Muljbai Madhvani & Co. Limited & Another v Mugalula & Others (Civil Appeal 51 of 2004) [2006] UGCA 50 (3 November 2006)

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### THE REPUBLIC OF UGANDA

IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

#### HON. MR. JUSTICE G. M. OKELLO, JA. **CORAM:** HON. MR. JUSTICE A. TWINOMUJUNI, JA. HON. LADY JUSTICE C. N. B. KITUMBA, JA.

#### CIVIL APPEAL NO. 51 OF 2004

#### **MULJBHAI MADHVANI & CO LTD** 1.

#### STEEL CORPORATION OF E. A. LTD::::::: APPELLANTS $2.$ VERSUS

## FRANCIS MUGALULA & OTHERS ::::::::::::::::::::::::::::::::::::

[Appeal from the judgement of the High Court of Uganda dated 17<sup>th</sup> November 2003 on Civil Suit No. 640 of 1994]

### **JUDGEMENT OF KITUMBA, JA.**

This is an appeal from the judgement of the High Court in which the learned trial judge awarded the respondents a sum of Uganda shillings four hundred eighty two million four hundred sixty three thousand nine hundred ten (482,463,910) as retirement benefits. He also awarded them interest and costs.

The brief facts of the appeal as agreed upon by both parties in their conferencing notes are as follows: -

Muljbhai Madhvani, hereinafter to be referred as the first appellant and The Steel Corporation of East Africa Ltd, hereinafter to be referred to as the second appellant, are companies registered in Uganda. They were CERTIFIED TRUF COPY OF THE ORIGINAL

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ded and funded by Asians i.e. the Madhvani <sup>F</sup> ly. During the in era, the 2nd appellant, like all Asian firms, was <sup>e</sup> ropriated. This f 2nd appellant Properties Act. ossessed the firm under the terms of the Expropriate <sup>e</sup>Ministry of Finance duly complied and handed ov r the property to e appellants. trsition changed in 1994 when the former owners

Ir pafl of the repossession exercise, the appellants opted to lismiss/retrench the employees and pay them their terminal benefits. The l.rpona"n,. who were part of the senior staff members initially employed fy tn. ,""ond appellanr were affected by the exercise. The respondents [tui-"a that the appellanrs had made parrial payment leaving behind the tutun"" of Ug. Shs.482, 463,9101- in arrears. This was denied by the lpp.ttunt, who argued, inter alia, that liability accrued on the government [na no, themselves and that payment had been made in full'

The Hon. Justice Opio-Oweri entered judgement in favour of the respondents and made an order that the appellants pay the sum of Ug' shs.482,463,910/- as terminal benefits to the respondents, interest at loYo per annum from the 276 April 1994 and costs of this suit'

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At the hearing the suit in the High court the following issues were framed and agreed upon by the parties.

- 1 Whether the defendants had paid all the plaintiffs their lerminal benefits. - Whelher the l" defendant u'as rightly sued along with the se"ond defendant. 2.

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- Whether the plaintiffs were entitled to the declaration $3.$ judgement. - Whether they are entitled to terminal benefits and if so $4.$ how much.

The respondents' case was based on the evidence of two retired employees namely, Francis Mugalura, PW1 and Alirimo Timolo, PW2. PW1 testified that he was a former employee of the second appellant. He together with others was terminated from service but were as not fully paid their retirement benefits. The first appellant was a shareholder of the second appellant. In 1994 the second appellant was returned to the first appellant. The General Manager of the Company wrote to the Deputy Secretary to the Treasury and on that letter he attached a list showing the terminal benefits of the employees of the second appellant. The letter and the attached list was admitted in evidence as Exhibit P1. The witness prepared, from the above list, the total amount of the unpaid terminal benefits amounting to shs. 459,375,424/- (Exhibit P2). PW1 also testified that the workers' terms and conditions of service were changed by the resolution of the board and both documents were produced in evidence as exhibits P6 and P5, respectively. This witness further testified that the respondents took the complaint to the Ministry of Trade and Industry that they were not paid according to their terms and conditions of service. In response thereof the Permanent Secretary wrote a letter to the chairman board of directors of the second appellant advising them to pay the full terminal benefits so as to avoid possible court action. The letter was exhibit P7.

