Lubega v Barclays Bank (U) Limited (Civil Appeal 2 of 1992) [1992] UGSC 23 (30 June 1992)

Full Case Text

I \* CIVIL APPEAL NO. 2 OF 1992 ETWEEN STEPHEN LUBE< (Appeal from the judgment and decision of the High Court of Uganda at Kampala (Mrs Justice C. K. Byamugisha) dated 12th April, 1991) THS ^UPRE1'IE c0U-RT. 0^r^ ::::: APPELLANT : ::: 'RESPONDENT **I 9** fiO A ; CORAM: *U* BARCLAYS BANK (u) LTD ::::: **"** D. C. J., PLATT, J. S. C. & SEATON, J^S. C. " \*

## IN HIGH, COURT CIVIL SESSION CASE NO. 856 OF 1990

## JUDGMENT OF HaNYINDO, D. C. J.

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This is. an appeal against the judgment of Byamugisha, J. delivered in the High Court sitting at Kampala on'12.4.91• The from M/S. Ssezibwa Estates Ltd., but which lorry had allegedly been wrongfully seized and detained by M./s. Sunrise Associated Auctioneers and Court Brokers as agents of the respondent. lie also claimed **o** special and general damages, interest and costs of the suit. appellant had sued the respondent Bank in detinue, seeking an order for theroloao© of a lorry which he claimed to have bought

> The facts of the case can be stated briefly as follows. By 1989, the Government of Uganda had taken a decision to assist farmers with Crop Finance and transport. The Commercial Banks, including the respondent, were requested to assist in that regard. on There were three other Debentures executed by the same Company by the end of January 1989. a customer of the respondent bank and had executed a Debenture Deed with the respondent 11.10.82. H/s. Ssezibwa Sstates Limited was

> > 2/. • •

and transporting Coffee. Ssezibwa-Estates Ltd. were dealers inter'alia, in buying, processing

On 3O.5.895 Ssezibwa Estates Ltd, executed the fourth Debenture with the respondent for further loans for Crop Finance and purchase of the lorry in question. They did so after they had been.-allocated the lorry by then Ministry of Transport & Communications which' had imported the lorries for allocation to farmers and dealers in produce. The appellant was allowed overdraft facilities to the ;.tune of shs 7.5 million as a loan for the purchase of the lorry. As security, the respondent took an all assets debenture for shs 15\*5 million. They also took out legal mortgages of the debtor's Coffee Factory and.one residential house.

Armed with funds, Ssezibwa Estates Ltd. then bought the Tata lorry Registration Number UPF 818, on 26.9\*89. They took possession of it on same day. The Ministry of Transport & Communications caused And. condition <to the lorry, (on the Registration Card) namely, that the lorry was not to be transferred the' same Ministry clearly stated that the allocation was made subject to four, conditions. ' It is the first condition which is relevant to another person without the express consent of the Treasury. in the letter of allocation of the lorry to Ssezibwa Estates Ltd; the Ministry of Finance to put a

to the case. It was that the allocatees. were not to re-sale or period of 4 years from the date of its initial Registration and that any re-sale after the four years Resistance Committee the floating charge contained in Clauses 2 and 5(j) of the head Debenture which states as follows would have to be approved by the allocates\*s No.1 and the District Administrator. The lorry was also subject to • transfer the lorry for a

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"2.

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The Company hereby charges with the payment and discharge of all moneys and; liabilities intended to be hereby secured (including any expenses and charges arising out of or in connection with the act authorised by Clauses 5, 8 and 9 hereof\*). AH its undertaking goodwill assets and property whatsoever and wheresoever both present and future including its uncalled capital for the time being; and that the charge created by this Debenture shall rank as a first charge on all immovable property of the Company (to be mortgaged as hereinafter provided) shall constitute a fixed charge and as regards all other property hereby charged shall constitute a floating.security but so that the Company is not to be at liberty to create any mortgage or charge upon any of the property comprised in this security to rank either in priority to or pari passu with the charge hereby created. Any debenture mortgage or charges hereafter created by the Company (otherwise than in favour of the Bank) shall be expressed to be subject to this Debenture. The Company shall forthwith upon the.execution of this Debenture but subject to the rights of• any prior mortgage deposit with the Bank the title deeds of all immovable properties now vested in the Company and shall from time to time likewise deposit with the Bank the title deeds of any immovable property which may hereafter be acquired by the Company, (all such deposits of title deeds being by way of equitable mortgage as collateral security for the repayment of the Principal moneys and interest hereby secured) and shall at its own expense whenever called upon by the Bank so to do execute legal mortgages or charges as the\*case may require in favour of the Bank over any such immovable properties, such legal mortgages to be in such form as the Bank may require.

