Mugenyi and Company Advocates v The Attorney General (Civil Appeal No. 43 of 1995) [1997] UGSC 30 (10 July 1997)

Full Case Text

ose the pre-file and bring to the activation of the method

THE REPUBLIC OF UGANDA IN THE SUPREME COURT OF UGANDA AT MENGO

WAMBUZI, C. J, ODER JSC, KAROKORA JSC) (CORAM:

CIVIL APPEAL NO. 43 OF 1995

MUGENYI AND COMPANY ADVOCATES :::::::::::::::::: APPELLANT

AND

THE ATTORNEY GENERAL :::::::::::::::::::::::::: RESPONDENT (Appeal from the judgment/ decision of His Lordship Mr. Justice D. C. Porter of the High Court of Uganda at Kampala

given on 27th June, 1995 in Civil suit No. 649 of 1994)

JUDGMENT OF WAMBUZI, CJ.

The appellant is a firm of advocates in Kampala. It filed an action in the High Court to recover slightly over Shs. 72 million as fees for professional services rendered to a company, Uganda Transport Company Limited. The company was liquidated by the Government which was the sole shareholder before the payment to the appellant of the fees, hence the action against the Attorney General, in his representative capacity under the Government Proceedings Act (Cap. 69).

in the court below was whether the Government was debts of the cornpany. The only i ssue Iiable for the

The learned triaf Juclge found as a fact that there was a lrreach of section 4 of the Companies Act (Cap. 85) that the company was not duly and lega]ly incorporated as a private limited company and that t l're resu:l.t of srrch a finding would be that Government wouLd be responsible Ior the liabilities direct since this clearly was an enLerprise of the Government.

However, the learned trial- Judge considered the evidence of the appellant in the court below and for a number of reasons given, he dismissed the appellarLt's claim. This appeal arj.ses as a result of that decision. The respondent cross-appealed to the effect that the learned trial judge erred in holding that the Company was noL duLy and legaIIy incorporated as a private linrited company.

There are B qrorrnds of appeal.

To appreciate the nature oi this relevanL pleadirrg::. P]1i'agl:3phs 3 f o I l-ows : should set out the the plaint were as case, I to 9 of

The plaintiff's is for Shs. hereunder ; claim against the defendant 72 ,807 ,944/= arising as

- Prior to 8th June, 1994 the pIaintiff rendered lega1 services to Uganda Transport Co. (1975) Ltd (hereunder referred to as the "Company" ) , a companY which the Uganda Government is the sole shar eho lder /member /propr ietor ' 4. - The said Company owes the plaintiff Shs. 72,807 ,94a/= for the 1egal services rendered. A copy of the Certificate of Taxation of the bill of costs is hereto at taclrerl as annexure "A". 5 - The Company has defaulted to pay the said amount and <lespite several repeated demands by the piaintiff Lo the Company to pay, the fatter has rcfused, rieglected and/or failed to pay Lhe same or any part thereof. 6. - T)re Uganda Government, in order to liquidate the Comgrany, caused General Notice No. 85 of 1994 and an :C,rertisemenr, to be put in the Uganda Gazette of 1.7.94 and in the New Vrsion l{ewspaper of 2.8.94 respectively so as to sel1 Lhe companyi s assets and terminate its existence, copies of the said Ge.zette and New vision Isewspaper cutting are

In these circumstances, it is a bit strange that the only issue at the trial was whether the Government was liable for the Company's debts. Every claim in paragraphs 3 to 9 of the plaint seems to have been in issue as it was denied.

Be that as it may, and although learned counsel for the appellant, Mr. Mugenyi, argued grounds 4 and 5 of the memorandum of appeal first, I would like to begin with ground 1 of the supplementary memorandum of appeal which learned counsel argued later after abandoning ground 1 of the memorandum of appeal. That ground is to the effect that the learned trial Judge was wrong to hold that there is no company as there was a duly and legally incorporated private limited company in the names of Uganda Transport Company (1975) Limited.

In this regard, the learned trial Judge held,

TOR

n on

$\overline{q}$

$\overline{\mathcal{O}}$

文

"Thus I see a breach of S.4 of the Act: and I find the Company was not duly and legally incorporated as a private limited company as defined in the Act. The argument has been clear and not really contested that the result of such a finding would be that Government . would be responsible for liabilities direct, since this clearly was an enterprise of Government".

It appears that at the hearing, a preliminary point was taken to strike out the plaint because the appellant, who was the plaintiff, had relied on section 33. The appellant conceded that

$\mathsf{S}$

section 33 did not apply and instead relied on section 4 of the Companies Act on the basis that there never was a quorum of members. The plaint was allowed to proceed on the basis that evidence was necessary before the legal situation was established. Evidence was led and on the evidence of three witnesses, the Assistant Registrar of Companies (PW1), Enock Mukiibi (PW2) and the appellant himself (PW3) the learned trial Judge observed,

"On the facts I have no doubt that this company was purportedly formed by the Government of uganda and that the subscribers signed on behalf of the Government. What is necessary now is to consider the legal implications of that finding"

The learned trial Judge continued in his judgment,

"UTC is a private Limited Company with a share capital of Shs. 10,000,000 shillings divided into 100,000 ordinary shares of Shs. 100 each. A certificate of Incorporation was issued by the Registrar, and the effect of S.17 of the Company's Act (sic) is that that certificate shall be conclusive evidence that all the requirements of the Company's Act (sic) in respect of registration and/or matter precedent and incidental thereto have been complied with, and that the

association is a company authorised to be registered and duly registered under the Act.