PW2's testimony was that he was one of those who were retired by the second appellant. He did not get all his retirement benefits.

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The case for the appellant as given in the testimony of Ojiambo Vicent, DW1, who was also a former employee of the second appellant, was that according to the terms and conditions of service formula of calculating retirement benefits was as follows:- For the employees who had served 2-10 years were paid 26 days for each year of completed service. Above 10 years were paid 32 days for each year of completed service. That formula was applicable to all members of staff.

Mutazindwa Katorogo, DW2, testified that he was the Legal Officer and Corporation Secretary of the second appellant. He stated that the terms and conditions of service the respondents were relying on were different from the ones he had participated in drafting. According to him there were some clauses which were smuggled in and they were without the approval of the board.

On evaluation of the evidence the learned trial judge answered issues 1 in the negative and issues 2, 3 and 4 in the affirmative. He decided the suit in favour of the respondents as already stated.

The appellants were dissatisfied with the learned trial judge's decision and filed their appeal to this court on 6 grounds namely:-

- That the learned trial judge erred in law and in fact 1. when he held that the 1<sup>st</sup> defendant having repossessed the second defendant was liable for the terminal benefits of the 2<sup>nd</sup> defendant. - That the learned trial judge erred in law and in fact $2.$ when he failed to evaluate the evidence on record as regards the wrong and illegal formula inserted in the terms and conditions of service by the respondents and by so doing he arrived at the wrong decision.

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- That the learned trial judge erred in law when he failed $3.$ to make a ruling in the application to join the Attorney General as a party to the proceedings before the final judgement. - That the learned trial judge erred in law and in fact $4.$ when he relied on the board resolution of 1991 as supporting document to the terms and conditions of service when there was evidence that it had been wrongly appended. - The learned trial judge erred in law and in fact when he $5.$ relied on a wrong formula of 12 months to determine benefits for each year worked and by so doing he arrived at an award which was arbitrary, exorbitant, and unconscionable. - That the learned trial judge erred in law and in fact 6. when he awarded the interest of 12% to the decretal sum.

Counsel for the appellants argued grounds 4 and 5 jointly and the rest of the grounds separately. I will deal with ground 1 separately, grounds 2, and 5 together ground 3, 4 and 6 separately and in that order.

On ground 1 appellants' counsel's complaint is that the learned judge erred in law and in fact to find that the first appellant was liable to pay the respondents' terminal benefits. Counsel contended that the first appellant repossessed the second appellant according to the provisions of the Expropriate Properties Act and it was not a sale. He submitted that section 12 of the Expropriate Properties Act provides for developments made on the repossessed properties. The section does not provide for other liabilities. Counsel argued that section 2 (2) (a) of the same Act nullified all dealings of any kind in business which had been taken over by the military regime. In counsel's view, it was wrong for the learned judge to have found that the first appellant having re-possessed the

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second appellant was liable for payment of the terminal benefits of its former employees. Counsel submitted that the first appellant did not inherit that liability from the government of Uganda.

Mr. Walubiri, learned counsel for the respondents, did not agree. He contended that the first appellant was liable to pay the respondents' terminal benefits. He submitted that the second appellant was returned to the first appellant in the capacity of a shareholder in accordance with section 1 (c) of the Expropriate Properties Act. Counsel argued that according to the handing over report, Exhibit P. 10 it is shown that, apart from machinery and other properties, the 1<sup>st</sup> appellant received employees liabilities amounting to Shs. 1,138,746,125/=. He further submitted that neither the handing over report exhibit P. 10 nor exhibit P1 had been challenged by the appellants. Besides, the first appellant had paid some of the terminal benefits to the former employees. The dispute was only about the quantum. The appellants were estopped from denying liability.

