Kasolo v Security Group (U) Limited & Another (Civil Appeal 6 of 2023) [2024] UGCommC 294 (21 February 2024)

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (coMMERCIAL DMSION) CIVIL APPEAL NO. 006/2023 (ARISING FROM MISCELLANEOUS APPLICATION NO. 46I OF 2019)

# (ARISING FROM CIVIL SUIT NO.653 OF 2OI9 IN THE CHIEF MAGISTRATES COURT OF NAKAWA AT NAKAWA)

KASOLO ROBINS ELLIS::::::::::::::::::::::::::::::::::::::::::::: APPELLANT

#### VE,RSUS

## l. SECURTTY GROUP (U)LTD

# 2. SECURITY GROUP CASH IN TRANSIT LTD:::::::::::: RESPONDENTS

# BEFORE: HON. LADY JUSTICE ANNA B' MUGENYI

#### JUDGMENT

This Appeal arises out of a ruling of the Chief Magistrate of Nakawa, His Worship Kakooza Elias, in Miscellaneous Application No. 461 of 2019 arising from Civil Suit No. 653 0f 2019.

The Appellant had filed a summary suit vide Civil Suit No. 653 of 2019 against the Respondent. The Respondents/Applicants then filed an Application seeking for orders to be granted unconditional leave to appear and defend the summary suit and costs of the Application be provided for.

The grounds upon which the Application was filed were that the Appellant is <sup>a</sup> director in the Respondent companies and part of the Board of Directors. Parties had agreed in the consent judgment vide Civil Suit No. 777 of 2017 to call for a meeting to discuss issues concerning the remuneration, fringe benefits of all directors, and transmission of shares of all deceased shareholders. The rneeting was held on 3Oth of July 2019 with all the board of directors in attendance, to which they agreed that the directors' remuneration shall be based on actual attendance ofjoint board meetings.

Further that the Respondents/Applicants were not indebted to the Appellant/Respondent, the Applicants had a good and meritorious defense to the suit, there are triable issues of fact and law to be determined by the Court to wit

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whether or not the Appellant/Respondent is entitled to the sum of USD 7,500\$ (United States Dollars, Seven Thousand Five Hundred only) from the Respondents as director/shareholder's monthly remuneration and whether the suit is res judicata and or properly before this Court as a result of the consent judgment in Commercial Court Civil Suit No. 777 of 2017 between the same panies.

The Appellant/Respondent opposed the Application in their affidavit in reply stating that the Respondents/Applicants' affidavit in support for leave to appear and defend was incurably defective as the deponent is neither a director nor a shareholder and has not exhibited any board resolution authorizing him to swear the affidavit on the Respondents'/Applicants' behalfand the entire affidavit is based on alleged advice from his advocate yet both him and the advocate never attended the board meeting of30'h June 20 19. In the affidavit in reply, it was also contended that the Respondents have no defense to the liquidated claim of US \$ 7,500, whose cause of action arose after the 3Oth of June, 2019. That Court in the Consent Judgment Civil Suit No. 777 of 2019, ordered the payment of USD 18,000 in lieu of the Appellant's arrears for <sup>I</sup>2 months from 1't May 20]l 8 to 3 I't May, 2019.

The leamed trial Chief Magistrate held that the Respondents raised a triable issue of how much the Appellant is entitled to being a shareholder of the Respondents companies and that the issue could not be determined summarily as the same ought to be investigated during trial and granted the Respondents leave to appear and defend.

The Appellant having been dissatisfied with the decision and orders of the trial Court has sought to appeal against the whole decision and orders of the Court on the following grounds;

- L The leamed trial Chief Magistrate erred in law and fact when he relied on the affidavit in support of the application of a one Dacha Ahenda purporting to depone to facts which were not in his personal knowledge of what transpired in a board meeting which he did not attend, thereby coming to the wrong conclusion. - 2. The learned trial Chief Magistrate erred in law and fact while making his Ruling when he relied on unapproved and unsigned draft Board minutes purportedly representing what transpired in the Board meeting thereby coming to the wrong conclusion. - 3. The learned trial Chief Magistrate erred in law and fact when he relied on <sup>a</sup> Board Resolution purportedly extracted from draft minutes that were never

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approved or signed by the Board of Directors in any subsequent meeting, contrary to company law of Uganda.