5-(j) The Company hereby covenants with the Bank: not to assign alienate let sub-let transfer &gt; or part with the possession of any of the property assets hereby charged or covenanted to be mortgaged or any part thereof without the consent in writing of the ^ank first had and obtained and then only on the condition that the consideration received by the Company in connection with the assignment alienation letting sub-letting or parting with possession will be remitted to the Bank in reduction of the amount for the time being owing under tnis Debenture•"

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On 22\*8.90, M/s. Sunrise Associated Auctioneers who had been appointed Receivers by the respondent in accordance with the termsof the Debenture, impounded the lorry and advertised it for sale. It was to be sold on ^.10.90. On 19\*9-90, the appellant had the vehicle transferred into his names and then on .27\*9-90, he instituted these proceedings 'against the respondent, after all attempts by his Lawyers to secure the release of the lorry had failed.

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At the trial four issues were framed by the parties for determination by the trial Judge-\* They were:-

- "(1) whether the suit was brought against the right defendant; - (2) . whether the transfer of the lorry was valid; - (3) whether the plaintiff is the rightful owner of Tata lorry Registration No. UPF 818; - (M Reliefs if any."

After full trial the Judge answered the first and second issues in the negative as a result of ..which she declined to consider the third issue. By implication it had been answered on the second issue. She found that Sunrise Associated Auctioneers and Court Brokers were properly appointed by the respondent as Receivers and agents of Ssezibwa Estates Ltd. (and not of the respondent as claimed by the appellant) under Clauses 8 and 9 of the Debenture\* In her opinion the Receiver and not the respondent was the right party to be sued in the circumstances\* Alternatively, the appellant could and should have joined the Receiver and Ssezibwa Estates Ltd. as defendants under Order 1 Rule 7 of the Civile-Procedure Rules.

She considered the possibility.of the Court joining them as defendants under Order 1 Rule 10(2) of the Civil Procedure Rules but declined to do so since the respondent should never have been sued as

the appellant had no cause of action against it. •In her view the Court could only invoke the Order and Rule under reference to add names of any person who ought to have- been joined whether as plaintiff or defendant, but not to substitute parties.

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With regard to the sale and transfer of the lorry to the appellant, the Judge held that those transactions were carried out in bad faith for three reasons. Firstly, Ssezibwa Estates . Ltd.' had no power to sale or transfer the lorry in view of the strict prohibitions put on it by the respondent and the Government. ascertain the true position of the lorry\* Thirdly, that the purported lifting by the Minister of Finance and that of Transport and Communications of the condition prohibiting Ssezibwa Estates Ltd; from alienating the lorry was unjustifiable as it 'defeated the interests of both the Government and the respondent and that in any case the Ministers had acted in ignorance of the true situation probably due to misrepresentation of facts by Counsel for the appellant. Secondly, the appellant was put on notice by the endorsement on the Registration Card, that- the. lorrys was encumbered and so he should have made the necessary enquiries to

She had no doubt that the transactions were tainted with fraud since there was- ample evidence to support them. As for the reliefs, the Judge took the position that had the appellant \* s suit succeeded., she would have ordered immediate repossession of the lorry since his claim was based on detinue. She would have awarded no special damages (for loss of earnings) as was proved. Shs 500,000/- would havenone been awarded She was silent about costs but presumably they would have followed the event. and sP upheld the submission of counsel for the appellant that it was immaterial that the particulars of fraud'had.not been pleaded as general damages for wrongful deprivation.

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Ten grounds of appeal were raised in the memorandum of appeal\* They are:-

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"1. The learned trial Judge erred in lav/ and on the facts'when she found that the respondent (defendant) was not the right party to the suit and that there was no cause of action against it. (PP.9 - 10 Jgt).

