Industrial Coffee Growers Uganda Limited v Kyaggwe Coffee Curing Company Limited and Another (Civil Appeal 52 of 2002) [2005] UGCA 89 (23 February 2005)

Full Case Text

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

#### CORAM: HON. JUSTICE A. E. N. MPAGI-BAHIGEINE, JA HON. JUSTICE S. G. ENGWAU, JA HON. JUSTICE . A. TWINOMUJUNI, JA

## CIVIL APPEAL NO. 52 OF 2002

### **BETWEEN**

# INDUSTRIAL COFFEE GROWERS [U] LTD. ......: APPELLANT

#### AND

| 1. KYAGGWE COFFEE CURING ) | | |----------------------------|----------------------------------| | COMPANY LTD. | ) :::::::::::: RESPONDENT | | 2. KYAGGWE COFFEE CURING | | | ESTATE LTD. | |

[Appeal arising from the judgment and orders of the High Court at Kampala (Katutsi, J.) dated 16/5/2001 in HCCS No. 0791 of 1993]

### **JUDGMENT OF ENGWAU, JA**

This appeal arises from the judgment and orders of the High Court in HCCS No. 0791 of 1993, delivered on 16 - 5 - 2001. In that suit the appellant had sued the respondents for:

(a) A declaration that the respondents pay compensation of Ug. Shs.65 million to the appellant for improvements made on Namakomago Coffee Factory as required under

$\mathbf{1}$

section 11(2) ofthe Expropriated Properties Act, 1982.

- (b) An order for payment of the amount found to be due to the appellant in respect of improvements made on the said factory. - (cl A temporary injunction restraining the respondents, their agents and/or assignees from selling the said factory before adequate compensation, and - (d) In the alternative but without prejudice to the foregoing paragraphs an order of specific performance for the transfer of the suit property to the appellant and/or general and special damages for breach of contract.

On the other hand, the respondents instituted a counter-claim for:

- (al An order of eviction. - (b) Mesne proflts from July 1991, at the rate of 8O milllon shillings per month, amounting to over 193 million shillings as rental value because the appellant wrongfully entered upon

# the said factory and took possession of the same and the respondents suffered loss as a result.

The appellant's case was that they had all along been tn occupation with the clear permission of the respondents as prospective buyers. The respondents have, therefore, not suffered any loss. The appellant instead pleaded a set-off for:

- (a) Loss of property through theft and damage by the respondents' employees worth Shs.14,38O,OOOl=. - (b) Loss of income during six months or so of the respondents' unlawful re-entry to the suit property worth Shs. 120 million.

The brief facts of the case were that the respondents in 1970 allegedly agreed to lease Namakomago Coffee Factory to the appellant. As a result, the appellant was allegedly allowed to enter the factory and occupy it. It was also alleged that in 7972 the 1"t respondent had agreed to sell the factory to the appellant. The purchase agreement between the two was not concluded due to expulsion of the Asians by Amin's regime in 1972. The appellant, however, remained in possession of the factory and continued with negotiations to conclude the purchase.

As a result of the offer to sell, the appellant claimed to have secured loans and spent a lot of money buying machinery and renovating the factory with a view to purchasing it. It so transpired, however, that before the exodus of the Asians, the suit property was transferred by the 1"t respondent to the 2"d respondent. On the 4th June, 199 I the 2nd respondent obtained a certificate authorising repossession and asked the appellant to quit the suit property. Hence the suit from which this appeal arises on the following 4 grounds:

- I The learned trial judge erred in law and fact when he held that the respondents never agreed to sell the factory to the appellant. - 2. The learned trial judge erred in law and fact when he disregarded the Valuation Report Exbt PS and found that the appellant had not established that it had made improvements on the suit property. - 3. The learned trial judge erred in law and fact when he found on the counter-claim that the respondents were entitled to rental charges of 8O million shillings per month or at all. - 4. The learned trial judge erred in law and fact when he failed to order that the appellant was entitled to compensation for improvements made on the suit

# property as provided for in S. 11 (21 of the Expropriated Properties Act.

Mr. John Mike Musisi, learned counsel representing the appellant, argued grounds 1 and 3 separately but argued grounds 2 and 4 together. Dr. Joseph Byamugisha for the respondents followed the same order and I shall do the same.

On the 1"t ground, Mr. Musisi contended that the learned trial judge erred in holding that the respondents never agreed either to lease or sell the suit property to the appellant on the ground that no such agreement was available. It was his contention that there was a proposal to sell upon which the appellant entered the factory and stayed there until the appellant company was evicted by the 2"d respondent. In support of this argument, Mr. Musisi relied on Exhibit P1, a letter dated 1"t August, 1972 addressed to Antoni Tamale Esq. by the director of the 1"t respondent indicating their willingness to lease Namakomago Coffee Factory to the said Antoni Tamale.

