Ngamita v The Living Room Limited & Another (Civil Appeal 90 of 2023) [2025] UGCommC 49 (4 April 2025)

Full Case Text

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# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

### CIVIL APPEAL NO. 0090 OF 2023

#### (ARISING FROM CIVIL SUIT NO. 137 OF 2018)

PATIENCE NGAMITA...................................

**VERSUS**

#### $10$

$\mathsf{S}$

#### 1. THE LIVING ROOM LTD

2. KUMAKECH ISAAC...................................

#### BEFORE HON. JUSTICE RICHARD WEJULI WABWIRE

#### 15

### **JUDGMENT**

#### **INTRODUCTION**

This is an Appeal from LDC Magistrate Court in which the Appellant is dissatisfied with the entire judgement and orders of the Trial Magistrate. The grounds of Appeal are set out in the Memorandum of Appeal as follows;

1. That the learned Trial Magistrate erred in law and fact when he neglected to make a ruling on the Appellant's preliminary objection raised on the 12th day of March 2019.

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- 2. That the learned Trial Magistrate erred in law and fact when he allowed an unqualified person to participate in the proceedings as an Advocate for the Respondent. - 3. That the learned Trial Magistrate erred in law and fact when he neglected to identify which of the various duties of the Director under the law, the Appellant failed to fulfil. - 4. That the learned Trial Magistrate erred in law and fact when he held that the Appellant was fraudulent when she hoodwinked the 2nd Respondent leading to loss of monies in a disguised love arrangement. - 5. That the learned Trial Magistrate erred in law and fact when he misapplied the law and evidence as adduced before the trial Court thereby arriving at a wrong decision that the money was intended for business and as such was recoverable. - 6. That the learned Trial Magistrate erred in law and fact when he awarded the Appellant to pay an unjustified sum of Ugshs. 14,952,335 (Uganda Shillings Fourteen Million Nine Hundred Fifty Two Thousand Three Hundred Thirty Five) at an excessive interest rate of 25% per annum from the date of cause of action till payment in full. - 7. That the learned Trial Magistrate erred in law and fact when he awarded an excessive and unjustified sum of UGX 1,000,000 (Uganda Shillings One Million) as punitive damages.

### **BACKGROUND**

The Respondents instituted Civil Suit No. 137 of 2018 against the Appellant, seeking 45 a declaration that the Appellant acted in breach of her duties as a director in the 1st Respondent and committed fraud against the Respondents, an order that the Appellant refund about UGX 15,952,355/, punitive damages and costs of the suit. On 7th September 2023, the learned Trial Magistrate, His Worship Kirya Martins, delivered a judgment in Civil Suit No. 137 of 2018 wherein he found that the 50 Appellant acted fraudulently when she hoodwinked the 2nd Respondent leading to RUIU

$25$

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loss of monies in a disguised love arrangement and directed the Appellant to pay UGX 14,952,335 (Uganda Shillings Fourteen Million Nine Hundred Fifty two thousand and three hundred thirty five) at an interest of 25% per annum from the date of cause of action till payment in full, punitive damages of UGX. 1,000,000/ (Uganda Shillings One Million) and costs for the suit. The Appellant was dissatisfied with the whole judgement and orders of the learned Trial Magistrate hence the Appeal to this Court.

#### **REPRESENTATION**

The Appellant was represented by M/s Gem Advocates while the Respondents were 60 jointly represented by M/s LEX Uganda Advocates and Solicitors and Mwesige, Mugisha and Co. Advocates. Both parties filed written submissions which have been duly adopted for purposes of determining the Appeal.

In their submissions, the Respondents raised the following three preliminary objections which will be dealt with first before dealing with the merits of the Appeal; 65

- 1. The Appellant did not serve the Respondents with a copy of the certified copy of the Record of proceedings - 2. The Appellant did not comply with Court's directives in respect of filing and serving written submissions; and

3. The Appellant has continuously failed to comply with Court orders 70 "THE APPELLANT DID NOT SERVE THE **OBJECTION 1:** RESPONDENTS WITH A COPY OF THE CERTIFIED COPY OF THE **RECORD OF PROCEEDINGS."**

In respect to this objection, the Respondents' Counsel submitted that they have never been served with a certified Record of proceedings in the Appeal and are 75 therefore unable to defend their clients properly and prayed that the Appeal be dismissed.