That would seem to preclude the court going into the formation of the company as a company. However, in Salomen vs. salomon and Company 1895-9 AER 33, Lord Halsbury, in setting out the provisions of the then ruling statute, and in pointing out that there had been compliance as to numbers of members, said,

'In saying this I do not mean to suggest that if it could be established that this provision of the statute to which I am adverting had not been complied with, you could not go behind the certificate of incorporation to show that a fraud had been committed upon the officer entrusted with the duty of giving the certificate, and that Ly some proceeding in the nature scire facia you could not prove the fact that the Company had no real legal existence (sic). But short of such proof, it seems to me to le impossible to dispute that once a company is legally incorporated it must be treated like any other independent person with sights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company

$\overline{7}$

are absolutely irrelevant in discussing what those rights and liabilities are'

In my view courts would also act in this way if a nullity was established".

The learned 'rial Judge then set out in his judgment the provisions of rection 4 of the Companies Act and continued,

"What ther does it mean, when the section says,

`any two or more persons associated for lawful purposes may......'?

Perhals a way to establish this is to look at the form adopted if the memorandum and articles new before me. The relevant purtion reads,

'Wa, the several persons whose names postal and accupations are hereto substituted are desirous of being formed into E. Collant in runsuance of this Memorandum of Ass. Lillion and We respectively agree to tak. The number of shares in the carital of in. Company set opposite our respective $\ldots \ldots$

$\mathfrak{S}$

This follows the unobj ectionable form in Tab1e D to the Act, and is in terms of company formation.

-t

It has become the custom to set out in the Memorandum of Association the main objects of the Company first, and then to follow up with subsidiary objects. the Memorandum of Association describes what the subscribers to the memorandum have got togeth€r to do. In this case it was.

'(a) Subject to the provisions of Decree 32/72, any modification thereof or substitution therefore, to take over all the assets and liabilities of the Uganda Transport Company Limited, Kampala and District Services Limited, and the entire inlerests held in Uganda by United Transport Overseas Limited; and carry on as a going concern the business now or formerly carried on by and in the name of the said Uganda Transport Company Limited (later popularly known as uganda Transport Corporation Limited ) Kampala and District Services Limited and United Transport Overseas Limited ' .

As I have said above, I think c1earLy shown that there never was the the tvro it has been intention of

subscribers to act in their own personal capacity, but in their Ministerial capacity: and as such they would acting as agents of the Government of be Uganda.........

It is clear that the intention of the promoters, the government of Uganda with the two Ministers, was to provide for the assets which had fallen into its hands through the operation of Decree 32/72 and successive legislation, under the control of Government, an understandable rider in respect of a matter so much at the basis of everything the Government was trying to There was no doubt, secret or fraud about achieve. this: the intention is made absolutely clear in the Articles of Association".

In effect the learned trial Judge concluded that as there was only one subscriber, the Government, there was breach of section 4 of the Companies Act.

Mr. Mugenyi relied on section 17 of the Companies Act to the effect that a certificate of incorporation was conclusive that all the requirements in respect of registration had been complied with and the association is a company. Learned counsel also submitted relying on, Jarvis Motors (Harrow) Limited vs. Carabott (1964) 3 AER 89 that the Companies Act does not forbid a company having one member only, and that accordingly, what is not expressly forbidden is permitted.

Lastly, l€arned Counsel. submitted relying on the English Empire Digest Vol 10 at page L777 lo the effect that a promoter cannot set up illegality in formation. In this case, the Government is liable even if Ugarrda Transport Company is i1legal.

The case of indication of BuLt vs. Monteaux was referred to but there is no where it was reported.

Learned Counsel also submitted that the company was a sham and relied on the cases of Mu en t an o vs. At torne General Civ j-I Suit No. 663 of 1994 (unreported) and J. S, S. Kulubya vs. Uganda Transport Companv (1975) Limited CiviI Suit No. 790 of 1988 ( unreported ) .

Counsel for both the appeLlant and r:espondent agreed that the learned trial Judge rr'as in error in holding that there was no company, The sole reason on which the learned triaL Judge based his decision was because the two Ministel:s who subscribed to the Memorandum of Association were agents of the Governrnent, the only shareholder.

Section 4(1) of the Companies Act provides,

"Any seven or more persons, or, where the company to be formed will be a private company, any two or more persons, associated for any IawfuI purpose may, by subscribing their narnes to a memorandula of association and otherwise compJ.ying with the requirements of this Act in rcspect of registration, form an incorporated company, with or without linrited 1iabi11ty".

The principle of the independent corporate existence of a company was explained and emphasised by Lhe House of Lords in Salomon vs. Salomon 1897 A,C. 22. Salomon who owned a profltable business, converted hj.s business into a company. He took 20,000 shares and his wife and five children took one share each. Salomon also received mortgage debentures worth f10,000 in part payment by the company for the bus iness.

tater the company was in financial problems and the then holder of the debenlures appointecl' a receiver ancl the company went into liquidation. The courts were asked to decide whether the debentures originally issued to Salomon were valid and entitled to priority over the unsecured creditors who denied thenr priority on the groulld thal- tire cornpany was a "one-man Con)pany" altd a sham and so Vaughan Willianrs J. he1d, being of opinion that A. Salonon and Coiopany LitniLed was a tneLe alias or agent for Salomon and that therefore Salomon was bound to pay the unsecured creditors of the companl' out of his own pocket, notwithstanding that al1 his sl-rare.s haC l)eel1 f ulJ.y paid up.

This decision of Lhe trj,a1 Judge was affirmed by the Court of appeaf on a sonenhat diffe::ent glound that the whole scheme was a fraud on the polj,cy of the Act and that it was never- intended by the legisiat.ure tlrat the compalty should consist of one substantial anci six dununies devoid of any real interest.

The decision of the Court of Appeal was unanimously reversed by the House of Lords on the ground that the only mode of ascertaining the intent and meaning of the Act was to examine its

provisions and find what regulations it had imposed as $\overline{a}$ condition of trading with limited liability.

Lord Halsbury LC said at page 30,

".....the statute enacts nothing as to the extent or degree of interest which may be held by each of the seven or as to the proportion of interest or influence possessed by one or the majority of the shareholders over the others".

