Muwanga v Lint Marketing Board (In Liquidation) (Civil Appeal 15 of 1998) [1999] UGCA 35 (11 January 1999)

### THE REPUBLIC OF UGANDA

## IN THE COURT OF APPEAL OF UGANDA

#### AT KAMPALA

# [CORAM: C. M. KATO, J. A., J. P. BERKO, J. A. & S. G. ENGWAU, J. A.]

#### CIVIL APPEAL NO. 15 OF 1998

#### **BETWEEN**

<table>

MOHAMMED MUWANGA...................................

#### AND

# LINT MARKETING BOARD (IN LIQUIDATION)........... RESPONDENT

#### (An appeal arising from the judgment of Byamugisha J. in H. C. C. S. No. 779/92, dated 3oth April, 1996).

### JUDGMENT OF ENGWAU, J. A.:

In the High Court sitting at Kampala, the Plaintiff (herein after referred to as the appellant) sued the defendant (herein after referred to as the respondent) claiming general damages for breach of contract of employment, special damages, interest and costs of the suit.

The facts giving rise to the appellant's cause of action were 30 that on the 30<sup>th</sup> March, 1978, he was appointed in the respondent's employment as a Personnel Officer on probation. On the 12<sup>th</sup> September, 1979 the appellant was confirmed in his employment with the respondent on permanent and pensionable terms as Higher Executive Officer (Personnel). It was, at all material times, an express term in the appellant's contract of employment that termination of services would be effected by either party, giving to the other at least three months' notice in writing, or payment by the respondent of three months' salary in lieu of notice 40

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On the 30<sup>th</sup> March, 1981, the appellant was transferred to a Department of the respondent called "Edible Oil and Soap Industry," as a Higher Executive officer (Personnel). It was expressly stipulated in the transfer letter that the appellant's terms and conditions of service would for the time being remain On or about the $29$ <sup>th</sup> day of March 1988, the unchanged. respondent's Edible Oil and Soap Industry was incorporated into a Limited Liability Company and it became a subsidiary of the respondent. The appellant's terms and conditions of service with the respondent were never altered or terminated.

The appellant remained in the new company for which he worked for $10\frac{1}{2}$ years on secondment by the respondent until the 7<sup>th</sup> day of January 1992 when his contract of employment was terminated by the liquidators of the Edible Oil and Soap Industry Ltd. following liquidation of the Company. The liquidators offered the appellant his terminal benefits which he declined to receive on the grounds that the subsidiary was not his employer and that the quota given was below what he had contracted with the respondent. The appellant instead sought re-deployment with the respondent. In May 1992, the respondent wrote to him that he could not be re-deployed because of the restructuring exercise which included reduction of staff. He was also informed that since he had been transferred to the Edible Oil and Soap Industry Ltd., his services with the respondent were no longer required.

In his view, the appellant considered the reasons for not redeploying him as a dismissal by the respondent. He therefore instituted proceedings against the respondent claiming general damages for breach of contract of employment, special damages in respect of cost of living allowance, housing allowance, transport allowance and repatration from Kampala back to his home in Luwero District. Learned trial Judge gave judgment in his favour and awarded the sum of Shs. 96,811 being the appellant's salary of three months in lieu of notice. He was also granted costs of the However, his claim for other terminal benefits including suit. arrears of salary and allowances were disallowed on the ground that the appellant was no longer in the employment of the respondent. Hence this appeal.

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There are two grounds of appeal, namely:-

1. The learned trial Judge, having found as a fact that the appellant was an employee of the respondent until the liquidation of Edible Oil and Soap Industries Limited, a subsidiary of the respondent, she erred in law and in fact when she went ahead to dismiss the appellant's claim for allowances on ground that they covered periods when he was no longer in the respondent's employment.

The learned trial Judge erred in law and in fact when she dismissed the appellant's claim for arrears of salary, allowances, terminal and other benefits.

had After Mr. Mubiru, learned Counsel for appellant, completed his submissions on the two grounds of appeal, Mr. Mulira, learned Counsel for the respondent at that stage, belatedly raised a preliminary point of objection which I would like to deal with first before going into the merits of the appeal itself.

The preliminary point of objection raised by Mr. Mulira is to the effect that the respondent is the Lint Marketing Board (In Liquidation). It is not in dispute that Lint Marketing Board went into liquidation and the Receiver was appointed. In his view, that being the case, Lint Marketing Board ceased to be a legal entity and it was replaced by the Learned counsel submitted that the proper Receiver. respondent in this case should have been the Receiver of the Lint Marketing Board and since the appeal is brought against non-existing legal person, there is no entity against which court can make an order and this is fatal to the appeal. He submitted therefore that this appeal should be dismissed on this ground alone. Mr. Mubiru for the appellant did not agree and contended that a liquidator (a receiver) assumes all the functions of the directors. Being in liquidation, in his view, is only a process during which the company operates until it is wound up.