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In reply the Appellant submitted that service of a Record of proceedings is not mandatory when handling Appeals from the Magistrates Court to the High Court of Uganda. That the Appellant had no legal obligation to obtain and serve the Respondents with a copy of the certified Record of proceedings however, all parties, including the Respondents had the power to request for the same if they needed it for purposes of pursuing the Appeal. Counsel prayed that Court be pleased to overrule this point of law.

#### **COURT'S DETERMINATION** 85

#### Order 43 Rule 10(3) of the Civil Procedure Rules provides that;

"Either party may apply in writing to the Court from whose decree the Appeal is preferred, specifying any of the papers of the Court of which he or she requires copies to be made; and copies shall be made at the expense of, and given to, the applicant on payment of the requisite charge."

This was re-emphasised in Obote David v Odora Yasoni, HCCA No. 14/2023 where Court in referring to the above rule observed that;

"The same Rule makes provision for the parties and their Counsel to also obtain the same documents for purposes of pursuing and conducting their Appeals to the High Court."

This was further re-echoed in Matanda Fred & 2 Ors v Nabutsale Iren Racheal, 95 CA No. $20/2023$ , where Court held that;

> What is in contention, however, is whether an Appellant is duty-bound to effect service of the Record of proceedings on the Respondent. Whereas Order 49 Rule 2 enumerates specific items to be served in the manner provided for the service of summons, the Civil Procedure Act and the Magistrates Court Act do not provide that records of proceedings must be served in an Appeal from the Magistrates Court to the High Court. It is further evident that order 43 rule 11 of the Civil Procedure Rules, only provides for the Appellant to serve a hearing notice on the Respondent, which in this case was effected on counsel for the

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Respondent as evidenced by a copy of the hearing notice filed on $18th$ July 2023. What can be discerned from the above provisions, Order 43 rule 10(3), is that a party who is desirous of a copy of the judgment and record of proceeding may apply for the same from the Court upon payment of the requisite fees.'

From the above authorities and provisions of the law as cited by the Appellant, I am inclined to agree with the Appellant's submissions that service of a Record of proceedings is not mandatory when handling Appeals from the Magistrates Court to the High Court of Uganda. Order 43 rule 10(3) of the CPR makes it clear that whoever is desirous of a copy of the Record of proceedings may apply for the same from the Court appealed from upon payment of requisite fees.

The Appellant was therefore under no legal obligation to obtain and serve the Respondents with a copy of the certified Record of proceedings but rather the 115 Respondents could and ought to have applied for it if they so needed it so that they could professionally and properly defend their client as alleged.

I find no merit in this objection and the same is accordingly overruled.

## OBJECTION 2: "THE APPELLANT DID NOT COMPLY WITH COURT'S DIRECTIVES IN RESPECT OF FILING AND SERVING 120 **WRITTEN SUBMISSIONS."**

The Respondents' Counsel submitted that Court gave directives on filing written submissions but the Appellants did not comply with the directives. He prayed that Court find that the Appellant's failure to file submissions within the directed time be construed as abandonment of their grounds of Appeal and the Appeal be dismissed accordingly.

In reply the Appellant's Counsel submitted that its Counsel's duty to file written submissions and any delay to file the same cannot be visited on the innocent litigant

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(Appellant). That it is in the interest of justice that the Appellant's submissions are admitted and relied upon by this honourable Court since the Respondents will not and has not suffered any prejudice due to the delay or if there is any prejudice caused by the late filing of the submissions, Respondents can seek leave on Court to file submissions in rejoinder or supplementary submissions on any issues raised in the Appellant's submissions that are not responded to in their submissions. See **Haruna** Ssentogo v Orient Bank Ltd, Consolidated Civil Suit No. 464 of 2018 & Civil

Suit No. 36 of 2019. Counsel prayed that this point of law be overruled.

