DFCU Bank Limited v Kasozi (Civil Appeal 70 of 2001) [2003] UGCA 23 (27 June 2003)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

#### CORAM: HON. MR. JUSTICE G. M. OKELLO, JA. HON. MR. JUSTICE J. P. BERKO, JA. HON. LADY JUSTICE C. N. B. KITUMBA, JA.

## CIVIL APPEAL NO. 70 OF 2001

#### **Between**

DFCU BANK LTD. :::::: **EXAMPLE APPELLANT**

### AND

WILLIAM KASOZI :::::: **RESPONDENT**

> [Appeal from the Judgment of the High Court (Byamugisha, J.) at Kampala dated $27th$ day of September, 2001 in HCCS No.1326 of 2000]

# JUDGMENT OF G. M. OKELLO, JA.

This is an appeal against the decision of the High Court in which Byamugisha. J. as she then was awarded damages against the appellant for breach of contract of sale of a house under a mortgage.

The appellant is a Financial Institution which carries on banking business in Uganda. Through it. (appellant) Nagongera Millers and Farmers Ltd. (hereinafter referred to as "the Company") obtained a commercial finance facility amounting to Shs.80.000.000/= (eighty million) under the Investment Term Credit Re-finance Fund (ITCRF) of Bank of Uganda (BOU). The loan was secured under a mortgage of a piece of land

compnsed rn block 244 Plol 1709 situated at Kisugu in Kampala Victor Kobel the Managing Director of the Company was the registered proprietor of the land He gave the company powers of Attorney to mortgage the house The repayment schedule to be followed by the parties was provided by BOU

The company defaulted rn the repayment and the appellant as the Mortgagee. put the property for sale The property was advertised for sale by an Auctioneer At the auction sale. the respondent. an employee of BOU rn the Legal Divrsion. was the successful bidder Agreement of sale was subsequently drawn and executed by the parties The Agreement (Exh P3) however does not show who drew it Nevertheless. the respondent obtained a transfer of the property from the appellant The property was later registered in the name of the respondent sublect to the interest of Victor Kobel who was not happy with the sale After that regrstration. the respondent obtarned possessron of the property

By an action in High Court Civil Suit No 1329 of 1999

Naqonqera Millers and Farmers Ltd, and Victor Kobel vs Gold Trust Bank Ltd Victor Kobel challenged the legality of the sale of the property His argument was that the sale was illegal as the purchaser. (respondent) being an employee of BOU whrch was rn effect the mortgagee. lacked the capacrty to purchase the mortgaged property The transaction was contrary to public policy

The Hrgh Court (Okumu-Wengr J ) rn a ludgment dated 26-7-2000 (Exh P3) allowed the suit and nullified the sale on ground of illegality for

)

public policy As a result of that decision. the respondent lost possession of the property Thereafter he demanded refund of his purchase prrce from the appellant. On failure to get the refund. the respondent sued the appellant claimrng the followrng -

- (i) A refund of the Ug Shs 92.000.000/= purchase monres on the total farlure of consrderation or alternatively for breach of express/implied term as to obtarnrng of good title - (ii) lnterest on (l) above al 20o/o per annum from 21't May 1999 till payment in full - (iii) Specral damages of Ug Shs 85 43.000/= as set out rn paragraph 7 of the Platnt - (rv) lnterest on (ii) above al 25o/o per annum from the date of filing the sutt till payment in full - (v) General damages

1vr) lnterest and costs

The Hrgh Court heard the case and gave ludgment rn favour of the respondent and ordered them to pay as follows

- (1) U9Shs.92.000000 wrth rnterest al 25o/o from 11-5-1999 till payment rn full - (2) Ug Shs 138.430.000/= with rnterest al 60/o p.a. as various damages clarmed in the plarnt

(3) Taxed costs of the suit

It is against the above judgment and orders that this appeal is brought There are srx grounds of appeal framed as follows -

- (1) The learned trial judge erred in fact and in law in finding that there was a valid contract of sale between the plaintiff and the respondent - (21 The leamed trial judge erred in fact and in law in ftnding that the plaintiff is entitled to the refund of the money claimed in the plaint. - (3) The learned trial Judge erred in fact and in law in holding that the defendant breached the contract in question and is liable to indemnify the plaintiff under clause 4 thereof. - (4) The leamed trial judge erred in fact and in law in awarding damages to the plaintiff. - (5) Without prejudice or derogation from the aforestated grounds, the learned trial judge erred in law and in fact in awarding excessive damages to the plaintiff. - (6) The learned trial judge erred in law in shifting the burden of proof to the defendant.

