Citibank Uganda Ltd v Uganda Fish Packers Ltd and 6 Others (Civil Appeal No. 38 of 2017) [2023] UGCA 66 (23 February 2023)

Full Case Text

### THE REPUBLIC OF UGANDA IN THE COURT OF APPEAL OF UGANDA AT KAMPALA CIVIL APPEAL No.38 of 2017

(Coram: Musoke, Bamugemereire, Musota, JJA)

## CITIBANK UGANDA LIMITED :::::::::::::::::::::::::::::::::::: VERSUS

- 1. UGANDA FISH PACKERS LIMITED - 2. ALPHA GROUP LIMITED $10$ - 3. MASESE FISH PACKERS LIMITED - 4. FIAZ SHOKATALI KURJI - 5. KARIM SHAMSODIN KURJI - 6. NAWAZ KURJI - 7. ARZINA KURJI :::::::::::::::::::::::::::::::::::: 15 (Appeal from part of the Judgment of the Hon. Justice. David $K$ Wangutusi in Civil Suit No.254 of 2009), in the High Court of Uganda (Commercial Division) at Kampala, delivered on $15^{th}$ day of July 2016).

$\mathsf{S}$

# Judgment of Catherine Bamugemereire, JA

The facts as ascertained from the lower court record are that the Appellant extended credit facilities to the 1st Respondent comprised of a term loan, overdraft, pre- and post-shipment facilities, hereinafter referred to as "the facilities." The facilities were guaranteed by the $2^{nd}$ -7th Defendant and the money advanced was to be repaid with interest. A common term of the facilities was that on the occurrence of Material Adverse Event "MAC" the Appellant was entitled to immediately terminate the facility and to demand payment in full from the $1^{st}$ Respondent. On $2^{nd}$ May 2009, the 1st Respondent's managing director Rivaz Kurji passed away. Thereafter the 1st Respondent struggled to meet their repayment obligations to the Appellant. The Appellant formed an opinion that the death of the Managing Director

5 c.onstituted a material adverse effect (IVIAC) event, and the facilities were terminated. On 8th June, the Appellant issued a formal demand to the 1"t Itespondent for thc repaymcnt of the outstanding amounts on the facilities. Thc Appellant made formal demands to the lnd -Jth Respondents on 18th June 2009 to repay the outstanding guaranteed amounts. Upon realization that payments owed were not forthcoming the Appellant filed Civil Suit No.254 of 2009 in which he sought thc recovery of USI) \$3,706,895.00 and UGX 7,003,733,847 and interest on the amounts at a prevailing rate of 2.5% and Uganda shillings base rate from 8th June 2009 until payment in full, togethcr with costs. Judgment was entered in favour of the Appellant against thc 1't Respondent in the sum of USD 3,706,895.00, UGX. 7,003,733,847 and an average figure of 22% per annum appropriate as interest from 8th June 2009. A flat interest ratc of 2.5 per annum from 8th June 2009 was ordered until full payment against the 1't Respondent. The counterclaim filed by the lnd -'lth Respondcnts seeking damages and indemnity for loss suffered as guarantors was dismissed. However, they were awardcd costs of the suit since they were discharged from their obligations. The Appcllant dissatisfied with this judgment filed this appeal premiscd on 9 grounds. 10 15 20

> 1. That the Learned Trial Judge errcd when hc dischargcd the 2"d to the 7th Ilespondcnts of thcir obligations as guarantors on grounds of fraud yet they assisted in, benefitted from and were part of the said fraud.

- 2. That the Lcarned Trial Judgc erred and speculated when he relied on unproven "Indian culture" to presume undue influence by the husband on the 7th Respondent. - 3. That the Learned Trial Judge fcll into error when he presumed undue influence on the 7th Respondent, yet she was an active participant in the fraud. - 4. That the Learned 'l'rial Judge errcd in failing to find that the facility could be varied without the consent of the guarantors by virtue of thc guarantecs bcing continuing guarantees. - 5. That the Learned Trial Judge erred in law and fact in failing to find that there were two distinct and separate financial accommodation facilitics afforded to thc 1"t Respondent by the Appellant bank. - 6. The learned Trial Judge fcll into crror whcn he found/held that the conduct of the rogue cmployec, Ilobcrt Kasckendc related to the operation of aII the loan facilities. - 7. The Learned Trial Judge erred in attributing the conduct of the rogue employee, Robert Kasekende, to the Bank whcn he was clearly on a frolic of his own pursuing his own agenda and not that of the Bank. - 8. The trial judge erred in fact in finding that Crane Ilank loan takeover was subscquently altercd yet it was executcd in a one-bullet payment from the Appcllant to the predecessor financial institution, Crane Ilank Uganda I.,imited and was never fully repaid.

. 9. The I-,earned Trial Judge erred when hc completely ignored refused and/or neglected to consider, the well-argued and articulated submissions of the Appellant's counsel, thcreby occasioning grave travesty and a miscarriage of justice to the Appellant.

### Representation

The Appellant was presented by Mr. Mpanga of AF Mpanga Advocates while the 2"d and 3.d Itcspondcnts wcrc rcprcsentcd by Didas NkurunzizaofM/S Didas Nkurunzrza & Co. Advocates, the 4th,5thand 6th Respondents were represcntcd by MMAKS Advocates, and the 7th llespondent was rcprcscntcd by Shonubi Musoke & Co. Advocates. All counsel relied on written submissions which were adopted by this court.

