learned trial judge said on the issue: "The sum total of my judgment is that I enter judgment for the plaintiff for:

- (a) Ug. Shs.4,719,340/= less 1/5 on the amount of manhours award. - (b) Special damages of Ug. Shs.11,310,41 0/=. - (c) General damages at Shs.500,0gg1= (five hundred thousand only).

lnterest at the current bank rate on (a), (b) and (c ) and costs which wil! also attract the same interest from the date of this judgment till payment in full. I so order."

The principle laid down by Lord Denning in Harbutt's Plasticine Ltd. vs Wayne Tank and Pump Go. Ltd. (1970) 1 Q8447 is that:

"An award of interest is discretionary. lt seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money, and the defendant has had the use of it himself. So he ought to compensate the plaintiff accordingly."

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This principle appears to have been accepted in Mukisa Biscuit Manufacturing Co. Ltd. vs West End Distributors Ltd. (No.2) 1930 EA 469 when Spry, VP said:

"The principle appears clearly, I think, in the judgment of this Gourt in Prem Lata vs Mbiyu [1965] EA 592. That was a case concerning damages for personal injuries. The principle that emerges is that where a person is entitled to a liquidated amount or to specific goods and has been deprived of them through the wrongful act of another person, he should be awarded interest from the date of filing suit. Where however, damages have to be assessed by the Court, the right to those damages does not arise until they are assessed and their interest is only given from the date of judgment."

ln J. K. Patel vs Spear lt/otors Ltd., Supreme Court Civil Appeal No. 4 of 1991 (unreported), Seaton, JSC (RlP) said:

"The time when the amount claimed was due is the date from which interest should be awarded. ln the instant case that date was the last time when the parties agreed on the total balance due As a matter of law, unless the rate of interest was agreed in the contract, the rate awarded must be reasonable."

Considering the law and the principles laid down in the above authorities, I must hold with great respect that the learned trial judge did not exercise his discretion judicially.

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The reason he gave for not granting the prayer was that the cross-appellant had pleaded special damages being the amount of money he expected to reap from the contract and out of pocket expenses and that since they were allowed, the appellant was put in the state in which he should have been in if the contract had not been broken. ln the circumstances that reason cannot stand. I would, therefore, grant interest on (a), (b) and (c ) at the current bank rate from the date of filing the suit till payment in full. Ground 2 succeeds.

The complaint on the 3'd ground was that the trial judge erred in law and fact when he dismissed the suit against the 2nd respondent with costs. lt was the contention of the cross appellant that the trial judge did not correctly evaluate the evidence on record to come to the conclusion that no cause of action existed against the 2nd respondent. The evidence, according to counsel, which was not properly evaluated included: First, that on 17 - 5 - 95, Mr. Bitangaro of Ivl/S Bitangaro & Co Advocates called Mr. Begumisa, PW1, and introduced him to Messers Rashik Shah and Ramesh Babu. Mr. Rashik Shah was the Director of both General Mouldings Ltd. and Kiboko Enterprises Ltd. Mr. Ramesh Babu was an Accountant of Kiboko Enterprises Ltd.

According to the evidence of PW1, both companies had a common objective of securing a mutual loan. General Ir/ouldings Ltd. wanted a loan to buy a moulding machine and Kiboko Enterprises Ltd. would be using a lorry to transport iron sheets upcountry. ln that meeting tVr. Shah

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gave PW1 his two business cards showing that he was a Director in both companies.

Secondly, that in another meeting, PW1 wanted to know whom Shah was representing and the reply was that he was acting for both companies. As for [Vr. Babu, Shah emphasized that Babu was an Accountant of Kiboko Enterprises Ltd. PWl testified that he delivered the Appraisal Report to lVr. Shah, which included Kiboko Enterprises Ltd. and all along N/r. Babu of Kiboko Enterprises Ltd. as an Accountant would accompany them on inspection of the collateral.

Thirdly, that it was upon those circumstances that PWI executed an invoice of 13 - 6 - 1995 to Kiboko Enterprises Ltd. and General tVouldings Ltd. for Shs.3,993,750/= in consultancy fees (Exbt. P1). ln Exbt. P2, though addressed to General Mouldings Ltd., PW1 stated: "The minor underlying purpose is to show how the sister companies of General Mouldings Ltd. and Kiboko Enterprises Ltd can co-operate in haulage to minimize haulage expense in the marketing of their products."

It was the contention of counsel for the cross appellant that the trial judge was wrong to hold that the communication above by PW1 to the l"trespondent did not involve the 2nd respondent in the engagement of the contract. Both companies, according to counsel, never denied PW1 invoicing them. Further, counsel submitted that according to

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PW1, Mr. Shah was the leading figure who engaged him for and on behalf of both companies. Mr. Shah was not called to testify and deny engaging PW1. Even the evidence of [/r. Babu did not in any way controvert the evidence of PW1, counsel argued. ln the premises, counsel urged that the 2nd respondent should be restored to the suit and judgment be passed against it in the terms prayed for in the Cross-Appeal.

Learned counsel for the respondents did not agree. They instead supported the dismissal of the suit against the 2nd respondent when the trial observed thus:

#### "The suit is against 2 defendants, namely;

- (1) General Mouldings Ltd., - (21 Kiboko Enterprises Ltd.

