Najjuma v Khasakhi Cooperative Savings & Credit Society Limited (Miscellaneous Application 278 of 2023) [2023] UGCommC 262 (28 September 2023)

Full Case Text

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) MISC. APPLICATION NO. 0278 OF 2023 ARISING OUT OF EMA NO. 056 OF 2023 ARISING OUT OF CIVIL SUIT NO. 655 OF 2021

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NAJJUMA JULIET::::::::::::::::::::::::::::::::::::

#### VERSUS

### **KHASAKH COOPERATIVE SAVINGS**

# AND CREDIT SOCIETY LIMITED::::::::::::::::::::::::::::::::::::

# **BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI**

#### **RULING**

This Application is brought by way of Notice of Motion under Order 36 rule 11, Order 52 rule 8(1), (2) and (3) of the Civil Procedure Rules (CPR), section 73 of the Cooperative Societies Act and Section 98 of the Civil Procedure Act for orders that execution proceedings initiated by the Respondent be stayed pending the disposal of the Application to set aside Judgment in Civil Suit No.655 of 2021 and costs of the Application be provided for.

The Application was supported by the Affidavit of the Applicant, Najjuma Juliet and opposed by the Affidavit in reply of Josephine Naigga Musisi, the Manager of the Respondent.

## **BACKGROUND OF THE APPLICATION**

The Applicant is a member of Khasakh Cooperative Savings and Credit Society Limited. The Applicant obtained a loan from the Respondent in 2017 and after several defaults by the Applicant, the Respondent filed Civil Suit No. 655 of 2021 seeking for recovery of Ugx 68,000,000/=. The Applicant did not file an application for leave to appear and defend thus a default judgment was entered in favor of the Respondent.

The Applicant then filed an Application to set aside the Judgment before this Court and also filed this Application to stay the execution of the decree pending the disposal of the Application to set aside Judgment.

#### **REPRESENTATION**

The Applicant was represented by M/s Mungoma Justine and Co Advocates and the Respondent was represented by M/s Moriah Advocates.

#### **SUBMISSIONS**

Counsel for the Applicant submitted that the Applicant obtained a loan from the Respondent who filed a suit in this Court seeking for recovery of Ugx $68,000,000/=$ after several defaults by the Applicant. That the Applicant was not served with summons for leave to appear and defend and only learnt of the suit when someone sent her documents pertaining to the suit. Counsel submitted that by the time the documents were sent to the Applicant, the period for service had lapsed and to illustrate this stated that the suit was filed on 5th October 2021, the Applicant was not served and by the time they purported to serve her in July 2022, more than 21 days had lapsed and service could not be effective. Counsel submitted that the agreement between the parties provided in clause 5 that any dispute between them would be referred to Arbitration and that the parties were bound to make an attempt to Arbitrate the matter before filing the same Court and prayed for the Application for stay of execution to be granted.

Counsel for the Respondent submitted that the Applicant was served with the Court Process on the 5th of October 2021 as per the Affidavit of service on the Court record and that the learned Deputy Registrar based on it to enter the Default Judgment. Counsel submitted that upon being served with Court process, the Applicant instructed Mr. Mugoma to file a notice of instruction on 23rd August 2022 and this was before a Default Judgment was entered. That the Applicant has been engaging the Respondent through a litany of emails in one of which she admits that someone called her about the Court process, admitted liability and her willingness to pay Ugx $1,000,000/$ = monthly.

On the issue of the Arbitration clause, counsel for the Respondent submitted that the position of the law has since changed that disputes relating to a Cooperative Society and its members can in fact be brought straight to Court without invoking the Arbitration clause. He cited section 55 AAA of the Cooperative Societies Amendment Act, 2020 and stated that the position of the law over rides the Arbitration clause. Counsel submitted that the debt is not denied and that the Applicant has started paying Ugx $1,000,000/$ = monthly to the Respondent and

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therefore there is no dispute to be referred to Arbitration. He stated that the Application is a gimmick to delay the recovery process in line with the fact that the Applicant has proposed various payment options and failed to fulfill part of her bargain; and that if Court is inclined to grant this Application, there should be an order to deposit of Ugx $10,000,000/$ = in Court.

Counsel for the Applicant in reply submitted that section 55 AAA referred to by counsel for the Respondent states that the dispute should be referred to Court for the Registrar to appoint an Arbitrator which is not the same as to adjudicate the matter; and that since the Applicant is already paying, there is no reason why an order should be made for her to deposit Ugx $10,000,000/$ = in Court.

### **RULING**

I have read and considered the pleadings and submissions of the parties in this matter. The main Issue for determination by this Court is **whether this is a proper** case for granting an order for stay of execution pending an application for setting aside judgment in the main suit.

The Applicant brought this Application under Order 36 rule 11 of the Civil Procedure Rules (CPR) for stay of execution of judgment entered against her in Civil Suit 655 of 2021. Suffice it to note that although counsel for the Applicant informed Court that there is a separate application for setting aside the judgment in the main suit that had not been set down for hearing, it would have been prudent for counsel to file one application seeking both orders to avoid multiplicity of suits and save court's precious time.