#### **COURT'S DETERMINATION**

The Respondents contended that the Appellants failed to comply with the Court's directives on filing written submissions within the prescribed timelines and argued that such failure should be construed as an abandonment of the appeal. They prayed that the appeal be dismissed accordingly.

In response, the Appellants submitted that the failure to file submissions within time was attributable to Counsel's inadvertence and not the fault of the Appellant. They argued that any delay on the part of Counsel should not be visited upon the litigant,

particularly where no prejudice has been occasioned to the Respondents. They cited 145 Haruna Ssentogo v Orient Bank Ltd, Consolidated (supra), where the Court emphasized that the duty to file submissions lies with Counsel and not with the litigant.

Similarly, in New Vision Printing & Publishing Co. Ltd v Maj. Gen. (Rtd)

Kahinda Otafiire, MA No. 383 of 2020, the Court held that delays occasioned by 150 Counsel in personally handling a matter cannot be attributed to the litigant, and such delay, particularly in filing submissions, is not an essential factor in determining whether sufficient cause exists to validate a procedural step.

In the present case, the record shows that the Appellant's Counsel did not deny the delay in filing submissions, but explained, through a letter dated 12th December 155

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2024, that the delay resulted from Counsel being on leave and returning to office on 9th December 2024. The Respondents did not demonstrate any specific prejudice suffered as a result of the delayed filing.

Under Section 98 of the Civil Procedure Act, this Court is empowered to make orders necessary for the ends of justice or to prevent abuse of the Court process. 160 Guided by the above authorities and the overriding objective of substantive justice, the Court finds that penalizing the Appellant for Counsel's lapse would be unjust, especially where no prejudice has been shown.

Accordingly, the objection is overruled. As no injustice has been occasioned to the Respondents, and moreover, it being in the interest of justice to do so, the 165 Appellant's belatedly filed written submissions are validated and admitted on record.

# **OBJECTION 3: "THE APPELLANT HAS CONTINUOUSLY FAILED** TO COMPLY WITH COURT ORDERS."

The Respondents' Counsel submitted that the Appellant did not comply with the lower Court order of depositing Ugx. 7,500,000/as security for due performance of 170 the decree. He prayed that the Appeal be struck out for non-prosecution.

In reply the Appellant's Counsel submitted that orders on the failure to pay security for due performance have no binding on this Appeal. That the order that the Respondent seeks this honourable Court to find the Appellant in contempt lapsed because the order of Court in Miscellaneous Application No. 100 of 2023 was a 175 conditional order with a specified life span. The said order was intended to lapse within one month if the Appellant did not comply. That the alleged failure by the Appellant to comply with the said order attracts a different penalty which has no bearing on the determination of the Appeal before this Court and prayed that Court overrule this objection. 180

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#### **COURT'S DETERMINATION**

The record confirms that the Respondents filed Miscellaneous Application No. 100 of 2023 before the Chief Magistrate's Court of Kampala at LDC, seeking a stay of 185 execution of the orders issued in Civil Suit No. 137 of 2018. On 22nd May 2024, the Trial Magistrate granted the stay, but conditionally—requiring the Appellant to deposit half of the decretal sum (UGX 7,500,000) as security for due performance within one month.

It is undisputed from the submissions that the Appellant failed to comply with the 190 conditional order. Consequently, the stay of execution order automatically lapsed upon non-compliance, and the Respondents were legally entitled to proceed with execution of the decree.

The legal position in such circumstances is aptly illustrated in *Haruna Sentongo v Orient Bank Ltd*, CACA No. 95 of 2023, where the Court held:

"... the applicant is asking for interim to stay the enforcement of an order which has in effect actually lapsed. So basically this application has been overtaken by events. Court does not issue orders in vain. That order does not exist. Its effect stopped on the 30th February 2023—2 weeks ago."