The law relating to this preliminary point of objection as I understand it, is that the liquidator (receiver) assumes all the functions of the directors. The company continues to It is only at the end of winding up that the operate.

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company ceases to exist. On the appointment of a receiver, all business documents containing the name of the company must contain a statement of his appointment. The company need not go into winding up. If it does, then a different person will normally be appointed liquidator. The function of a receiver generally is to get in the assets of the company, to compromise liabilities and to pay creditors if the company is solvent. See: Section 244 Companies Act (CAP 85).

In the instant case, Lint Marketing Board, now the respondent, no doubt went into liquidation pending this appeal and the receiver was appointed. Since the appointment of the receiver, there is no evidence to show that the Lint Marketing Board has been wound up. In the circumstances, Lint Marketing Board is the proper respondent in this case as it continues to operate. Until it is wound up, the respondent remains a legal entity against which court can make an order in the event of this appeal being allowed. In the premises the preliminary point of objection is hereby overruled.

I wish now to deal with the merits of the appeal. The complaint in the first ground of appeal arose from the apparent contradictions in the findings of the learned trial Judge on the first issue agreed upon. That issue is whether the appellant was an employee of the respondent up to the time his employment was terminated. Learned Counsel for appellant submitted that in resolving the above issue, the learned trial Judge correctly applied the provisions of Section 17 of the Employment Decree No. 4 of 1975, and held as follows:-

> "Using the above as a guide and applying them to the facts of this case, the plaintiff's contract of service with the defendant was unlawfully terminated in my view. He was not an employee of Edible Oil and Soap Industry Ltd. and therefore the liquidators purported termination of his employment was not justified in law since they were not his employers, and it was not in

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accordance with his terms and conditions of service".

Having made that finding, the learned trial Judge entered judgment in favour of the appellant and awarded him Shs. 96,811 being the three months salary in lieu of notice which the appellant should have been paid before termination of his employment. It was the contention of Counsel for the appellant that the learned trial Judge should have also entered judgment in favour of the appellant for his claims for allowances and terminal benefits (entitlements) during the corresponding period. Instead the learned trial Judge held:-

> "Moreover the plaintiff was claiming allowances for periods when he was no longer in the employment of the defendant."

According to Mr. Mubiru this was a departure from and inconsistent with her earlier holding. It was his contention that the trial Judge should have awarded the appellant the said $20$ allowances and other terminal benefits up to the time of his retirement. Therefore, this court as the first appellate court should vary those orders and award those allowances and terminal benefits in favour of the appellant.

Mr. Mulira seemed to have conceded that the evidence before the learned trial Judge was sufficient to show that up to the point the appellant was in the employment of Edible Oil and Soap Industry, he was still an employee of the Lint Marketing Board. But on the incorporation of Edible Oil and Soap Industry Ltd, the appellant's terms and conditions of service were governed by whatever rules and regulations the Board of Directors of that Company had determined to apply to its employees.

I wish to resolve this matter by referring to the full context of Section 17 of the Employment Decree No. 4 of 1975 which states:-

> "S. 17 (1) A change of employer shall, notwithstanding anything to the contrary in any contract, be deemed to have taken place whenever a person other than the

original employer acquires the whole or greater part of the property of the undertaking and continues substantially the same operations.

- A change of employer shall not affect any $(2)$ existing contract of service, but in the case of any contract of service for a fixed term or other contract of service not capable of termination by a notice of one month or less, the employer or the employee shall be entitled, at any time within one month of being notified of such change of employer, to give one month's notice to terminate the contract. - Upon a change of employer, the original $(3)$ employer and the new employer shall be jointly liable for all contractual or other obligations originating before the date on which the change took effect:

Provided that the new employer shall not opinion of the liable where, in the be Commissioner, adequate provision has been made whereby the original employer undertakes to continue to discharge the outstanding obligations notwithstanding the change of employer.

Except in the case of a change of employer as $(4)$ defined in this section, a contract of service shall not be capable of transfer."