On ground 1 above. the appellant s complaint is that the trial ludge erred to find that the contract of sale between the appellant and the respondent (Exh P3) was valid Mr Bwanika. learned counsel for the appellant. contended that the ludgment of Okumu-Wengi. J in HCCS No 1329 of 1999 (Exh P13) was one of the documents on which the respondent sued the appellant rn HCCS No'l 32 of 2000 He pornted out that that ludgment. Exh P'l 3 found that the contracl of sale between the appellant and the respondent Exh P3. was invalid for illegality on ground of public policy The respondent berng an employee of Bank of Uganda. lacked the capacrty to purchase the property since he is a person within the prohrbited degree Bank of Uganda. the respondent s employer is the Manager of the lnvestment Term Credit Refinance Fund (ITCRF) from whrch the appellant secured the fund which it loaned to Nagongera Millers and Farmers Ltd. on the security of the property The loan repayment schedule which the appellant had to follow was drawn by Bank of Uganda Learned counsel argued that. that relationship and involvement made Bank of Uganda a de'facto Mortgagee Therefore. he reasoned the respondent who rs an employee of Bank of Uganda. in its Legal Department. could not buy the property as that would amount to a Mortgagee selling to itself lt is contrary to pubfic policy and rendered the contract (Exh P3) illegal. rnvalid and unenforceable

Learned counsel criticised the trial judge for refusing to rely on Exh P13 ln counsel s view the reasons advanced by the trial ludge for the refusal were misdirections He pornted out firstly that the trial ludge s reason that she was not bound by that ludgment (Exh P13) was a misdirection The.ludgment was not produced in court as authority for her

to follow but rather as evidence of the standing dectston of the same court on the validity of the contract The validtty of the same contract was again an issue before her as it had been before Okumu-Wengi J. Secondly that the trral ludge s cnticrsm of the appellant for failure to produce before her. evidence whrch they had produced before Okumu-Wengt. J to prove the illegality was a misdirection lt was not necessary to produce that evidence because Exh P13 was adduced as evtdence and also as the document on whrch the surt was brought lt was evtdence of the court s pronouncement on the validity of the contract He submitted that under section 38 of the Evidence Act the existence of any ludgment rs relevant Exh. P13 was therefore relevant and was suffioent evidence to show the respondent's lack of capacrty lt was a ;udgment n rem as opposed to ludgment tn personam

Mr Bwanika further crrticised the tnal ludge for finding the contract (Exh P3) valid when she even acknowledged that tt did not comply wtth sections 65 and 66 of the Advocates Act 1970 He blamed the trial ludge for treatrng the non-compfiance as a mere technrcality yet the suit was based on the contract. He cited Caltex Oa! (U) Ltd. vs Serunkuma Bus, Civil Appeal No.49 of 2000 for the propositron that non-compliance with those sections was fatal He potnted out that in the instant case. the respondent admrtted in his evidence that he drew Exh P3 Learned counsel submitted that as Exh P3 did not comply with sections 65 and 66. the tnal ludge erred in finding that it rs valid He prayed that this ground of appeal be allowed

Mr Masembe-Kanyerezr. learned counsel for the respondent. did not agree with Mr Bwanika He contended that the trial judge was nght in every respect to find that the contract was va[d

On the illegalrty found rn Exh. P13 Mr Kanyerezi submitted that the burden was on the appellant who rarsed rllegality as a defence. to prove it He crted and relied on Ch on Contracts 28h Edition ra 17 - 194 Presumption of Leqality