#### Subrnissions

Counsel for Appellant in his first ground of his appeal disagreed with the I-,earned Trial Judgc for discharging the 2"d to JLtt Itespondents from liability as guarantors fbr rcason that thcrc was no proper evidence of fraud. It was Counsel's submission that the fraud-exception was misapplied since the guarantors participatcd and benefitted from fraudulent actions. Counsel further submitted that it was not in dispute that the 7Lh Respondent operated the accounts with Rtyaz Kurji that authorised the withdrawing of money by onc Bhautic Shukla. Counsel further contended that the 7th llespondent un genuinely wrote several requests for booking sums under thc pre-shipmcnt facility and was part of thc collusion with bank employcc one 15 20 25

Robert Kasekende and knowingly perpetuated the fraudulent conspiracy by forwarding non-existent "confirmed orders" which she very well knew that they wcre non-cxistent.

5 Counsel in his submissions argued that the 2"d to 6th llespondents were beneficiaries and participants in the 1"t Respondent fraudulent acts. That it was not disputed that thc side companies were closely held family companies run by brothcrs, a cousin and the wife of Riyaz Kurji.

The Learned Counsel submitted that the 2"d Respondent held 99% shares in the 1"t Respondent, giving the 2"d Respondent whose CEO was the 5tn Respondent the exclusive right to appoint the Board of I)ircctors of the l.t llespondcnt. Counsel in his submissions reiterated that the 5th Ilespondent conceded in cross examination that the 2"d Ilespondent should have been more involved in the business of the 1.t ltespondcnt as bcneficial owner. 10 15

Further, that the 4th and the 6tt'Respondent were at all material times the directors of the l"t Respondent Company emphasising that they knew about the fraudulent operation of the facilities. Counsel indicated that the bribes that were paid to Ilobert Kasekende were recorded in the accounts of thc 1"t Respondent which information the directors were privy to or ought to have been privy to as persons who prepare and or review the management accounts of a company. 20

Counsel reiterated that the 3.d Ilespondcnt was at all timcs involved in the fraudulent operation of the loan. Counsel through his submission indicated that Riyaz Kurji was a director and 25

shareholder in the 3'd Respondent who opcrated the company accounts solely and executed thc guarantee and resolutions sanctioning the guaranteeing of the facilities knew or ought to have known the fraudulent operation of the trade lracilities through Rryza Kurji.

The learned Counsel submitted that the 5th Respondent was at aII material times the directing mind, will and principal shareholdcr of the 2"d Respondcnt which has 99% shareholdcr in thc l't Respondent. Counsel cited In Baden v Society General (1992)

- 4 ALL ER 161, at page 160 of the Appellants' list Authorities, para 25O. It was held that wilfully shutting onc's cycs to thc obvious and wilfully and recklessly failing to make inquirics, which an honest person would have made in law amounts in law to knowledge. Counsel further cited Veronica Nakiyingi v 10 - Micheal Nsobani CACA No. 44 of 2008, were court recognizcd the concept of constructive fraud where a pcrson passively takes benefit in unconscionable circumstances. 15

On Ground No.7, Counsel for the Appcllant disagreed with the conclusion of the I-,earned Trial Judge in vicariously attributing the conduct of one Robert Kasekende to thc l]ank. 'lhc L,carncd Counsel contested the Trial Judge conclusion relying on the "adverse interest" rule that states that the knowledge and conduct of an agent wiII not be attributcd to the principal where the agent's actions are adverse to thc interest of his principal.

Moore Stephens (a firrn) v Stone & Rolls Limited (in liquidation) (2009) UKHL 39. The cffcct of Hampshirc L,and is that knowledge of the agcnt will not bc attributcd to the principal 25

when the knowledge relates to the agent's own brcach of duty to his principal.

Regarding Ground No.2, Counsel criticized the L,carned Trial Judge for relying on an unproven Indian culture to prosume undue influence on the 7th Defendant by her husband. Counsel argued that no expert opinion supported this finding. Under Section 46 of the Evidence Act, where Court has to form an opinion as to the existence of any custom or right, the opinion of persons who have knowledge of the existence of such custom is

- relevant. Balarnu Bwetegeine K.iiza Y Zephania Kadooba I(iiza Civil Appeal No.59 of 2009 (CA) Court noted that as a matter of practice and convenience, relevant customary law should be proved by evidcnce of cxpcrt opinion adduced by parties. 10 - As regards Ground No. 3 Counsel criticised the Learned Trial Judge's finding that therc was undue influence imposcd to the 7th Respondent by her husband. Counsel in his submission contended that the cases relied on by the learned Judgc concerned wives guaranteeing loans of their husband and did not conccrn womcn directors of companies guaranteeing Ioans of companies. Indicating that the I-,oan that was guaranteed was that of a company for which the 7tt' Itcspondent was a dircctor. 'fhc 7th Respondent testified that she would consult her father when signing the documents which amounts to independent advise. 15 20 - Further Counsel submitted that there was no undue influence since the 7th Respondent was a director in the l't Respondent Company at the time she signed the guarantec and shc was one 25

of the authorised persons to give manual instructions to the bank; She further signed some of the cheques authorizing the withdrawal of money by Bhautic Shukla. Additionally, Counsel submitted, and it is on the record, that the 7th Respondent made 29 requests for the booking of sums under the pre-shipment facility relying on Robert Kasekende' strength confirmed orders.

Woodel V BM Sarnuels Finance Group p/c (1995) P&CR 311, where a guarantor did not receivc independent advicc prior to entering the guarantee but subsequently expressly re-affirms the transaction or fails or if he fails to take steps to set aside the transaction within a reasonable time, it will not be set aside.

