Liaison Financial Services Limited v SDS & Company Certified Public Accountants (Miscellaneous Application 2160 of 2024) [2024] UGCommC 337 (15 November 2024)

Full Case Text

| | THE REPUBLIC OF UGANDA | |----|-------------------------------------------------------------------------------------| | | IN THE HIGH COURT OF UGANDA AT KAMPALA | | | (COMMERCIAL DIVISION) | | | IN THE MATTER OF AN APPLICATION FOR PROOF OF DEBT | | 5 | IN THE MATTER OF THE UGANDA RETIREMENT BENEFITS | | | REGULATORY AUTHORITY ACT, CAP. 232 LAWS OF UGANDA | | | IN THE MATTER OF THE UGANDA RETIREMENT BENEFITS | | | REGULATORY | | | AUTHORITY (MERGER AND WINDING UP OF RETIREMENT BENEFITS | | 10 | SCHEMES) REGULATIONS, 2020 | | | IN THE MATTER OF THE INSOLVENCY ACT, CAP. 108 LAWS OF | | | UGANDA | | | IN THE MATTER OF THE INSOLVENCY REGULATIONS, 2013 | | | MISCELLANEOUS APPLICATION NO. 2160 OF 2024 | | 15 | (ARISING OUT OF WINDING UP PETITION NO. 0025 OF 2024) | | | LIAISON FINANCIAL SERVICES LTD ::::::::::::::::::::::::::::::: APPLICANT |

#### **VERSUS**

#### **SDS & COMPANY CERTIFIED PUBLIC**

**ACCOUNTANTS (Liquidator of Uganda**

20 **Communications Employees' Contributory**

**Pensions Scheme) ::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT**

## **BEFORE: HON. LADY JUSTICE PATIENCE T. E. RUBAGUMYA**

## **RULING**

25 Introduction

This application was brought by way of Notice of Motion under **Sections 33 and 38 of the Judicature Act, Section 98 of the Civil Procedure Act, Cap. 282, Sections 32(1)(2) and 78 of the Uganda Retirement Benefits Regulatory Authority (URBRA) Act, Cap. 232**, **Section 10 of** 5 **the Insolvency Act, Cap. 108**, **Rules 17-32 of the URBRA Regulations S1 No.44 of 2020**, **Rules 172-176 of the Insolvency Regulations SI No. 36 of 2013**, **Order 52 rules 1, 2 and 3 of the Civil Procedure Rules SI 71-1**, seeking:

- 1. A declaration that the Applicant is a creditor against the Uganda 10 Communications Employees' Contributory Pension Scheme. - 2. A declaration that the Applicant's debt has never been written back and that the Respondent should include the Applicant's debt amongst the liabilities the Scheme should settle. - 3. A declaration that the Applicant has proved its unsecured credit against the Scheme for UGX 3,367,398,083/=as the current total receivable, due and payable. - 20 4. A declaration that the Respondent is under a duty to account to the Applicant/Creditor in the exercise of his duties and powers as a liquidator of the Uganda Communications Employees' Contributory Pension Scheme and that by not paying the Applicant/Creditor or making arrangements as to the payment, the Respondent is in 25 breach of his duties as the liquidator. - 5. An order be issued against the Respondent to immediately pay the Applicant the proved debt or, alternatively, secure the proved credit or debt with property whose monetary value is equivalent to the debt 30 so proved.

- 6. A temporary injunction be issued against the Respondent, halting the winding-up process of Uganda Communications Employees' Contributory Pension Scheme until the Applicant's credit/debt is settled and or secured with property whose monetary value is 5 equivalent to the debt so proved. - 7. Costs of this Application be provided for.

### Background

The background of this application is contained in the affidavit in support 10 deponed by **Ms. Sarah Siryowe**, a Director of the Applicant, and is summarised below:

- 1. That the Applicant/Creditor took over the Administration of the Uganda Communications Employees' Contributory Pension Scheme (the Scheme) on 10th October, 2005 and several Retirement Benefits 15 Scheme Administration Agreements were executed between the Applicant/Creditor and the Scheme entitling the Applicant/Creditor to charge administration fees, the last Agreement being of 1st January, 2019 for five years. - 20 2. That the Applicant/Creditor worked with the Respondent from its appointment as interim Administrator of the Scheme all the way through, and the Applicant/Creditor's outstanding administration service fees were relentlessly brought to its attention, and the reply was that it was only concerned with the period of its administration 25 of the Scheme. - 3. That during the Respondent's tenure as interim Administrator of the Scheme, the Scheme received UGX 4,550,343,000/= from the Government of Uganda, upon which the Applicant/Creditor issued - 3

an invoice of UGX 107,388,094/= as administration fees. The same has not been paid to date.