Similarly, in the present case, the conditional stay order ceased to have effect one 200 month after issuance due to non-compliance by the Appellant. Therefore, the order is deemed to have lapsed and no longer exists in law. It follows that the Appellant cannot be held in contempt of an order that was no longer in force.

The Respondents, in such circumstances, were within their rights to proceed with execution. There is therefore no merit in this objection.

Accordingly, the objection is overruled.

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#### **MERITS OF THE APPEAL**

#### GROUND 1: THE LEARNED TRIAL MAGISTRATE ERRED IN 210 LAW AND FACT WHEN HE NEGLECTED TO MAKE A RULING ON THE APPELLANT'S PRELIMINARY OBJECTION RAISED ON THE $12$ TH DAY OF MARCH 2019.

In respect to this ground, the Appellant's Counsel submitted that the Learned Trial Magistrate's failure to deliver a ruling on the preliminary objection raised by Counsel 215 for the Appellant amounts to an incurable irregularity that goes to the root of the matter. According to the Appellant's submissions, on 19th February 2019, Counsel for the Appellant raised a preliminary objection to the effect that the Plaint did not comply with Order 6 Rule 3 of the Civil Procedure Rules on grounds that the particulars of trust and breach of duties were not pleaded in the Plaint. 220

That Counsel for the Appellant made oral submissions to that effect to which Counsel for the Respondents replied and Counsel for the Appellants re-joined. That on 14th June 2019, the Learned Trial Magistrate then, Her Worship Nsenge Roseline, deferred her ruling on the preliminary point of law until after the hearing of the suit

because it was necessary to hear the evidence to enable this Court to decide whether 225 a cause of action is disclosed or not. That however, when the judgment was delivered on 7th September 2023, the Trial Magistrate did not deliver the ruling on the preliminary point of law.

Counsel submitted that the said procedural irregularity vitiates the judgment of the Trial Magistrate in Civil Suit No. 137 of 2018 and prayed that the same be quashed $230$ and set aside.

In reply the Respondents' Counsel submitted that the Appellant has never served on them the typed and certified Record of proceedings or a prepared Record of Appeal or written submissions in that respect. That as such they are unable to appreciate the exact point of law which the trial Court is faulted to have not ruled upon. PULU

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That the Appellant has not pointed out whether any of her constitutional rights was infringed upon due to failure of making a finding on the preliminary objection or that it was capable of disposing off the entire suit without a full trial.

Counsel further submitted that facts regarding breach of trust were pleaded in 240 paragraph $4(d(i)$ and J and 5 and 6 of the Plaint.

In rejoinder, the Appellant's Counsel reiterated their earlier submissions and further submitted that compliance with Order 6 Rule 3 of the Civil Procedure Rules is mandatory and failure to comply with it amounts to a fundamental defect and irregularity that is not curable by evidence or otherwise.

#### **COURT'S DETERMINATION**

The Respondents submitted that they did not know about the objection because they had not been served with the Record of proceedings, however the issue of the Record of proceedings was already dealt with and it was established that Appellants were not obligated to serve the record on the Respondents. But rather the Respondents could apply for it from the lower Court if they so needed it.

In compliance with the law, this Court was availed a record which confirms that indeed the said objection existed and both parties made submissions in its respect and the Trial Magistrate at the time deferred its ruling.

- As rightly submitted by the Appellant's Counsel, the previous Trial Magistrate in the 255 matter, Her Worship Nsenge Roseline, deferred the Court's ruling on the objection until after the hearing of the suit because she considered it necessary to hear the evidence to enable Court to decide whether a cause of action on particulars of breach and trust are disclosed or not. In doing so, she was well within the law which gives - her the discretion to determine whether a point of law should be heard and 260 determined immediately before admitting evidence or after admitting it. The learned magistrate opted for the latter.