While arguing Ground No.4 Counsel disagreed with the Learned Trial Judge for discharging the 2"d to 7th Ilespondents for reason of material variation in the guarantcc without taking into account that the guarantee had a continuance clause. Counsel contended that the continuance clause actcd as acceptance of any alterations in the business arrangemcnt. Counsel relied on clause 10 of all the guarantees which provided that; "the creditor will be at liberty without thereby affecting its rights and obligations thereunder at any time from time to time at its absolute discretion to release , discharge, compound with or otherwise vary and agree to vary the liability under the guarantec or to make any other arrangements with the undersigned and no such release, discharge, composition, variation agreement or arrangements shall prejudice or in any way affect its rights and remedies against the undersigned." 15 20 25

On ground 5,6 and 8 Counsel faulted the l-,earned Tria1 Judge for treating the whole loan facility as though it was one when there were two distinct loan facilitics with each facility guaranteed independently. Counsel contendcd that only the trade facilities ( pre-shipment and post-shipment facilities) were affected by the fraudulent conduct of one Robert Kasekende thus could not lead to a discharge of gurantors' obligations under the facilities unaffected by fraud.

I-,astly, on Ground No. 9 counscl contcndcd with the I.,earncd'l'rial Judge for ignoring the Appellant's submissions on fraud exception and adverse interest rule and thereby erroneously discharging the 2"d to 7th Respondents as guarantors. Counscl relied on Law Society of Kenya v Center for Hurnan Rights and Democrtcy, Court of Appeal Civil Appeal No.308 of 2012. "Natural justice requires that all parties to a suit must bc heard and hearing of a party is not restrictcd to giving evidencc, it extends to oral and or written submissions on issues that a party would like to cmphasize before thc 'frial Court. Howcvcr, thc Trial Court is neither expcctcd to reproducc vcrbatim thc submissions of parties in its judgment nor to quote in extensor the submissions made in order to dcmonstrate that it has considered them. It suffices for the court to take into account arguments by parties in considering the contentious points of law and fact raised and the issues framed for determination." Counsel prayed that thc appcal bc allowcd and thc judgcmcnt of thc Learned Trial Judge discharging the guarantors be duly set aside and reversed with costs. 10 15 20 25

I ## Respondents' Submissions

The 2"d - 6th Respondents made their submissions as grounds affirming the decision of the High Court of Uganda which also doubled as a Notice of Cross Appeal as summarised below:

### 5 Cross appeal and grounds affirrning the High court decision for the Znd - 6th Respondents;

The 2"d to 6th Respondcnts cross appcalcd on one ground;

1. The Learned Trial Judge erred in awarding the Respondents the costs of the suit as against the 1"t Respondent instcad of as against the Appcllant and in not giving reasons for his so doing.

Counsel contended with the Trial Judgc for not giving reasons in awarding costs to 2nd -6th against thc 1.t Itcspondcnt who was not the party who dragged the Ilespondents to Court. The general rule being that costs follow the event section 27(2) of the Civil Procedure Act. Counsel further cited In Kiska Lirnited v Vittorio De Angelis (1969) EA 6 Court Held; where the trial court gives no reason for not awarding a successful defendant costs, the Appellant court will intcrfcre if it is satisfied that the order is wrong. Counscl argucd that the costs award ordcr cannot be wrong since Appellant's claim against the2nd -6tt'Respondent failed for reasons attributcd to it. 15 20

The 2"d to 6th Ilespondcnts argued that the Itespondents guaranteed only liabilities incurred by UFP in accordance with the l\$th or May 2007 facility letter and UIrP's US\$ 5m debt to Citibank was repaid with a USD \$5m capex facility not 25

guaranteed by the guarantors. The guarantees were discharged by the material variation to the principal contract that involved the use of the Pre-Shipment Facility 3 not consented to by the Respondents. In regard to USD \$5m Refinance Capex tracility (1) the Respondents did not agree to guarantee the facility. USD 1m

post shipment facility (3) were not contracted under the facility 3 Iending contract and were not covered by the guarantees. The USD \$1.9M pre-shipment facility was also not covered by guarantees. Counsel prayed that thc cross appeal be allowed, and the Respondents be awarded costs in the High Court and of this Court. 10

#### 7th Respondent's Subrnissions

The 7th Respondent is a widow to Riyaz Kurji who was the managing director of the l.tRespondent. On 9th September 2008 in a meeting attended by Iliyaz Kurji and lriaz Kurji the 4Lh Respondent, the 7th Respondent was appointed a director of thc 1.t Respondent also authorized to sign a guarantor letter on behalf of the 1"t Respondent. 15

In regards to ground No. 1, Counsel for the 7th Ilespondent agreed with the finding of the Learned Trial Judge in discharging the 7th Respondent from liability as a guarantor by reason of fraud of one Robert Kasekende, the Appellant's relationship manager, and that of Riyaz Kurji, the 1.t Respondents' managing director. Counsel cited Order 6 Rules 1,3 and 7 of the Civil 20

Procedures Rules 51 71,-rIt is mandatory for a party seeking to rely upon fraud to expressly plead facts of the fraudulent actions/behaviour. 25

Counsel reiterate that fraud cannot be mercly inferred. Karnpala Bottlers Ltd v Darnanico (u) Ltd, SCCA No.22 of 1992, Court stated that " Fraud is very serious allegation to make; and it is; as always, wise to abide by the Civil Proccdure Ilulcs Ordcr V1

5 Rule 2 and plead fraud properly giving particulars of fraud" In J. W. R Kazzora v M. L. S Rukuba , Civil Appeal No. 13 of L992. (SCU) the court ruled that it is a well-established principlc of law that a party relying on fraud must specifically plead it.

It was Counsel's submission that the Appellant did not plead any facts or incidencc of fraud against thc 7th ltespondcnt indicating that the only pleading of fraud is against the 1"t Itespondent 's managing director (Riyaz Kurji). 10

Counsel contended that the Appellant's attempt to allege fraud against the 7th Ilcspondent at the stage of hearing and submission

(on appeal) without pleadings offend the law and amounts to a departure from her pleadings. In Interfreight Forwarders (u) Lirnited v East African Development Bank, Civil Appeal No.33 of L992, (SCU) Court stated that; "'lhe system of pleadings is necessary in litigation. It operatcs to define and deliver it with clarity and prccision thc real matters in controversy between the parties upon which they can prepare and present their respective cases and upon which the court will be called upon to adjudicatc between thcm..." 15 20

As regards to grounds No.2 and 3 Counsel furthermore, agreed with the finding of the l-,carncd Trial Judgc that thc influcncc of a wife and husband fall under the doctrine of prcsumed unduc 25

influence and that this undue influence was of a continuing nature, and that she was never absolutely released from it.