- 4. As of 31st December, 2016 UGX 2,022,412,000/= was the 5 outstanding administration fee against the Scheme. After adding the previously unbilled fees, the current total receivable amount is UGX 3,367,398,083/= which is due and payable. - 5. The Respondent, upon being appointed as an interim Administrator 10 for the Scheme, duly applied to the Court for winding up of the Scheme vide *Winding up Petition No. 0025 of 2024*, and the Respondent, despite knowing the Applicant herein being one of the Creditors and having had several interactions on the same matter, deliberately lied on oath under paragraph 13 of the Petition and only 15 listed Uganda Revenue Authority as the sole Creditor.

In reply to the application, the Respondent, through an affidavit in reply deponed by its Managing Partner **Mr. David Ssenoga**, opposed the application, contending that:

- 20 1. Clause 17 of the Administration contracts dated 10th October, 2005, 25th March, 2010 and 1st January, 2019, out of which the Applicant's alleged claim arises, requires such a claim to be submitted to arbitration by a single arbitrator. - 25 2. On 21st March, 2023, the Respondent was appointed as an interim Administrator by the Uganda Retirement Benefits Regulatory Authority (herein called the Regulator). - 3. On perusing the Scheme's financial accounts, the Respondent 30 established that on 30th June, 2019, the Applicant had issued a pro

forma invoice for administration fees for the period between 2005 and 2016 of UGX 2,022,412,000/=.

- 4. On review of the Scheme's annual report and audited financial statements of accounts, the Respondent established that there was 5 no supporting evidence to warrant the payment of administration fees to the Applicant of UGX 2,022,412,000/= as per the findings of the Office of the Auditor General. - 5. On perusal of the Administration contracts executed between the 10 Applicant and the Scheme Trustees and the Applicant's account statement, the Respondent noted that: - a) The contract dated 10th October, 2005 provided a remuneration fee percentage based on the total annual combined contributions of both employer and employee under the defined 15 contribution arrangement with the exclusion of the defined benefit arrangement. - b) In all three contracts, the remuneration percentage for the Applicant's administration services was based on annual 20 contributions remitted to the Scheme for that specific year and not as and when the contributions were paid into the scheme. - c) The Applicant's pro forma invoice dated 30th May, 2019 was 25 based on a flat percentage of 2.00%, contrary to the remuneration fee percentage in the contracts dated 10th October, 2005 and 25th May, 2010. - d) Between 2005 and 2020, the Scheme paid the Applicant UGX 30 2,820,381,248/= as administration fees.

- 6. The Respondent further requested the Applicant to provide evidence that justifies the payment of the administration fees of UGX 2,022,412,000/= - 5 7. Due to the Applicant's failure to justify the payments made by the Scheme to the Applicant, the Respondent wrote back the amount of UGX 2,022,412,000/= and recommended that the Regulator handles 10 the Applicant's claim.

The Applicant through **Ms. Sarah Siryowe** its Director, swore an affidavit in rejoinder reiterating its averments.

#### Representation

The Applicant was represented by **M/s ADIL Advocates & Solicitors** while 20 the Respondent was represented by **M/s Arcadia Advocates.**

Both parties were directed to file their written submissions which they did, and the same have been considered by the Court.

In his affidavit in reply and written submissions, the Respondent raised a preliminary point that this Court lacks jurisdiction to entertain this 25 matter.

#### **Order 6 rule 28 of the Civil Procedure Rules**, stipulates that:

"*Any party shall be entitled to raise by his or her pleadings any point of law, and any point so raised shall be disposed of by the Court at or after the hearing; except that by consent of the parties, or by order of* 30 *the Court on the application of either party, a point of law may be set down for hearing and disposed of at any time before the hearing*."

As to whether to dispose of a preliminary point first before hearing the merits of the matter, the Supreme Court in the case of *Uganda Telecom Ltd Vs ZTE Corporation SCCA No.3 of 2017* held that a trial Court has the discretion to dispose of a preliminary point either at or after the 5 hearing. However, the exercise of this discretion depends on the circumstances of each case. It is therefore trite that where there is a preliminary objection capable of disposing of the matter in issue, it is judicious to determine the objection before embarking on the merits of the case.

