Kapeeka Coffee Works Limited and Another v Non -Performing Assets Recovery Trust (Civil Appeal 53 of 2000) [2001] UGCA 21 (2 March 2001)

## **THE REPUBLIC OF UGANDA**

## **IN THE COURT OF APPEAL OF UGANDA**

## **AT KAMPALA**

## **CIVIL APPEAL NO. 53 OF 2000.**

## **CORAM: HON. MR. JUSTICE G. M. OKELLO, JA. HON. LADY JUSTICE A. E. N. MPAGI-BAHIGEINE, JA. HON. MR. JUSTICE S. G. ENGWAU, JA.**

### **BETWEEN**

# **1. KAPEEKA COFFE WORKS LTD. ) 2. ABU KASOZI KADJINGO ) .............................. APPELLANTS**

#### **AND**

## **NON-PERFORMING ASSETS RECOVERY TRUST........... RESPONDENT**

(Appeal from the decision of the NON-PERFORMING ASSETS RECOVERY (NPART) TRIBUNAL Delivered at Kampala on 28th day of March, 2000 in Tribunal Case No. 40 of 1996).

#### **JUDGMENT OF G. M. OKELLO, JA.**

This is an appeal against the decision of the NPART Tribunal delivered at Kampala on the 28th day of March, 2000 in Tribunal case No. 40 of 1996.

The respondent had sued the appellants and one Hajji Bumali Kadjingo jointly and severally for the recovery of Shs. 839,039,582/= being a non-performing asset which was assigned to it by Uganda Commercial Bank under the NON-PERFORMING ASSETS RECOVERY TRUST (NPART) STATUTE NO. 11 of 1994. When the case was called for hearing before the Tribunal, Counsel for the appellants raised a preliminary objection basically on the ground that the Amended Plaint disclosed no cause of action against the appellants. The Tribunal heard the objection and overruled it. It is this decision which is the subject of this appeal. Hajji Bumali Kadjingo did not appeal.

The memorandum of appeal set out the following grounds:-

- (1) the members of the Non-Performing Assets Recovery Tribunal erred in law and fact by failing to appreciate that the Deed of Assignment which was the foundation of the plaintiff's statement of claim named Kapeeka Coffee Hullery (No.5) as the debtor and not the appellants, - (2) the members of the Non-Performing Assets Recovery Tribunal erred in law by failing to hold that the Respondent's Plaint disclosed no cause of action against the appellants,

- (3) the members of the Non-Performing Assets Recovery Tribunal erred in law and fact by holding that in the preliminary objection proceedings, it had not been shown to them by way of evidence or law that Kapeeka Coffee Hullery (No.5) was the owner of the loan stated in the Deed of Assignment dated 7th December, 1995 and therefore was the debtor of the loan balance of Shs. 839,030,582/=, - (4) The members of the Non-Performing Assets Recovery Tribunal erred in law and fact by holding that Kapeeka Coffee Hullery was the same as Kapeeka Coffee Works Ltd and that the words Kapeeka Coffee Hullery were not capable of falling under the provisions of sub-section 2 of section 13 of the Non-Performing Assets Recovery Trust Statute 1994.

Counsel for both parties filed written submissions in which they dealt with these grounds in ascending order. I propose to start with ground 2 which I consider to be fundamental. The complaint in that ground is that the respondent's amended plaint disclosed no cause of action against the first appellant. Mr. Lumweno, learned Counsel for the appellant, contended that the respondent's claim being based on the Deed of assignment dated 7th December, 1995, (Annexture A to the Amended Plaint) the plaint should have contained statements that the respondent was suing under assignment and that notice of the assignment had been given in writing to the debtors before the commencement of the action. In his view, failure to plead these facts rendered the plaint defective and consequently disclosed no cause of action against appellant.

For the respondent it was contended t hat the amended plaint sufficiently disclosed a cause of action against the appellant. It was argued that the assignment to NPART of Non-Performing Assets from Uganda Commercial Bank was statutory and not contractual. The Deed of assignment of 7/12/95 was merely a procedural signification of the handing over of the said non-performing assets but not per se the assignment of it, the latter having been by operation of the law. It was pointed out that a plaint may disclose a cause of action without necessarily containing all the facts constituting the cause of action provided that the violation by the defendant of the plaintiff's right is shown. *Auto Garage and others vs Motokov (1971) EA 514* was cited as authority for that proposition. It was submitted that in the instant case, the amended plaint disclosed that the appellant had failed to pay Shs. 839,030,580/= assigned to the Trust which had been due to UCB as reflected in the Deed of assignment (annexture A) to the amended plaint.