Learned counsel further relied on Exbt P3, a letter by the director of the 1"' respondent, authorising M/S Hunter & Greig Advocates to sell the suit property and other items to any prospective buyer but giving first choice to Antoni Tamale. He submitted that Antoni Tamale was at all material times acting for the appellant. In support of this argument, counsel relied on the evidence of Eneza Damasiko Sengula, PW1, who stated that

Antoni Tamale was the Managing Director of the appellant company and was acting in that capacity.

In further support, Mr. Musisi relied on the evidence of Godfrey Lule, PW3, who stated that he acted for the appellant in trying to conclude the process of sale and in so doing he was dealing with Antoni Tamale who was the Chairman of the appellant. PW3 travelled with Tamale to the Republic of Kenya where they met the directors of the respondents trying to conclude the sale. In those circumstances, Mr. Musisi submitted that the 1"t respondent had agreed to sell the factory and the appellant entered the factory on those representations.

At a later development, Mr. Musisi pointed out that at the time the appellant and the l\*t respondent were negotiating the sale, the factory had been transferred in the names of the 2"d respondent. In counsel's view, the l"t respondent was selling "air". However, Mr. Musisi relied on the evidence of Mohamed Alibhai, DW3, that the respondent companies were family companies and both companies shared the same directors. In support, Mr. Musisi relied on Exbt. D9, annual returns of both companies in which the 1"t respondent by October 1992 owned 997o shares and the other shareholder, one Mohamed Raza Mohamedali owned 17o as a director. As the directors of the 2"d respondent were also the directors of the l"t respondent, Mr. Musisi submitted that the 1.t respondent was a holding company for the 2"d respondent. Therefore, the 2".t respondent

could not claim ignorance of what happened in the 1"t respondent.

In Salmon vs Salmon (1897) A. C. 22, the law is that a corporation is a legal entity distinct from its members. In the words of Lord MacNaghten: "The corporation is at law a different person altogether from the subscribers". The learned trial judge found, therefore, that the 2"d respondent could not agree to sell for the 1"t respondent as they were different companies. Mr. Musisi disagreed w-ith the learned trial judge and relied on the principle laid down in D. H. N. Food Distributors Ltd. vs Tower Hamlets London Borough Council lL976l 1 W. L. R. 860 to the effect that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group."

Lord Denning M. R. was of the view that this is especially the case when a parent company owns all the shares of the subsidiaries - so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says. In view of this principle, Mr. Musisi submitted, therefore, that the activity of the parent company (in this case the lst respondent) was obviously the act of the subsidiary company (the 2"a respondent).

On grounds 2 and, 4, the learned trial judge found that there were no improvements made on the factory and disregarded the valuation report, Exbt. P5, produced by the appellant on the ground that it did not show what machines were installed by the appellant and which ones existed before the appellant entered the factory. Mr. Musis's contention is that the machines, according to the valuation report (Exbt. P5) were installed in 1984 and, therefore, they could not have existed there in 1972 when the appellant entered the factory.

Mr. Musisi submitted further that according to the letter dated 4th August, 1983 (Exbt. P6), the appellant was informed by the Ministry of Agriculture and Forestry of a Government policy to rehabilitate their factory by purchasing machines for them on hire purchase. The evidence of the Managing Director of the appellant company, PW 1 , is that those machines were purchased and installed in 1984. This evidence, according to counsel, supports the valuation report (Exbt. P5) that improvements were made on the factory by the appellant.

It was the argument of the respondents that the machines, if any were put in the factory, could have been removed and repossessed by whoever had put them there. Mr. Musisi did not agree. He relied on the evidence of a valuer, one Steven Nyaruhuma, (PW2) who testified that those machines could not be removed without causing damage to themselves and the factory. In the premises, Mr. Musisi submitted that the

machines found at the factory as per valuation report (Exbt. P5) were actual improvements made on the factory by the appellant. In counsel's view, the learned trial judge erred when he held to the contrary.

As regards the 3.d ground, the complaint is that the valuer, Stephen Amudu (DW2) did not show in his valuation report (Exbt D5) how he arrived at a figure of 80 million shillings as being the rental value of the suit property at the material time. In his testimony, DW2 stated that he did not make an assessment of the plant and machinery on the ground that their instructions did not touch that area. Learned counsel submitted, therefore, that the valuation report (Exbt. D5) does not reflect the true rental value. In counsel's view, an order to pay rental value of the suit property was based on the finding of the trial judge that the appellant was a trespasser. Counsel contended that the appellant was not a trespasser as they were allowed to enter the factory.