- 4. The leamed trial Chief Magistrate erred in law and fact when he held that the triable issue was "how much the Plaintiff/Respondent is entitled to being a shareholder of the Applicant companies\* yet the issue in court was Directors' remuneration thereby departing from/or amending parties' pleadings and submissions on his own motion - <sup>5</sup>. That the leamed Trial Chief Magistrate erred in law and fact to hold that there were triable issues as to the monthly remuneration payable per month to the Appellant since the Appellant's demand was specific and at all material times known to the Respondents and had earlier made payment to the Appellant on account of the Appellant's twelve (12) months Director's remuneration in arrears effective May 2018 to the date of the consent Judgment June 2019 at the same known rate - 6. That the leamed Trial Chief Magistrate erred in law and fact when he solely and exclusively accepted and relied upon the affidavit and written submissions of the Applicants but totally ignored the Respondent's evidence and written submissions in reply thus coming to a wrong decision.

The Appellant has sought this Court to allow the appeal and set aside the orders of His Worship Kakooza Elias in Miscellaneous Application No. 461 of 2019 and confirm earlier judgments in favor of the Appellant and costs of this Appeal be paid by the Respondents in this Court and in the Court below.

## REPRESENTATION

The Appellant was represented by M/s Kasolo & Khiddu Advocates while the Respondents were represented by M/s K&K Advocates.

# APPELLANT'S SUBMISSIONS

During the hearing, the Appellant argued grounds I ,2 and 3 jointly, grounds 4 and <sup>5</sup> jointly, and ground 6 separately.

On grounds 1,2 and 3, the Appellant submitted that there is a defective affidavit which was relied on by the leamed trial Chief Magistrate on grounds that;

- L The deponent did not have knowledge of what transpired in the board meeting. - 2. The source of his information was not known. It was marred by gross falsehoods and prayed that the same be struck out with costs.

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The Appellant with reference to pages 169, 22 and 23 of the record of appeal submitted that the deponent Mr. Musumba Dacha Ahenda was never in the meeting ofthe board ofdirectors on the 3Oth July 2019, therefore, he could not depone to facts or issues which arose in that meeting as they would tantamount to hearsay. He further submitted that Order 19 Rule 3(l) of the CPR makes it a requirement that any deponent in any matter before a court must have knowledge of the facts to which he or she is deponing to, with an exception for interlocutory applications to which he must state the basis ofhis beliefand grounds thereof.

Counsel for the Appellant with reference to pages 24 to 30 of the record of appeal submitted that the trial Magistrate relied on draft minutes which bare the watermark word "draft" on every page, the same were never signed by either the chairperson or director/secretary and there was never an affidavit of the company secretary attached to the same, no evidence was exhibited of any subsequent meeting, therefore, the source is unknown. Counsel also emphasized that Section 152(2) of the Companies Act requires that, any minutes of any company meeting must be signed in the subsequent meeting. Therefore, extracting a resolution without a subsequent meeting would be in contravention of the said provisions. He further submitted that under order 19 Rule 3(2) ofthe CPR, affidavits marred by hearsay evidence are penalized, as they bear falsehoods to that effect and need to be struck out. He referred to the cases of ,Srrasi Bitaitana and 4 Ors vs Emmanuel Kananuro (HCCA No.47/1976), Anthony Okello vs Ojok B'leo & 2 Ors (HCMA No.26/2006), and Jetha Brolhers Lttl vs Mbqraro Municipal Council & 4 Ors (HCMA No.3l/2004), to which he concluded that there was no proper affidavit befbre the trial Magistrate in making his decision, and prayed that Court should find grounds 1,2 & 3 pleasing to overtum the decision of the learned trial Magistrate for being erroneous.