Learned counsel argued that the respondent was not a party to the case which gave rise to Exh P13 Whatever pronouncement that was made in that ludgment could not bind him The 1udgment. therefore could not be evidence of rllegality agarnst the respondent He cited and relied on Phipson On Evidence 15s Edation para 38, 75, 77. He submitted that at common law a ludgment was not evrdence of the truth of either the decrsion or of its ground Refernng to the rnstant case. Mr Kanyerezi contended that Exh. Pl3 was not a Judgment in rem but a judgment in personam He argued that the ludgment was irrelevant in the rnstant case because it does not fall withrn either sectrons 38 39 or 40 of the Evidence Act lt was therefore rncumbent on the appellant to adduce evidence to establish the illegality but that thrs was not done

On illegality arising from non-compliance with sections 65 and 66 of the Advocates Act 1970 Mr Kanyerezi remarked that the appellant did not. when he should have. raise the matter in his written statement of defence to make it an rssue at the trial Despite that remark. learned

counsel submrtted that the scope of section 65 drd not cover the respondent even though he admrtted to have drawn Exh P3

ln exercrse of his right of reply Mr Bwanika submitted that the trial ludge wrongly shrfted the burden of provrng illegality on to the appellant lt was he argued rncumbent on the respondent to prove that the illegality rn Exh P13 whrch he relied on. did not affect his rrght underthe contract. He submitted that the respondent did not do that. He pornted out that the appellant produced sufficient evrdence to discharge the burden on rt Counsel relied on the evidence at p 112. the evidence elicited by the crossexamrnatron of PW2 at p 1 13 and the documentary evrdence agreed on by the parties during the schedu[ng conference. all show the illegalrty He rerterated that Exh P'l 3 was relevant in this case and that the respondent having sued on it cannot now say that it is rrrelevant

The issue here is whether the contract of sale between the appellant and the respondent (Exh P3) is rnvalid and unenforceable for illegality Whether or not the contract rs tarnted with illegality is a question of fact The law on the legal burden of provrng illegality as a defence was stated rn ChiW on Contract 286 Edition Vol. I paqe 943 under sub-headrns Presumptron of legalrty thus -

> "The party alleging the illegality of the contract bears the burden of proving this fact; therefore if the contract be reasonably susceptible of two meanangs or two modes of performance, one legal and the other not legal, the burden of proving its illegality is un-

> > 8

discharged and that interpretation is to be put upon the contract which urill support it and give it operation. lf the contract on the face of it shows an illegal intention, an evidential burden lies upon the party supporting the contract to bring evidence reasonably capable of establishing the legality of the intention. "

The legal burden of proving the illegality rarsed as a defence therefore lies on he who alleges rt ln this case tt was on the appellant The evidential burden is also cast on he who supports the legality of the contract when on the face of it. the contract shows illegal tntention lt has not been shown that on face of rt Exh P3 shows illegal intention lt is a plain contract of sale of immovable property Therefore. the respondent had no evidential burden to grapple with lt rs true that the respondent annexed a copy of Exh P'l 3 to his plarnt as one of the preces of documentary evidence to prove that Exh P3 was breached Thrs alone could not shift to the respondent the legal burden to prove the illegality raised as a defence.

)

Mr Bwanika submrtted that the appellant has produced sufficrent evidence to discharge the burden case on it. He relied on the ludgment Exh P13 the evrdence elicited by cross-examination of PVtl2 and the documentary evidence agreed on by the parties during the scheduling conference He argued that under sectron 38 of the Evrdence Act the ludgment Exh P13 was relevant and therefore provrded sufficient evidence to show the respondent s lack of capacity to enter into Exh. P3

Section 38 of the Evidence Act provides:-

"The existence of any judgment, order or decree which by law prevents any court from taking cognisance of a suit or holding a trial, is a relevant fact when the question whether such court ought to take cognisance of such suit or hold such trial."