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Page 10 of 30 The major issue herein is the fact that the judgment of the Trial Magistrate who took over from HW Nsenge does not seem to have addressed this particular objection. The objection in question was in respect to particularising breach of trust.

Order 6 Rule 3 of the Civil Procedure Rules lays down the mandatory rule on particularising breach of trust, duties and other aspects in a pleading.

In Civil Suit No. 27 of 2022, Nagawa Agnes & Anor V Segawa Samuel & 8 Ors, the Court observed that;

- 'this rule has been variously interpreted in several cases where fraud is alleged. The rule 270 applies to cases of misrepresentation, fraud, and breach of trust wilful default or undue influence. Consequently, the requirements for pleading fraud are the same as the requirements for pleading misrepresentation, breach of trust, wilful default or undue influence.' - In the case of Lubega vs. Barclays Bank [1990 1994] EA 294, the Supreme 275 Court as per Justice Manyindo DCJ, as he then was, at page 303, held that as far as fraud is concerned the requirement is that particulars of the alleged fraud are pleaded. This principle is embedded in order 6 rule 3 of the CPR which I have already cited. In my mind, failure to plead and particulars of fraud is a fundamental defect and not - an irregularity curable by evidence or otherwise. Fraud must be pleaded and proved. 280 In Okello vs. Uganda National Examinations Board CA No. 12/1987 reported in [1993] Il KALR 133 at 135 Lubogo Ag. JSC, as he then was, held that Order 6 rule 3 of the CPR is mandatory in that the particulars of fraud and dates regarding the alleged fraud should be given. It is a mandatory requirement that fraud has to be - pleaded and particulars given for it to be proved. Failure to do that is fatal. 285

The purpose of providing such particulars is to give fair notice of the case which has to be met so that the opposing party may direct his evidence to the issues disclosed by them. See Nile Breweries Ltd v Bruno Ozunga TIA Nebbi Boss Stores, Civil Suit No. 580 of 2006.

PULLI

- The Respondent's arguments on trusts is misplaced in this matter because the 290 requirements of law under Order 6 Rule 3 of the Civil Procedure Rules are mandatory and there are no exceptions provided therein for any specific types of trusts. - In the instant Appeal, the Respondent did not comply with Order 6 Rule 3. The Appellant did not know which duties of a director she was defending against. The 295 Appellant was not given a fair trial to defend against breach of identified specified and particularised duties that were alleged to have been breached.

The Respondents argue that the transactions between the parties created a constructive trust and therefore the Appellant's duties were implied by law.

In Civil Suit No. 352 of 2020, Peter Ziruntusa alias Peter Campbell v Mbabazi 300 Meribel Resty & 3 Ors, the Court observed that;

> The presumption of a constructive trust or resulting trust may be displaced if there is no sufficient evidence of an express or inferred common intention that the parties should hold their interest in the property in a different proportion to their contributions. If there is evidence that one party intended to benefit another party with the amount which he or she baid, then the presumption of constructive trust or resulting trust would not apply. In such cases, the party who paid the money would be regarded as making a gift to the other person."

Whether or not it was constructive trust does not exempt the Respondents from complying with the mandatory requirements of Order 6 Rule 3 of the Civil Procedure Rules. Compliance with Order 6 Rule 3 of the Civil Procedure Rules is 310 mandatory and failure to comply with it amounts to a fundamental defect and irregularity that is not curable by evidence or otherwise. See Nagawa Agnes & Anor v Segawa Samuel & 8 Ors, Civil Suit No. 27 of 2022.

The East African Court of Justice in The Attorney General of Uganda v Media Legal Defence Initiative (Ml-DI) & 19 Ors, EACJ Civil Appeal No. 3 of 2016, 315 observed that:

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It is settled law that a Court seized with a preliminary objection, is first of all enjoined by law to determine it before going into the merits of the case before it and failure to do so amounts to an incurable irregularity... From our discussion on this Issue we arrived at one conclusive finding. This is that the Trial Court actually so erred in law and procedurally. The error was incurable and vitiated the impugned Ruling which we have quashed and set aside.'