On grounds 4 and 5, counsel submitted that the leamed trial Magistrate amended the pleadings because the pleadings before the Court never mentioned a shareholder remuneration, and yet shareholders get dividends. He submitted that the trial Magistrate offended Order 6 Rule 7 of the CPR which prohibits departure from pleadings and made his own determination to find a triable issue which was never raised by counsel for the Respondents. He further submitted that the leamed trial Magistrate held that the Appellant was to be paid USD 18,000 arrears of his director remuneration from May 2018 to the date of the consent judgment on or by the 20th June 2019, according to the consent judgment on pages 14 to 16 of the record of appeal. He added that on page 72 of the record of appeal, according to the RTGS transfer referred to in the affidavit of Mr. Musumba Ahenda. he indeed forwarded a

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total of UGX. 72,130,500 being USD 19,500 with a corresponding exchange rate of UGX. 3,699. Counsel submitted that as per the consent judgment in Civil Suit No.777 of 2017, the demanded sum is known and since the last payment in 2019, the Respondents have never paid any amount. Counsel therefore prayed that this Court should be inclined to overtum the decision of the learned trial magistrate for having failed to evaluate the evidence and departed from the evidence that was before that Court.

On ground 6, counsel submitted that according to pages 6 to 7 ofthe record ofappeal, the leamed trial Magistrate ignored the Appellant's/Respondent's affidavit in reply and submissions in making his ruling, thus making an error in evaluating the evidence.

# DECISION

During the hearing of the Appeal on the 24th of October 2023, counsel for the Appellant made an appearance in the absence ofcounsel for the Respondents, even though the Respondents were duly served with the hearing notice of this appeal. Counsel then moved court under Order 9 Rule 5 ofthe CPR to proceed exparte and the same was granted. During the hearing of the Appellant's submissions on the grounds of the appeal, counsel for the Respondents on arriving late indulged Court to grant him audience on account that he was engaged in another matter before the Land Division and sought for an adjoumment to make his submissions in reply to the Appellant submissions and the matter was adjoumed to 25th of October 2023.

During the hearing, counsel for the Appellant raised a preliminary objection that seeking an adjournment cannot overturn the Court's decision allowing a party to proceed exparte and sought for the part of the proceedings where the Respondents were granted an adjoumment to be expunged from the record as the Court had already granted them the order to proceed exparte. Counsel for the Respondents submitted that once the court made a ruling allowing an adjoumment, it in essence reviewed its earlier ruling to proceed exparte against the Respondent. The Court upheld the Appellant's preliminary objection and proceedings continued exparte.

Since this is a first appeal from the decision of the Chief Magistrate, I have to address my mind to the duty of the first appellate Court.

In the case of Kifamunte Henry vs Uganda SCCA No I of 1991 , the Supreme Court held that;

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"The first appellate court has a duty to review the evidence of the case and to reconsider the materials before the trial judge. The appellate court must then make up its own mind not disregarding the judgment appealed from but carefully weighing and considering it. "

The obligation of a first Appellate Court was also discussed in the case of Fr. Nanensio Begumisa and Ors vs Eric Tiberaga SCCA f 70 OF 2000 [20041 KALR 236 thus:

"This being a first appeal, this court is under an obligation to re-hear the case by subjecting the evidence presented to the trial court to afresh and exhaustive scrutiny and re-appraisal before coming to its own conclusion. "

With the duty of this first appellate Court in mind, I will now deal with the grounds ofthe appeal

## Grounds 1,2 &3

- l. The learned trial Chief Magistrate erred in law andfact when he relied on the ffidavit in support of the application of a one Dacha Ahenda purporting to depone tofacts which were not in his personal lcnowledge of what transpired in a board meeting which he did not attend, thereby coming to the wrong conc lusion. - 2. The learned trial Chief Magistrate erred in law and fact while making his Ruling when he relied on unapproved and unsigned draft Board minutes purportedly representing what transpired in the Board meeting thereby coming to the wrong conclusion. - 3. The learned trial Chief Magistrate ened in law andfact when he relied on a Board Resolution purportedly extracted from draft minutes that were never approved or signed by the Board of Directors in any subsequent meeting, contrary to company law of Uganda.