Having said that, Counsel for the Applicant brought to the attention of Court the fact that clause 16 of the Agreement between the parties marked as Annexure AA in the Applicant's Affidavit in support required any dispute to be referred to Arbitration and that the parties were meant to first attempt Arbitration before filing the matter in Court.

Counsel for the Respondent, however, submitted that the position of the law has since changed and section 55 AAA of the Cooperatives Societies Amendment Act, 2020 requires that where there is a dispute of the nature in this case, the same should be referred to Courts. Counsel argued that the debt in question is not denied and there is no dispute to refer to Arbitration and that the Applicant is already paying Ugx $1,000,000/=$ on a monthly basis.

Counsel for the Applicant submitted in rejoinder that the said Cooperative Societies Amendment Act does not require the matter to be referred to Court for Adjudication but to appoint an Arbitrator.

Clause 16 of the Loan Agreement between the Applicant and Respondent states as follows:

### I6. DISPUTE RESOLUTION

a) Disputes arising out of this Agreement shall be first referred to the SACCO and the Borrowerfor amicable settlement, and Legal Counselfor both parties shall make effort in goodfaith at settlement of any disputes referred to them,'

b) If any dispute cannot be resolved amicably by the said Legal Counsel, such dispute shall be referred to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, Cap 4".

It is clear from clause l6 of the Agreement above that disputes between the parties should first be settled amicably as between the parties themselves with the assistance of their legal counsel, failure of which the disputes shall be referred to arbitration. However, counsel for the Respondent argued that the Cooperative Societies Amendment Act,2020 changed the position and all disputes should be referred to courts of law.

For the avoidance of doubt, section 55 AAA of the Cooperative Societies Amendment Act,2020 is reproduced as below:

### Section 55LL4, Dispute resolution in savings and credit cooperalive socielies

(l) Subject to the provisions of this Act relating to arbitration under settlement of disputes under Part X of the Act, the following shall apply to savings and credit cooperative s oc ieties-

- (a) LYhere there is a dispute and the issues involve loan defaults, fraud or misappropriations, the case shall be immediately referred to the courts by the society. - (b)The registrar shall prescribe the qualifications ofarbitrators to resolve issues in savings and credit cooperative societies; - (c)The board in consultationwith the members shall identify the persons to be appointed as arbitrators under paragraph (b).

Since the provision refers to Part X of the Cooperative Societies Act, I will also reproduce some ofthe sections that speak to Arbitration under the said part that are relevant to this case.

\\$^'\

#### Section 73. Settlement of disputes.

(1) If any dispute touching the business of a registered society arises-

(a) Among the members, past members and persons claiming through the *members, past members and deceased members;*

(b) between a member, past member or person claiming through a member, past member or deceased member, and the society, its committee or any officer or past *officer of the society;*

(d) between the society and any other registered society, the dispute shall be referred to an arbitrator or arbitrators for decision.

(2) A claim by a registered society for any debt or demand or demand due to it from a member, past member or the nominee, heir or legal representative of a deceased member, whether the debt or demand be admitted or not, shall be deemed to be a dispute within the meaning of subsection $(1)$ .

My understanding of section 55AAA of the amended Act above read together with **Part X** of the Act is that any dispute **including a claim by a registered society for** any debt or demand or demand due to it from a member whether admitted or not shall be referred for arbitration and therefore, the referral to the courts of law mentioned in section 55AAA is solely for the registrar of the court to activate the arbitral proceedings by prescribing the qualifications of the arbitrators to resolve issues arising between the parties and not for adjudication of the same.

I agree with counsel for the Applicant that this is a dispute between the parties regarding unpaid sums or a debt that the parties freely agreed to refer to arbitration and the said position is clearly backed by the law cited above.

According to Section 5 of the Arbitration and Conciliation Act (Cap 4), when proceedings are brought before a judge or magistrate in a matter that is subject to an arbitration agreement, the judge or magistrate shall refer the matter back to arbitration unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed; or that there is no dispute to necessitate reference to arbitration.

Further, section 9 of the same Act also provides that except as provided in this Act, no court shall intervene in matters governed by this Act.

The Arbitration and Conciliation Act is very clear about the role of Courts where arbitration clauses are included in agreements between parties and it is the duty of this Court to enforce the agreement freely entered into by the parties in this matter.

Given the further backing of the law as seen in the Cooperative Societies (Amendment) Act2020,l find that this application (which arose out of a dispute that is the subject in Civil Suit 655 of 2021 and should not have been filed in this Court in the first place but rather referred to arbitration in accordance with the Agreement between the parties and the Arbitration and Conciliation Act) is irregular and illegally before this Court.

Once an illegality is brought to the attention of Court, it overrides all pleadings and the Court cannot condone the same (Makula International v His Eminence Cardinal Nsubuga and Another (1982) HCB 11).

In the result and from all the fore going, this Court is unable to grant the orders prayed for by the Applicant in the present Application which arises from an illegality.

In the circumstances, I do not find it necessary to delve further into the main issue as stated above.

The application is dismissed accordingly with no order as to costs.

HON. LADY JUSTICE ANNA B. MUGENYI DArED....... ..... u..1.1.1.. xo.\*l.......