Counsel submitted that thc Trial Judge did not rcly on Indian culture to presume undue influence since statements made by the 7th Respondent with regard to her cultural and family position

were not contested during cross cxamination.

In regards to ground, No.4 Counsel agreed with the Learned'I'rial Judge that the fraudulent conduct of the Appellant's employec (Robert Kasekende) and thc 1't Ilespondcnt's managing director (

Iliyaz Kurji ) was a material variation which discharged the 7th Respondent from her obligations under the guarantee. 10

Concerning Grounds 5,6,7,8 and 9 Counscl submittcd that thc moment the bank negligently confirmed Robert Kasekende purchase orders and breached its obligations, thc trial Judgc was

Ieft with no option but to dischargc the Jth Itespondcnt from Iiability. Counsel invited this court to uphold the Judgment and dismiss the appeal with costs. 15

# Appellant's submissions to the Respondents' Notice of Cross Appeal or Grounds of Affirrnation

The Appellant Counsel submittcd that it's in the Judge's discretion to apportion costs sincc the law docs not prescribc thc party against whom costs order should be madc. The 2nd to 7th Ilespondents were awarded costs payable by the 1't Itespondcnt having tainted their own conduct or wilful ignorance in the fraudulent operation of the facilities. 20 25

## Appellant's subrnissions in rejoinder to the 7th Respondent

Counsel opposed the brief facts in the JLb Itcspondent's submissions contenting that the trial court did not make findings on fraudulent acts. Counsel reiteratcd that the 7th Itcspondent was fraudulent and dishonest guarantor arguing that a finding on fraud and illegality can be madc (even on appeal) even if not pleaded if it comes out in evidencc. National Social Security Fund v Alcon International SCCA No. 15/2009. "...as long as there is an illegality, it can be raised at any time as a court of law cannot sanction that which is illcgal..."

## Consideration of Appeal

I have carefully considered the wcll-thought-out submissions of all Counsel and thc authoritics supplied to this court. I thoroughly reviewed the record of appeal and I am wellacquainted with thc facts of this case.

The duty of this court is to reappraisc all cvidcncc as adduced before the trial court and come to its own conclusions of fact and law while making allowance for thc fact that thc court neithcr saw nor hcard thc witnesscs. See rule 30(1)(a) of the Judicature (Court of Appeal Rules) Directions S. I 13-10, Pandya v R [1957] EA 336, The Executive Director of National Environmental Managernent Authoritv (NEMA) v Solid State Limited SCCA No.15 of 2015 (unreported) and Banco Arabe Espanol v Bank of Uganda SCCA No.8 of 1998.

I.t is with the above principles in mind that I now proceed to consider the grounds of appeal as set out in the Memorandum of Appeal. The appeal contains 9 grounds of appeal. I will rcsolvc the grounds of appeal in no particular order but in an order that will resolve all legal issues within this appeal.

### Ground No.1

1,0

1. That the Learned Trial Judge erred when he discharged the 2"d to the 7th Respondents of their obligations as guarantors on grounds of fraud yet they assisted and benefitted from and were part of the said fraud.

15 20 Ground No.l of this appeal queries the lnd-Jth guarantors' participation in the fraud. Counsel for the Appcllant contended that the 2"d - Jtb Respondents wcre bcneficiarics or participants in the fraud together with the 1.t Respondent. It is an agreed fact that the companies involved werc closely-held and managed by the samc family. The 2"d ltcspondent, Alpha Group L,,td had only 99% shares in the 1"t Respondent (Uganda l,'ish Packers LTD) Counsel based on this fact to concludc that the 2nd Itespondent knew or ought to have known how thc facility operatcd as would be reasonably expected of a principal shareholder. Iror emphasis the 1.t Respondent is a legal entity that can sue and be sued in its own capacity. In Salmon v Salrno [1897] AC 22I.,ord Herschcll found that "in a popular sense, a company may in every case bc said to carry on business for and on behalf of its shareholders; but this certainly does not point in law constitute thc relation of 25

principal and agent between them or rendcr the shareholders liable to indemnify the company against the debts which it incurs." The question is whether the 99% share-holding conclusively imputes fraud on the 2"d Respondent and thcrefore that the Appellant should prove how thc 2nd ltcspondent knew or ought to have known about the fraud since having shares alonc cannot impute fraud.

When a mattcr raises a qucstion of fraud it is crucial to notc that fraud must be strictly proved, the burden being heavicr than one

- of a balance of probabilities generally applied in civil matters. See Kampala Bottlers Ltd v Darnanico (U) Ltd, SCCA No.22 of 1992, J. W. R Kazoora v M. L. S Rukuuba [1992], John Katarikawe v William Katwiremu & anor (1977) HCB 187 at 191 and Okello Okello v UNEB SCCA No. 12187. The Supreme court in Fredrick Zaabwe v Orient Bank & 10 15 - Others SCCA No. 4 of 2006 defined fraud to mean the intentional perversion of the truth by , person for the purpose of inducing another in reliancc upon it to part with some valuable thing belonging to him or her or to surrender a legal right. With - this in mind, I now proceed to evaluate thc possible participation of the each of the Itespondents (2"a - 7tn) in thc fraud. Chitty on contracts 26th edition page 843 explains that, 20

"a shareholder cannot enforce a contract entered by his company with anothcr pcrson; the shareholder is neither a party to the contract, nor is he entitled to the benefit of it under the rule that in certain circumstanccs parties to a contract are takcn to havc contractcd as

trustees for third persons, for a company is not a trustce for its shareholders. l-,ikewise, a shareholder cannot be sued on contracts made by his company..."

