Hot Loaf Bakery Ltd v Semwanga t/a Abbey Semwanga & Sons (Civil Suit No. 112 of 1999) [2001] UGHC 121 (5 July 2001)

Full Case Text

#### THE REPUBLIC OF UGANDA

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

#### CIVIL SUIT NO. 112 OF 1999

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$-10$

HOT LOAF BAKERY LTD -----PLAINTHEF

$V_{\text{Si}}$

## ABBEY SEMWANGA

<pre>L/a ABBEY SEMWANGA & SONS</pre> DEFENDANT

# BEFORE: THE HONOURABLE LADY JUSTICE C. A. OKELLO

**JUDGMENT**

Hat Loaf Bakery Ltd the plaintiff in this suit (her ' afret called Hot Loaf or Plaintiff filed the suit again $\mathbf{1}$ defendant Abbey Semwanga trading as Abbey Semwanga a $\mathcal{L}^{\mathcal{A}}(1)$ thereinafter referred to as Semwanga or the defendant

In the plaint, Hot Loaf claimed from Semwange the sum of this 35 796,450 which is averred to be the accumulated value of $1164$ : se d by Hot Loaf to Semwanes in the years 1998. The content for by Semwanga's post dated cheques. It is further $\pi$ is a $\mathcal{L} = \mathcal{L}^{\mathcal{L}}$ the post-dated cheques which had been the agreed mode of a comment for the bread, were dishonoured on presentation to the barrier for payment. It is also averred in the plaint that Semman was not fied of the dishonour of the cheques but he did notion $\mathbf{r}$ $_{\rm cl}$ $_{\rm cl}$ ar the accumulated debu.

In his amended Written Statement of Defence, Semwanga dense $\mathcal{O}_{\mathbb{P}^2}$

plaintifit's plaim. He has pleaded that during the material time, there was in arrangement between him and Hot Loaf which permittel him to take bread on credit. He would issue post-dated ci pues. Whenever a post-dated cheque was dishonoured, the dishonour would be brought to his attention and he would pay cash in place of such a chaque. Such a cheque would either be returned to sim or it would le destroyed by officials of Hot Loaf in his presence. Remwanga further pleaded that receipts were issued for the post-Hated cheques and that even after paying cash in place of an unpaid cheque, the cheque receipt would be tain as acknowledgement of cash payment.

Lastly, in pleaded that if the cash he paid in place the cheques $u$ s not passed to Hot Loaf, then the reason wou i be a conspiracy and fraud of officials of Hot Loaf acting in the course of their duties, and for whose acts, Hot if $\pm \mathbf{s}$ vicariously liable.

Three issues were framed for determination by court. They are the following:

Whether or not the defendant paid for goods supplied $\Rightarrow$ him by the plaintiff.

(a) Whether or not the plaintiff's employees fraudiently $\operatorname{rec}_\mathbb{C}$ ved money from the defendant and converted it their

use.

Whether or not the plaintiff is entitled to the whiels $3)$ sought,

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To prove its case, Hot Loaf called four witnesses the i. t of whom was the General Manager of the plaintiff company Mr. Intano who testified about the credit arrangement that the defendent had with Hot loaf. The arrangement at the material time was to the defendant to take bread to the value of which was shs. 2.176.000 maximum. Semwanga would issue a post-dated cheque in process. The cheque would be banked on the maturity, date. This arrangement worked in the years 1995 to 1996. During this period some of the defendant's post-dated cheques were dishonoused or presentation for payment. In the course of auditing the arfairs of Hot Louf it was discovered that a number of the post-inted choques had been dishonoured. The dishonour was brought to the attention of the defendant in early 1997 but he claimed to have paid cash to the plaintiff's employees among whom was Mrs N. . ito but he failed to produce proof of cash payment.

