Dr. Chebrot and Another v Central Purchasing Company Limited (Civil Appeal 77 of 2003) [2007] UGCA 74 (19 June 2007)

Full Case Text

### THE REPUBLIC OF UGANDA

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

CORAM: HON. JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ HON. JUSTICE A. TWINOMUJUNI, JA HON. JUSTICE C. N. B. KITUMBA, JA

#### CIVIL APPEAL NO. 77 OF 2003

**1.** DR. STEPHEN CHEBROT 20

#### $2.$ MURKET CHEMOKO ::::::::::::::::::::::::::: APPELLANTS

### **VERSUS**

## CENTRAL PURCHASING CO. LTD ::::::::::::: RESPONDENT

(Appeal from the Judgment/Decree of the High Court delivered at Kampala by the Hon. Mr. Justice R. O. Okumu Wengi, dated 22nd May 2002 in High Court Civil Suit No. 274 of 2001)

#### JUDGMENT OF L. E. M. MUKASA-KIKONYOGO, HON. 30 DEPUTY CHIEF JUSTICE

This appeal is filed by Dr. Stephen Chebrot and Mr. Murket Chemoko hereinafter be referred to to the as The respondent is the Central appellants/guarantors. Purchasing Company, a successor and/or assignee in title to Central Purchasing Corporation, hereafter to be referred to as the respondent. The appeal is against the judgment and decree of the High Court delivered in HCCS No.274 of 2001 at Kampala.

The background of the appeal is that the respondent entered into a hire purchase agreement with a company known as $M/s$ Sipi International hereinafter to be referred to as the principal debtor, for the purchase of a Steyr bus at Ug. Shs. $49.132.487/$ =. The appellants being directors of the principal

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l0 debtor, on 6lOSl93 executed personal and continuing guarantees in favour of the respondent in the sum of shs. 38.0O0.000/=. The appellants, hence, guaranteed the performance of the contract and undertook to indemnify the respondent of all expenses incurred in the event of a recovery process.

Under the contract the payments were to be effected in twelve installments, the first falling due on 1"t December 1993 and the last on l"t November 1994. The principal debtor made some payments totaling to shs. 23.000.000 l= atd defaulted, leaving an outstanding balance of shs. 26.132.487 l=. The respondent, hence, impounded the bus and sold it to recover the outstanding amount. In 1998, the respondent filed HCCS No. 662 of 1998 against the principal debtor and obtained a decree against it but it again defaulted to pay the decretal amount.

The respondent filed another suit HCCS No. 274 of 2001 seeking to recover shs. 47,305.634/= being the decretal amount in HCCS No. 662 of 1998 from the appellants/guarantors. The claim was first brought by way of summary suit but after recording the evidence of one witness was eventually decided inter-party. The respondent called a single witness whereas the appellants opted to rely on a preliminary point of law on which the suit could have been disposed of without adducing further evidence if it had been upheld.

l0 Counsel for the appellants/guarantors, vehemently argued that the respondent's suit was bad in law. It should have been dismissed because it was time barred. He pointed out that since under the guarantee, the cause of action first accrued seven days after the first default, the suit was filed out of time. Further, he contended that even if the suit had been brought on the date the last instalment was due, i.e. 18 l06 I2OOO, the suit would still be time barred as it would be after six years. It was again argued for the appellants that they could not be made to pay more that shs. 38 million which they guaranteed.

In reply Mr. Odere, counsel for the respondent, submitted that the respondent's claim was not time barred. This is because the principal debtor, SIPI International Ltd, was liable under the agreement or court order in this case. As long as it was still in default, the respondent was free to file a suit against the appellants.

Upon listening to the submissions of the counsel for both parties, the trial judge overruled the point of law. He proceeded to enter judgment under O 7 r 7 of CPR against the appellants/guarantors in favour of the respondent in the sum of 16.132.487 l: wtth interest at the rate of 6%o frorn the date of judgment until payment in full. No order was made as to costs.