10 Guided by the above authorities, I shall proceed with the determination of the preliminary objection so raised.

Whether this Court has jurisdiction to entertain this matter?

# Respondent's submissions

Counsel for the Respondent premised the preliminary objection on the 15 existence of an arbitration agreement. That according to **Section 3(1) of the Arbitration and Conciliation Act**, **Cap. 5** an arbitration agreement may be in the form of an arbitration clause in a contract.

That clause 17 of each of the mentioned contracts, stipulates that any dispute arising or touching the matters which are the subject of these 20 agreements shall be submitted to arbitration by a single arbitrator appointed by agreement of the parties or to a single arbitrator appointed by the Director of Centre of Arbitration for Dispute Resolution following the Arbitration and Conciliation Act.

Counsel referred to the ruling of this Court in the case of *Shimizu* 25 *Konoike Joint Venture Vs Abubaker Technical Services Limited Misc.*

*Application No. 436 of 2024* for the proposition that **Section 9 of the Arbitration and Conciliation Act**, limits this Court's intervention in arbitral matters and the case of *Dickson Muyambi Vs Vivo Energy (U) Limited Civil Suit No. 112 of 2019* on the emphasis of the sanctity and 5 enforcement of agreements with arbitration clauses.

In his conclusion, Counsel prayed that this Court finds this not a proper forum for this application.

### Applicant's submissions

Counsel for the Applicant contended that a creditor of an insolvent wishing 10 to recover his or her debt in whole or in part is required to submit a claim in writing to the liquidator. That the amount of a creditor's claim against a company in liquidation is ascertained as at the date of commencement of the liquidation and contingent creditors are allowed to claim in a liquidation to prevent the liquidation process from being delayed pending 15 the crystallisation of the contingency.

Counsel relied on **Section 8 of the Insolvency Act and Regulation 179 (1) of the Insolvency Regulations**, which require the liquidator to either; make an estimate of the amount of the claim, or refer the matter to the Court for a decision on the amount of the claim.

20 Counsel for the Applicant prayed that the preliminary objection be overruled for the reason that the said arbitration clauses are between the Applicant and the Scheme, whereas the instant application is between the Applicant and the Respondent as the legal liquidator of the Scheme. ## Analysis and Determination

Having considered the preliminary point above and the submissions of both Counsel, the Respondent contends that this application was instituted under the wrong forum contrary to the arbitration clause 5 enshrined in the agreements between the parties.

Though the said clause is undisputed, the Applicant refutes the Respondent's submissions regarding jurisdiction and relies on **Section 8 of the Insolvency Act and Regulation 179(1) of the Insolvency** 10 **Regulations**.

**Section 9 of the Arbitration and Conciliation Act**, prohibits the interference of the Courts in arbitral matters. Therefore, it is trite that where a contract contains an arbitration clause, the Court is bound to 15 refer such a matter to arbitration as provided under **Section 5(1) of the Arbitration and Conciliation Act** unless it is found that the arbitration agreement is null and void, inoperative or incapable of being performed; or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred to arbitration.

20 Whereas the existence of the arbitration agreement (clause 17) is not in question, its applicability in insolvency is contested. The insolvency procedure is so protected by the law to the extent that, **Section 97(1)(c) of the Insolvency Act** states that;

# "*Effects of liquidation*

25 *(1) At the commencement of liquidation-*

*(c) proceedings, execution or other legal process shall not be commenced or continued and distress shall not be levied against the Company or its property*."

The provision was recognised by **Hon. Mr. Justice Butcher** of the High 5 Court of Justice Queen's Bench Division Commercial Division in the case of *The Republic of Uganda and Rift Valley Railways (Uganda) Limited and RVR Investments (PTY) Limited and Ku Railways Holdings Limited* Case *No. CL.2020-000477* when he stated that;

"*As a matter of statutory interpretation, this provision prohibits the* 10 *commencement or continuation or proceedings against a Company in liquidation*."