Clearly, the learned trial Judge rightly applied the provisions of Section 17 of the Employment Decree because for a change of employer to occur under that Section, it had to be proved that when Edible Oil and Soap Industry Ltd. was incorporated it acquired the whole or greater part of the property of the former company. There was no evidence that Edible Oil and Soap Industry Ltd. had acquired the whole or greater part of the property of the respondent. Therefore, the respondent remained the employer of the appellant. Even if there was change of employer, the respondent would still be liable jointly with the "new employer", i.e. Edible Oil and Soap Industry Ltd. See: Section

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17(3) of the Decree. The learned trial Judge therefore should have awarded the appellant the allowances and other terminal benefits for the corresponding three months of his retirement. In the circumstances I would allow ground one of this appeal.

On the second ground, learned Counsel for appellant submitted that under paragraph 13 of the Plaint, various claims were itemised and the quantum of each item was stated thus:

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13. "By the defendant's breach of the contract in the circumstances, mentioned above, the plaintiff has suffered damage and incurred loss and expense.

## PARTICULARS OF L SS AND EXPENSES.

- (a) Arrears of salary from the month of July 1990 up to date of retirement following and involving diverse - salary changes and increments. (b) The cost of living allowance at the rate of 75o/o of Basic salary for the period from July 1990 up to period of - retirement. (c) Arrears of housing allowance from September 1990 up - to period of retirement. (d) Arrears of transport allowance at Shs. 600/= per working day from 1't July t99t up to period of retirement. - (e) Arrears of lunch allowance at Shs. 350/= per working day from April 1991 up to period of retirement. - Medical allowance at 150% basic salary up to period of retirement. (f) - Provident fund contributions up to period of retirement. (s) - Transport from Kampala to Luwero District(Bombo) upon retirement." (h)

The only award made under this head was the three months' salary in lieu of notice. She disallowed the rest on the ground that:-

> "However, the rule has long been established that special damages are largely out of pocket

2t)

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expenses incurred by the plaintiff as a result of the defendant's conduct for which the defendant is being held liable. The allowances which the plaintiff is claiming do not fall under the above Moreover the plaintiff was claiming category. allowances for periods when he was no longer in the employment of the defendant. None will be awarded in the circumstances."

It was the contention of learned Counsel for appellant that the trial Judge erred in refusing to assess or award those claims on the ground that they fell outside employment. She was equally wrong in holding that those allowances could not be claimed because they were not out of pocket expenses to be claimed as special damages. In his view, learned trial Judge made wrong findings in law. Learned Counsel relied on an abstract from Mc Gregor on Damages, 13<sup>th</sup> Edition at page 20 which states:

> "A contract example of special damage in pleading, which is clearly not within the Second rule in Hadley v. Baxendale and hence the first meaning, is to be found in actions for wrongful dismissal, where the claim for the wages the plaintiff would have earned but for the breach, less any substitute salary he has earned since his dismissal, is treated invariably as special damage........ The reason why these various items of damage have been held to be special for the purpose of pleading although general for the purpose of liability, would seem to be that where damage has become crystallised and concrete since the wrong the defendant could be surprised at the trial by the detail of its amount, although it is of a type which he could expect as a consequence of the wrong. As Lord Donovan said in Perestrello v. United Paint Co. [1969] 1 W. L. R. 570 (C. A.), the obligation to particularise arises "not because the nature of the loss is necessarily unusual, but because a plaintiff who has the advantage of being able to base his claim upon a

## precise calculation must give the defendant access to the facts which make such calculations possible."

Accordingly, learned Counsel for appellant invited this first appellate court to revisit those claims in paragraph 13 of the Plaint as special damages. He, however, abandoned the claims in paragraphs (e), (f) and (g) thereof. Nevertheless, Counsel asked court to consider the question of redundancy. He submitted that although redundancy was not specifically pleaded as special damage but evidence was led at the trial which evidence the respondent's Counsel did not challenge. Learned Counsel cited Mussa Hassan v. Hunt and Another [1964] E. A. 201 for the proposition that special damage should have been pleaded, but in the circumstances no prejudice was caused to the respondent by the failure to do so in the instant case.

On his part, Mr. Mulira for the respondent submitted that what is being claimed as special damages were not particularised in the Plaint. The figures given may not be supported by evidence on record. In his view, this court should disregard those figures. On the question of redundancy, learned Counsel submitted that the appellant was not declared redundant. In any case redundancy claim was payable only in special circumstances according to Exbt P6.