2. The learned trial Judge erred in law and misdirected herself on the facts and circumstances of the case in failing to conclude from the over'whelming evidence on the record that the Tata Lorry UPF &18 (hereinafter called the ''lorry") the subject of the suit was ia-wfully acquired by the appellant and belonged to the appellant at all the relevant times.

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3. The learned trial Judge misdirected herself in law when she failed to appreciate that the debenture had not crystallised at the time the appellant acquired the lorry and the vendor Ssezibwa Estates Ltd. could Pass valid, title to the appellant.

The learned trial Judge misdirected herself on the facts in failing to find that ownership of the lorry had passed onto the appellant by the time the receiver was appointed and the Judge contradicted herself when after rightly finding that the charge was a floating charge which crystallised with appointment of the receiver on 20.8.90 she failed to conclude that the lorry belonged to the appellant at the time of its seizure.

- 5. The learned trial Judge wrongly .believed the testimony and opinion of Kemigisha D. W.2 that the debenture was an all assets debenture and therefore Ssezibwa Estates Limited could not»% sell of the lorry in the ordinary course of buoxoesB and the trial Judge erred in failing to construe and give effect to the clause 2 of the Debenture and she thereby generally came to the wrong conclusions in law and in fact. - 6. The- learned trial Judge misunderstood the usual intention of the restriction appearing in the Lorry Registration Booki.e. ''NOT -TO BE TRANSFERRED WITHOUT THE CONSENT OF THE TREASURY" thereby concluding wrongly that the restriction should have put the appellant on notice that the vendor's assets were charged and it had not title to pass.-

$7.$ The learned trial Judge misdirected herself after having rightly believed that the Minister of Transport and Communications had power to impose a restriction on the transfer of the vehicle when she disregarded. the subsequent authority to a transfer of the lorry given by the same Minister.

The learned trial Judge erred in law and misdirected herself on the facts when she found that the only legal remedy which was available to the appellant was the repudiation of the sale agreement and to sue the vendor Ssezibwa Estates Ltd. for the return of the purchase price.

$10.$

- The learned trial Judge erred in law in finding that the respondent's failure to plead particulars of fraud was not fatal and she further erred to find that there was sufficient evidence on record on which the Court could safely make a finding that the transfer of the lorry into the names of the plaintiff was tainted with fraud. - The learned trial Judge erred in law and misdirected herself on the facts when she held that the appellant's claim for damages for non-use of his lorry was an item of claim for special damages which must be proved strictly and were not proved therefore no award was made and she erred in awarding.r. an inadequate sum of $x$ 500,000/- by way of general damages."

At the hearing of the appeal ground No.10 was abandoned when it became clear to Counsel for the appellant that the claim for special damages had to be strictly proved and which as the trial Judge had quite rightly pointed out, the appellant had not done. Regarding the remaining grounds Counsel's submissions can be summarised thus: (1) the appellant bought the lorry in good faith, unaware that it was incumbered; (2) the respondent, through their :Agent, the Receiver, impounded the appellant's lorry unlawfully, refused to deliver it on demand and so were properly sued in detinue: (3) the floating charge on the lorry crystalised on 22.8.90, when the Receiver was appointed and the scizure effected

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the crystallisation did not affect the appellant's ownership arising out of the sale which had taken place on 26.9»89, when Ssezibwa Estates Ltd. had a" valid title to pass to the appellant; (^) in law, Ssezibwa Estates Ltd\* could sell off the ''lorry inspite of \* the covenants in the Debenture provided the sale was effected before the charge crystallised and the sale was done in the Company's normal course of business which was the case here; (5) the endorsement on the Registration Card did not necessarily put the appellant on notice that the vendor's assets were charged; (6) the Court erred in holding that the Treasury should not have givenoonsent to transfer; (7) it is not him to repudiate the sale agreement and sue Ssezibwa Estates Ltd. for the return of the'purchase price and; (8) particulars of fraud must be pleaded where fraud is relied on. true that the -.only legal remedy available to the appellant was for