In addition, **Section 97(1)(a)** of the Act provides that at the commencement of liquidation, the liquidator shall take custody and control of the Company's property. **Section 1 of the Act** defines property 15 as money, goods, things in action, proceeds, land and includes every description of property wherever situated, obligations, interest, whether present, future, vested or contingent, arising out of or incidental to property. (See: *The Republic of Uganda and Rift Valley Railways (Uganda) Limited and RVR Investments (PTY) Limited and Ku* 20 *Railways Holdings Limited (supra).*

Since a person claiming to be a Creditor of an insolvent and wishing to recover his or her debt in whole or in part is required to submit a claim in writing to the liquidator and that the amount of a Creditor's claim against a company in liquidation is ascertained as at the date of commencement of the 25 liquidation and contingent Creditors are allowed to claim in a liquidation to prevent the liquidation process from being delayed pending the crystallisation

of the contingency, the dispute that is currently before the Court arose at the commencement of the liquidation when the claim was made and the Insolvency Act provides specific recourse in the event of disputes.

Owing to the above, I find the arbitration agreement incapable of being 5 performed at this stage hence the preliminary objection is overruled.

### Issues for Determination

- 1. Whether the Applicant has proved an existing debt? - 2. What remedies are available to the parties?

### Issue No.1: Whether the Applicant has proved an existing debt?

#### Applicant's submissions

Counsel for the Applicant contended that a Creditor of an insolvent 15 wishing to recover his or her debt in whole or in part is required to submit the claim in writing to the liquidator. That a contingent and disputed claim cannot be litigated outside the process of liquidation after initiation of the corporate insolvency. He referred the Court to **Section 8 of the Insolvency Act and Regulations 172(1) of the Insolvency Regulations,** 20 **2013** and the case of *Buchier & Anor (as joint liquidators of Leyland Daf Ltd Vs Talbot & Anor (as joint administrative receivers of Leyland Daf Ltd) & Others [2004] 1 All ER 1289 being UKHL 9*.

Counsel for the Applicant while relying on the averments in the affidavit in support and various authorities relied on; submitted that the 25 Respondent failed to answer the Applicant's numerous invoices drawn to it and that a notice of proof of a debt under the law had no positive response from the Respondent.

Due to the above, Counsel for the Applicant submitted that the Applicant is therefore entitled to costs of the application notwithstanding the provisions of **Regulation 176(9) of the Insolvency Regulations, 2013**, which makes the Respondent an office bearer not liable to costs of such 5 nature of applications but that this a good case to grant the costs against the Respondent for their acts.

In conclusion, Counsel for the Applicant submitted that the Applicant is entitled to all the prayers sought in paragraphs a-f of the application.

### Respondent's submissions

10 Counsel relied on the averments in the affidavit in reply that, upon appointment of the Respondent as an Interim Administrator by the Uganda Retirement Benefits Regulatory Authority, it reviewed the Scheme's annual report and audited financial statement of accounts and established that whereas the Applicant had issued pro forma invoice for 15 administration fees for the period between 2005 and 2016 for a sum of UGX 2,002,412,000/=, there was no supporting evidence to warrant the said payable as stated in the Auditor General's report. Counsel referred to annexure "**A**" to the Applicant's affidavit in support.

That upon the Applicant availing the documentation regarding the 20 administration of the Scheme, the Respondent noted that not only had the Scheme paid the Applicant administration fees of UGX 2,820,381,248/= over a period of time but also the said pro forma invoice was based on a flat percentage of 2.00% contrary to the remuneration fee percentage on the contracts.

12 25 Counsel further submitted that whereas the Applicant has issued a proforma invoice for administration fees between 2005 and 2016 of UGX 2,022,412,000/=, there was no supporting evidence to warrant the said payable as stated in the Auditor General's report.

Counsel submitted that the Applicant failed to prove its indebtedness to the Uganda Communications Employees' Contributory Pensions Scheme.

5 He prayed that the Court finds so and dismisses this application.

# Applicant's submissions in rejoinder

In rejoinder Counsel for the Applicant reiterated his submissions and added that failure for the Respondent's Counsel to cross-examine the Applicant on its affidavit in support is an admission of the averments and 10 prayed this Court to grant the application.

# Analysis and Determination

**Section 7 of the Insolvency Act** provides for claims of unascertained amounts and **Regulation 172 (1) of the Insolvency Act** provides for the procedure as rightly submitted by Counsel for the Applicant.

15 The Applicant seeks to be declared a Creditor against the Uganda Communications Employees' Contributory Pensions Scheme for unsecured credit of UGX 3,367,398,083/= as the outstanding administration service fees.