In the result, Mr. Musisi prayed that the appeal be allowed with costs here and in the court below and that the appellant be awarded 65 million shillings as compensation for improvements made on the factory by the appellant.

In his response to the l"t ground, Dr. Joseph Byamugisha, learned counsel for the respondents, submitted that the trial judge was right when he held that the respondents never agreed

to sell the factory to the appellant. He contended that the 1"t respondent did not own the suit property which it sought to sell. That property was owned by the 2"d respondent. Exbt. P3 was an offer from the l"t respondent without any reference to the 2"d respondent. The evidence of PW 1, the Managing Director of the appellant, is that he did not know the 2nd respondent who was the owner of the suit property. In counsel's view, the appellant could not contract with a person it did not know.

Dr. Byamugisha submitted further that in Exbt. P3, the ofler was specific to Antoni Tamale and the same was with the offer in Exbt. P1. It was the contention of counsel that there is no evidence to show that Antoni Tamale was acting on behalf of the appellant. He also pointed out that neither Antoni Tamale nor the appellant ever approached M/S Hunter & Greig Advocates for any terms. The appellant did not show they had accepted any offer from Hunter & Greig. He submitted, therefore, that until there was an offer and acceptance there would not be any sale.

On the issue of lifting the veil, Dr. Byamugisha pointed out that it was never pleaded and no evidence was adduced to support it. It was being raised here for the first time yet the evidence of PW 1 is that he did not know the 2"d respondent. What was raised, according to Dr. Byamugisha, was the case of Salmon vs Salmon (supra) for the principle that a company is distinct from a shareholder. In his view, the case of D. H. N. Food Distributors

Ltd. (supra) does not apply in the present case. The 1"t ground, therefore, lacks merit.

On grounds 2 and 4, it was submitted that the machines were installed in 1984. Dr. Byamugisha contended that the valuation report (Exbt. P5) at pages 95, 97, 98 and 99 show differently in that the date of installation is not known. In addition, PWl stated that most of the documents were destroyed and he could not produce them in court to establish the amount of money spent in the purchase of the said machines.

Dr. Byamugisha further pointed out that Exbt P6 which is a letter from the Ministry of Agriculture and Forestry, did not include the appellant. According to him, the money was being loaned to a union not a company like the appellant. He supported the learned trial judge for holding that there was no evidence to show that the appellant signed an agreement with the Co-operative Bank, Kampala. He also concurred with the trial judge that there is no evidence to show that the appellant replied to Exbt. P6 or that the Ministry ordered the machinery. In the circumstances, Dr. Byamugisha submitted, therefore, that no improvements were made on the factory by the appellant. Whether the machinery could be removed or not, Dr. Byamugisha submitted that the evidence of PW2 was of little value to that effect.

On the question of rental value raised in the 3.d ground of

appeal, Dr. Byamugisha submitted that the valuation report (Exbt. D5) sufficiently shows how DW2 arrived at the figure of 80 million shillings. DW2 was vigorously cross-examined but it was not put to him how he arrived at those figures. Nonetheless, PW 1 testified that the factory was rented to Busiro Coffee at 3 million shillings per month for processing coffee. Busiro Coffee Processors had rented the factory for 11/z years and by the time PWl gave his testimony, they were there for the 2"d year. In counsel's view, the rental value at 80 million was proper in the circumstances. Moreover, the appellant was a trespasser after the issuance of the letter, Exbt. P4. Dr. Byamugisha, therefore, prayed for dismissal of the appeal with costs.

The issue in the l"t ground of this appeal is whether or not the respondents had not agreed to sell the suit property to the appellant. In order to resolve this issue, it is pertinent to find out who was the owner of the suit property. According to the evidence of Anwarali Alibhai, DW1, and Mohamad Alibhai, DW3, both of whom were directors of the 2nd respondent company, the suit property was owned by the 2"d respondent. Dunusu Gitta, DW4, who worked in both 1"t and 2"d respondents confirmed that the suit property was owned by the Alibhai family. Exhibit D1 shows that by the 28th October, 1972 tl:.e land comprised in Freehold Register 33 Folio 1 was owned by the 2"d respondent. It is clear to me that the suit property was owned by the 2"d respondent.

Further, the evidence of the Managing Director, PW 1, is that he knew the 1st respondent but did not know the 2"d respondent, the owner of the suit property. I would agree, therefore, with Dr. Byamugisha that the appellant could not contract with a person it did not know. Exhibit Pl is a letter written by the 1"t respondent on the l"t August, 1972 purporting to lease the suit property to Antoni Tamale. Exhibit P3 is another letter written by the 1"t respondent purporting to authorise M/S Hunter & Greig to sell the suit property to any prospective buyer but giving priority to Antoni Tamale. Since the l"t respondent did not own the suit property which it sought to lease or sell, it was in effect leasing or selling air to Antoni Tamale or any prospective buyer.