Lord Macnaghten said at page 50,

"There is nothing in the Act requiring that the subscribers to the memorandum should be independent or unconnected, or that they or any one of them should take a substantial interest in the undertaking, or that they should have a mind and will of their own, as one of the learned Lord Justices seems to think, or that there should be anything like a balance of power in the constitution of the company".

I must observe first, that on the pleadings the existence of the company was not in issue and, secondly on the authority of

Salomonrs case which was relied on bY the learned Judge himself, extent or degroe of interest held by the subscribers, or influence, inclependence of the subscribers or connection between subscribers are all irrelevant. Here w€re two people whether they be Ministers or what, who associated for specifj.ed purposes which were perfectly in order, according to the trial Judge.

,/ ,n ^, view this ground of appeal must succeed.

In his judgement the learned trial Judge held,

"Should I be held to be wrong j-n saying there is no company, the result rlould be that the company was Iega1ly incorporated, and the plaintiff would have to prove in Iiquidation. This is a novel point on which there is no direct authority that I can trace, or which has been referred to me. "

There is no appeal against this finding and I would accordingly corr f irm the arned trial Judge's finding to the effect that the company i s a, legal per son!,re spons ibl e for its own debts and that according Iy\_the appellant must prove his claim in .,liquidation and would confirm the dismissal of the appellant's claim with -coslS. This would in effect dispose of the appeal which I would dismiss with costs and there wou. Id be no need to go into the remaining grounds of appeal. However, th6 whole appeal is to the effect that covernment is l"iabLe to meet the appellant's cLaim

and perhaps for future guidance I should consider the points raised.

I now wish to turn to the remaining grounds relate to liability of the respondent. of appeal which

As regards lif t j.ng the veiI, the learned trial Judge observed,

"Further, if I am wrong in saying that we have here no 1ega11y incorporated company, if that company therefore is found to exist, I am now strongly pressed to go 'behind the veil', and to say that covernment, notwithstanding thi protection of th€ Act, nevertheless :.s Liable, as the whole exercise is an enterprise of covernment. A list of cases where the Courl-s irave dorre t:hi s has been quc;ted to me: and I have made a rrote of them at Lhe end of the record, before I started on this judgment. I have finally managed to gather aII the references together, and having gone through them aII. I notice that never (as far as I can see) has a court gone behind the vei] unless either statutorily authorised or quite bad examples of fraud have been proved. 'Going behind the veilr involves an equitable remedy which requires an equitable basis and that is usually fraud. Fraud is not pleaded or particularised here, and the onII attempt made by the plaintiff is a small

portion of his evidence, which because the defence calIed no evidence , goes unchallenged,

7 a

> 'Registration of this new company intended to avoid the payment of claims and liabilities which was due and payable by the company which had just been taken over. We had decrees which were being executed against the company which the owners did not want to pay, and since it was a new company name the decrees could not be executed. This was my exper j-ence'

The plaintiff added the last sentence because I pointed out to him that the company took over the assets and liabilities of the previous company. and that therelore tho intended purpose as he put it could not be right: all that could be achieved was a de1ay. A11 I can say is Lhat if there was fraud, (and I do not think there was) the plaintiff participated in it, and cannot now be heard to profit by it".

Mr. . Mugenyi referred finding in qrounds 6 to a number of authorities in attacking this 7 and 8 of the appeal .

Palmers Company Law, VoLume 7, 22nd Edition, lists t€n instances in which the veil of corporate personality may be lifted or as they put it looking behind the company as legal persona. I doubt

if all which those cases are applicable here as the statutory law on they are based may be different

BrJ-ef Iy they are,

)

- Where Companies are in the relationship of holding and subsidiary companies. 1 - Where a shareholder has Iost the privilege of . Iimited liability and has become directly liable to certain creditors on the ground that business continued after the membership had dropped below the legaI minimum, to the knowledge of the shareholder. 2 - 3 In certain matters relating to taxation. - 4, In the Iaw relating to exchange control. - 5 In the Iaw relating to tradinq with the enemy. - 6 In the Law of merger control in the United Kingdom. - 7 In the competition of the European Economic Community. - 8 In abuse of law in certain circumstances.

- J Where the device of incorporation is used for some illegal or improper purpose, and - 10. Where the private company is founded relationship between the members, on persona.l,

What is the appellant's case in the case before us?

) I

> The relevant pleadings have alroady been set out in this judgment. I can say, straight away. that paragraph 9 of the plaint was dealt with in the court below and it was held that section 33 of the Companies Act relating to reduction of membership below the legal minimum did not apply. There is no appeal against that f indinq .

> In paragraph 7 of. the plaint, there is reference to the issue notices relating to Iiquidation. There is no allegation illeqality or impropriety on the part of the Government. of of

> The only complaint is in paragrap hBofthe that covernment is the sole shareholder/member/proprietor of the Company and Lhat at all times the Government operated the company. There is no al. Iegation that any requirement of the Companies Act was not fulfilLed, Is this one of the instances in which the cooperate veit may be lifted? That because the company is in the control of the Government therefore the Company not a Company? -1 1S

we were referred to the case of Mugenyi vs. Attorney General Civil Suit No. 663/94, which is a. Lmost on all fours as the case before us. The facts as given in the judgment were that the plaintiff had rendered IegaI services to Peoples Transport Company (PTC) in which the Uganda covernment was the sole sharehoLder/member/proprietor. PTC defaul,ted in payment of the amounts due. It was contended that by reason of section 33 of the Companies Act, the Government by virtue of being the sole member/ shareho lder /propr ietor of the Company was liable for the Companyrs debts.

,,l

Four issues were framed but I would fike to refer to only two issues 3 and 4 which were,

- J whether the Government was sole shareholder; - whether the Government by virtue of being the sole sharehol-der was liable for the Company's debts". 4

In answer to issue 3, th€ . Iearned triaf Judge said,

"It is worth noting that Iaw governing the determination of membership of a conpany is to be found in sectj.on 28 of the Companies Act. Under the section. subscribers in the Memo and Articles of Association are deemed to have agreed to be members of the company and on registration their names sha-Il be €ntered in the rogister of members as such. Others

are and those who agree to becom€ memb€rs of the company are registered as such in the register of members.