I agree with counsel for the respondent that the transfer to the Trust of Non-Performing Assets is statutory and not contractual. It is governed by the Non-Performing Assets Recovery Trust Statute No. 11 of 1994 and the Regulations (statutory instruments No. 76 of 1995) made under it. Section 11 of the statute in particular is relevant and it reads as follows:-

- *"(1) notwithstanding any law or agreement to the contrary, the trust may Direct the bank and the bank shall upon such direction, transfer to the Trust such of its non-performing assets:-* - *(a) in existence at the commencement of this statute*

- *(b) As may exist as determined by a special audit and valuation undertaken in relation to the assets, at the commencement of this statute, and the cost of the audit and valuation shall be added to the balance of the non-performing assets.* - (5) *All assets, rights, liabilities and obligations attached to a nonperforming asset transferred by the bank to the Trust under this section, which immediately before the date of transfer were held by or subsisted against the bank shall, subject to any directions given by the Minister in writing vest in or as the case may be, subsist against the Trust."*

The procedure to effect such a transfer is provided for under regulation 4 of the Non-Performing Assets Recovery Trust Regulations, 1995 (S I No. 76/95) which reads as follows:-

**"Upon direction in accordance with section 11 of the Statute, the bank shall transfer to the Trust the identified Non-Performing Assets in the following manner:-**

- *(a) the bank shall execute a Deed of assignment in respect of each Non-Performing Assets in favour of the Trust in the form prescribed in the First Schedule to these Regulations;* - *(b) notice of the Assignment in favour of the Trust shall be in the form prescribed in the Second Schedule and shall be forwarded by the bank to the owner;* - *(c) the bank shall deliver to the Trust on the date of execution of the Deed of Assignment such Agreements, Mortgages, Debentures, Instruments, Documents of Titles, records and other documents in respect of the Non-Performing Assets. Where any or all of such Agreements, Mortgages, Debentures, Instruments, Documents of Titles, records and other documents in respect of Non-Performing Assets have been registered, the bank shall indicate in writing the particulars of such registration."*

The above provisions must be complied with. To determine whether or not a plaint discloses a cause of action, the court must look only at the plaint and its annextures if any, and nowhere else. Where the plaint shows a violation of the plaintiff's right by the defendant, then it discloses a cause of action. See *Auto Garage & Others (supra*). In the instant case, paragraph 4 of the plaint shows that the respondent had a right which was assigned to it which the appellant violated causing the respondent damage. The paragraph reads as follows:-

*"4. The facts constituting the plaintiff's cause of action arose as follows:-*

- *(a) That the 1st Defendant was at all material times a customer of Uganda Commercial Bank Limited operating several accounts with the Bank.* - *(b) That the Defendants in or about November 1990 applied for funding under UCB's ADA 1328, Project for the rehabilitation of Coffee Hulleries to have their Coffee factory refurbished (the letter of application dated 12th November 1990 is herewith attached and marked annex "B").* - *(c) That UCB considered and accepted the Defendants' application vide its letter of 17t<sup>h</sup> November 1990 herewith attached and marked as annexture "C" and the Defendants confirmed the acceptance vide theirs of 20th November 1990 attached hereto and marked at annex "D".* - *(d) That UCB and the Defendants eventually reduced their contract into a written agreement dated 13th December 1990 herewith attached and marked annexture "E".* - *(e) In breach of the terms of the said agreement and further Mortgage, the first Defendant failed and or refused to repay the said loans and advances when they fall (sic) due or to otherwise service its indebtedness with the said UCB and subsequently in or during 1995 ceased operations altogether.* - *(f) That the Defendants' Coffee Factory was fully refurbished and renovated to the net sum of Shs. 436,145,307/= debited on the 1st Defendant's project account No. 05109 - 00026 and the factory was completed and commissioned (photocopy of the Ledger card is annexed hereto and marked annexture "F".* - *(g) That despite repeated demands for repayment to the Defendants by the plaintiff, the Defendant has (sic) refused/ignored to pay the Shs. 839,030,582/= assigned to the Trust or at all being the amount of Shs. 436,145,305/= and interest thereon at 26% p.a. Compounded annually with effect from 1st January 1993."*

In my view, the above paragraph of the plaint is wanting in one important aspect in that it failed to comply with regulation 4(b) of S I 76/95. This regulation requires that notice of the assignment in favour of the Trust "*shall be forwarded by the bank to the owner"*. Ms. Mulenga submitted that paragraph 9 of the respondent's amended plaint discloses that a notice was sent out to the debtor.