The second witness for Hot Loaf was Mr. Norman Rwanyindo who was one time Not Loaf's Chief Accountant. He too testified about the credit arrangement that Semwanga had with Hot Loaf. Free his testimony, it is not clear whether Hot Loaf discovered about the bounced cheques from the plaintiff's books of account and cank External from the report $\circ$ f Audi as. st tement: or Ne artheless, he testified that Hot Loaf discovered the bc wed $\mathbf{cheques}$ . He was quite adamant in his testimony that Semwand $\mathbf{a}$ as never paid any cash in place of any of the bounced cheques. $\mathbb{H}^{\mathfrak{S}}$ further testified that the cheques themselves cannot be traced after they were returned from the plaintiff's two banks, Nil- and Uganda Commercial Bank.

$\, 3$

The third witness for the plaintiff was Steven seray $\phi$ an accounts clerk with the plaintiff company from the transmission and He testified that he used to bank cheques camong other contract. $p_{\rm{eff}}$ d to the plaintiff. He are used to collect bounded consistent The cheques that he banked were collected from Min. Nhu construction be need eneques were returned to her. Mr Sebayiya her had having backed some of Semwanga's cheques and collected is mind. for a too. He handed the bounded one to Mrs. Mkubino.

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The last witness for the plaintiff (FW4) was Mr. Barnahas with Fire works with UCB. He tendered in evidence Hot Lear's Face St ement with UCB for the mariod of January 1998 for 14 14 $1 \leftarrow \cdots$ (exis P2)

The defendant called one witness Mr. Semwanga. His team a finder $x_5$ ands the credit facility that he enjoyed in his declinary. Ho Loaf, was basically the same as the evidence given pintifi's witnesses especially witnesses number one and the Ha estif ed that when Mr. Matauc was Genera! Manager, al. wed to take bread on credit up to the maximum value to the 0.000. He issued cheques post dated by seven lays in $\mathcal{L} \in \mathcal{L}_{\mathcal{L}}$ 2. . day of the transaction. The cheques were to be bank mat mity. Later, he was informed that the post-dated the sea we creating problems with is a keeping for the plaintiff. was usked to assume cheques learning the date on which $h^{\pm} = -k$ del very $\beta$ the goods. The understanding however, was the ch res would not be banked for seven dovs. Bot Loaf $\pi i + \pi +$ hen in this understanding, its officials proceeded to bin in a

cheques right away. The result was that some of the rin just bounced. Semwanga insisted that when particulars of the bounded chaques were brought to his attention, he paid cash in their place. At the beginning of 1998, Mr. Matamo called Landard informed nim that he still owed the plaintiff compan, sns. 49,769.4 ( on account of the dishonoured cheques. The conques were not shown to him basically because they were destroyed by Wis. Nkubito who used to receive and receipt payments $\gamma$ . Here Loaf. Some of the cheques were destroyed in his presence "his was the avidence in the case.

The first issue framed is whether or not the defendant $\mu\to\tau$ for the goods supplied to him.

The answer to this issue depends on which version of the non-variable evidence adduced in the trial is credible. Before weight $\alpha$ the evidence for credibility, let me first outline what appears to facts common to both parties.

Both parties stated in their evidence that Semwanga puchased Gread from Hot Loaf through a credit arrangement. Under the Grangement, Semwanga took delivery of some bread for which is Duld issue post-dated chaques. This arrangement was used is long as the value of the goods purchased did not except shall 1.000.000. It is however not clear from the evidence $\rightarrow$ both parties whether the shs. $2m$ reiling applied to weekly, $\sim \pi$ athly or even gaily purchases. This point is, in any case that material to the suit.

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$\mathcal{A}$ 5

The arrangement was put into effect for sales and purchases made In the years 1995 to 1996.

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Some of the post-dated cheques that Mr. Semwanga issued to Hot paf under this arrangement were dishonoured by Hot Leaf's two bankers, .ganda Commercial Bank and Nile Bank. The disc of the di these chaques were brought to the attention of Mr. Sema-rga $1\,\gamma$ $\theta r.$ Matano the General Manager of Hot Loaf and Mr. Rwanyingo the Thief Accountant. The total face value of these cheques was she. $35,796,4\%$ which is the subject matter of this suit.