5 The 2"d Respondent being a shareholder in the 1"t Respondent company should not necessarily make hcr liable. Counsel for the Appellant relied on the testimony of . Iohn Murphy whose evidence was that Saken General Trading LLC and Epsilon International, the companies that allegedly confirmed orders for the 1't Respondent were companies that had thc same telephone contact number with Alpha Middle llast, a group company of the 2nd Respondent". This testimony is highly speculative and the companies subject to thc testimony arc a merc 'allcgation' such evidence cannot satisfy the standard of proof in a fraud case. I, like the Learned Trial Judge find that the 2"d Respondent was not a participant in the fraud. 10 L5

The 3'd Respondent, Masese Fish Packers Limited, is also a company limited by shares. Counsel argued that Rtyaz Kurji, the on-the-ground exccutioner of thc fraudulent conspiracy was a director and shareholder in the 3'd ltespondent company and operated the company accounts solely and executed the guarantee and resolutions sanctioning the guarantccing of the facility and therefore, the 3'd Defendant knew and participated in the fraud. The issue still revolves around corporate personality; can a company be held liable for the fraudulent conduct of a member? The Appellant contends that liyaz Kurji was the physical embodiment and directing mind and will of the 3'd Respondent and as a result the 3.d Respondcnt thercforc kncw or ought to 20 25

have known the fraudulent operation of the trade facility. 'lhe Appellant does not lead any evidence to impute the 3'd Respondent's participation or knowledge of the fraudulent operation as a matter of fact, the Appellant submitted that lliyaz Kurji operated the company accounts solcly and executed the guarantee and resolutions sanctioning the guaranteeing of the facility, unless specifically proved, there's no logical way one would impute fraud on a company because a director and shareholder were fraudulent.

- Unless proven to the contrary, the law protects the Company from the fraudulent acts of its directors and the corporate veil ought to be liftcd where there is proof. Sec Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd ([1915) AC 705 at pp 713, 714. Where the court found that " the corporale ueil ought to be 10 - lifted where there is proof of inuoluement of the Directors in fraud". In the circumstance, I find that the Appellant failed to impute fraud on the 3.d Respondent to the requircd standard and thc Learned Trial Judge was correct in discharging the 3'd Ilespondent and was also corrcct to absolve him of liability. 15 - With respect to the 4Lh and 6th Itespondcnts, L"iaz Kurji, and Nawaz Kurji respectively were directors of the 1.,t Itespondent company. Counsel contendcd that by virtuc of the above fact, they ought to have known about the fraud in the facility. [,'or emphasis, fraud must be specifically pleaded not alleged or presumed as the 20 - matter is here, in Karnpala Bottlers Ltd v Darnanico (U) Ltd Civil Appeal No. 22 of 1992, Hon. Justicc Platt JSC held that, 25 'Tn the first place, I strongly deprccate the manner in which the Respondent alleged fraud in his Written Statement of Defence. Fraud is very serious allegation to makc; and it is; as always, wise to abide by the Civil Procedure ltules Order VI Ilule 2 and plead fraud properly giving particulars of the fraud alleged..."

Wambuzi CJ in the samc case also hcld that, "Normally, where fraud is pleaded, particulars of the fraud must be given."

The Appellant in this matter continuously uses phrases like "...by virtue of that thcy ought to havc known about the fraud in the facility" this is not specifically pleading fraud, there are no particulars to the fraud. It is my considered view relying on the above authorities and circumstances that thc Appcllant failed to prove how the 4th and 6th Respondents participated or benefitted from the fraud in question.

It was averred by the Appellant that thc 5th llcspondent, Karim Kurji, was the directing mind and principal shareholder of the 2"d Respondent Alpha group limited which had 99% shares in the 1.t Respondent. Counsel argued that the 5th llcspondent ignored the business and recklessly failed to make inquiries into company matters and was resultantly a beneficiary or participant in the fraud. Counsel for the Appellant also argued that the sth Respondent conceded in cross examination that he should have been more involved in the business of thc 1"t respondent, counsel concluded that negligence amountcd to constructivc fraud. t find that recklessness or ignorance cannot make a person liablc for fraud especially in a situation as this where the company as a legal entity harbours liability. In the abscnce of sufficient proof 15 20 25

therefore, the 5tt'Respondent cannot be held to have participated in the fraud.

5 The 7Lh Respondent, Arzina Kurji, was a dircctor to the l"t Respondent company. Counsel contcnded that thc 7th Respondent was an active participant in the fraud and based on three things; the fact that she operated the accounts with Rryaz, the fact that she wrote 29 requests for booking sums under the pre-shipment facility on the strength of fake 'confirmed orders' and the fact that she was in constant communication with the rogue employee of the bank in regard to the facility. Irirstly, on thc issuc of the 7tt' Respondent operating accounts with lliyaz Kurji, thc 7Lh Respondent was a director of the l"t Respondent company and a director operating accounts of the company and bore a fiduciary duty to maintain the company account free from any mismanagement or fraud. 10 15

To sustain a fraud allegation, the Appellant ought to havc provcd to this court how fhg Jth Respondent's operating accounts resultcd in fraud or whether it gave her special knowledge about fraudulent transactions. This kind of evidence is not prcscnted, and I cannot base on this allegation to conclude that thc Jtt't Respondent participated in the fraud.

Secondly, the 7tt'Itespondent wrote 29 rcqucsts for booking sums under thc pre-shipment facility on the strength of ltobcrt Kasekende "confirmed orders". In her reply, the 7th Ilespondent contended that she did not know that the requests were fraudulent. The Appellant should have prescnted more evidence

to prove that the 7Lh Respondent had knowledge that the confirmed orders were fake.