4r-..9

In the instant case, there is ample evidence which tended to support the argument of Mrs Bitature that the Government of Uganda was the sole proprietor or shareholder of PTC. The Memorandum and Articles of Association of PTC Exh. P. 5 indicated that the subscribers were Ministers of covernment in their official capacities. There is no evidence that other people were later registered as members of the Company. Further the Articles of Association define "member" or sharehoLder of the Company to m6an "Minister". More importantly certain articles of PTC indicate that the management of th€ company .was controlled by a covernment Minister. The Articles 18, L9, 25, 51 and 53 to mention but a few indicate that the Chairman, Directors and even the Management e.g General Manager of the Company were hired and fired by the Minister of covernment. AI] the above show that the covernment of Uga,nda was the sole shareholder or member of PTC. The Principal Judge, Hon. Justice Ntabgoba while dealing with Uganda Transport Company (1975) Ltd. which is a sister compatiy of PTC observ€d that : -

'Infact the defendant company itself (UTC) 1S an arm of the Government created by

tJ/ 7 7

legj.slation and vested with powers to sue and be sued in its own name. .

The above observation reinforces the view that PTC is wholLy owned by the Uganda Governm€nt so I find".

Later on in his judgment the learned trial Judge went on to say,

"In the instant case PTC is a private limited liability company of a unique type. It is unique in that it is wholly owned by the Government as opposed to individuals. In that reqard though not a public company under the Cbmpanies Act, its being wholly owned by the covernment gives it a public character",

With respect, I think Lhat the learned trial Judge fel1 into the same error as in the case before us. The error is that because the subscribers to the Hemorandum and Artlcles of Association were Uinisters, they ceased to be individuals possibly because they had no will of Lheir own but that of the Government. I have already referred to the celebrated case of Salomon vs. Salomon. In that case Lord Halsbury LC opened his judgment in the following words at page 29, I

"My Lords, the important question in this case, f am not certain it is not the only questj-on, is whether the respondent company was a company at all - whether in truth that artificial creation of the Legislature had been validly constituted in this instance; and in order to determine that question it is necessary to look at what the statute itself has determined in that respect. I have no right to add to the requirements of the statute, nor to take from the requirements thus enacted. The sole guide must be the statute itself.

Now, that there were seven actual living persons who held shares in the company has not been doubted...... it is important to observe that this first condition of the statute is satisfied, and it follows as a consequence that it would not be competent to any one - and certainly not to these persons themselves - to deny that they were shareholders".

The learned Lord Chancellor continued at page 31,

"I observe that the learned Judge (Vaughan Williams J.) held that the business was Mr. Salomon's business, and no one else's, and that he chose to employ as agent a limited company; and he proceeded to argue that he was employing that limited company as agent, and that he was bound to indemnify that agent (the company). I confess it seems to me that that very learned Judge becomes involved by this argument in a very singular contradiction. Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon.

If it was an agent same t i-me not, there was no person and no thing to be at a1I; and it is impossibl€ to say at the that there is a company and there is not".

my judgment, grounds 6, 7 and 8 in the case before us must f ail-.

I now come to the last matter in this appeal relating to estoppel.

Learned counsel argued grounds 4 and 5 together, These grounds were to the effect that the learned trial Judge was wrong to invoke the doctrine of estoi:peI to defeat the appellant's claim.

In this regard the learned trial Judge said,

"During the evidence I elicited from the plaintiff that : -

'I represented UTC in various cases and I always put it in the pleadings as a Limited Company under the Company's Act'.

On that subject he further said:-

'The company was registered: it employed staff and made contracts: the person who floated the company was liab1e for its acts.

) '),

a bus ine 6 5 under the running wj.th all- the Iegal Companies Act. It vlas rights

I agreed to act for the company' But in fact it was a department of government.

I pointed out that the way the company was formed was anomalous and the Minister said that that was th6 way it was. I pointed out that the Government would be liable in the end for debts. The legaf status of the company r'{as not an issue then' .

The plaintiff was talking of the time he was appointed as the company lawyer, aJ-though he says that he informed the Minister that Government woufd be Liable at the end for debts, meaning that tre considered that the Company was not a legally registered limited company, it is c. Lear that over a long period and in many cases (as can be seen from the list of cases in respect of which fees are alleged to be due to the plaintiff ) he represented the company in court proceedings to be a Iegally incorporated limited company, I am not sure how he reconciled his conscience as an arlvocate in doing that in view of what he now says. I have been referred to KuLubya vs. Uganda Transport Company (1975) Limited on a different basis: but in that case the plaintiff appeared on

behalf of the company; which was named aa a limited company in the Title and so referred to throughout. I think that Governm€nt and the incumbent Ministers on behalf of Government would be justified from such conduct of an advocate, especially where he had earlier refused to act on the basis that formation of the company was wrong, in concluding that advocate had changed his mind. How else could he appear day aft€r day representing that he was appearing for a Limited Company, and so reciting in pleadings, when it was not true, From an advocate, in my view that was a direct representation in the most' public of ways by the plaint j.f f that the "o\*puny was a Iegally inco!porated limited company, upon which the Government in so far as interest in Lhe conrtr)any was concerned was entitled to rely for the conclusion that the plaintiff's fees, at 1east, were subject to the limitations under th€ Act t' .