Aggrieved by the decision of the High Court the appellants/guarantors lodged an appeal to this Court through their learned counsel. The memorandum of appeal contains

- l0 four grounds which coincide with the four complaints/issues to be resolved in the appeal. They read as follows:- - The learned trial judge erred in law when he held that the suit was not time barred. 1 - 2. The learned trial judge erred in law and facts when he awarded prayers not sought for including interest. - 3. The learned trial judge having made specific findings that prayers (a) and (b) were irrelevant to a claim founded on (a) guarantee he was in gross error both in law and fact and occasioned a miscarriage of justice when he purported to grant the same under 07 t7 of CPR. - The learned trial judge erred in law and fact when he held that the sum was still due to the respondent after the sale ofthe bus. 4 - i0 The respondent also filed a cross appeal based on the following grounds:- - The learned trial judge erred in law when he held that the judgment in HCCS No. 662 of 1998 could not be enforced by the trial court as it had not been admitted by the Appellants/Defendants 1 - The learned trial judge erred in law and in fact when he held that the judgment could be enforced against the appellants without necessarily ,

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instituting a suit appellants / respondents. against the

- 3 The learned trial judge erred in law and in fact when he held that the court could not enforce the guarantees since the respondent/plaintiff had not prayed for the enforcement of the guarantees against the appellants / defendants. - The learned trial judge erred in law and in fact when he refused to award interest. 4 - 5 The learned trial judge erred in law and in liact when he held that costs could not be awarded, as there was no event against which costs could be awarded.

The court was prayed for the following remedies:-

- a) The judgment of the trial court be varied. - b) Judgment be entered for the respondent/plaintiff with respect to the prayers in HCCS No. 274 of 2001. - cf The costs in the High Court and the Court of Appeal be awarded to the respondent/plaintiff.

Both counsel for the parties agreed to rely on their written submissions and legal arguments in their conferencing notes.

Counsel for the appellant argued grounds 1, 3 and 4 together and ground 2 aJone. Counsel for the respondent also followed the same order but I will take slightly a different approach.

l0 On grounds 1,3 and 4, counsel for the appellants noted that the main issue of this appeal is to determine when the cause of action arose against the appellants. He submitted that the parties properly provided for it in the personal guarantee dated 6th May 1993 but was wrongly interpreted. He reproduced section 2 which reads as follows:-

> 3sThis guarantee is to be a continuing securitg for the uthole o'mount now due or outing to gou or uhich mag hereafter at angtime becotne due or owing to gou os aforesaid bg the htrchaser (Debtor) PROVIDED ALWAYS that the total amount recorwqble hereunder shall not exceed the sutn of Thirtg eight lmillion shilling s (shs. 3 8. OOO. OOO/=).

> This surn sholl be reduced bg the monthlg instcrlments pagable bg the Prtrchaser.

Liabilitg to pag the whole amount due shall arise seuen dags aJter the due date for pagm.ent has passed whether the F'rcho.ser hq.s been inJortned or ttot".

Counsel criticized the learned trial judge for making two errors when interpreting the guarantee. He contended that the trial judge should have found that since default was on the first instalment a-ll the amounts fell due. It followed, therefore, that the cause of action accrued seven days after the default. The conclusion should have been that the action giving rise to this appeal was time barred because it was filed after the expiration of the prescribed six years period of limitation.

l0 Secondly, counsel argued that it was a serious error for the learned judge to rely on clause 14 of the guarantee document. To counsel, the learned judge should not have referred to clause 2 because the notice referred to in this clause is foreign to clause 14.

# Clause 14 reads as follows:

"A d.emqnd in writing hereunder bg the Corporation or on its behalf shall be deemed to haae been sttllicientlg giaen it sent bg due paid post letter or deliaered bg hand to the last known address or to the q.ddress stqted herein of the undersigned and shall be ossrtrned to haae req.ched the addressee in the course of the post or the dag which it is deliuered bg hand at his address aforementioned".

Whilst Clause 2 para.2 reads as follows:

'3Liabilitg to pag the whole qmount due shqll arise seuen dags after the due date Jor pagment has passed uthether the hrchaser has been informed or ,tot".

To support his submissions counsel cited the case of Parrs Banking Company Ltd vs Yates (1898) 2QB 461 where on similar facts it was held by the court that a guarantee could not be enforced after the expiration of six years as it was barred by the statute of limitation.

l0 Similarly in the present appeal whether the court takes l"t December, 1993 or 1"t November 1994 as the due date the result is the same. The respondent's suit was time barred. To him that takes care of grounds 1, 3 and 4.