In the said case, Court relied on the findings in Civil Application No. 98 of2011 (unreported), Thabit R. Maziku and Kisuku S. Kaptula v Amina K. Tyela and Mrajis wa Nyaraka Zanzibar (CAT) where it was held that;

... failure by the trial Court to deliver the ruling on the point of preliminary objection... constituted a colossal procedural flaw that went to the root of the matter. It matters not, whether it was inadvertent or not. The Trial Court was duty bound to dispose of it fully by pronouncement of the Ruling (on it) before dealing with the merits of the suit, this it did not do. The result is to render all the subsequent proceedings a nullity.'

In that case, Court finds that failure by the trial Court to deliver the ruling on the preliminary objection was an incurable irregularity which warrants quashing and setting aside the judgment of the trial Court. Ground one is allowed.

## THAT THE LEARNED TRIAL MAGISTRATE ERRED GROUND 2: IN LAW AND FACT WHEN HE ALLOWED AN UNQUALIFIED 335 PERSON TO PARTICIPATE IN THE PROCEEDINGS AS AN ADVOCATE FOR THE RESPONDENT.

The Appellant's Counsel submitted that the proceedings by an unqualified Advocate are null and void. That according to the Roll of Advocates which is accessible on the judiciary website, Counsel for the Respondents, Nicholas Bandonda, was not an enrolled Advocate by 7th September 2023, when the decision of Court was made. That according to the Record of proceedings, Mr. Bandonda Nicholas represented the Respondent in Court on 23rd March 2023 and was also captured in the judgment as Counsel for the Respondents at page 3 and 14 of the judgment. That it is a criminal

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PULLI

offence for a person to hold out as an Advocate or to practice law without a valid 345 practising certificate and Court cannot condone such. Counsel prayed that Court find that the learned Trial Magistrate erred in law and fact when he allowed an unqualified Advocate to participate in the proceedings in Civil Suit No. 137 of 2018 and accordingly, all proceedings and orders arising therefrom are null and void and ought to be set aside. 350

In reply, the Respondent's Counsel submitted that several Advocates attended on behalf of the Plaintiff and that the Appellant didn't list which particular Advocate was holding out. He further submitted that this mischief was remedied by an amendment to the Advocates Act Cap. 267 in 2002 which introduced S.14A of the

Advocates (Amendment Act) which is now S.21 (1) b) of the Advocates Act Cap. 355 295 which protects clients who by misfortune land in the hands of people holding out as Advocates. Counsel prayed that this ground be dismissed.

In rejoinder the Appellant's Counsel reiterated their earlier submissions and further submitted that a litigant is not automatically protected under the Advocates Act because the litigant has a duty to investigate and ensure that he or she is instructing 360 an authorized person to appear in Court as his Advocate.

## **COURT'S DETERMINATION**

Unlike the Respondents' submission that the Appellant did not list which particular Advocate was holding out, the Appellant in their submissions clearly state that the Advocate being referred to is Mr. Bandonda Nicholas.

As rightly submitted by the Appellant, the Record of proceedings shows that Mr. Bandonda Nicholas represented the Plaintiffs/Respondents herein in Court on 23rd March 2023 and even cross examined a witness on the same day.

The judgment of the Court dated 7th September 2023 as well confirms that Mr. Bandonda Nicholas was the Plaintiff's representative. 370

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According to the roll of Advocates on the judiciary website, Mr. Bandonda Nicholas was enrolled on 18th July 2023. This implies that on 23rd March 2023 when Mr. Bandonda Nicholas represented the Plaintiffs/Respondents in Court, he was not yet an enrolled Advocate and was therefore holding out at the time. The Respondents' Counsel prayed that as a result all proceedings and orders arising therefrom be considered null and void and be set aside.

S.21 of the Advocates Act Cap. 295 provides that;

$(1)$ Where—

$(a)$ ...

$(ii)$ ...