According to the attached attendance sheets for the board of directors meeting marked as annexure 'F1' on pages 22 and 23 of the record of appeal, it is indeed true that Dacha Ahenda the deponent to the affidavit was not present during the board meetings of the two companies as his name is not among the members that attended the said meeting. Further, from the record ofproceedings, the nonattendance of the deponent is not in contention.

Order 19 Rule 3(l) of the CPR makes it a requirement that an affidavit shall be confined to such facts as the deponent is able of his own knowledge to prove except

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on interlocutory applications on which statements of his own belief may be admitted provided that the grounds thereof are stated.

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On perusal of the said deponent's affidavit, he at all times held himself out as the Country Manager of the companies and most of the averments in his affidavit, were about what was agreed to in the consent judgment as per paragraphs 3, 4,5,6,8 & 12 of his affidavit in support. At the time of making this affidavit, the said deponent was still a member of the company and thus had access to the draft minutes of the board meeting and consent judgment.

According to page 49 of the record of appeal, in paragraph 5 of the Appellant's/Respondent's affidavit in reply dated the 12<sup>th</sup> of December 2019, he confirmed that he is a shareholder and director of the Respondents at the time he filed Civil Suit No. 777 of 2017. He also stated that in the said suit he sought the Court to make a declaration that the ratification of the deponent's employment contract was null and void. During the hearing of the suit, the Appellant only mentioned his director's/shareholders' remuneration of USD 18,000 at the rate of USD 1,500 per month and subsequently by the consent judgment of the 13<sup>th</sup> of June 2019, the Court ordered that he be paid in lieu of arrears for twelve months, and the issue about the ratification of the employment contract of Mr. Musumba Ahenda as the Respondents/Applicants' Country Manager was not raised or consented to. This showed that the Appellant technically did not challenge the authority Mr. Musumba Ahenda had in the Respondent Companies, subsequently, when the consent judgment was decreed, this fact had been conceded by the Appellant. The same fact was established by the Hon. Justice Monica K. Mugenyi and the Court of Appeal Justices, in Civil Appeal No. 212 of 2020 vide Ellis R. Kasolo vs Security Group (U) Ltd & Anor, on page 19 paragraph 51, where they disallowed Ground 4 of the appeal and held that Mr. Musumba Ahenda's ratification and appointment as Country Manager was valid owing to the said issue having been abandoned under the consent judgment.

I, therefore, find that by the time Mr. Musumba Ahenda made the affidavit, he had the authority to act for and on behalf of the companies. Subsequently, the Appellant had conceded to his ratification as the company's Country Manager, wherein they negated to make an argument concerning whether his affidavit had falsehoods. In my considered view, his employment contract was valid at the time.

As the ratified Country Manager of the companies who is responsible for the dayto-day operations and running of the companies, the deponent is aware of what

$\overline{7}$ transpired during the meeting by virtue of his work and his accessibility to such documents. On the perusal of the said affidavit in the record of proceedings, the deponent states his source of information and attaches relevant documents as evidence of his information. I thereby find that the facts deponed were well within his knowledge and I therefore uphold the trial Magistrate's finding.

On grounds 2 and3,, on perusal of the record of appeal, indeed, the minutes of the board meetings of the two companies held on the 30th of July 2019 marked as annexure 'F2' on pages 24 to 38 were not signed by the chairman and the director/secretary. An extract of the board resolution is also attached on page 39 of the record of proceedings and is signed by two directors. The leamed Trial Magistrate did not make a profound decision on this issue, however, according to annexure F3 on page 39 of the record of appeal, indeed the extract of the board meeting deliberations, referring to the consent judgment, was signed by two of the directors of the Respondent companies on 6th. November, 2019.