Counsel for the respondent did not agree with the submissions and arguments advanced for the appellants. He submitted that the duty of the court was strictly to interpret the terms of the contract but not on any other factors not stipulated in the guarantee. As far as the respondent was concerned the principal debtor, SP1, was liable whether under the agreement or by Court Order. The hire purchase agreement allowed for filing of a court action to recover the outstanding debt. The respondent was, hence, at liberty in law to file its suit against the principal debtor within six years of default. The guarantors'liability, however, did not arise until the principal debtor was liable and only to the extent of default. Counsel argued that as long as the suit against the principal debtor was filed within time, judgment for such a debtor would be enforceable for 12 years. If it is enforceable against the principal debtor it must have been enforceable against the guarantors / appellants.

When determining the appeal I propose to consider grounds 1 & 3 together followed by grounds 2, 4, and the cross appeal together in that order.

On grounds 1 and 3, the terms of the contract and extent of liability of the appellants/guarantors are very clear. It is

l0 correct, liability of the guarantors to pay as stipulated in clause 2 of the guarantee arose seven days after the due date of payment had passed. However, on close interpretation of the terms of he guarantee, there was no requirement for the respondent to bring the suit strictly within the period of six years limitation although the cause of action was not limitless.

I accept the suit against the principal debtor would have to be brought within the six years period of limitation but the case was not necessarily the same with the guarantors/appellants. I am persuaded by the submission of counsel for the respondent and accept that the guarantors/appellant's liability does not arise until the principal debtor is liable and only to the extent of default. Clearly, that would be the correct construction of the key terms of the guarantee namely that each appellant 3'issued a personal unconditional, irrevocable and continuing guarantee". The appellants' liability continued as long as the principal debtor was still indebted to the respondent and in default.

i0 In this I am fortified by the decisions in a number of authorities on interpretation of statute limitation regarding continuing guarantees. In the case of Ssango Bay Estates ltd vs Presdner Bank EACA 197O cited by counsel for the respondent, from the observation of Spry VP, it is clear that the question whether the suit is statute barred is determined on the construction of the terms of the instrument which in the instant appeal include " a..........continuing security".

li) As it was rightly submitted by counsel, the said term must have meant just that. There is no reason for limiting the respondent's cause of action against the appellants to the same statutory limitation of six years, on the guarantee as it stands. In another similar case of Wright and Another vs Newzealand Farmers Co-operative Association of Canterbury Ltd 1939 129 ALL ER 70 PC) faced with a similar situation, the Privy Council Court held, inter alia, that under cases of continuing guarantees it was not always necessar5r to decide the exact point of time from which the limitation period would commence to run. Clearly this takes us back to the interpretation of the terms of the guarantee. I am, therefore, in agreement with the finding of the trial judge on this point. Although liability was not limitless, the cause of action was not time barred. The learned trial judge could not be faulted for holding so. Grounds 1 and part of 3 must fail. 20

On ground 2, counsel for the appellant argued that the learned trial judge having made a correct finding that the judgment in HCCS 662 of 1998 was not enforceable against 30 the appellants he came to a wrong decision. Considering the prayers in the respondent's pleadings which were as follows:-

- a) shs. 47.305.634 being the decretal sum in HCCS No. 662 of 1998. - bf Interest on (a) above at the Commercial rate of 22o/o p.a. i.e 17th September 1998) until payment in full. - c/ Costs counsel contended that the learned trial judge could not have passed any judgment in favour of the respondent. This is because the suit having been founded on the guarantee, the prayers were not enforceable on the appellants/guarantors. Counsel, further, submitted that the learned trial judge should have stopped there and dismissed the suit with costs. He wrongly invoked O 7 17 of the Civil Procedure Rules. For the authority for his submission he relied on Departed Asians Properties Custodian Board vs Issa Bukenya SCCA No. 26 of L992.

l0 Finally, counsel submitted that the learned trial judge, should not have awarded specia-l damages, which had not been specifically pleaded and proved. He prayed court to allow the appeal, set aside the judgment and order in HCCS No. 274 of 2OOl and substitute thereof judgment for the appellants together with costs in this Court and Court below.

In reply, counsel for the respondent did not agree with Mr. Babigumira. It was his contention that it would be strange to argue that a guarantee which is a continuing security and enforceable against the principal debtor would not be enforceable on the guarantor. To Mr. Odere, as long as the principal debtor remained indebted at law so were the appellants/guarantors as the guarantee was a continuing one. As far as he was concerned the respondent's claim hinged on the question whether HCCS No. 662 of 1998 was binding on the appellants.

l0 Clause 2 of the guarantee (supra) states inter alia that the "Undersigned agrees to pag costs and cost recouerable from the Jull indennitg basis arising out of or in connection with the recoaery of the abotrc monegs due to the corporation qnd the guarantee and hire purchase".