(b)in any proceedings, for any reason, an Advocate is lawfully denied audience or authority to represent a party by any Court or tribunal; then—

(i) no pleading or contract or other document made or action taken by the Advocate on behalf of any client shall be invalidated by any such event; and in the case of any proceedings, the case of the client shall not be dismissed by reason of any such event; and

(2) An Advocate not in possession of a valid practising certificate or whose certificate has been suspended or cancelled and who practices as an Advocate, commits professional misconduct; and the Law Council or any person may make a complaint to the Disciplinary *Committee in respect of the misconduct; and subsection* $(1)(b)(i)$ *and* $(b)(ii)$ *shall apply with* necessary modifications."

On this basis therefore, the proceedings and orders arising therefrom are not null and void and cannot be set aside but rather the Advocate, Mr Bandonda Nicholas, professional misconduct when he represented the committed Plaintiffs/Respondents without a valid practising certificate at the time.

Ground two is allowed. 395

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# THAT THE LEARNED TRIAL MAGISTRATE ERRED GROUND 3: IN LAW AND FACT WHEN HE NEGLECTED TO IDENTIFY WHICH OF THE VARIOUS DUTIES OF THE DIRECTOR UNDER THE LAW, THE APPELLANT FAILED TO FULFIL.

The Appellant's Counsel submitted that this error stems from Court's failure to rule on the Respondents breach of Order 6 Rule 3 of the Civil Procedure Rule. That the Respondent instituted Civil Suit No. 137 of 2018 seeking a declaration that the Appellant was in breach of her duties as Director of the 1st Respondent and that she committed fraud against the Respondents.

That despite alleging breach of duty by the Appellant, the 1st Respondent did not particularize the specific legal duties of a director that had been breached by the Appellant or the damage caused to the $1^{st}$ Respondent.

That the learned Trial Magistrate in his determination of the matter, merged issue one on breach of duty with issue two on fraud yet fraud and breach of duty are 410 distinct causes of action. That by merging the two issues before Court, the Trial Magistrate neglected to resolve the issue in respect to breach of duty by the Appellant and in his judgment neither identified the specific duties that the Appellant had breached nor made a determination on whether any duties were breached by the Appellant in her role as a director in the 1st Respondent. 415

In reply the Respondents' Counsel submitted that according to PEX6 (company form 20) the Appellant and the 2nd Respondent are directors in the 1st Respondent. That paragraphs 4, 5 and 6 of the Plaint clearly brought it out to the Appellant's notice that the complaint related to her failure to apply the money received from the 2nd Respondent to the 1st Respondent which were matters to do with trust and

accountability duties. In rejoinder counsel reiterated their earlier submissions and further submitted that

paragraphs 4, 5 and 6 of the Plaint states out the facts of the case and claim against the Appellant. That according to Order 6 Rule 3 of the Civil Procedure Rules, the

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Respondent had a duty to specifically plead the facts for cases of misrepresentation, 425 fraud, and breach of trust, wilful default or undue influence. That the burden of proof during the hearing of Civil Suit No. 137 of 2018, lay on the Respondents to prove that the Appellant acted in breach of her duties as director in the 1st Respondent.

#### COURT'S DETERMINATION 430

I have carefully considered the Appellant's contention that the Trial Magistrate erred by failing to identify which specific legal duties, owed by a director, the Appellant allegedly breached.

The basis of the Respondents' claim in the lower court was that the Appellant, in her capacity as a director of the 1st Respondent Company, breached her duties, 435 particularly relating to trust and accountability, by allegedly misappropriating funds intended for the company.

While the Trial Magistrate framed and merged the issues of breach of duty and fraud, no distinct findings were made with respect to which director's duties were breached, nor how the evidence substantiated any such breach. The judgment merely concluded that the Appellant "hoodwinked" the 2nd Respondent and acted

fraudulently, without anchoring such a conclusion in any clearly articulated legal duty

under company law.