Hr. Mugenyi submitted first that estoppel had not been pleaded. Secondly, that estoppel is a rule of evidence and not a defence. And thirdly that the conditions for the application of the doctrine had not been established. Learned counsel relied on a number of authorities including the Supreme Court Practice 1973 at page 266, Halsbury's Laws of England 3rd Edition, page 202, Maritime Electric Co. vs. General Dairies Ltd. 1937 A. C. 610 and Ireeman vs. Cook 18 LTEX. 7L4,

Halsbury's Laws of England, 3rd Edition Vol. 15, page 202 provides,

"Under the modern practice, the facts relied on to establish an estoppel of any kind (including estoppels in pais) should be pleaded or brought to the notice of the tribunal alleged to be affected by it in some other appropriate way, where the trial is without

pleadings, in any case in which it is intended to rely upon it".

In Nurdin Bandali vs. Lombank Tanganyika Ltd. 1963 EA 304 the hire purchase agreement for a motor vehicle contained $\overline{a}$ clause, requiring punctual payments. Late payments were received from the hirer and accepted. The vehicle was repossessed and sold. Instalments were sent to the hirer after the hiring was terminated and the vehicle sold. Two of the questions which arose were whether the right to repossess the vehicle and terminate the hiring had been waived and whether the retention of moneys amounted to a representation by the hirer that the hiring subsisted.

In his judgment, Newbold JA, as he then was, said at page 314,

"The second submission was based on waiver and the third on estoppel. Before considering either of these

I submissions the distinction should be clearly appreciated between waiver and estoppel

The Iearned Justice of AppeaJ. considered waiver and continued.

"Estoppel, on the other hand, is primarily a rule of evidence whereby a party to litigation is, in certain circumstances, prevented from denying something which he had previousfy asserted to be true. Estoppel, whether at common law or in equity can never found a cause of action though it may enable a cause of action, which would otherwise fail, to succeed. The difference between waiver and estoppel is set out in the judqment of the Pr ivy Counc i 1 in Dai.{go!' s Bank Ltd. vs. Japan Cotton Tradi.ng Co. Ltd. (6 ) (1e3s ) , AIRPC 79 at page 82 as follows,

'These words, which are the true foundation of the judgment. disclose, in their Lordships' opinion, a confusion of thought upon the subjects of estoppel and waiver. The question of estoppef is governed by 's.115, the Evidence Act, whj.ch for the present purpose seems to th€ir Lordships not to differ from the law in England in regard to estoppel in pais. Estoppel is not a cause of action. It may (if established) assist a plaintiff in enforcing a cause of

action by preventing a defendant from denying the existence of some fact essential to establish the cause of action, or (to put it in another way) by preventingt a defendant from asserting the existence of some fact the existence of which would destroy the cause of action. It is a rule of evidence which comes into operation if (a ) a statement of the existence of a fact has been made by the defendant or an authorised agent of his to the plaintiff or someone on his behalf, (b) with the intention that the plaintiff shoul-d act upon the faith of the statement, and (c) the plaintiff does act upon the faith of the statement. On the other hand, waiver is contractual and may constitute a cause of action. It is an agr€€ment to release or not to assert a right. If an agent, with authority to make such an agreement on behalf of his principal agrees to waive his principalrs rights then (subject to any other question such as bonsideration) the principal will be bound but he will be bound by contract, not by estoppel. There is no such thing as estoppel by waiver t .

{.}J

These remarks appear to me to be related to the law estoppel but they are equally applicable equitable estoppeI", c ommon to the

\, ,t,

I I

> The learned Justice of Appeal considered the submissions relating to waiver, which are not relevant to this appeal, and continued,

"As regards the submissions reLating to estoppel, the facts upon which the appeLlant relies to found an estoppel are precisely the same as those which he submitted founded a waiver. The learned Judge in his answer to issue 3 has found that the respondent was not estopped from asserting that time was of the essence of the agreement and that the seventeenth and eighteenth instalments of the hire rentals were not duly made. I have already come to the conclusion that the facts do not result in a waiver of the respondent's rights under the agreement, but it by no means follows that the same facts would not result in the respondent being estopped from asserting a righL under the agreement. The essence of the difference is that in the case of waiver a contract, express or implied, must exist whereby the respondent agreed to give up or postpone its rights; whereas in the case of estoppel if the representations, by word of (sic) conduct of the respondent were such as to induce the appellant to alter his position in the belief that the respondent's rights v/ould not be asserted, then the

respondent may be estopped from asserting those rights even thouqh it never intencled to give them up. Mr. Reigels submitted that the course of conduct on which the appellant relied, if it amounted to a representation, amounted at most to a representation of a promissory nature or a representation of a legal relationship. This being so, he submitted that it did not fall within s.115 of the Evid€nce Act and that in Tanganyika the only type of estoppel in pais which could exist was the one covered by that section. Section 115 of the Evidence Act reads as follows,

,t, t ,

'When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit, or proceeding between himself and such person or his representative, to deny the truth of that thing'.

I aglee that the Evidence Act is designed to cover the whole field of the 1aw relating to evidence then, unless the appellant can brj.ng the matter within s.115, no estoppel in pais would arise. I also agree that the representation relied on by the appellant was not the representation of an existing fact, which may

found a common Lav, eEtappeI, but the repre6entation of a legal reLatronship which may found an eguitable estoppel. I am aware that it has often be€n said by the courts in India that the word "thing" in s.115 m6ans a statement of fact, but I am unaware of any decision binding on this court to the effect that S.115 covers only the common law estoppel and does not include the equitable estoppel, a type of estoppel which was parf- of the 1aw of England 1on9 before the Evidence Act was enacted. The word "thing" is a word of the wldest anh1t, :apabie of errbracing either an existing Iact or a present or future relationship and I see nothing in S.115 which leads me to the conclusion that the meaning of the word "thing" in that section should be restricted to an existing fact. In Sarat Chunder Dey vs, Gopal Chunde r Laha (e) (18e2) 19 IA 203, Lord Shand in delivering the judgment of the Privy Council said at page 2L5,