Under clause 6 of the Debenture, the principal moneys and interest thereby secured, would immediately become payable without demand if specified situations arose. Two such situations would be - (a) if the Company (Ssezibwa Estates Ltd) committed or attempted or purported or interest within 14 days of the due date. Clause 8 empowered the respondent to appoint a Receiver and Manager or Receivers and Managers for the purpose. Did the appellant have a cau-ee action against the respondent? to commit any breach of any of the covenants contained in the Debenture; and (bd if the Company failed to pay any instalment of the principal

Clause 9 clearly provided that although the respondent would renumerate the Receiver or Receivers, the Receiver would be the agent of the debtor Company. This provision was a restatement of the well established principle as evidenced by several authorities such as Gosling v Gaskell (1897) A-C.595; Owen v Cronk (1895) I. Q. B.26^>

- 8 - Achelis (Kenya) Ltd. 382; Household Centre Ltd. Goerge Baker Ltd. S. R.9OO and Re: B.-Johnson and Company (Builders) Ltd (1955) Ch.63k, that a Receiver is an agent of the debtor. v Eyon (197\*0 IA v Nazarali and Sons Ltd and Another (1967) E. A. v Achelis (Kenya) Ltd. (1967) E. A. 8231

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With respect the trial Judge was in my view quite right therefore the Agent of the debtor Company and not the respondent the right party to be sued would have been the debtor Company. This would have been in accordance with.the principle that qui facit per alium facit per se (he who acts through another is deemed to act in person). It is trite that for the acts of his Agent. in holding that as the Receiver was a principal is liable

In paragraph 7(vii) of their written statement of defence the •respondent raised the issue of misjoinder, pointing out that the wrong party had been sued. It is not clear why Counsel for the appellant made no effort to put the matter right, for example,- by amending the plaint. Be that as it may, right in refusing to step in under Order 1 Rules 10(2) and (^) of the Civil Procedure Rules to correct the nonjoinder? was the trial Judge

Order 1 Rules 10 (2) and (^) state, as follows:-

"10. (2). The Court may at any stage of the Proceedings either upon or without the application of either party, and on such terms as may appear to the Court to be just, order that the name of any party improperly joined, whether as plaintiff or defendant, be struck out, and that the name of any person who ought to have been joined, whether as plaintiff or defendant, or whose presence before the Court may be necessary in order to enable the Court effectually and completely

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to adjudicate upon and settle all questions involved in the suit, be added."

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In my view Order 1 Rule 10 (2) gives the court wide discretion in the matter\* The Court may strike out or add parties. This is obviously necessary for the proper and fair determination of the matters raised in- the suit. I cannot agree with the trial Judge'1 s. holding that the,power given to Court by Order 1 Rule 10 (2) does not include substitution of defendants. If rule 10 (2) is read together with sub-rules 4 and 5 and 6, it'will become very clear that substitution of defendants is permitted. They state as follows in

- "10. (4) Where a defendant is added or substituted, the plaint shall, unless the Court otherwise directs, be amended in such manner as may be necessary,- and amended copies of the summons and of the plaint shall be served on the new defendant, and, if the Court thinks • fit, on the original defendants. - (5) For the purpose of limitation the • proceedings as against any person added or substituted as defendant shall be deemed to have begun only on the service of the summons on him.

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Any application to.add or strike out or substitute a plaintiff or' defendant may be made to the Court at any time '• • before trial by motion or summons op at the trial of the suit in a summary manner.

The next question is whether the trial Judge's finding that the sale and transfer of the lorry was null and void was justified in law. , There can be no doubt, that Ssezibwa Estates Ltd. did not have the right to sell the lorry without the written consent of the respondent. The sale clearly contravened the covenant in clause 5(j) cited above. Under that clause even the proceeds c-f the sale had to be remitted to the respondent as part settlement

of the outstanding loan. pother' creditor. Here Ssezibwa Estates Ltd. sold the lorry to and then pocketed the money por paid it/