It is appreciated that Dr. Muhairwe, the general manager of the second appellant wrote exhibit P1. This was a letter addressed to the Deputy Secretary to Treasury, Ministry of Finance and Economic Planning. He gave the total sum of the staff terminal benefits as being shillings 1,138,746,125/=. This exhibit was admitted in evidence unchallenged. Exhibit P 10 that was a letter dated 24/2/1994 again written by Dr. Muhairwe as a handing over report of the second appellant to the 1<sup>st</sup> appellant. This handing over report included liabilities and one of such liabilities was the former employees' terminal benefits. The two exhibits were received in evidence unchallenged and I, therefore, believe them as being correct. Counsel's argument with regard to section 2 (2) (a) of the

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propriated Propenies Act is not tenable in the instant cction nullified is the dealing in property itself but no case. What the the employees' ployment contracts. ln any case the first appellant re- ssessed the 2nd ppellant as its shareholder' The fact that the first paid some tirement benefits to the respondent shows that it <sup>a</sup> iability. As ghtly pointed out by the respondent's counsel' the first appellant is I estopped from disclaiming the liability'

Ground t has no mertt.

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<sup>I</sup>now turn to grounds 2 and 5 in which the gist of appellants' counsel's complaint in both grounds is that the judge erred in law and fact when he failed to evaluate the evidence properly' Resulting from that failure he used a wrong formula to award the respondent terminal benefits' that were arbitrary, exorbitant and unconscionable'

Submitting on the two grounds, appellants' counsel contended that the respondents had doctored the terms and conditions of service. The docloredlermsandconditionsofserviceincludedprovisionsthatwere beneficial to the respondents' Mr' Ojiambo' DWl' had testified that he was an experienced trade union activist' He had never heard anywhere that a worker is paid 12 months for each year of service' DW2 had testified that the lerms and conditions of service had been doctored' Counsel submitted that the Ieamed trial judge failed to evaluate that evidence on record and came to a wrong decision. He prayed this court to re-evaluate the evidence.

Counsel for the respondent supported the leamed trial judge's finding He argued that the leamed judge properlv evaluated the evidence' Accordingtocounsel. DW]andDw2didnotk-rrowthecorrecttermsand

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]nditions of service. He submitted that the judge was, therefore, right to Jiect their evidencl.

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<sup>s</sup>{ first appellate court we have the duty to re-appraise the evidence and w our own inferences of fact. See Rule 30 (l) of the Rules of this ourt. Kifamunte Henry V Uganda S. C. Criminal Appeal No. l0 f 1997. Sakke and Anor Vs Associated Molor Boat Company and thers (1968) EA 123.

O . ,.rpond.n['s case was based on the evidence of Francis Mugalura, W I . He testified that he was a former employee of the second appellant. e, like others, was supposed to get their rerminal benefits. He produced n court exhibit Pl that was a letter written by Mr. Muhairwe, the General anager of the seJond respondent, to the Deputy Secretary, Ministry of Finance. To that letter he attached a breakdown of what each of the respondents was supposed to get. From exhibit P1, the witness prepared a list of 36 employees who were not fully paid their terminal benefits and the total sum owed to them by the second appellant amounted to 5hs.459,375,242/= The extract was put in evidence as exhibit P2. He further testified that their lawyer wrote a letter exhibit P.3 demanding for payment. The lawyer for the second appellant wrote letter exhibit P.4 denying liability that the respondent's claim was not based on their individual cont5cts of employment. The witness categorically stated that A the respondents were not members of a trade union. They were members of senior staff whose terms and condirions of service were changed in August l99l by a {esolution ofthe board. He produced in evidence the board resolution as exhibit P5 and the new terms and conditions of service as exhibit P.6. He was present when the second appellant was

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I being handed over to the first appellant. He produced the handing over report, exhibit P. 10.

The evidence from the appellants to disprove the respondents claim regarding what was the correct formula for paying terminal benefits was from DW1 and DW2. In his testimony DW1 stated that he was a union leader. He was not conversant with the terms of the senior staff. He was only told by management that all former employees who were laid off were paid according to the same formula. He stated that the formula was that for workers who had served the company between $2 - 10$ years 26 days for each year of completed service. Above ten years were paid 32 days for each completed year of service.