Lastly, there were numerous cmails reccived by or copied to the 7th Respondent. In her reply, the 7th Respondent claimed that the emails show an officer advising a client. The 7tt'Ilespondent was copied in the email that had non-existent ordcrs she also had direct communications with the rogue employee of the bank, Robert Kasekende. The Appellant presented an email dated 17l9l2OO8 copied to the 7tt' ltespondent asking that thcy push for some inflows since the position was being monitored aggressively. Another email dated 3ll7l2o08 that was sent by Robert Kasekende to the 7Lh Respondcnt and others asking them to manage the situation "as issues are getting out of control." The 7th Respondent also wrote to Ilobert Kasekende asking that "he does the needful." Robert Kasckcndc also wrote to thc 7Lh Respondent an email "next time let us stick to our stories". The constant communication was evidence that the 7th Itespondent was deeply involved in this transaction.

The 7Lh Respondent contended that the communication was inevitable since it was an "officer advising client" kind of communication. 20

I find otherwise, the email worded "next time let us stick to our stories" is quite questionable. It is crucial to make reference to the fact that Robert Kasekende was an agent of thc bank and an email worded "next time let us stick to our stories" twists the entire bonafide claim in the officer-client relationship since the statement in itself presents two possiblc storics; cither

Kasekende was simply admonishing the 7th Ilespondent or one cannot rule out the fact that the 7th llespondent and Itobert Kasekende intentionally distorted facts, a matter which makes their relationship less than credible.

5 The supreme court in Fredrick J. K. Zaabwe v Orient Bank Ltd. sccA No. 4 0f 2006 found that;

"... A false representation of a matter of fact whether by word or by conduct, by false or misleading allegations, or by concealments of that which deceives and is intended to deceive another so that he shall act upon it to his legal injury."

The 7th Respondent as a director of the 1.t Ilespondent knew about the fraudulent transaction, received emails regarding the same and also wrote cmails to thc Robcrt Kasekende cmployee of the bank supporting the transaction. In a matter as this, I am inclined to consider Lord Denning's holding in HL Bolton Co v TJ Graharn and Sons [1956] 3 ALLER 624 held at page 630 that;

"A company may in many ways be likened to a human body. They have a brain and a nerve centre which contrclls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who reprcsent the directing mind and will of thc company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such.... That is made clear in l,ord Haldane's speech in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd ([1915] AC 7O5 at pp 713, 7L4). So also in the criminal law, in cases wherc thc law requires a guilty mind as a condition of a criminal offcnce, the guilty mind of the directors or the managers will render the company themselvcs guilty."

I find that the 7th Ilespondent intentionally participated in the fraud and that the learned trial Judge erred when he discharged liability of the 7tt Respondent by reason of "fraud exception". Ground No.1 of this appeal partially succceds. 10

## Ground No.7

7. The Learned Trial Judge erred in attributing the conduct of the rogue employee Robert Kasekende to the Bank when he was clearly on a frolic of his own pursuing his own agenda and not that of the bank.

Counsel for the Appellant disagreed with the l-,carned Trial Judge concerning the conduct of Robert Kasekende, when he found that a Bank employee bound thc bank. l'rom glcaning the rccord of appeal, I was able to appreciatc that thc cvidencc clearly unfolds the chronological order through which the fraud in question emanated, blow by blow. In his judgment the I.,carned Trial Judge found that "Robert Kasekende also generated mcmorandums for short term loans; in fact, all instructions were ideally signed by him. From that point on, the behaviour of Kasekende seems to have changed for the worse. His role changcd. Instead of being a 20 25

5 representative of the appellant, he instead bchaved as though he represented the Ilespondents. He improperly shared confidential information with the respondents, compromising the fiduciary role of the Bank; in some instances, he advised the Respondents how to word their letters so as to be more appcaling to the bank administration. He started to receive bribes and kickbacks from Riyaz Kurji to falsify figurcs so as to 'improve' the financial position of thc Itespondents. On thc face of it, thc conduct of Robert Kasekende was self-induced and damaging to him and detrimental to the appellant. Section 145 of the Contracts Act provides that an agent shall conduct the business of a principal according to the directions given by the principal or, in thc absence of any directions, according to the usagc and customs which prevail, in doing business of the samc kind, at the place where the agent conducts the business. However, where an agent acts outside the scope of his or hcr authority, the Principal is not bound by the transaction undcr Section 160 (2) of thc Contracts Act. I agree with the submissions of the Appellant, the knowledge and conduct of an agent will not be attributed to the Principal where the agent's actions arc advcrse to thc interests of his principal. Ground 7 of this appeal succeeds. 10 L5 20

## Ground No.2 and No. 3

2. The Learned Trial Judge erred and speculated when he relied on unproven "Indian culture" to presume undue influence by the husband on the 7th Defendant.

## . 3. The Learned Trial Judge fell into error when he presurred undue influence on the 7th Defendant, yet she was an active participant in the fraud.

5 Ground No.2 and 3 wiII be considered concurrently in so far as they query undue influence. Briefly, the I-,earned Trial Judge reached a conclusion that the 7th l)efendant signed the guarantee out of undue influence, he reached this conclusion without an expert opinion and the Appellant contended that the learned judge had no lega1 basis for arriving at such a conclusion. He relied on Section 46 of the Evidence Act, which stipulates that; 1\_0

"Opinion as to existence of right or custom, when relevant;

When the court has to form an opinion as to the existence of any general custom or right, the opinions as to the existence of that custom or right, of persons who would be likely to know of its existence if it existed, are relevant. Explanation The expression "general custom or right" includes customs or rights common to any considerable class of persons."