Counsel, for the appellant did argue bo.th here and in the High Court.that the sale was in order because by the time it was perfected the floating charge had not crystallised. I cannot agree. It seems clear to me that the charge crystallised the moment there was default and a Receivery was appointed. •

but which holds no water was that Ssezibwa Estates Ltd. properly sold the lorry in the normal course of its business. Reliance was put on the case of Wheatley floating charge in respect of its undertaking and subsequently created an equitable one in favour of the Bank. It was hold by the Court that the mortgage to the plaintiff had priority over the debentures. the debenture was meant to be the property of the Company as exists at the time'when it is to be put in force but that it was not .intended to prevent and does not prevent the carrying on 'of the business in the ways it is carried on in the normal cause of business. • In that case a companycreated a v Silustone & Company (1885) 29 Ch. 715. Another argument that was advanced by Counsel for the appellant a general floating security over all North, J, held that

But I think Wheatley (supra) is irrelevant to the case before us for two reasons. after a mortgage which is not the case here. Second, Ssezibwa Estates Ltd; was not in the business of selling tracks and was not free to sell, the lorry in question according to the ''/Debenture. The truth seems to me to be that Ssezibwa Estates Ltd. deliberately As a matter of law the statement of North, J, is correct. First, in that case the debenture was taken

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and fraudulently sold off the lorry to defeat the interests of the 'respondent which was bound'to confiscate it in order to recover part of the loan. .. - • - - *,*

until a Receiver was appointed who seized it. According to Counsel &lt; for the appellant,'Ssezibwa Estates Ltd. Were free to sell the residue I do . What security of its property -not specifically charged under the mortgage. Another argument.was that the lorry was not specifically charged not think there is merit in this argument because if it had merit then what is the use or purpose of a floatin\*g charge? is there if the debtor can sell his property at will?

The problem in this case is that even the purported consent to sale and transfer the vehicle came after the lorry had long been sold. Yet the Debenture went beyond what the Court said in Wheatley (supra.) consent to sell and then surrender the purchase price to the respondent. special purpose and the Debenture contained special conditions of " consent and payment of the proceeds of the sale of any of the debtor's property to the respondent. The situation here is different from that which . . obtained in Wheatley (supra), in my view. in that it required Ssezibwa Estates Ltd. to obtain the respondent's\* Clearly this was a special case where the lorry was required for a

As for the appellant,' I think he' did not act prudently in the matter. Card. free to sell its assets. He would then have seen the Debenture\* He took possession of the lorry and used it for over a year without transferring it into his names and effected the transfer only when He was put on-notice by the endorsement on the Registration i He was dealing with company assets and should therefore have ascertained from the Registry of Companies whether the company was

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he realised that he might lose the lorry. In the circumstances it cannot be said that he had bought the lorry in good faith. In any case he cannot claim a prior right to the respondent in equity when the respondent had a Debenture security which was not complied

I agree with the trial Judge's finding that the consent to transfer was misconcoived. It was given retrospectively and in contravention of the respondent's Debenture and conditions put on the lorry by the Government. As the trial Judge observed, it is astonishing that two Government Ministers purported to defeat the interests of the respondent and the Government especially when the I do not loan had been given at the instance of the Government. think that the Government, or rather the Ministers were entitled to consent to transfer after the sale and after the respondent had foreclosed.

The Ag. Commissioner of Inland Revenue, Harison Bukenya (DW1) did not assist matters either. It was his evidence that before his Department registered the lorry in the names of the appellant on 19/9/90, no one, not even the respondent, had claimed an interest in the lorry. Yet in cross-examination he admitted that Counsel for the respondent had on 22/12/89, written to him in the following terms:-

11 Re :

with.

V. Mimster Action

## Motor Vehicle Tata Lorry Registration No. UPF 818

Reference is made to the above matter. We act for Barclays Bank of Uganda Ltd. who have requested 'us to write to you to register their interest in the above lorry by way of lodging a caveat to prevent any sort of transfer of the same.

Our.client granted Messrs. Ssezibwa Estates ltd. a loan of ft 3,125,000/- and overdraft facilities of UG. shs 14,893?49l/-< Messrs. Ssezibwa Estates Ltd. pledged the lorry to their creditors not being Barclays Bank who later highjaked and sold it off to recover what, was owed these creditors. The whole issue now is that our clients have an interest in the said Tata lorry' UPF 818 to the extent of the overdraft and loan facilities ' extended to M/s. Ssezibwa Estates Ltd.

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Hoping our -request meets with your consideration#

Yours faithfully,

MUGERWA & MATOVU."