Counsel for the Appellant sought to rely on section 152(2) of the Companies Act No. I of 2012 which provides that any minute purporting to be signed by the chairperson of the meeting at which the proceedings were held or by the chairperson of the next following meeting or meeting of directors as the case may be shall be evidence of proceedings. However, section 152(3) of the Companies Act No I of 2012 goes on to state that where minutes have been made in accordance with the proceedings at any general meeting of the company or meeting of the directors then until the contrary is proved, the meeting shall be taken to have been duly held and convened and all proceedings had to have been duly had and all appointment of directors or liquidators shall be taken to be valid.

Other than asserting that the minutes of the meeting were not signed, the Appellant did not go ahead to prove by way of evidence or otherwise that the said meeting was not duly convened or held and that all the resolutions passed were not valid as required by law. It should also be noted that the Appellant was part of the directors who attended the meeting and he has not disputed this fact as his name features in the attendance list. In the absence of that, I find that the meeting was duly held and the minutes are therefore valid. The directors intended to rely on those minutes and thus I find that the Trial Magistrate did not error in his decision when he found that the only triable issue to determine was how much the Appellant was entitled to as earlier agreed in the consent judgment. I would, therefore, disallow grounds 1,2 and 3 ofthe appeal.

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## Grounds $4 & 5$

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*The learned trial Chief Magistrate erred in law and fact when he held that the triable* issue was "how much the Plaintiff/Respondent is entitled to being a shareholder of the Applicant companies" yet the issue in court was Directors' remuneration thereby departing from/or amending parties' pleadings and submissions on his own motion.

The learned Trial Chief Magistrate erred in law and fact to hold that there were triable issues as to the monthly remuneration payable per month to the Appellant since the Appellant's demand was specific and at all material times known to the Respondents and had earlier made payment to the Appellant on account of the Appellant's twelve (12) months Director's remuneration in arrears effective May *2018 to the date of the consent Judgment June 2019 at the same known rate.*

The Appellant submitted that the learned Trial Magistrate in his ruling departed from the pleadings, where on page 169 of the record of appeal under paragraph 3 he held that:

"I am inclined to agree with the Applicant's counsel that the above raises a triable issue of how much the plaintiff or Respondent is entitled to being a shareholder of the Applicant companies and this cannot be determined summarily as the same ought *to be investigated during trial.*"

He submitted that on pages 14 to 16 of the record of appeal and pages 15 and paragraph 2 of the consent judgment, the Appellant/Plaintiff was to be paid arrears of his director remuneration and not shareholder's from May 2018 to the date of the consent judgment on or by $20^{\text{th}}$ June, 2019.

According to paragraphs 4 & 5 of the Appellant/Respondent's affidavit in reply to Miscellaneous Application No. 461 of 2019, the Appellant held himself out as "the only surviving and undisputed founder member/shareholder and director of the Respondents with other directors". Further in the Trial Magistrate's ruling on page 168 of the record of appeal, His Worship states that:

"In the instant case, the triable issues are whether the Respondent/Plaintiff is entitled to the sum of USD 7,500 from the Applicants/Defendants as director's/shareholders' monthly remuneration''.

In my considered view, the learned Trial Magistrate just used the title of director and shareholder interchangeably in this context since one of the many titles the Appellant addressed himself in his affidavit in reply is that he is the only surviving shareholder

and director of the companies. Therefore, this accidental slip of using the title of shareholder as opposed to director is not fatal to this appeal and is of no merit. I would, therefore, disallow ground 4 for the interest of administering justice without undue regard to technicalities and hold that the Trial Magistrate did not depart from his pleadings.

In regards to ground 5 of the appeal, it should be noted that the Trial Magistrate in granting the Respondents leave to defend mainly relied on the Consent Judgment and minutes of the board meetings as attached to the affidavit in support of Dacha Ahenda.