I agree with the Appellant's argument that the law is clear in regard to such matters. I also associate myself with thc reasoning

of Odoki, C. J (as he then was) in the Supreme Court case of Karnpala District Land Board and anor v Venansio Babweyaka and Ors, SCCA No. 2 of 2007, where he held that: 20

> "It is well established that where African customary law is neither weII known nor documcnted, it must be establishcd for the Court's guidance by the party intending to rely on it. It is also trite law that as a matter of practice and

. convenience in civil cases, relevant customary law, if it is incapable of being judicially noticed, should be proved by evidence of expert opinion adduced by the parties"

See also; Ernest Kinyanjui Kirnani v Muira Gikanga [1965] E. A 735, R v Ndernbera s/o Mwandawale (1947) f4 EACA 85 and Balamu Bwetegeine Kiiza & anor v Zephania Kadooba Kiiza Civil Appeal No.59 of 2009 (CA)

Therefore, in the absence of an expert in Indian culture the argument of undue influence cannot stand. In addition to this, from my discussion in ground no.1 abovc, the 7th Itespondent was a participant in the fraud. Ground 2 and 3 of this appeal are allowed.

## Ground 4

4. The Learned Trial Judge erred in failing to find that the facility could be varied without the consent of the guarantors by virtue of the guarantees being continuing guarantees.

A contract of guarantee is a contract to perform a promise or to discharge liability of a third party in casc of dcfault of that third party, which may be oral or written section 68 of the Contracts Act. Section 71 of the same Act stipulatcs that the liability of a guarantor takes effect upon default by thc principal dcbtor.

Both the guarantees had an identical Clause which provided that;

"the guarantee is to be continuing security for the whole amount now and due or owing to you or which may hereafter at any time become due or owing to you as aforesaid by the , principal (including any further advances made by you to the principal during the 12 calendar months periods next hereinafter referred to and all interest and bank charges on and in connection with such further advances)"

5 Counsel for the Appellant based his criticism on this Clause, that any alterations or variations made to UFP within thc 12 months were supported by this clause since it's a continuing guarantee.

When courts are determining liability undcr thc guarantce facility, they should use the rulcs of intcrpretation of contract,

- Chitty on Contracts, 27th edition. From my understanding of the continuing clause above, the guarantors intended to continue being guarantors for "the whole amount now and due or owing or which amount became duc or owing.." In other words, they consented to be liable for the money owed and not to the fraudulent transactions. The 1"t Ilespondent connived with the 10 15 - rogue employee of the bank in a series of fraudulent transactions that were not part of the initial contract. The contract of guarantee in question docs not providc for thc dcccitful dealings between the 1.t Respondent and the banks relations officer, the guarantors intentions remained bona fide. The Appellant contended that there is no nced for consent from a continuing guarantor to vary facilities. It should be carefully noted that the purpose of this continuing guarantee was specifically to issue security for all moncy (prcscnt and accumulative) owed to the principal in case of default but not consent to fraud. 'lhe intention of the 2"d - 6th guarantors was clear and was the purpose of enforcing the contract. thc 1"t Ilespondcnt could not thcn act 20 25 5 deceitfully and expect to have bona fide parties clean up aftcr him. In Cresensio Mukasa v Yakobo M. N Senkungu & Ors Civil Appeal No.35 Of 2006 this court adoptcd thc position in Lazarus Estates Ltd v Beasley [1956] IQB-702 at 7LZ in which court stated as follows;- "No court in this land will allow a person to keep an advantagc which hc has obtaincd by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Irraud unravels everything. The court is careful not to find fraud unless it is distinctly plcadcd and proved, but once it is proved, it vitiates judgments, contracts, and aII transactions whatsoever." 10

I agree with the 7th Ilespondcnt submissions in rcply that, it is not correct to argue that a fraudulent material deviation should be countenanced by court mcrely because therc werc continuing guarantec terms as argucd by the Appellant. 'l'he I-,carncd Trial Judge correctly found that the fraudulent conduct of the Appellant was a material variation which discharged the 2"d - 6th Respondents of their obligations. Ground No.4 of this appeal fails.

# 20 Ground No.5 and 6, 8 and I

5. The Learned Trial Judge erred in law and fact in failing to find that there were two distinct and separate financial accornrnodation facilities afforded to the l't Respondent by the Appellant.

6. The trial judge fell into error when he found/held that the conduct of the rogue ernployee, Robert Kasekende related to the operation of all the loan facilities

8. The trial judge erred in fact in finding that Crane bank loan takeover was subsequently altered yet it was executed in one bullet payment and was never fully repaid.

9. The Learned Trial Judge erred when he cornpletely ignored refused and/or neglected to consider, the well-argued and articulated subrnissions of the Appellant's counsel, thereby occasioning grave travesty and a miscarriage of justice.

I will handlc all thcsc grounds togcthcr since thcy determinc a similar viewpoint. From my understanding of the above grounds and how they relate to the facts in this case is that the l"t Respondent requested for crcdit facilities from thc Appellant. These facilities were reduced into a series of facility letters dated 15tt' May 2007, 6th November 2007, and Sth September 2008. Of the three, only two facilities were functional since the third facility dated 8th September 2008 was never disbursed.

The first facility was dated 15th Mry 2007, thc Appcllant disburscd USD 5,000,000 working capital facility to the l"t Respondcnt's account in Crane Bank in a onc bullet payment that was never repaid by the 1't llespondent. This facility was only 25

guaranteed by the 2"d - 6th Respondents. This facility was not affected by the fraud in question.

The second facility was dated 6th November 2007, the Appellant advanced USD 1,500,000 constituting USD 400,000 as working

- 5 capital facility, USD 1,000,000 as post shipment facility and USD 100,000 as pre-shipment facility. This facility was guaranteed by the 2"d - 7th Respondents, this facility was eventually affected by the fraud between the l"t Respondent and the bank's employee Robert Kasekende. - I agree with the Appellant that these were distinct and separate financial facilities issued and the fraud in question only affected the 2nd facility while the 1"t facility remained intact and uncorrupted. Therefore, the 2"d 6th Respondents who guaranteed the 1.t facility are still liable as guarantors for the l't facility and the Learned Trial Judge dismissed them wrongly off 10 15 - this facility.