Regarding the testimony of DW1 I am persuaded by the respondents counsel's submission that he had no knowledge of the formula which was to be used in case of the respondent's benefits. The respondents were non-unionized staff. DW1 knew the formula, which had to be followed in respect of unionized staff terminal benefits. However, in as far as senior staff was concerned he was simply told by the management that they were subjected to the same formula of calculating terminal benefits. His evidence is obviously hearsay. The learned trial judge was right when he rejected it.

On his part, DW2 testified he had worked with the respondents in 1989 and early 1992. He participated in drafting the terms and conditions of service of the company. When he was shown the terms and conditions of service, he said that they were the terms and conditions of service he had participated in drafting and the minutes of the board he had personally prepared. He stated that paragraph 8 (b) which reads that staff terminal

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efits shall be annual salary multiplied by the number of the years in rvice, was not approved by the board. He fuither testified that the ocument did not have paragraph 10 (8). lt stopped at 10 (7) and the pp?ndix was not parr of the original terms and conditions of service assed by the board. He stated that those were insertions. After leaving e appellants' employment he was recalled by the general manager to omplete some assignments conceming divesture. He was shown the erms and conditions of service and the minutes of the board that had ppJoved those terms. He found that the term and conditions of service ad been vari#. The witness together with the Regional Manager and the Personnel Officer rectified ali variations. It was then agreed that the General Manager, Dr. Muhairwe, writes to the board and action is taken.

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ln cross-examinatidn his testimony was that he did not know when the respondents wele terminated from service. He did not know the terms under which they were terminated. He did not calculate the respondents' entitlements. Exhibit Pl was dated 4/2/1994 and was signed by Dr. William Muhairwe after the witness had met with him to clear the terms and conditions of service. The witness categorically stated that he had no reasons to challenge Dr. Muhairwe's calculations. He did not dispute the figures in exhibit P2 because he had no knowledge about them. The witness was not in service of the appellants at the time of divesture and he did not know the details ofhanding over and final divesture.

From the evidence above oullined. it is clear that DW2 did not know U)L anything about the respondents' terminal benefits. This was so because he was no longer in the service of the appellants. It is Dr. Muhairwe who was the General Manager of the second appellant at the time the respondents' t..{ri""r with the second appellant were terminated. He is


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one who signed exhibit Pl on which calculations of the respondents' nal benefits wpre attached. This was after PW2 had had a meeting th Dr. Muhairwe and the variations, which were in terms and nflitions of service were noted and rectified. Dw2 did not produce hat was in his opinion the correct terms and conditions of service. on <sup>e</sup>contrary, PWI produced exhibits Pl, P2, P5rP6 and PlO'

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myview,thejudgewasrighttorelyontheevidencethatwasproduced lhe respondents and to base the terminal benefits on the formula provided in exhiUit P6. PWI produced in court exhibits that were written by Dr. Muhairwe, in the course of his official duties and they were admissible in evidence.

ln view of the abolve I am unable to fault the learned trial judge in his finding that ex\ibits Pl,P2, P5 and P6 were regular and the allegation that the rerms and conditions of service were doctored would not arise. gztb

Grounds 2 and 5lack merit and would, therefore, fail'

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,,The learned trial judge erred in law when he failed to make a ruling in lhe apptication to ioin the Attorney General as a patgl to the proceedings before the final iudgement'"

Submitting on this ground counsel for the appellant contended that the leqfied trial judgeli'ade an error of law when he failed to make a ruling on their application ro join the Anorney General as a pal1y to the sui1. lt was counsel's argumenr that if the judge had given his ruling then the

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appellants if dissatisfied with it, would have appealed. He submitted that failure to make a ruling caused a miscarriage of justice.

The respondents' counsel disagreed. He submitted that the appellant's attempt to join the Attorney General as party to the suit was made late and in bad faith. He argued that the appellant had previously successfully applied to court and the Attorney General had been joined as party to the proceedings. The appellants had on their own accord applied to court to withdraw the proceedings against the Attorney General and the court had allowed them to do so. In counsel's view, failure by the learned trial judge to make a ruling did not prejudice the appellants in any way. In the event that the appellants had a case for indemnity against the government they could sue in a separate suit.