That notwithstanding, PW l, stated that Antoni Tamale was the Managing Director of the appellant company. However, there is no evidence to show that Antoni Tamale was acting on behalf of the appellant. Both exhibits Pl and P3 were specifically addressed to him as an individual. The learned trial judge was justified when he held that the respondents never agreed to lease or sell the suit property to the appellant because the respondents were two different companies though they were both family companies. The principle laid down in Salmon vs Salmon (supraf that a corporation is a legal entity distinct from its members, applies with equal force to separate companies in a group. I would, therefore, agree that the decision in D. H. N. Food Distributors Ltd. (supraf does not apply in the present case.

On grounds 2 and 4, the learned trial judge found that there were no improvements made on the factory and disregarded the valuation report (Exbt. P5) on the ground that it did not differentiate between the machinery the appellant inherited and those they purchased later, if any. In addition, the appellant tendered in evidence Exbt. P6, a letter written by the Ministry of Agriculture and Forestry. In that letter, the appellant was required to sign agreement with the Co-operative Bank, Kampala but there is no evidence that such an agreement was signed. The appellant was also required to give a reply to that letter but there is no evidence to that effect. Further, the ministry was supposed to order the machinery on behalf of the appellant but there is no evidence to show that an order was made. To crown it all, PW 1 testified that all the documents concerning the machinery were destroyed. In the premises, I cannot fault the learned trial judge for holding that no improvements were made on the factory. Grounds 2 and 4 are, therefore, devoid of any merit.

The 3,.d ground relates to rental value of the suit property. The valuation report, Exbt. D5, is the basis for rental value. DW2 explained how the figure of 80 million shillings was arrived at PW 1 also testified that the appellant had rented the factory to Busiro Coffee Processors at 3 million shillings per month for a period of about 2 years. A figure of 80 million shillings as rental value would be reasonable. The argument that the rental

value was based on Exbt. P4 which made the appellant a trespasser is unsustainable.

In the result, I would dismiss this appeal with costs here and in the court below to the respondents.

Dated at Kampala this day of 2005

S LI

JUSTICE OF APPEAL

### THE REPUBLIC OF UGANDA

# IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

## CORAM: HON. JUSTICE A. E. N. MPAGI BAHIGEINE, JA HON. JUSTICE S. G. ENGWAU, JA $\checkmark$ HON. JUSTICE A. TWINOMUJUNI, JA

#### CIVIL APPEAL NO.52 OF 2002

#### **BETWEEN**

#### INDUSTRIAL COFFEE GROWERS (U) LTD....................................

### AND

# 1. KYAGGWE COFFEE CURING COMPANY LTD 2. KYAGGWE COFFEE CURING ESTATE LTD....................................

{Appeal arising from the judgment and orders of the High Court at Kampala (Katutsi, J) dated 16/5/2001 in HCCS No.0791 of 1993}

### **JUDGMENT OF TWINOMUJUNI, JA**

I have read in draft the judgment of my brother Hon. Justice S. G. Engwau, J. A. I agree with it and the orders proposed by him. I have nothing useful to add.

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

Hon. Justice A. Tymografini JUSTICE OF APPEAL

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

#### COR{M: HON I,ADY JUSTICE A. E,. N, MPAGI. BAHIGEINE, JA HON MR JUSTICE S. G. ENGWAU, JA HON MRJUSTICE A. TWINOMUJUNI,JA

# CIVIL APPEAL NO.52 OF 2OO2

### INDUSTRIAL COFFEE GROWERS [UI LTD.: : : :: : :: :: : : : : : : : : : : APPE,I,I,ANT

#### AND

I KYAGGWE COFFEE CURING COMPANY LTD. KYAGGWE COFFEE CURING 2

ESTATE LTD.

RESPOi\\*DENTS

IAppeal arising from the judgment and orders of the High Court at Kampala (Katutsi J) dated 161512001 in HCCS No.0791 of 19931

### JUDGEMENT OF A. E. N. MPAGI-BAHIGEINE JA

I have read in draft the judgement of my brother Engwau JA and I agree with it and the reasons he has given for dismissing the appeal. I would also concur in the order he has proposed regarding costs.

Since Twinomujuni JA also agrees, this appeal is dismissed with costs to the respondent here and below as proposed by Engwau JA.

Dated at Kampala this day of 2005.

A. E. N. MPAGI-BAHIGEINE JUSTICE OF APPEAL