To back-track, the parties agree that whenever Semwanga upday any payments to the late Mrs Nkubito Hot Loaf's Chief Cashiel she would issue receipts in acknowledgment of the payment. It is also agreed that some of these cheques if not all were recompted in exh DI.

The parties agreed facts (so to speak) end here. The evidence adduced for the plaintiff, a summary of which appears in the early part of this judgment, suggest that after the disherum of Sumwanga: cheques were brought to his attention, he far $d + s$ take good the loss suffered by the plaintiff. But it is contended for the defendant, through his pleadings, conse $\varepsilon$ amination of the plaintiff's witnesses and the defendary is own ( stimony, that the defendant's dishonoured cheques were re-Manked and so Hot Loaf got value for them and thus got value for the goods purchased on the cheques. Alternatively, the ringues were repurchased by Semwanga when the dishonour were brought to

nis attention. And lastly that Semwanga paid mash in $\tau = \pm -\tau$ the cheques.

$\mathbf{5}$

ទេ

$1$ have perused the plaintiff's statement of account with $\epsilon$ janda Commercial Bank where the bulk of the dishonoured cheques were $\theta$ anked (exh P2) and I find no entries therein showing is $-\theta$ and $\theta$ $\circ$ f any c $^+$ the cheques marked in red in the said statement $\mathbf{M}_{1}$ Sebayiga, the Hot Loaf official who was in charge of a nking theques issued to Hot Loaf, denied ever re-banking any of the dishonou and cheques that he picked from UCB. It is partitual at this stack to point out that Hot Loaf's Nile Bank statement of Account does not show any re-banking of any of the definition. cheques Teceipts in the bundle marked exh D1.

The defence that the defendant's cheques were re-banked in Hot Loaf's UCB and Nile Bank accounts is unsustainable in view of this finding. The defence that the cheques were re-purchased by the deferrant was introduced in cross examination of Form Loaf witners . Okurut (PW4). He was asked by the leached $\sim$ unsel for the defendant whether there is a practice in banking findle $\alpha$ alled $r_{\rm E}$ purchase of cheques. His answer was as follows:

"The is something called respurchase of cheques are whom banking circles. It applies to bank cheques. When a customer buys draft to pay somebody, and somehow he wesn't pay the draft for whatever reason, he can deposit to bank the pie on his account from where the money was with nawn. That is called re-purchasing."

I need not dwell on this detence as it is clear that is bank cheques of drafts were ever involved in the suit trans $\gamma$ ions.

In any event, if they had been involved it would not have advanced the defendant's defence. In fact, it would have Advanced the plaintiff's claim that the defendant new $n$ and value for goods obtained from the plaintiff. That wire of evidence would show that the defendant re-purchasing draft meant to pay the plaintiff. Semwanga finally focused on the defence that he paid cash for the dishonoured cheques. His case in that the first dishonoured cheques was brought to his attention by the top management of Hot Loaf including Mr. Matano, Mr. Rwai ando. and the late Mrs Nkubito. These three officials then agreed with Lim that he should pay cash which he did. It was then agreed by For. Rwarrando and Mrs Nkubito that any dishonoured cheque for waich cash was paid, should either be torn Mrs. Medition of returned to Semwanga. In the end Mrs Nkubito decided to the the seques as they were returned from the bank one by one. She $w$ uld give the torn pieces to the defendant.

This defence is an incredible defence. The premises 🌎 $E1S$ d fence are that Hot Loaf had no business sense whatscer and s, saw acthing wrong with continually accepting cheque payments from an untrustworthy customer whose cheques were likely $\sim$ 150 d shenoured. It presupposes that Hot Loaf had a lot of $\pm i$ and Galler resources handling such cheques receiving and receiving is, banking it well knowing that it would not be cleared through $b\%$ king procedures. Going to pick them up one by one as each $\forall as$ $d_{\rm s}$ -honoused; then wasting time looking for the defendant is $\sim 1\,{\rm s.w.}$ him each dishonoured cheque etc. And the last premise is that H. Loaf consciously and deliberately condoned and activity