I have had a careful perusal of the submissions ald legal arguments advanced on behalf of both parties by their learned counsel, I slightly have a different view on the learned judge's finding on the issue of liability of the appellants under HCCS 662 of 1998. I do not agree with his finding that any part of the judgment in the above mentioned case was not enforceable against the appellants. The reasoning for that holding would defeat the purpose of the guarantee. The proper construction of the terms of the guarantee under clause 2, 3 and 7 paragraph 3 read together leaves no doubt in my mind that the judgment in High Court CS. No. 662 of 1998 is binding on the appellants where the claim had been established.

30 The provisions of the aforementioned clauses of the guarantee provide for the enforcement of the judgment and court order in dispute.

## Clause 2 (supra) reads as follows:

KThis Guarantee is to be q continuing secrritg for the uthole amount nout due or ouing to gou or uthlch mag hereafter at ang time become due or ouing to gou as aforesald. bg the Prtrchqser (Debtor) PROWDED ALWAYS thdt the total qmount recornrdble

hereunder shall not exceed the sum of shs. 38,000,000= (Thirty Eight Million shillings).

This sum shall be reduced by the monthly instalments payable by the Purchaser.

Liability to pay the whole amount due shall arise seven days after the due date for payment has passed. Whether the Purchaser has been informed in writing or not.

The undersigned agrees to pay costs and expenses recoverable from the Purchaser on a full indemnity basis arising out of or in connection with the recovery of the above moneys due to the Corporation under Guarantee and the Hire Purchase agreement".

**Clause 3** provides:-

"This Guarantee shall remain in force for the whole period instalments have not been completed and shall be determinable only at the instance of the GCPC on completion of payment".

**Clause 7** as follows:-

"The Corporation is at liberty in the event of this Guarantee ceasing from any cause whatsoever to be binding as a continuing security on the undersigned to open afresh account and to continue any then

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existing account with the Purchaser under the same terms as this guarantee.

In the event of this Guarantee being determined by demand in writing by the Corporation in the event of the Corporation receiving the notice of any disability or incapacity of the undersigned. It shall be lawful for the Corporation to continue the account with the Purchaser notwithstanding such determination or *notice of disability or incapacity, and the liability of* the undersigned for the amount due from the $at$ the date which **Purchaser** upon such determination of this Guarantee shall become operative and of effect immediately.

Any admission or acknowledgement in writing by the Purchaser or any person on behalf of the Purchaser of the amount of the indebtness of the Purchaser or otherwise in relation to the vehicle of subject matter of this Guarantee or any judgment or award obtained by the Corporation against the Purchaser the Corporation or proof by of insolvency, bankruptcy or liquidation of the company which is admitted or any statement of account furnished by the Corporation shall be binding and conclusive on the undersigned".

In my view I do not find the prayer for enforcement of the judgment and court order in HCCS No. 662 of 1998 odd.

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l0 Clearly, that is what was stipulated in the guarantee between the respondent and appellants. In the premises the guarantors/appellants could not be described as different persons with no knowledge of the judgment. It is not correct, on the record before court, to say that they did not acknowledge it.

From the above mentioned provisions of the guarantee, the appellant's liability extends to'@ or owinq to ttou and which tnqz hereafter at anutime 20 become due or owinq to uou Grs aforesaid bu the rchaser debtor" nderlining is mine).

The appellants/guarantors would be estopped by their guarantee from denying knowledge of the judgment in HCCS No. 662 of 1998. They were liable to indemnify the respondent for any indebtness to it by the principal debtor. The only pertinent issue to consider is the extent to which they were liable in view of the fact that the award in HCCS No. 662 of 1998 exceeded 38.000.000/= million. Further, were the appellants' liability separate or was each one of them individually liable to pay shs. 38.000.000/= million?

My understanding of the guarantee with regard to the above questions is that the appellants were liable jointly and severally but not in each one's individual capacity.

Both were liable jointly or severally to respondent in the sum not exceeding shs. indemnify the 38 million plus

l0 costs and expenses incurred in connection with the recovery process.