The letter was received by DW1 on 25.1.90. Now DW1 was a remarkable witness\* In his evidence in chief he had stated that the vehicle was not registered in the normal way; it was allocated to the registered owner (Ssezibwa Estates Ltd.) by Government with instructions that it was not to be transferred without the consent of the Minister of Transport\* Yet in cross-examination he had the guts to say:-

> "I had no' duty to show the Minister the letter of 22.12.89\*"

In view of the foregoing I am of the view that the trfal Judge was right in holding that both the purported sale of the lorry .was fraudulent and that the transfer was of no effect since Ssezibwa Estates Ltd\* had no title in the lorry to pass to the appellant. The basis of the trial Judge's decision was largely that the wrong party had been sued and that the Debenture precluded-M/s. Ssezibwa Estates Ltd. from selling the lorry without the consent of the respondent. Breach of the covenants vitiated the **r**

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sale.

It is also true, as the trial Judge held, that fraud also vitiates\* the sale. But I think there is merit in ground 9 of appeal that the trial Judge misdirected herself on the law on the point when she said:-

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"It was argued quite rightly in my view by Mr. Bwanika (Counsel for plaintiff/ appellant) that the defendant\* did not give particulars of fraud. But the question, is whether- there was prejudice. It was held in the case of - Dhanji Ra^ji v Rambhai & Co.(Uganda) Ltd. 1970 EA 515 that failure to plead was an irregularity but was not such an irregularity which can tafiect the merits of the-case. In. the instant case, the defendant's failure to give particulars of fraud is not fatal since there is sufficient evidence on record on which 'the Court can safely make a finding that transfer of the lorry into the names of the plaintiff was tainted with fraud." •

With respect Dhanji (supra) is not relevant here. Fraud was not'in issue in that case where the respondent sued the appellant and another person as partners. The appellant denied that he was a partner in the' firm where he worked with his co-defendant. Invoking S.^0 of the Partnership Act, the trial' Judge held that there was •evidence showing apparent partnership. On appeal the Court of Appeal for East Africaheld that failure- to plead facts justifying the application of S. W(l) of the Act was one which was cured by the fact that during the hearing the question whether there was apparent partnership was fully convassed and that in any case the irregularity did not affect the merit.s of the case. as was pointed out by this Court in Civil - Appeal No. 12 of l9o? Okello (unreported), a serious irregularity, but As far'as fraud is concerned the requirement to -plead the particulars of the alleged fraud is, a matter of law and not. a matter of evidence. v Uganda National examinations Board

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This principle is embodied in Order 6 rule $2\sqrt{f}$ the Civil Procedure Rules which reads:-

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"In all cases in which the party plead! relies on any misrepresentation, fraud breach of trust, wilfil default or und influence, and in all cases in which i particulars may be necessary such parti culars with dates shall be stated in the pleadings."

The above rule is mandatory. To my mind failurs to plead and particularise fraud is a fundamental defect and not an inregularity curable by evidence or therwise. Fraud must be pleaded and provoc. The trial Judge clearly misdirected herself on the point. Had the appellant's case been dismissed solely on grounds of fraud this appeal would have succeeded.

Finally, I come to the question whether the trial Judge was right in holding that the only remedy available to the oppollant was to repudiate the sale agreement and sue Ssezibwa Estates Lide for refund of the purchase price. I do not find it necessary to answer the question which was made obiter. It must be left to the appellant to decide what course of action to adopt. Clearly even if the Judge was wrong on the point, that would not give the appollant the right to sue the respondent in my opinion.

For the reasons I have given I would dismiss this appeal with costs here and in the lower Court. As Platt JSC and Section JSC also agree it is so ordered.

DATED at Nengo this 30th day of June 1992.

Sgd: S. T. MANYINDO DEPUTY CHIET JUSTICE $7AR2$

I CERTIFY THAT THIS IS A TRUE COPY OF THE ORIGINAL.

B. F. B. BABI HUMIRA REGISTRAR SUPREME COURT # IN THE SUPREME COURT OF UGANDA

#### 'AT MENGO

CORAM: MANYINDO^DtC. J.&lt; PLATT, J. S. C. & SEATON, J. S. C.