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encouraged the commission of of: under of tiie Penal Code Act. The othe i mb i-l'iis tie fence oi. the defendant paid cash in 5 OI a cheque, no fresh receipt. was issued to h i in is e -;.- ! 1 y ut .• iccei >t i; )].e . The defendant could not have been so na ;l\* b-- hoodwinked i apr \*-<?pri ate alteration of t he raceipl . In facte apj ears not to believe is a i ' aough he testified that Rwanyindo authorised tt\o- his bad cheques and that. t lie • • !U- wa.:: Rwanyindo was present; it was never put f: *a* in cross examination that he authorised such a thi: q. I accept the evidence of the plaintiff's witnesses [PWJ i Y£> tha: the dishonoured cheques were discovered in 1997 by exoand tors In the course of audit of Hot Loaf's books of The cheep ies we re traced through the bank statement of acr (ex! The attention of the defendant was drawn t o cheques . But the defendant has never paid for the goods that Me with those cheques. I reject all the defences : a oai. f&lt; )T defendant and so the answer to the first issue is thatpaid for the.1 goods supplied to him by • defc idant has never pla: tif f . Rwa.iy indo section 164 (1) (b) that whenever .oy t • ! nto believing that a receipt acknowledging payment can be good acknowledgement. promoted lor a criminal often • of cash payment wi lb.< some of hi s defences. For inst corn when first of that type ot Mrs . Mkubi ;• the defer . • jp

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is whether or not che plaintiff's employ • issue The from the defendant and converted frau u ■eqor.d lently received money to i i r use .

24K This issue was framed from the contents of the defens it: arended written Statement of Defence in paragraphs 6.5.4 or # tiereof which allege that there was a conspiracy between the $\operatorname{Lmf}\nolimits' s$ officials - the General Manager Mr. Matano, the field Accountant Mr. Rwanyindo, Mr. Sebayiga and the late Mrs Namito to defrand Hot Loaf of cash paid by the defendant.

Find and conspiracy belong to a species of pleas which is $\tau$ be pleaded with full particulars specified [see order 6 $\rm r_{\odot} \approx 2$ of the Civil Procedure Rules]. Fraud and the like pleas liso have to be proved. As for standard of proof, it is now bell established by the courts that the standard of proof is more than a mare balance of probabilities though it is less than the creminal proof beyond reasonable doubt - see Fam Internate nal Ltu and Another vs Mohamed El - Fatih (Supreme Court Civil $A_{\rm F}=\pm 1$ No. $16 \cdot 0^2$ (unreported); and R. G. Patel v Lalji Matrice $[2.1.7]$ EA 314.

The learned counsel for the plaintiff in his written submiss. .s arcsed that the defendants' plea of fraud and proof thereof $\Box$ $shc$ t of the requirement of the law in that particulars of fra i were not pleaded and evidence to prove it was not for the coming. On the other hand, Semwanga's counsel has argued $\frac{1}{2}$ evicence of fraud has been produced. He argued first that there was a system in Hot Loaf by virtue of which the dishonour $\exists$ che res remained in the hands of certain officials of Not I and that the defendant paid cash to these officials in place bad begues and if the cash so paid did not reach the roffers

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Her Loaf then the defendant should not be held account the. $S_{\uparrow}$ condly, the learned counsel for the defendant argued the $\uparrow$ - is suit was instituted (at the behest of these dishonest officials) se to facilitate the writing off the books of Hot Load by the stolen money in the sum of she. 35 million.

Lastly, counsel argued that the defendant should not be a med for the quality of staff hired by Hot Loaf whose conduct $\mathbb{R}\text{-}\mathrm{mod}$ the loss herein.