My understanding of this section is that it refers to a srtuatron to which the doctrine of resludicata applies That doctrine is not applicable to this case The parties to the two cases are not the same Therefore Exh P13 was not relevant rn HCCS No 1329 of 2000 under thrs section

Section 39 of the Evidence Act refers to final ludgments of a competent court exerosrng Probate Matrimonral Admiralty or lnsolvency lurisdiction Exh P13 rs not such a ludgmernt nor was the exrstence of any such legal character of trtle of any person to any such thing was in issue rn HCCS No 1326 of 2000 Exh P13 was therefore not relevant under this section either

Sectron 40 of the Evrdence Act reads -

"Judgments, orders or decrees, other than those mentioned in section 39, are relevant if they relate to matters of a public nature relevant to the inquiry; but such judgments, orders or decrees are not conclusive proof of what they state."

o This section refers to matters of a public nature lt has not been shown that Exh. P13 related to matters of a public nature relevant to the inquiry in HCCS No'1326 of 2000 Therefore Exh P13 was not relevant rn HCCS No 1326 of 2000 under thrs section either Even if it were. it would not be conclusive proof of what it states ln the crrcumstances. I can not fault the trial ludge for refusing to use and apply Exh P13 to determine the validity of Exh P3 lt is not relevant. lt was necessary for the appellant to produce evidence to prove the invalidity of Exh P3

ta."

The evidence of PtN2 shows that the respondent rs an employee of Bank of Uganda His employer gave him a loan of shillings 42 million to purchase a house Bank of Uganda lent money from ITCRF to the appellant Bank of Uganda lends money from ITCRF only to Financial lnstitutions lt does care to know the customers to whom such Financial lnstitutions lend the money The purpose is only to enable Bank of Uganda to rnvestigate to find out what rs on the ground lt does not care to know whether the Financial lnstitutions take securities for the loan from their customers. lt is also not involved in the realization of the securities under the ITCRF lt recovers the money rt lent from the Financral lnstrtutions directly

' Varrous documents were agreed on by the parties during the scheduling conference The effect of them shows that the respondent was the successful brdder He was also the one who drew Exh. P3 The appellant executed a Transfer Deed in respect of the suit property in favour of the respondent The deed was however registered in the name of the

'1 1

respondent only with the consent of Viclor Kobel. the former regrstered proprietor but sublect to his (Kobel s) interest and right as contained in his caveat.

Clearly the above preces of evrdence neither show that Bank of Uganda was the de facto mortgagee nor prove any illegality in Exh. P3. I agree with Mr Kanyerezi that no evrdence of illegalrty was adduced before the trial ludge

Mr Bwanrka further contended that Exh P3 was illegal for noncompliance with sectrons 65 and 66 of the Advocates Act 1970 For ease of reference. I reproduce here the provisions of these seclions:-

- '55 (1) Any person other than an advocate with a valid practicing certificate or a person specifically authorised by any written law so to do who, unless he proves that the act was not done for, or in expectation of, any fee. gain or reward, either directly or indirectly, draws or prepares any instrument, - (a) relating to movable or immovable property or any legal proceeding; - (b) for or in relation to the formation of any limited liability company whether private or public; - (c) for or in relation to the making of a deed of partnership or the dissolution of a partnership shall be guilty of an offence.

(21 This section shall not apply to,

- (a) any public officer drawing or preparing instruments in the course of his duty, - (b) any person employed merely to engross any instrument application or proceeding; or - (c) any person in the full-time employment of a limited liability company drawing or preparing instruments in the course of his duty for and on behalf of such company. - (1) For the purposes of this section and section 56 of this Act the expression "instrument" does not include. - (a) a will or other testamentary instrument; or - (b) a letter or power of attorney; or - (c) a transfer of stock or shares containing no trust or limitation thereof. - 66 (1) Every person who draws or prepares any instrument of which section 65 of this Act applies shall endorse or cause to be endorsed thereon his name and address; and any such person omitting so to do or falsely endorsing or causing to be endorsed any of such requirement shall be guilty of an offence.

l2l lt shall not be lawful for any registering authority to accept or recognise any such instrument unless it purports to bear the name and addres of the penson who prepared it endorsed thereon."

Mr Masembe-Kanyerezr submitted that this matter was not raised by the appellant rn its Written Statement of Defence to make it an issue He contended that the scope of section 65 applies to non-advocates.