Learned trial Judge entered judgment in favour of the appellant correctly, in my view, and awarded him Shs. 96,811 being the three months salary in lieu of notice which the appellant should have been paid before termination of his employment. In my view, the learned trial Judge should have also awarded the appellant the allowances and other terminal benefits for the corresponding three months. It was wrong for the learned trial Judge to hold that those allowances could not be claimed because they were not out of pocket expenses to be claimed as special damages. In addition, the appellant was entitled to redundancy indemnity payable for 15 months pursuant to the staff regulations and terms and conditions of service (Exbt P6). This was not specifically pleaded but evidence was led to that effect and that piece of evidence was not challenged. In my view, redundancy claim as special damage should have been pleaded, but in the

circumstances no prejudice was caused to the respondent by the failure to do so. In the premises I would allow the second ground of this appeal.

In the result, I would allow this appeal, set aside an order dismissing the appellant's claims for allowances and other terminal benefits, and substitute with an order that the appellant be paid his arrears of salary to the tune of Shs. 96,811 being the three months salary in lieu of notice; cost of living allowance at 75% of the basic salary of Shs. 32,237 per month for 3 months $=$ 72,525/75; housing allowance at 60,000/= per month $\times$ 3 months = 180,000/=; transport allowance for 3 months at $600/$ = per working day (5 working days per week $x$ 4 weeks per month $x$ 3 months x 600/= per working day) = 36,000/=; repatration from his work station at Kampala back to his home in Luwero District for retirement at $147,200/=$ and redundancy indemnity payable at basic salary of 32,237/= per month x 15 months = $483,555/$ =. Total shs. 1,016,091.75 (Shillings one million sixteen thousand and ninety one cents seventy five). Costs here and in the court below to the appellant.

Dated at Kampala this... $\frac{1}{1}$ ....day of....................................

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S. G. ENGWAU JUSTICE OF APPEAL.

# THE REPUBLIC OF UGANDA

# IN THE COURT OF APPEAL OF UGANDA

## AT KAMPALA

# [CORAM: C. M. KATO, J. A., J. P. BERKO, J. A. & S. G. ENGWAU, J. A.]

## CIVIL APPEAL NO. 15 OF 1998

### BETWEEN

<table>

MOHAMMED MUWANGA...................................

## AND

LINT MARKETING BOARD (IN LIQUIDATION).......... RESPONDENT

(An appeal arising from the judgment of Byamugisha J. in H. C. C. S. No. 779/92, dated 30<sup>th</sup> April, 1996).

# **JUDGMENT OF J. P. BERKO, J. A.:**

On the main issue in the appeal, I find myself in complete agreement with the reasoning of my Lord, Mr. Justice Engwau. It seems to me the Judge was wrong in rejecting the appellant's claim for those allowances having found that he was still in the employment of the Lint Marketing Board when his appointment was terminated by the Receiver of Edible Oil and Soap Industry Ltd.

I would also allow the appeal.

Dated at Kampala this.... $\frac{1}{2}$ Dated at Kampala this.... $\frac{1}{2}$ Dated at Kampala this.... $\frac{1}{2}$ Dated at Kampala this.... $\frac{1}{2}$ Dated at Kampala this.... $\frac{1}{2}$ Dated at Kampala this.... $\frac{1}{2}$

J. P. Berko Justice of Appeal.

#### THE REPUBLIC OF UGANDA

#### IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

#### CIVIL APPEAL NO. 15 OF 1998

| CORAM: | HON. MR. JUSTICE C. M. KATO, JA.<br>HON. MR. JUSTICE J. P. BERKO, JA.<br>HON. MR. JUSTICE S. G. ENGWAU, JA. | | | | | | | |----------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|--|--|--|--|--|--| | MUWANGA MUHAMMED APPELLANT | | | | | | | | | VERSUS - | | | | | | | | | | LINT MARKETING BOARD RESPONDENT | | | | | | | | (An appeal from the judgment of the High<br>Court of Uganda at Kampala<br>(Byamugisha, J.) dated 30/4/96 | | | | | | | |

in HCCS No.779 of 1992).

#### JUDGMENT OF C. M. KATO, J. A.

I have had the benefit of reading the judgment of Engwau, J. A. in draft. I agree with it in total. There is no doubt that the learned trial judge was wrong to have declined to award to the appellant his terminal benefits regarding cost of living, housing allowance, transport to his place of work and transport from Kampala to his place of origin after termination of services, after she had held that the appellant had been unlawfully dismissed from his job. The learned trial judge ought to have awarded these terminal benefits to the appellant for a period of 3 months as she did with regard to the salary. Since Berko, J. A. also agrees, this appeal must succeed. It is accordingly allowed and judgment is entered in favour of the appellant in terms proposed by Engwau, J. A.