# CIVIL APPEAL NO, 2 OF 1992

BETWEEN

STEPHEN LUBEGA appellant

AND

BARCLAYS BANK OF (U) LTD RESPONDENT

(Appeal from the judgment and decision of the High Court of Uganda at Kampala (Mrs\* Justice C. K. Byamugisha) dated 12th April, 1991)

### HIGH COURT CIVIL SESSION CASE NO. 8^6/90

# JUDGMENT OF PLATT), - J. S. C.

*\**

I agree and have nothing to add\*

Dated at.^engo this JOth day of June 1992\*

Sgd: H. G. Platt

Justice of the Supreme Court

€

I CERTIFY THAT THIS IS A TRUE COPY OF THE ORIGINAL.

B. F. B. babigumira REGISTRAR SUPREME COURT

# IN THE SUPREME COURT OF UGANDA

#### AT MSNGO

CORAM: MANYINDOj D. C. J., PLATT,- J. S. C., & SEATON, J. S. C.

#### CIVIL APPEAL NO. 2 OF 1992

BETWEEN

STEPHEN LUBEGA appellant

AND

Barclays bank of (u) ltd RESPONDENT

(Appeal from the judgment and decision of the High Court of Uganda at Kampala (Mrs Justice C. K. Byamugisha) dated 12th April, 1991)

#### IN

# **o** HIGH COURT CIVL SESSION CASE NO. 8%/9O

## JUDGMENT OF SEATON, JSC

The question we have to decide is whether the debenture before us, debenture of charge on all the company's assets, had crystallised with the appointment of a receiver of the company's essets, so that the purported sale of the company's lorry UPF 818 was void. which is in fact a which created a a limited liability company, and

The assets of the company fall under two heads. Insofar as concerns the immovable property, the debenture constituted a fixed charge in favour of the debenture holder, the respondent Bank. But the position with regard to all other property thereby charged the position was different. With respect to them the debenture created a floating charge. •

According to clause 5 of the debenture, the company was not to alienate, transfer or part with the possession of any of the property and assets thereby charged or covenanted to be mortgaged or charged, without the consent in waiting of the fiank first had and obtained and then only upon the condition that the consideration

received by the company in connection with the alienation or parting with possession would be remitted to the Bank in reduction of the v amount for the time being owing under the debenture.

The charge created by the debenture was in security for shs 15\*5 million, being as to & 8 million overdraft facilities and as to shs 7.5 million a loan for buying a TATA lorry. This lorry .was of a special kind brought in by the Government to help mainly farmers and which the Government had asked all Commercial banks who were able to assist farmers to purchase.

Upon instructions from the Government, a restriction was placed by the Revenue Department upon any transfer of the lorry UPF 818 without the consent of the Minister of Transport. This restriction placed on its registration (Log book).

registered with the Registrar of Companies on the same day. The company duly acquired and used the lorry in its agricultural business. ' By September 1989 it had defaulted in payment of the loan covered by the debenture. On 11th December 1989 of payment was sent by the Bank's Lawyers to the Company. On 22nd December 1989 the Bank through its lawyers wrote to the Registrar of motor vehicles requesting that a caveat be lodged against any transfer of the lorry to protect their interest in it. a letter of demand The debenture had been executed on 11th October, 1982\*. It was

By a sale agreement dated 26th September 1989 the company purportedly sold the lorry to the appellant for \$hs 11 million. A transfer form signed by the company was handed to the appellant together with the log book. The appellant used the lorry transporting for gain.

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receiver was appointed of the company's assets by the Bank. impounded by traffic policemen on the Bank's instruction. On 21st September 1990 the lorry was advertised for sale by public auction to be held, on 4th October 1990, unless the company paid in full sta 28 million. This was then amount owing, including interest plus foes, costs and expenses. On 22nd August 1990 the lorry UPF 818 was On 20th August 1990 a

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**Q**

It appears that the sale by auction never occurred. By the time It is the time the plaintiff bought the lorry the debenture was still floating; the company were at .liberty therefore to sell it. of trial the lorry remained parked in the ^ank's courtyard. now contended on behalf of the appellant that a floating charge crystallises when the receiver is appointed under the debenture; at