I agree that the appellant s Wntten Statement of Defence drd not plead thrs non-compliance Counsel for the appellant raised the issue of non-compliance with section 66 in his written submrssion ln my view this omissron denied the respondent the chance to lead any evidence that could have brought hrm wrthin the exception I also agree that the scope of sectron 65 applied to non-advocates The respondent in hrs evidence stated that he rs an advocate havrng been enrolled in 1996 He also admltted to have drawn Exh P3

ln order for the scope of section 65 to apply to the respondent. it had to be shown that he is not an advocate or that he did not have a valid practising certificate and that he had charged fees for his work. No evrdence was adduced by the appellant to that effect. DW1 who was the appellant s sole witness did not even touch on those facts in hrs testimony

The respondent. as an advocate with a valid practising licence therefore. did not vrolate section 65( 1 ) when he drew Exh P3 However section 66 is wider lt covers even an advocate\$ wrth a valid practising

I O licence who draws or prepares any instrument to wtrich section 65 applies The respondent on hrs own admrssion prepared Exh P3. Section 65 (1) (a) applies to Exh P3 The respondent who drew Exh P3 did not comply with the provision of section 66 He did not endorse on it his name and address as the person who prepared it. lt rs qurte plain from the circumstances of thrs case that the respondent does not fall within the exceptron stated rn seclion 65 (2) The trral .1udge acknowledged the omission but treated it as amere technicahty Mr Bwanika cnticised her for doing so He argued that the omission rendered Exh P3 illegal and invalid.

Mr Masembe-Kanyerezi did not agree He held the view that the tnal .;udge was rrght as her decision was rn line with artrcle 126 (2) (e) of the Constrtutron

I have no doubt rn my mind that the respondent s omission to endorse on Exh P3 offended section 66 of the Advocates Act 1970 Article 126 (2) (e) of the Constitution enloins Courts to admrnrster substantive lustice without undue regards to technrcalities. Consrdering all the circumstances of the case. I am inc[ned to agree with the trial .1udge that the omission by the respondent to endorse Exh P3 rs a technicalrty Section 66 does not seek to prohibit a contract of sale of rmmovable property lt seeks to make known those who draw such a contract whrch concerns very important sublect like immovable property The omission is. therefore. a technicality It is related to form rather than substance This can be lettisoned rn favour of substantive lustrce ln term of artrcle 126 (2\ (e) of the Constrtution For those reasons I cannot fault the trial ludge for finding that Exh P3 is va[d Ground 1 would therefore fail

The next are grounds 2 3 and 5 Mr Mubiru-Kalenge argued these grounds for the appellant The grst of the appellant s complarnt here is that the trial judge erred to order the refund of the purchase pnce and award of specral damages. He argued that the contract Exh. P3 was shown tn ground 1 above to be rllegal Therefore monies paid under it are not recoverable He cited a number of English cases as authorrties to support that proposition He pointed out that clause 4 of Exh P3 provided that the vendor was to rndemnify the purchaser and Bank of Uganda against any loss arrsrng from any defect in title or the powers of sale

Arcording to him there was no evidence to show that the appellant had any defect either rn the tittle or in the power of sale. The appellant sold the property to the respondent and executed its transfer which was regrstered in the respondent s name The respondent even took possessron thereof He argued that the cancellation of the respondent s title was due to the pronouncement in Exh P'1 3 that the respondent lacked the capacity to purchase the property lt was not due to any fault of the appellant He submitted that the order to refund the purchase price was eroneous and should not have been made

On the award of damages. Mr Mubrru-Kalenge contended that as the contract was shown to be illegal the award of damages under it was also erroneous Damages are not awarded in illegal contract. He relied on Parkinson v Colleqe of Ambulance. Ltd And Harrison (1925) 2 KB 6

Mr Masembe. Kanyerezr dld not agree He contended that the trtal ludge was lustified to order the refund of the purchase price and the award ofthe specral damages that had been pleaded and proved

On indemnity. learned counsel submitted that it was not necessary to rnclude in the contract a proviston for order for refund of a purchase prtce for breach of contract rn order for it to be ordered He pointed out that the advertisement Exh Pl stated that the house was berng sold with the voluntary consent of Vrctor Kobel. the registered propnetor This was wrong The caveat lodged by Kobel against the sale showed that the sale was. in fact not with his consent That shows defect in the power of sale On this ground. he argued. the trial .ludge was .lustified to order the refund of the purchase price