{, t\*r

'The learned counsel who argued the present case on either side were agreed that the terms of the Indian Evidence Act did not enact as law in India anything different frorn t.he law of Englanci on the subject of estoppel, and therr Lordships entirely adopt that view.,..... What the ]aw and the Indian Statute mainly regard is the position of the person who was induced to act; and the principle on which the 1at", and th€ Statute rest is, that it wou. Ld be most inequitable and unjust to him that if another, by a representation made, or by conduct amounting to a representation, has induced him to act as he woufd not otherwise have done, the person who made the representation should be alLowed to deny or repudiate the effect of his former statement to the . Loss and injury of the person who acted on it' .

q, r llr

This statement was endorsed in Forbes vs. Ral1i (10) (1925) 52 IA L78 where at sai,d, page 187 their Lordships

'The exposition by Lord Shand in sarat eLunder Dey vs. Gopal Chunder Laha 19 IA 203, of the rule of equitable estoppel embodied in s.115 of the Indian Evidence Act has been quoted in extenso in the judqment of the Iearned Chief Justice in the present case, and does t:ot need repetition. Their Lordships desire to record their fuI1 concurrence with the principle there laid down r -

The Indian Evidence Act \$ra6 applied to Tanganyika long after the doctrine of equitable estoppel was clearly enunciated by Lord Cairns, LC in Huqhes vs. etro olitari Com an (11) (L877) 2 App. Case 439 at page 448 in the following words,

r?.:

.but it is the first principle upon which all courts of equity proceed, that if parties vrho have entered into definite and distinct terms involving certain 1egal results - certain penalties or legal forfeiture afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leadj.ng one of the parties to suppose that the strict rights arising under the contract will not be enforced or wiII be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequj,table having regard to the dealings which have thus taken place between the parties' .

As the Privy Council has held that s.115 enacted j.n terms of the English Law of estoppel, and as both the common . Iaw and equitable estoppel formed a part of the 1aw of England at the time of the enactment of the Evidence Act, and as the fact that the representation of a legal relationship couJ-d ground an equitable estoppel had been clearly stated before the Evidence

Act was applied to ?anganyika, I am satisfied that there is no reason to restrict the meaning of the word in s.115 to an existing fact and that an equitable estoppel falls with the section. r'

('u

The learned Justice of respondent had by its asserting its rigtht to Appea. I rejected the submission that the course of action estopped itself from rePossess,

Thi.s case was followed in the case of Kiwanuka and Companv vs. waluoembe 1969 EA 660 where the plaintiffs were a firm of advocates which accepted. instructions qiven to them by the defendant to act for a company, of which the defendant was a director, in bringing a suit by the company against another party, This suit was dismissed on the ground that the company had not validly authorised the institution of it and the plaintiffs were ordered to pay the costs to the defendant in that suit personally. The plaintiffs sought to make the defendant liable for those costs, and brought an action for a declaration that the defendant was so liab1e.

In his judgment, Phadke, AS. J., as he then was, h€Id at page 663 ,

"I find that Mr. Kiwanuka, in accepting instruct.ions to act for the company according to his understanding, made an unequivocal representation to the defendant that it was the company for whom he was acting. The

cLear and urrequivocal r€presentation, which may relate to the €nforcement of legal rights, with the j.ntention that it should be acted upon and the other party, in the belief of the truth of the r€presentation, acted upon it' .

C,!\$

I would also like to refer to Income Tar! ommlss roner (1964) EA 648, a Kenya case in which it was heLd by Madan J., that as far as equitabl"e estoppel is concerned, it is not, as in the case of common 1aw estoppe. I , necessary for the person to whom the representation in the' form of a promise is made to have a-Itered his position on the strength of the promise. I am in respectful agreement with the view of that learned Judge.

Applyinq the Iaw. as I understand it from the cases cited above, to the facts as found by me, t hold that in this case, the defence of estoppel succeeds

In an earlier case of Popatlal Hirii vs. I. H. Lakhani and Companv Limited 1960 EA 437, the agreement of sale between the executor and the plaintiff made it clear that the tenant was I. H. Lakhani and Company and not the defendant company. and the plea raised in the defence that th€ suit was instituted against the wrong defendant shouLd have prlt the plaintiffrs advocates on enquiry so as to amend the plaint by pleading estoppel; therefore the

court could not attack which he Bennett J, said allow the plaint iff had not pleaded. on 439 , to rely upon a ground of the question of estoppel at page

t rc t

"There cannot be the slightest doubt but that the tenancy was qranted to the firm of I. H takhani & Co. but on behalf of the plaintiff it is contended that the defendant company is estopped from denying that it is tenant bocause of representations contained in letters written by the company and by its advocates. Payment of rent by the company has also been relied upon as evidence of the defendant's tenancy afthough

Mr. Nazareth, for the plaj-ntif f , concedes that payment of rent is not conclusive.

Some of the letters which have been produced cannot be rel-ied upon for the purpose of raising an estoppel since they are either addressed to someone other than the plaintiff or were written after the suit was instituted. However, I am of opj-nj-on that the letter exhibit P.7 would estop the defendant company from denyiirg that it was the tenant.

Mr. Wilkinson, for the defendant, has strenuously objected to the plaintiff relying upon estoppel because it has not been pleaded.

As a gen€ral rule estoppel must be ploaded for it is a material fact. Sse Bullen and Leakers Prec€dents of Pleadings (11th Edn. ) p. 801 and Phipson on Evidence 9th Bdn. p.704.

On the other hand the case of Harnam Sinqh vs. Jamal Pirbhai (1) (1951) A. C. 688 whj.ch was cited by Mr. Nazareth, i.s authority for the proposition that in certain circumstances a party may be permitted to rely upon estoppel although he has not pleaded it. The reason given in that case for allowing a departure from the general rule is stated in the judgment thus, at p. 700,

. . iL would be unsatisfactory to allow a departure from the facts as pLeaded on one side whil,e treating the other as debarred by defect of pleadj.ng from raising an answer the substance of which was plainly in issue before the court'.