Paragraph 9 of the Amended Plaint reads thus:-

*"9. Notice of intention to sue was served upon the Defendant."*

The above is notice of intention to sue. It does not meet the requirement of regulation 4(b) above. That regulation requires that notice of the assignment in favour of the Trust which must be in a prescribed form, be forwarded by the bank to the owner*. "The owner"* is defined in regulation 3 to mean the borrower in respect of a nonperforming asset. It is clear that the provision of regulation 4(b) of the Regulations has not been complied with. The effect of this omission is fatal to the respondent's plaint as it is a non-compliance with a mandatory provision of the law. It affected the allegedly assigned right of the respondent, which it claimed was violated by the appellant. On the principle in *Auto Garage & Others (Supra*), the omission renders the plaint defective as it thereby discloses no cause of action against the appellant.

I find merit in this ground. In view of this finding, it is unnecessary to consider the other grounds of appeal.

In the result, I would allow the appeal, strike out the respondent's plaint for disclosing no cause of action. I would award the costs of this action here and in the Tribunal below to the appellant. As Mpagi-Bahigeine and Engwau JJA both agree, the appeal is allowed on those terms.

Dated at Kampala this……..2nd …….day of… March ….2001.

**G. M. Okello**

**Justice of Appeal.**

## **THE REPUBLIC OF UGANDA**

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

## **CIVIL APPEAL NO. 53 OF 2000.**

## **CORAM: HON. MR. JUSTICE G. M. OKELLO, JA. HON. LADY JUSTICE A. E. N. MPAGI-BAHIGEINE, JA. HON. MR. JUSTICE S. G. ENGWAU, JA.**

#### **BETWEEN**

## **1. KAPEEKA COFFE WORKS LTD.] 2. ABU KASOZI KADJINGO ] :::::::::::::::::::::::::::::APPELLANTS**

#### **AND**

### **NON-PERFORMING ASSETS RECOVERY TRUST::::::::: RESPONDENT**

(Appeal from the decision of the NON-PERFORMING ASSETS RECOVERY (NPART) TRIBUNAL delivered at Kampala on 28th day of March, 2000 in Tribunal Case No. 40 of 1996).

## **JUDGMENT OF A. E. N. MPAGI-BAHIGEINE, JA.**

I entirely agree with the judgment of G. M. Okello, JA, which I have read in draft.

I desire to say nothing more except briefly comment that since the assignment is a material fact which is of the essence of the cause of action, notice thereof in writing, as prescribed by Regulation 4(b) of S. I. No. 76/95 must be given to the appellants (debtors) and be pleaded, otherwise the respondent would have no title to sue. It is also important to note that "notice" is not a synonym for "knowledge" which is a general condition of the mind and which is not applicable to this matter; therefore the appellants (debtors) are entitled to particulars of their indebtedness and the authority under which the respondent is dealing with it. See - **Cresta Holdings Ltd. Vs Karlin (1959) 3 ALR 656; (1959) 1 WLR 1055**.

Failure to comply with the mandatory requirement of the regulation would render the plaint defective.

I would therefore strike out the plaint for non-disclosure of the cause of action.

Dated at Kampala this……..2nd ………day of…..... March ….2001.

## **A. E. N. Mpagi-Bahigeine 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. LADY JUSTICE A. E. N. MPAGI-BAHIGEINE, JA. HON MR. JUSTICE S. G. ENGWAU, JA.**

#### **CIVIL APPEAL NO. 53 OF 2000.**

#### **BETWEEN**

## **1. KAPEEKA COFFEE WORKS LTD.)**

**2. ABU KASOZI KADJINGO )................................. APPELLANTS**

#### **AND**

#### **NON-PERFORMNG ASSETS RECOVERY TRUST............... RESPONDENT**

(Appeal from the decision of the NON-PERFORMING ASSETS RECOVERY (NPART) TRIBUNAL delivered at Kampala on 28th day of March, 2000 in Tribunal Case No. 40 of 1996).

#### **JUDGMENT OF S. G. ENGWAU, JA.**

I agree with the judgment and orders of Okello, J. A., which I have read in draft form and I have nothing more useful to add.

Dated at Kampala this……..2nd ……..day of………. March,…….2001.

#### *S. G. Engwau*

#### **Justice of Appeal.**