Regarding the 2"d facility I find that the guarantors signed a guarantee in continuance and their conduct estoppes them from claiming that they were not party to the continuing facilities. Although the 2"d - 6th Respondents may not necessarily have been party to the fraud, they were still guarantors. I would allow Grounds 5,6,8 and 9.

In the cross appeal the 2"d - 6th Respondents contended that the Learned Trial Judge erred awarding the li,espondents the costs of

the suit as against the 1't Respondent instead of as against the Appellant and in not giving reasons for his so doing. 25

It is trite law that a successful party in court is usually entitled to an award of costs. Costs in litigation are discretionary, the judge accesses and awards them as deemed fit. Devlin J in Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, [195U 1 All ER 873 formulated the relevant principle as follows: "No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct. The general proposition for that reason is that the unsuccessful party seeking to be absolved of liability to pay the successful party's costs of the proceedings bears the burden of proving special circumstances. The unsuccessful party faces the task of persuading the court that the particular facts and circumstances before the court warrant the making of an order absolving it of liability to pay the successful party's costs."

In this case the l,earned Trial Judge did not givc reasons as to why he awarded costs against the 1"t Respondent as opposed to the Appellant. I am persuaded to maintain costs as against the 1"t Respondent but would wish to add the 7tt' Ilespondent for reason that, in the name of and together with the 1"t, !nd, snfl \$rd Respondents, they became an unmitigated disaster in the manner they drew overdrafts and loans. After her husband's death she continued to draw overdrafts with the aid of Robert Kasekende. After all, if it were not for the l't Respondent's shoddy

undertakings, the 2"d - 6th Itespondents would not bc before this court.

### Qonclusion

In conclusion, I would find that this appeal succeeds in Grounds No.2,3,5,6,7,8 and 9. I would find that this appeal partially succeeds on Ground No. 1 and fails on Ground No.4. I would disallow the cross appeal.

I would order as follows:

- 1. The appeal substantially succeeds. - 2. The judgment of the trial court is set aside. - 3. The 2"d- 6th Respondents are reinstated as guarantors - 4. The 7th Respondent is reinstated as a guarantor to the 1't Respondent - 5. Atl money due to be paid to the Appe1lant with an interest of 2.5% per annum from 8th June 2009 until payment in full. - 6. The cross-appeal is hereby dismissed with costs. - 7. 80% Costs awarded to the Appellant.

C DATED at KAMPALA thrs . Z{-d,ay of @- 2023.

CATHERINE BAI\{UGEMEREIRE JUSTICE OF APPEAL

### THE REPUBLIC OF UGANDA IN THE COURT OF APPEAL OF UGANDA AT KAMPALA CryIL APPEAL NO. 38 OF 2OI7

CITI BANK UGANDA LIMITED:::::::::::::::::::::::APPELLANT

### VERSUS

- 1. UGANDA FISH PACKERS LTD - 2. ALPHA GROUP LTD - 3. MASESE FISH PACKERS LTD - 4. FT,AZ SHOKATALI KUR'I - 5. KARIM SHAMSODIN HURII - 6. NAWAZ KUR]I - 7. ANZINA KURII : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : RESPONDENTS

(Appeal from the decision of the High Court of Uganda at Kampala (Commercial Division) before Wangututsi, J dated 19h July, 2016 in Civil Suit No. 254 of 2009)

## CORAM: HON. LADY JUSTTCE ELTZABETH MUSOKE, JA HON. LADY JUSTICE CATHERINE BAMUGEMEREIRE, JA HON. MR. JUSTTCE STEPHEN MUSOTA, JA

### JUDGMENT OF ELIZABETH MUSOKE, JA

I have had the advantage of reading in draft the judgment prepared by my sister Bamugemereire, JA. For the reasons which she gives I would substantially allow the appeal and make the orders she proposes.

As Musota JA also agrees, the Court, by unanimous decision, substantially allows the appea! on the terms proposed in the judgment of Bamugemereire, JA.

It is so ordered.

Dated at Kampala this day tub .2023. )

Elizabeth Musoke

Justice of Appeal

#### THE REPUBLIC OF UGANDA

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

#### CIVIL APPEAL NO. 38 OF 2017

(Arising from part of the judgment of the High Court Commercial Division before David K Wangutusi, J in Civil Suit No. 254 of 2009 *delivered on 15th July 2016)*

CITIBANK UGANDA LIMITED ::::::::::::::::::::::::::::::: APPELLANT

**VERSUS**

- 1. UGANDA FISH PACKERS LIMITED - 2. ALPHA GROUP LIMITED - 3. MASESE FISH PACKERS LIMITED - 4. FIAZ SHOKATALI KURJI - 5. KARIM SHAMSODIN KURJI - 6. NAWAZ KURJI - **7. ARZINA KURJI ::::::::::::::::::::::::::::::::::::**

CORAM: HON. JUSTICE CATHERINE BAMUGEMEREIRE, JA HON. JUSTICE STEPHEN MUSOTA, JA HON. JUSTICE KIBEEDI MUZAMIRU MUTANGULA, JA

#### **JUDGMENT OF STEPHEN MUSOTA, JA**

I have had the benefit of reading in draft the judgment by my sister Hon. Justice Catherine Bamugemereire, JA.

I agree with her analysis, conclusions and the orders she has proposed.

Dated this $\overrightarrow{23}$ day of $\overrightarrow{16}$ 2023

During Curry

**Stephen Musota JUSTICE OF APPEAL**