He further pornted out that the evidence of DWI shows that the appellant never when it should. gave to the respondent any clean trtle to the surt property The transfer deed whtch the appellant executed in favour of the respondent was regrstered in the name of the latter only with the consent of Victor Kobel. sublect to Kobel s interest and rights contarned rn his caveat That was evrdence of defecl tn the title which amounted to a total failure of consrderatron from the appellant Learned counsel submitted that this was a further lustification for the order of refund of the purchase price

He pointed out further that Exh P15. a letter dated 23-8-2000 from the appellant to Mr Abrd Alam shows that the appellant was willing to refund the purchase price following the cancellation if Alam agreed Alam

responded rn a letter daled 24-8-2000 (Exh P16) rn which he advrsed against the refund because he was seeking to reverse Exh P13.

On the award of special damages. Mr Kanyerezi submitted that the trral ludge was lustrfied to make the award The specral damages were specifically pleaded and the trral ;udge found them duly proved She therefore correctly awarded them

I have found in ground 1 that Exh. P3 rs valid ln view of that finding this ground too must fail Payment rs not recoverable under a contract whose object is to commrt rllegality or a contract which is expressly prohibited by law (St. John Shiopinq Corp. vs Joseph Rank Ltd. (1956) 3 ALL ER 683 at 689) No evidence was led to show that Exh P3 s object was to commit an illegal act or that it is a contract whrch rs expressly or rmpliedly prohibrted by law lt rs merely a contract of sale of immovable property ln the absence of evidence to that effect. I am unable to fault the trial ludge in the order she made

The next rs ground 6 The complarnt here is that the trial .1udge wrongly shifted the burden to prove the rllegality on to the appellant.

I have already adequately covered this ground when discussing ground 'l I shall therefore not repeat it here Suffices it to say that the appellant who rarsed the illegality as a defence bore the legal burden to prove it.

In the result. I would dismiss the appeal with costs in favour of the respondent.

Dated at Kampala this 27th day of June 2003. G. M. Okello **JUSTICE OF APPEAL**

#### THE REPUBLIC OF UGANDA

# IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

# CORAM: HON. MR. JUSTICE G. M. OKELLO, JA. HON. MR. JUSTICE J. P. BERKO, JA. HON. LADY JUSTICE C. N. B. KITUMBA, JA.

### CIVIL APPEAL NO. 70 OF 2001

#### Between

DFCU BANK LTD....................................

#### AND

<table>

WILLIAM KASOZI....................................

**Appeal from the Judgment of the High Court** (Byamugisha, J.) at Kampala dated 27th day of September, 2001 in HCCS No. 1326 of 2000]

### JUDGMENT OF HON. MR. JUSTICE J. P. BERKO, JA.

I have had the benefit of reading in draft; the Judgment of learned brother Hon. Justice G. M. Okello, JA. in which he has fully recited the facts and ably discussed the law applicable. I agree with his conclusions. I have nothing more to add.

Dated at Kampala this 27th day of June 2003.

> J. P. Berko Justice of Appeal.

### THE REPUBLIC OF UGANDA

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

#### CORAM: HON. MR. G. M. OKELLO, JA HON. MR. JUSTICE J. P. BERKO, JA HON. LADY JUSTICE C. N. B. KITUMBA, JA

#### CIVIL APPEAL NO. 70 OF 2001

### **BETWEEN**

#### DFCU BANK LTD. ::::::::::::::::::::::::::::::::::::

#### AND

WILLIAM KASOZI :::::::::::::::::::::::::::::::::::: [Appeal from the Judgment of the High Court Byamugisha, J) at Kampala dated 27th day of September, 2001 in HCCS No. 1326 of 2000]

$10$

## **JUDGMENT OF C. N. B. KITUMBA, JA**

I have had the benefit of reading in draft the judgment of G. M. Okello, JA. I agree with it and I have nothing useful to add.

27th day of June 2003 Dated at Kampala this.....

Cres alina C. N. B. KITUMBA, **JUSTICE OF APPEAL**