The trial Judge held in the said consent decree on pages 14 to 15 ofthe record of appeal that:

"2. The Plaintiff be paid in lieu of arrears of his director remuneration due from May 2018 to the date of this consent judgment on or by 20th June, 2019.

3. The Board of directors of the 8'h and 9'h Defendants, and the sister companies; Security Group Alarms Limited and Big Orange Express Courier Limited will each call meetings on or before 30'h August 201 9 to discuss and determine the issues listed below;

- a. The status of all directors' remuneration and other fringe benefits. - b. Transmission of the shares of all deceased shareholders to their respective estates.

According to clause 2 of the consent judgment/decree, the Appellant director's remuneration for the period between May 2018 to 20th June 2019 was paid as evidenced on page 7l of the record of appeal by email extracts dated24th and 25th June 201 9, between Hilda Nalumu the financial controller of the Respondent company who informed the Appellant that the payment of USD 18,000 was to be transferred to his bank account. According to page 72 of the record ofappeal, there is a bank statement from Standard Chartered Bank where Hilda Nalumu and Dacha George M Ahenda authorized the transfer of USD 19,500 from Security Group Cash in Transit bank account to the Appellant's bank account on 241612019 more than what Court ordered for. Consequently, the Respondents are not indebted to the Appeltant in regard to clause 2 ofthe consent decree.

Under clause 3 of the consent Judgment, the board ofdirectors were ordered to call meetings to determine the status of all director's remuneration and other fringe benefits. These meetings were indeed held as shown by the attendance sheet on

pages 22 to 23 and the minutes of the meeting on pages 24 to 38 of the record of appeal. The minutes of the meeting were not signed and it was only the extract of the agreed position from the board meetings that was signed by two directors as seen on page 39 ofthe record ofappeal.

It should be noted that the Respondents/Applicants mentioned that the companies were going to call for a board meeting on the 24th of August, 2022, to confirm the minutes of the previous meeting held on the 3Oth of July, 2019. Unfortunately, there is no board resolution of 24th of August, 2022 attached to the record of appeal, therefore, the Court cannot make any evaluation of the Respondents' contention of a certain board resolution.

I am inclined to agree with the leamed Trial Magistrate's decision that the issue as to how much the Appellant is entitled to cannot be summarily determined as the same ought to be investigated during the trial. This is because the said amount is still a contentious matter as the Appellant is not in agreement with the resolutions of the meeting and the Respondents only want to implement what was agreed during the purported meeting.

Therefore, I would disallow this ground and uphold the decision of the Trial Magistrate that Civil Suit No. 653 of 2019 cannot be determined summarily as there are triable issues therein.

## Ground 6

The Appellant,lRespondent believes that the leamed Trial Magistrate ignored most of his submissions and affidavit in reply while drawing his conclusion, thus making errors.

ln the instant case, the Trial Magistrate while making his ruting on pages 163 to 169 of the record of appeal in Miscellaneous Application No.46lof 2019 filed by the Respondents for leave to appear and defend reproduced the Respondents' affidavit in support and the Appellant's affidavit in reply and also stated that the parties have filed written submissions which he witl take into consideration while handling the Application.

A preliminary objection was also raised by the Respondents before the Trial Magistrate regarding the supplementary affidavit of the Appellant being filed out of time and the said Trial Magistrate in his ruling took note of both parties' submissions regarding the preliminary objection before making his decision. In making his decision on pages 167 to 169, the Trial Magistrate relied on the law (CPR

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provisions), case law, and the part of the pleadings that he was inclined to agree with bearing the law and cases in mind.

I, therefore, find that the Trial Magistrate did not ignore the Appellant's pleadings and did address his mind to the parties' pleadings and submissions while coming up with his decision. The decision of the Trial Magistrate was not erroneous in his conclusion.

Accordingly, this Court finds all the grounds of the Appeal lack merit and the Appeal is dismissed. Miscellaneous Application No.461 of 2019 stands granted alongside the orders made therein.

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HON. LADY JUSTICE ANNA B. MUGENYI DATED:211212024