First of all, I do agree with the arguments of counsel is the plaintiff that the defence did not properly plead fraud $\cdots$ is amended written statement of defence. The paragraph in this fraud without stating particulars thereof [paragraph 6] orbit to have been struck out. Secondly, I see nothing in the ev hance before me to prove the alleged conspiracy to defraud and analytical Fraud. The $\operatorname{div}\nolimits y$ of proving the fraud lies upon the defendable who pleaded it. For whatever it is worth I shall examine the evidence before me in the light of the defence of fraud. There is no evidence against Mr. Matano of his having fraude atty dealt with alleged cash received from the defendant. It was in fact improper for the learned counsel for the defendant to samily that Mr. Latane was part of a comspiracy to defraud his employer. a conspiracy which succeeded since no evidence was additive to prove thise allegations. There is also no evidence of transiagainst it. Rwinyindo. Rwanyindo like Matano did not kara art day to day contact with Semwanga. The defendant never 2 imed to have raid them cash for the cheques. It is therefore $\frac{1}{2}$ qhly

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improper for the defendant to suggest that they two circulas knew of many wrong dealings going on in Hot Loaf. Mr. Schudiga's evidence show clearly that he had a rather limited role to play with numbered to Semwanga's cheques. He picked them up to methe late $M_{1,2}$ (Kubito and deposited them in the bank. He returned the bank den sit slips to Mrs Nkubito. Sebayiga also payed up dishon $\tau$ $\rightarrow$ dishon $\tau$ $\rightarrow$ dishon $\tau$ $\rightarrow$ dishon $\tau$ $\rightarrow$ dishon $\tau$ to Mr $\frac{1}{16}$ (bito. Other than Mr. Sebayiga, no questions were put to Rwan indo and Matano to suggest that they were part of a Conspire $\mathbb{C}$ . In any case, they denied the unsubstantiated label of the $\alpha$ endant that he ever paid cash in place of the curvues. $Mr.$ Similiga too denied any wrong doing. The conspiracy and traud alleged against these officials remains a figment 🌁 the imaginat on of whoever made it. The evidence which relates hadly on Mr. Rwanyindo is not related to his integrity. $T! =$ bad picturbachich comes out is of an incompetent official who had not the slightest idea of what was expected of him as a field a courtain of the company. He did not establish system- for proper itensioning of the abounts department. He diverses $\mathbf{c}$ -ordinate the working of the staff therein nor monitor $\mathbf{r} \sim \mathbf{b}$ in performance. He did not ensure the keeping of proper book of accounts. But a fraudster, he was not.

On the other hand, the evidence before we shows that Semwang are class to the late Mrs Nkubito because the evidence shows to a she is the one who received and receipted payments from him $\alpha$ d other f. She was the one who received the dishonoured cheq. T. Acc $\tau$ leng to the defendant, it was she who received cash in $\mathbb{R}$

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of the $\hat{t}$ -cheques and then destroyed the cheques. Even that the claim the she defrauded Hot Loaf of shs. 35 million $r = 6.1 \text{cm}$ : from the defendant is not acceptable unless of course the defendant is suggesting that he conspired with her to defined Hot Loaf $\mathbb{M}^2$ is certainly is not the defendant's case. In the $\mathbb{M}$ such that $\mathbb{M}^2$ the answer to the second issue is that there is no eviden $\tau$ that the plat miff's officials named in paragraph 3 of the condex statement of defence conspired to defraud and did defeate the plaintiff of shs. 35m. Nora is there evidence that these official: or anyone of them converted any money to his/her use, because I cash was ever paid to any of them to re-deem is the were] the bad heques.

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The last issue is whether or not the plaintiff is entitled if the relieis sught.

In the plaintiff proved for the following resons: $f$ is: Payment of shs. 35,769,450; $a$

- Interest on the above sum at 28% from the date the side was $\omega$ <pre>1:1 + till payment in full;</pre> - $Con:$ : $\cdot \mathbf{1}$ - Any other reliefs that court may deem fit. $\mathbf{d} \mathbf{1}$

The privat contained in [a] above has been largely, by not altograble proved. There is no proof of any kind whatsoever that Semwange issued some of the cheques that were deposited. I How Loaf's $\mathbb{R}^+$ e Bank account and were dishonoured. These checks as shown in $xh$ Pl are the following:

$25@$

Cheque $x_0$ . 265227 for shs. 264,150 Cheque $1.265556$ for shs. 424,000 Cheque No. 265230 for shs. 606,350. Un-numbered cheque for shs. 554,500 Cheque No. 002106 for shs. $618,500$ . Cheque No. 419,699 for shs. 553,500.