In that case it pari delicto, j ustificat ion respondent. cons iderat ions institution of for granting some In the inst ant would appear that both parties were in and that this was regarded as a indulqence to the case arise. Moreover, aL the time of the suit the pl-aintiff had in his possession, name. Ly, the agreement no such the a document for sale

between Marshafl D'souza's executor and the plaintiff (exhibit D3) which, had he read it, would have made it clear that the tenant of the premises in suit was I. H. Lakhani & Co. and not the defendant company.

6 rct

In para 6 of the written statement of defence it is pleaded that the suit is instituted against the wrong defendant. This should have been suffici€nt to put the plaintiffrs ailvocates on enquiry, and had they made the slightest enquiry either by asking the defendant for further and better particulars of para 6 or by looking at the document in the plaintiffrs possession, they would have discovered the true position, and could have amended their plaint by pleadinq estoppel.

1n all the circurnstances I am inclined to the view that this is a case in which I ought not to permit the plaintiff to rely upon a ground of attack which he has not pleaded".

In Balwant Si-noh vs. Kipkoech Arap Serem 1963 EA 651 in a hire purchase agreement of a motor vehicle with an option to buy al] instalments had been paid and the hirer was treated as having purchased, The vehicle was seized by the o'riner alleging that the option to purchase had not been effectively exercised. An action was filed by the hirer for trespass, conversion and detinue. It

was held that the vehicle belonged to the hirer and that it had been unlatrfully seized.

( "r\l

On appeal a question arose whether the denying that ownership was transferred. was, had this to say, owner was estopped from Newbold JA., as he then

"As to the first ground, which is that having regard to the pleadings and the findings that the nominal purchase price had not been paid it was not open to the Judge to do otherwise than dismiss the plaint and give judgment for the appellant on the counterclaim, I agree that the pleadingrs are by no means satisfactory, It is, however, cleal' from t-he record that at the trial tiie attertion of the .rldge and cf counsef for all parties vras dii:+cted to er:amination of whether the .1.rn=.r:shi.? of the 1orr1' 16'.116 t.e regarded as transf er:-eC to the respondent having regard to the corrluct cf f-he parties even if the nominal purchase pr:ice h:i:.t been paid, and the first issue framed by the Judge required, on the facts found, a decision on this point. Paragraph 5 of the plaint alleges that all sums under the agreement had been paid and that the respondent had exercised his right to purchase the lorry and had become the owner thereof. The defence denj-es that all sums due had been paid or that the respcndent had at any time the right to e>:ercise his option to purchase the lorry or to become owner

thereof. The reply in this respect, merely denies that any sum was due under the agreement. The appellant submits that the respondent has pleaded acquisition of ownership by payment and cannot therefore rely on acquisition of ownership by waiver or estoppel; and that on the finding of non-payment the appellant becomes immediately entitled to judgment in his favour on the plaint and counterclaim.

If a plaintiff reties on either waiver, which is based on contract, or estoppel, which stems from a rule of evidence ( see Nurdin Bandali vs. Lombank Tanqanyika Limited (1) (1963) EA at p.314) the facts giving rise to these pleas are material facts and should be pleaded (see Order VI, rules 1 and 5). There is, however, this difference between the two pleas: waiver gives rise to a cause of action and if the claim is based on waiver the facts should be pleaded in the plaint; but estoppel merely enables an independent cause of action to succeed by preventing a defence from being raised and thus the facts relating to estoppeL would normally be pleaded in the reply and not in the plaint. Here the plaint averred that the respondent had become the owner. The defence was that the respondent neither in October, 1959, nor at any other material time sj-nce, had the right to exercise the option to pulcl:ase. Thus the defence did not raise th€ issue that the respondent, though having the

right to €xercise the option, did not exercise it effectively by paying the nominal purchase price. If that had been the defencs it would then have been j"ncumbent on tho respondent to plead in his reply the facts upon which he relied as showing that the appellant should be estopped from saying that the option to purchase had not been effectively exercised. I think that in any event it would have been wiser for the respondent to have pleaded the facts relating to estoppel in hj.s reply but, as I have pointed out, the case was conducted as if such a plea existed and I do not think that the appellant was in any way prejudiced thereby".

a 7

(

It would appear to rne from the authorities considered, that the provisions of section 115 of the Evidence Act are a definition of estoppel the facts giving rise to which must be pleaded or brought to the notice of the court if this was not possible.

The learned triaL Judge said in regard to this matte!,

"Under the Evidence Act, S.115 he would then be estobped by Law (which I should therefore consider whether raised in the pleadings or not ) from denying the fegal incorporation of the company. That of course would not make the registration legal (if I am wrong in what I have said above): It would merely make it impossible for the plaintiff to challeng€ the Begistration, and frustrate his claim: whatever was the Eituation in respect of other claimants, if any. The defence would be entitled to raise a shield, not a sword, as the time honoured phrase goes, against the plaintiffrs claim, which would failrr.

)

-/ 7.

With respect to the learned trial Judge I must confess I am unable to fo1low the reasoning. Ther€ may weII have been irreconcilable conduct on the part of the advocate but the Gov€rnment or the Hinisters who, on the evidenco, must have been aware of the advocate's conduct have said nothing about any representations to it or them.

As the learned trial Judge put it, "The defence is the usual unhelpful general traverse normally filed by the Attorney ceneral's chambers in which the plaintiff is put to strict proof of everything. They may be entitled to " ralse a shield, not a sword against the plaintiff's cIaim", but they have not. The plaint is clear in terms of the claim against the respondent. No facts givinEr rise to estoppel are pleaded and there is no attempt at any stage of the proceedingrs to amend the defence to plead the facts. I do not think this is a case where a departure from the gdneral rule shoul-d be permitted. Grounds 3 and 4 should therefore succeed.

In my view ground 1of the Supplementary Memorandum of Appeal concedes the cross-appeal. It is to the effect that the learned trial j udge lras r./rong to say that there .is t'no companyrr . . . . as there was a duly and 1e9a11y incorporated private company in the names of Uganda Transport Co. (1975) Ltd. I would accordingly

allow the cross-appeal with costs. As the main appeal was not entirely in vain I would grant the respondent half the costs of the appeal.