I have perused the record of proceedings and it is obvious that the appellants applied by chamber summons according to Order 1 Rule 14 of the Civil Procedure Rules to have third party notice issued against the Attorney General. The same was issued by court on 1<sup>st</sup> December 1997. After several adjournments of the case, counsel for the appellants applied to withdraw the case against the government. The supplementary record which was filed by counsel for the appellant reads as follows:-

#### "Twinomugisha:

My clients have informed me that they are in advanced stages with the Privatisation Unit to finalise the issue of liability but because negotiations may take some time, I have been instructed to ask for leave of Court to withdraw the application with an atonement of costs to the third party. The main suit between the main parties be fixed for hearing and within the period between now and the hearing date inter party negotiations can continue and further consultation can continue with

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the $3^{rd}$ party. The application was filed as a result of a letter originating from the $A. G.'s$ chambers. Though the A. G. seems to deny the liability my client informs me that what is on the ground is different. $I$ pray that the application be withdrawn with leave of Court and the main suit be set down for hearing.

#### Mastiko:

I do not oppose the application to withdraw the main application. O.22 rule 2 enjoins Court to make orders which are just and costs.

#### Order:

Application to withdraw the application is allowed with costs to the A. G. Matter set down for a Scheduling Conference on 29/11/99. Sgn. C. J. Byamugisha $29/11/99"$

The above extract from the record clearly shows that it was the appellants' counsel who applied to withdraw the suit against the Attorney General. He was willing even to pay costs to the Attorney General.

I note that the second application to joint the Attorney General as a party to the suit is not on record. It is only referred to by the judge at p.5 of his judgement where he stated that the appellant had made the application before calling their last witness. According to the record of appeal, this must have been between 7/3/2003 and 6/6/2003. Then the Judge differed the ruling of the application..

That not withstanding, I am of the view that it would not make a difference. The appellants withdrew the suit against the Attorney General. There is nothing on record to show that the situation had changed to necessitate the Attorney General to be a party to the suit. I am of considered view that the second application by the appellants to join the

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Attonrey General was somewhat an abuse of process. The judge's failure to give an instant ruling on the application did not cause a miscarriage of justice, as there was no unfairness in the conduct of the trial. I appreciate counsel's submission that in case the appellants want to be indemnified by the Attorney General, they could institute another suit.

Ground 3 would fail.

Ground 4:

"That the learned trial judge erred in law and in fact when he relied on the board resolution of 1991as supporting document to the terms and conditions of service when there was evidence that it had been wrongly appended."

Counsel for the appellant contended that the learned trial judge was wrong to rely on the board resolution that was appended to the terms and conditions of service.

We appreciate argument by counsel for the respondent. The appellants are not challenging the board resolution, Exhibit P.5. They are disputing the authenticity of terms and conditions of service. As it had been already dealt with in ground 1 and 5 the learned trial judge properly evaluated the evidence. In my view, he rightly preferred the respondent's evidence to that of the appellant. Ground 4 lacks merit and would fail.

I now consider ground 6 that reads :-

"That the learned trial judge erred in law an in fact when he awarded interest of 10% to the decretal sum."

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Appellant's learned counsel submitted that according to section 27 of Civil Procedure Act the judge had the discretion to award interest that is just in the circumstances. He argued that 10% interest on the decretal sum was not just in the circumstances. The appellants had never received money from the government to pay the respondents terminal benefits.

Counsel for the respondent argued that learned trial judge awarded the respondent reasonable interest. According to counsel the source of the funds from which the appellants had to pay was not relevant.

When the learned trial judge awarded interest of 10% on the decretal sum he took into account the fact that possibly the appellants were not solely to blame for the delay in paying the terminal benefits. He was of the view that the interest of 25% which the respondents had prayed for would be too high taking into account the fact that this was 1994 claim. I am of the considered view that the judge properly exercised his discretion and awarded just interest on the decretal sum in the circumstances. Ground 4 would fail..

In the result I would dismiss the appeal with costs to the respondents.

Dated at Kampala this ....................................

CHIS Cilina<br>C. N. B. Kitumba JUSTICE OF APPEAL

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