However, it is important to note that under clause 2, the above sum of shs. 38 million would be reduced by the monthly instalments. On the accepted evidence, the liability had been reduced by shs. 23.000.000 l= ana the proceeds of the bus. In my view, as at the time judgment was entered by the High Court against the appellants, the principal debtor, indebtness to the respondent in default for which the appellants were liable, was as follows:-

Shs. 26. 132.487 outstanding balance of the purchase price and costs, or charges or expenses in connection with the recovery process and costs of the suit.

The respondent was at liberty to claim the outstanding balance by filing an action as it did. Whatever decision in the above suit as stipulated in the guarantee was, hence, binding on both the principal debtor and the appellants. There was no requirement of further acknowledgement, or admission by the appellants before enforcing it on them. In any case on the evidence before court they did not dispute the respondent's claim apart from the quantum. Most importantly, their defence was not a denial of liability but statute limitation. Clearly, when the point of law was overruled they had no other defence and were, hence, bound by the judgment of the court.

t0 20 However, in my view the appellants were not liable to pay the general damages of shs. 13.000.000/= for breach. Whilst the principal debtor was liable, the appellants were not. I do not consider general damages as costs or charges or expenses incurred in connection with the recovery process. The liability for indemnification on the part of the appellants, to me, did not extend to breach of the hire purchase agreement by the principal debtor. For different reasons the outstanding balance the appellants are liable to pay to the respondent coincide with the figure of shs. 16. L32.487 /= awarded to the respondent by the learned trial judge.

The respondent is, therefore, entitled to the said16.132.487 l= taxed costs in HCCS No. 662 of 1998 and costs in this Court and court below with interest from the date of filing of the suit till payment in full.

In the premises there was no need for the learned trial judge to invoke the provisions of 0 7 r 7 of the CPR which provide as follows:-

aa laint shall state cal the re which the plo;intif-f clairns either simplg or in the alternatiae , attd it shall not be n,ecesso,ry to ask for general or other relief uthich mag alwags be giaen as the court mag thinkJust to the so;mle extent as tf it had been asked Jor and. the sanrr.e ntle sholl applg to ang relief claimed bg the defendqnt in his utritten statetnentt'. i0

It) )0 If, however, I was in agreement with the learned trial judge that the judgment in HCCS No. 662 of 1998 was not enforceable against the appellants, I would have concurred with all his findings. He would have been justified to invoke O 7 r 7 (supra) and award interest as he did. With regard to interest the learned trial judge had a discretion to grant it, under section 26 of the Civil Procedure Act. In the instant case there is nothing to show that he did not exercise his discretion judiciously when he awarded the interest of 60/o p.a. He, therefore, did not have to allow interest at the rate of 22o/o p.a. as prayed by the respondent.

The complaint by counsel for the respondent that, the trial judge should not have reduced the outstanding balance of shs. 26.162.48U= is not justifiable. It was stipulated in the guarantee that liability or indebtness would reduce with payment of insta-lments. The proceeds of the bus seized from the principal debtor reduced the outstanding figure to, shs. 16.132.487 l= awarded by the court. The complaint on the fourth ground is not justilied in view of the above finding. It 30 would have amounted to unjustifiable enrichment if it was to receive the proceeds twice. Although for partly different reasons, the appellant's appeal fails. I would dismiss it with costs in this Court and High Court.

Further, the award against the appellants in the sum of the shs. 16.132.4871= would be upheld. Additionally the respondent would be awarded the taxed costs in HCCS No. 662 of 1998.

l0 The order for interest in the sum of 60/o from date of filing civil suit No. 274 of 2001 till payment in full is also upheld. The above holdings take care of the cross appeal which partially succeeds wit}e 213 costs.

Since Justice TVinomujuni and Justice Kitumba also agree the appellants' appeal is dismissed with costs to the respondent in this Court and court below. The respondent's cross appeal is partially allowed wrt}:, 213 costs. Further, the judgment in the HCCS 274 of 2OOl entered against the 20 appellants/guarantors in favour of the respondent for shs. 16.132.487 /= is upheld together with the taxed costs in HCCS No. 662 of 1998 and interest at the rate of 60/o p.a. from the date of Iiling till payment in full.

Dated at Kampala this 19th day of June , 2OO7 .

L. E. M. Mukasa-Kikonyogo HON. DEPUTY CHIEF WSTICE HEAD OF THE COURT OF. APPEAL AND CONSTITUTIONAL COURT