Mr. B. S. Ramesh Babu who testified on behalf of the defendants in no uncertain terms swore that the second defendant had nothing to do with the arrangements of the subject suit. I have very carefully and meticulously examined all the exhibits submitted during the hearing and leave no scintilla of doubt that the contention of Mr. Ramesh is correct. The request for the loan was by General Mouldings Ltd., as clearly shown by exhibit P8. All the correspondences on the subject are and speak of only General Mouldings Ltd. By written statement of defence and paragraph 5 thereof stated:- 5) The second defendant shall aver and contend that the plaint discloses no cause of action against them. This is a

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# correct statement. The suit against the second defendant is hereby dismissed with costs. I so order."

ln light of the above, it was contended for the respondents that the trial judge correctly evaluated the evidence on record to come to the conclusion that no cause of action existed against the second defendant and he correctly dismissed it.

I have re-evaluated the evidence on record as a whole and my findings include: First, the contact between the parties was an oral one. I wonder why the services of M/S Bitangaro & Co Advocates who introduced them were not sought for in processing written agreementl Be that it may, oral agreement is just as good as a written one in law.

Secondly, Mr. Shah was the outstanding figure in the said contract. He introduced himself and gave PW1 his business cards showing he was a Director of both General lVouldings Ltd. and Kiboko Enterprises Ltd. He also introduced Mr. Babu as an Accountant of Kiboko Enterprises Ltd. Both companies had a common objective of securing a mutual loan. General Mouldings Ltd. wanted a loan to buy a moulding machine and Kiboko Enterprises Ltd. would be using a lorry to transport iron sheets upcountry.

lMr. Shah received the Appraisal Report prepared and handed to him at their office on Bombo Road. The appraisal report included the 2nd respondent. Whenever Shah and PW'1 were going for inspection of the collateral, [Vr. Babu

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was all along accompanying them in his capacity as an Accountant of Kiboko Enterprises Ltd. ln the premises, PWI executed an invoice of 13 - 6 - 1995 to Kiboko Enterprises Ltd. and General tMouldings Ltd for Shs.3,993,750/= in consultancy fees.

Further, PW1 wrote a letter (Exbit P2)thus:

"The minor underlying purpose is to show how the sister companies of General Mouldings Ltd and Kiboko Enterprises Ltd. can co-operate in haulage to minimize haulage expense in the marketing of their products."

The above evidence was and it is still glaring on the record. ln the circumstances I would not believe the evidence of Ramesh Babu that the 2nd respondent had nothing to do with the arrangements the subject matter of the suit. I would also not agree with great respect, to the trial judge that the contention of Ramesh was correct to that effect. Both companies had a common objective of securing a mutual loan. General Mouldings Ltd. wanted to buy a moulding machine and Kiboko Enterprises Ltd. would be using a lorry to transport iron sheets upcountry. Both companies did not deny the invoice PW'l executed on 13 - 6 - '1995 for Shs.3,993,750/= in consultancy fees.

ln these circumstances, the learned trial judge erred in dismissing the suit against the 2'd respondent for lack of cause of action. I would reverse that order and restore that

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the $2^{nd}$ respondent was equally liable as the $1^{st}$ respondent for breach of the contract.

In the result, I would allow the cross appeal with costs here and in the court below.

Dated at Kampala this ....................................

S. G. Engwau

JUSTICE OF APPEAL.

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#### THE REPUBLIC OF UGANDA

#### IN THE COURT OF APPEAL OF UGANDA

#### HOLDEN AT KAMPALA

HON. JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ. CORAM: HON. JUSTICE S. G. ENGWAU, JA. HON. JUSTICE S. B. K. KAVUMA, JA.

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## CIVIL APPEAL NO. 86 OF 2002

#### BETWEEN

**BEGUMISA FINANCIAL** $15$ SERVICES LTD....................................

AND

- GENERAL MOULDINGS LTD 1. 20 - KIBOKO ENTERPRISES LTD)... RESPONDENTS $2.$

### [Appeal from a decision and orders of the High Court at Kampala (Katutsi, J.) dated 25th February, 2002 in HCCS No. 804 of 1995]

#### JUDGMENT OF L. E. M. MUKASA-KIKONYOGO, DCJ.

I read in draft the judgment prepared by my learned brother, Engwau J. A and I concur that for the reasons 30 he gave the cross appeal must succeed.

On the authorities cited by him in his judgment namely; Mukisa Biscuit Manufacturing Co. Ltd Vs West End Distributors Ltd No. (2) 1930 E. A. 469; Prem Lata Vs Mbuga 7965 E. A. 592 and J. K. Patel Vs Spear Motors Ltd Supreme Cour"t Civil Appeal No. 4 of 7997 unreported; interest on (a) (b) and (c) should start running from the filing of the suit till payment in full. Ground 2 would be a1iowed.

With regard to ground 3, as the evidence stands on record, I also agree that the 2"d respondent is jointly and equally liable with 1"t respondent to the cross appellant. In the result, I would also allow ground 3. The order of dismissal of the suit against the 2"d respondent would be set aside and the suit be restored. l0 15

As Steven Kan'uma, J. A, also concurs, the cross appeal is ailowed. The order of dismissal of the suit against 20 2"d respondent is set aside and the suit hereby restored. The 2"d respondent, therefore, is equally liable as the 1"t respondent for breach of contract.

The order of the High Court granting interest on (a) (b) and (c) from the date of judgment is also set aside. The interest thereon would start with effect from the filing date till payment in full with costs both in this Court and High Court.

Dated at Kampala, this....day of .... Mcurch...2007.

L. E. M. Mukasa Kikonyogo DEPUTY CHIEF JUSTICE.

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