As both Oder and Karokora JJSC agree with my proposed orders it is so ordered.

Dated at Mengo this ... $10^{th}$ day of $10^{th}$ . 1997.

CHIEF JUSTICE

12192 Mr. Meser migenzi for The Appellet Mr. Stelle Arach for the Responde Judge of delivered as directed

### THE REPUBLIC OF UGANDA

## IN THE SUPREME COURT OF UGANDA

# AT MENGO

(CORAM: WAMBUZI, C. J., ODER, J. S. C., & KAROKORA, J. S. C.) CIVIL APPEAL NO. 43 OF 1995

**BETWEEN**

MUGENYI AND COMPANY ADVOCATES....................................

### **AND**

THE ATTORNEY GENERAL....................................

# JUDGMENT OF ODER, J. S. C.

I have had the benefit of reading in draft the judgment of Wambuzi C. J., and I agree with him that the appeal should be dismissed.

The appellants plaint in paragraphs 5, 6 and 7 stated;

"5 The said company owes the plaintiff shs. 72, 807,944/= for the legal services rendered. A copy of the Certificate of Taxation of the bill of costs is hereto attached as annexture A".

The Company has defaulted to pay the said amount and despite several repeated demands by the plaintiff to the company top pay, the latter has refused, neglected and/or failed to pay the same.

7. The Uganda Government, in order to liquidate the Company, caused General Notice No. 85 of the 1994 and an advertisement to be put in the Uganda Gazette of $1.7.94$ and in the New Vision News Paper of $2.8.94$ respectively so as to sell the Company's assets and terminate its existence, copies of the said Gazette, New Vision Newspaper cutting are attached hereto marked "B" and "C" respectively."

In this his W. S. D. the respondent denied paragraphs 5 and

6 of the plaint, amongst others, and admitted paragraph 7.

In his evidence, Yosero Mugenyi, (PW3) said that in 1981 when the Minister of Transport asked him whether he could take anew all the legal work of the company, he agreed. Then from 1983 he worked for the company without any incident until 1993 when the Government began to review its position regarding its companies. It published the PERD Statute, and the Uganda Transport Company (1975) Ltd was listed in the first schedule class 4 as a public enterprise which the state was to fully divest from under S.20 of the Statute.

P. W.3 also testified that after he accepted the Minister's request or suggestion in 1981, he represented UTC in various cases and he always put it in the pleadings as a limited liability Company under the company's Act. Then he went on to say:

> "I was last paid for my legal services by in 1994. This list of cheque files represents some completed cases and some work in progress. By the time that bill of costs was drawn up I had agreed with UTC and it was no longer paying salaries. I made my demands to pay my fees, and they asked to draw up that list, which I did. (Expe. 4)."

From all this, my views are that:

Firstly the issue of a separate cooperate existence of the Company from the Government was not an issue in this case.

Secondly, the appellant provided legal services for the Company for over ten years and often looked to the Company, not the Government, for the payment of the appellant's professional fees. He was often paid by the company until 1984.

Thirdly, the appellant changed his position in 1994 because the company was in a poor financial state.. For instance, it was unable to pay its workers' wages and because the Government had commenced the process of liquidating the company as a result of its policy of privatisation of public enterprises under the PERD Statute. In the light of what had taken place between the

appellant and the company from 1981 to 1994 with regard to payment of the appellants's professional fees. I think that the appellant began to demand payment of its fees from the Government not because the Government was liable, but because the company was no longer able to pay the fees.

For these reasons, I think that the appeal should fail.

The respondent cross-appealed on two grounds. Firstly that the learned trial Judge was wrong in finding that the Ministers who signed the Memorandum and Articles of Association of Uganda Transport Co., (1975) Limited were not separate numan beings/persons singing on behalf of Government; and secondly that the learned trial Judge erred in his holding that the Company. Uganda Transport Company (1975) Limited, was not duly and legally incomporated as a private Limited Company.

The first ground of the cross-appeal makes the same complaint as the first ground of appeal in the supplementary Memorandum of appeal.

With due respect, I do not in the circumstances understand why the first ground of the cross-appeal was necessary. Be that as it may, I think that it should succeed nonetheless.

Similarly I think that the second ground of the cross-appeal should succeed. On the authority of the case of Saleman v Sal@m@n and Company (1897) AC. 45, I think that Uganda Transport Company (1975) Ltd was duly incomporated as a private Company with share capital and Limited liability.

In the result, I would allow the cross-appeal with costs to the respondent.

Dated at Mengo this... ...day of. ODER,

JUSTICE OF THE SUPREME COURT

## THE REPUBLIC OF UGANDA IN THE SUPREME COURT OF UGANDA HOLDEN AT MENGO

$p$ ks

and bridge to the

(CORAM: WAMBUZI, CJ, ODER, JSC, AND KAROKORA, JSC)

### CIVIL APPEAL NO. 43 OF 1995

**BETWEEN**

MUGENYI AND COMPANY ADVOCATES .................................... APPELLANT

AND

THE ATTORNEY GENERAL .......... RESPONDENT $\cdots$

> (Appeal from High Court of Uganda at Kampala (Mr. D. C. Porter, J) dated $27/6/1995$

Civil Suit No. 648 of 1994)

#### JUDGMENT OF KAROKORA, JSC

I have had the advantage of reading in draft the Judgment of Hon. Mr. Justice S. W. W. Wambuzi, CJ, and I do agree with it and the Orders he proposed. I must state that I have nothing to add.

| Dated at Mengo this $\ldots$ $\ldots$ $\ldots$ day of $\ldots$ $\ldots$ $\ldots$ 1997. | |----------------------------------------------------------------------------------------| | A. N. Karokora | | USTICE OF SUPREME COURT. |