If there had been nothing more in this case than a charge covering the lorry sold prior to the appointment of a receiver, and I only had to determine whether or not the company had liberty to sell, I should have had to determine according to well-known principles that a debenture such as this in the present case does not coase to be a floating security until the company had been wound up, or stops business, Or a receiver had been appointed at the instance of the debenture holder. It would follow that, even if there had beendefault in payment of the•obligations secured by such debenture, the company could deal with its property in the ordinary course of receiver had been appointed. business until the company had been wound up, or a

In the present case, however, there are other factors\* Here there was a purported sale, prior in date to the appointment of the receiver• But it was contrary to an express stipulation in the

V....

debenture that there should be no alienation, transfer or parting with possession of any of the company's property without the written consent of the de'benture holder. ' There was a purported transfer and substitution of the company's name on the registration But there was a restriction agaioCt any transfer without consent of the Minister. (log) book by the appellant's.

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\* &lt;

**0**

Under the circumstances, it is necessary for me to consider the other contentions raised by the appellant - these are, that he he had no knowledge of any third **0** party's interest in the lorry, and that Ministerial consent was in fact given. \* is bona fide purchaser for value as

> The statement of facts in the pleadings was not perhaps as clear nor the evidence as comprehensive as might have been expected. But the learned trial Judge in a reserved judgment found that given the above — mentioned restrictions, the company.could not sell off the lorry in the ordinary course of business in good faith. She went on to state (at p.16 of the judgment) that:-

> > "... The plaintiff's position is no better. The restriction in the registration book should have put him on notice. A search in Registry of Motor Vehicles and that of Companies would have revealed to a prudent man that the assets of Ssezibwa Estates Limited were charged and tha-t it had no • title to pass a better title than he himself possesses. Apparently no search appears to have been done."

The learned Judge then referred to the ministerial consent to the transfer which was eventually given on 7th September '1990 after representations had been made to him by the appellant's counsel to the effect that the company had gone into liquidation, its directors were had to trace and he (counsel) Mr. H. Kayondo,

had given a personal guarantee. action, in total disregard of the Bank's claim to be astonishing". t "quite The Judge found the Minister's

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**o**

The question of fraud. was then considered. ' The learned Judge found that counsel for the Bank had raised the issue but had failed to give any particulars. This failure was held to be immaterial, the question being whether there was prejudice:

> "... It was held in the case of Dhainfi v»Rurobbai & Co (Uganda) Ltd. (1970) E. A. 515 that failure to plead was an irregularity but was not such as irregulatiry which can affect the merits of the case. In the instant case, the defendants failure to give particulars of fraud is not fatal since there is sufficient evidence or record on \* which the court can safely make a finding that . the transfer of the 'lorry was tainted with fraud. The purported transfer of the lorry was, to all intents and purpose void. The plaintiff has no protection"under Section 24 of the Sale of Goods Act." (ppV 16 17 of the judgment).

With the learned Judge's view as particulars of'fraud,-I would with respect disagree. In the instant case, **o** was more than ah irregularity. does not in my view invalidate the judge' main issues: that the appellant was not the rightful owner of the (Tata- Lorry UPF 818 and the transfer from the company was not validi« o As to the remaining issue, the learned Judge held that: to the- failure to give \* This error of misdirection, however, s findings on the two fraud was of the essence .of the issues and the failure of the Bank to give particulars of the alleged fraud

> "... The only legal remedy which was available to the plaintiff was the repudiation of the sale agreement and to sue Ssezibwa Estates Limited for the return of the purchase price."

6/.... *I*

posset as against the defendant's. In the instant case, the Bank title to possess was based on an invalid sale\* had the superior right as the plaintiff's With.this holding I would,, with respect agree. A pre-requisite to any action in detinue is the plaintiff's superior right to

*/ff* i *- 6 -*

It follows that the appellant's claim against the Sank for rightly dismissed by the learned Judge• general and special damages, was

I would therefore dismiss this appeal with costs to the respondent Bank in the appeal and in the court below. 'Dated at Mongo this JOth day of June 1992\*

# ' Sgd: E. E. SEATON JUSTICE OF THE SUPREME COURT

. .1 CERTIFY THAT. THIS IS A TRUE COPY OF THE ORIGINAL.

**o**