In proof of its case, the Applicant relied on paragraphs 4 and 9 of its 20 affidavit in support, to the effect that it was to be paid administration fees depending on the liquidity of the Scheme and that by 2016, this arrangement had attracted arrears in the sums of UGX 2,022,412,000/= and by 30th June, 2021, the arrears had accumulated to UGX 3,367,398,083/= which is due and payable. In support, the Applicant

relied on the Remuneration clauses in the Scheme Agreements, Annexure "**A**", the computation schedule of the billed and expected fees payable by the scheme over the years, and the Auditor General Reports for the year ending 30th June, 2021, **Annexure "E"** as attached to the affidavit in reply, 5 which I have carefully examined.

As averred under paragraphs 6, 7, and 15 of its affidavit in support, it is undisputed that the Applicant notified the Respondent of its debt and issued a notice of proof of debt to the Respondent together with a statutory declaration, - **Annexure J** which has been carefully examined by this 10 Court and was received by URBRA and the Respondent in its capacity as liquidator. I have also noted **Annexure G,** the Auditor General's report for the Financial Year ending 30th June, 2023 in which the Auditor General advised the Respondent to provide adequate evidence that the respective Creditors allegedly agreed to the write-back.

15 Owing to the above, through **Annexure J**, it is proved that the Applicant as an unsecured creditor, claimed its debt from the Respondent in its capacity as a liquidator premised on the Scheme Agreements contained in **Annexure A**, hence in compliance with **Section 9 of the Insolvency Act and Regulation 172(1) and (2) of the Insolvency Regulations No. 36 of** 20 **2013**.

The Respondent was therefore required to verify the claim. In its defence, the Respondent contends that the Applicant's debt is not established. It relied on several correspondences with the Applicant that include, annexure **"C" ,** dated 1st June, 2023 requesting the General Manager of 25 the Applicant to avail a copy of their contracts, schedule of all invoices issued to UCECPS and payments received by the Applicant in respect of Administrator services since the inception of its relationship with UCECPS

and a statement of its account with UCECPS as at 31st May, 2023. Annexure "**E**" that includes letters dated 17th November, 2023, 24th November, 2023, 22nd November, 2023, 30th November, 2023 and 20th June, 2023. The above letters, concerned the need for availability of 5 sufficient documents to ascertain the Applicant's debt which did not yield any success. Based on the above correspondences and the report from the Auditor General, the Respondent contends that the Applicant has not produced sufficient documents to warrant the payment. In its affidavit in rejoinder, the Applicant insisted on annexure "**A**" to the affidavit in rejoinder which is the Auditor General's report for the year ended 30th 10 June, 2023, in which the Auditor General advised the Respondent to provide adequate evidence that the respective creditors have agreed to the write back, with a view of having the amounts therein harmonised.

To the contrary, while the Respondent has not denied receipt of the 15 Applicant's claim, there is no evidence that they concluded verification of the debt in demand following **Section 9(2) of the Insolvency Act**. The Respondent's Counsel further submitted that the Respondent requested the Uganda Retirement Benefits Regulatory Authority to investigate the Applicant's claim, and the Regulator also declined to approve the claim for 20 fees due to the Applicant's failure to provide the necessary documentation to warrant the payment of the claimed administration fees.

Deduced from the above affidavit evidence, annexures thereto, and the submissions of both Counsel, it is my finding that the creditor's debt is still under verification and therefore this application is premature. I 25 accordingly direct that the Respondent completes the adjudication and verification of the claim and conclusively resolves whether it is proved in whole or in part or rejected.

In the circumstances, the Court is unable to grant the orders sought in the application based on facts that are not ascertained as yet.

Issue No. 2: What remedies are available to the parties?

Having found above and in accordance with **Section 98 of the Civil**

- 5 **Procedure Act**, I direct the Applicant to submit its justification for the claim to the Respondent by **30th November, 2024** and the Respondent shall respond to the same by **31st December, 2024**. The Respondent is further directed file a copy of the response in Court by **10th January, 2025**. In the event that the Respondent is not satisfied with the Applicant's - 10 claim, the Respondent should accordingly seek Court's directions in respect of the claim in accordance with **Section 117(1) of the Insolvency Act.**

This application is hereby dismissed.

Each party shall bear their costs.

I so order.

## 15

Dated, signed and delivered electronically this **15th** day of **November, 2024.**

Patience T. E. Rubagumya

20 **JUDGE**

15/11/2024