The situation is made no better when exh P1 is read together with the statement of account from Nile Bank exh P3. Exh P3 chough showing dishonour of cheques of similar or same amount as the ones above give completely different reference numbers from the cheque numbers on exh P1. There is no evidence before me that the references shown in exh P3 are cheque numbers. If they are, then they do not correspond to the ones on exh P1. If the column which reads 'reference' in exh P3 is not cheque number than there is an additional problem. There is no proof that Semwanqa's cheques are the ones shown by the statement not to have been paid.

There is also a problem with UCB statement of account. Nome of the circuits listed on exh P1 do not appear on the UCB statement of account, leading to the conclusion that they, if ever they were isound, were never banked and could not have therefore been alshor. $-a$ by $00\overline{b}$ .

All in $\frac{1}{2}$ by a combined reading of the cheques in exh ?1, the entries marked red in the UCB statement of account [exh $F2$ ], and the characteristic contained in exh D1, give the correct sum $\epsilon$ i money

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that is due from the defendant to the plaintiff. The sum is shown. 20,739,300.

Judgment is therefore entered for the plaintiff the data $20,739,300$ on prayer (a) above.

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As for $(b)$ for interest, I note that the parties herein $a \cdots$ in business. They know that any late payment for goods sold and delivered has an adverse effect on the cash flow of the enterprise. The defendant has been holding on to the plaint off's shs. 20 million odd since 1996. He should therefore pay interest on the debt at bank rate. It is ordered that the defendant mays interest on the sum of shs. 20,739,300 at bank rate from the tate of this judgment until payment in full.

The plaintiff is also granted costs of this suit.

To summarise, judgment is entered for the plaintiff for $m \ll$ . 20,739,300 with interest at bank rate from the date of $\sim$ 118 judgment till payment in full.

The defendant will pay costs of the suit to the plaintiff.

C. A. OKELLO JUDGE. $5/7/2001$ .

## $5/7/2001$ -2.45 p.m.

#### Court

Judgment signed, dated and delivered in open court.

$\hat{\mathfrak{B}}$

#### Present

$Mr.$ Mwema for the plaintiff

$M_{\rm T}$ . Serwanga for the defendant

Mr. Nkuubi Court Clerk.

法职业化 C. A. CKELLO

$JUDE. 5/1/2001.$

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### THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA CIVIL SUIT No. 112 OF 1999

# HOT LOAF BAKERY LTD....................................

#### **VERSUS**

ABBEY SEMWANGA t/a ABBEY SEMWANGA & SONS................................... .... I DEFENL: VNT

#### **DECREE**

THIS Suit coming up for final disposal before the HON LADY JUSTIC: C. A. OKELLO in the presence of MR. FRED MUWEMA, Counsel for the Plaintell and MR. SERWANGA, Counsel for the Defendant. It is hereby ordered and decised as follows:

$\mathbf{1}$ . THAT Judgement be and is hereby entered in favour of the Plaintiff for the sum of Shs. 20, 739,300/= [Shillings Twenty Million, Seven Hundred Thirty-Line Thousand, Three Hundred Only] with interest thereon at Bank rate from the late of judgement till payment in full.

$2.$ THAT the Defendant doth pay to the Plaintiff, the costs of this suit.

GIVEN under my hand and the seal of this court the S day of $2x1.$

WE CONSENT:

M/S MUWEMA & MUGERWA ADVOCATES COUNSEL FOR THE PLAINTIFF

M/S'MED KAGGWA, SSERWANGA & Co. ADVOCATES

adour i

COUNSEL FOR THE DEFENDANT

Extracted by:

M/s Minwema & Mugerwa Advocates and Solicitors First Floor Orient Plaza Building Suite F19 - 24 Plot 6 Kampala Road *P. O.* Box 29385 Kampala.