It is settled company law that directors owe fiduciary duties to the companies they serve. These duties are not merely moral expectations, but legally binding obligations 445 imposed under common law and codified under statutes and jurisprudence governing corporate governance.

One of the primary fiduciary duties a director owes is the duty of trust and loyalty to the company. This duty includes the obligation to:

- Act honestly and in good faith in the best interests of the company; 450 $\mathbf{1}.$ - 2. Avoid conflicts of interest and personal gain at the company's expense;

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- Ensure accountability for company property and finances; $3.$ - Act with reasonable skill, care, and diligence, as would be expected of a person $4.$ in such a position. - These duties are foundational and are owed to the company, not to individual 455 shareholders or co-directors. In Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, the House of Lords famously emphasized that directors must not profit from their positions without full disclosure and approval. Likewise, in Cook v Deeks [1916] 1 AC 554, it was held that directors must not divert business opportunities or funds for personal use. 460

In Uganda, the principle that fiduciary duties are owed by directors is recognized under common law and amplified by legal scholarship and persuasive jurisprudence from commonwealth jurisdictions. The duty of trust is not optional or implied, it is integral to the office of a director.

- Despite these well-established principles, the Trial Magistrate did not identify any 465 specific fiduciary duty that the Appellant, as director, allegedly breached, did not examine the evidence in light of these duties nor did he assess whether the Appellant's conduct constituted a breach of her duty to act in the best interest of the 1st Respondent. - This omission is not merely technical, it strikes at the core of the claim. A Court 470 determining a case of alleged breach of directors' duties must explicitly identify the duty, examine the facts relevant to that duty, and then evaluate whether a breach occurred. Without identifying the duty breached, no proper basis exists for holding the Appellant liable in her capacity as a director. As such, the judgment is legally deficient in that respect. 475

The Appellant rightly argued that Order 6 Rule 3 of the Civil Procedure Rules requires that allegations of breach of trust, misrepresentation, fraud, wilful default, or undue influence be specifically pleaded and particularized.

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In this case, while the Respondents alleged breach of trust, they failed to:

### 480

- Particularize the fiduciary duties in question; $\overline{a}$ . - Specify the acts or omissions constituting the breach; b. - Demonstrate how the alleged breach harmed the 1st Respondent Company. $\mathbf{c}$ .

As a result, the Respondents failed to provide a clear cause of action upon which the Appellant could effectively defend herself, contrary to the principles of fair trial and procedural fairness.

This failure to comply with Order 6 Rule 3 is not a curable irregularity—it is a fundamental procedural defect. As held in Okello v Uganda National Examinations Board [1993] II KALR 133, and reaffirmed in Nagawa Agnes & Anor v Segawa Samuel & 8 Ors, CS No. 27 of 2022, such defects are fatal to the pleadings and cannot be salvaged by evidence at trial.

In light of the foregoing, I find that:

- 1. The fiduciary duty of trust is a recognized legal obligation owed by directors to their companies. - The Trial Magistrate's failure to identify the breached duty, evaluate the $2.$ evidence against it, and make specific findings, renders the decision on breach of duty legally unsustainable. - The Respondents' failure to plead and particularize the alleged breach, as $3.$ required under Order 6 Rule 3, further supports the conclusion that no valid cause of action was established in respect of breach of director's duty. - Accordingly, Ground 3 of the Appeal succeeds. 500

GROUND 4: THAT THE LEARNED TRIAL MAGISTRATE ERRED IN LAW AND FACT WHEN HE HELD THAT THE APPELLANT WAS FRAUDULENT WHEN SHE HOODWINKED THE 2ND RESPONDENT

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#### LOSS OF MONIES IN A DISGUISED LOVE LEADING TO ARRANGEMENT. 505

The Appellant's Counsel submitted that the Appellant and 2nd Respondent had a loving and committed relationship until October 2017, when the relationship ended. That upon its demise, the 2nd Respondent instituted Civil Suit No. 137 of 2018 against the Appellant alleging that the Appellant had defrauded him by taking money from him under the guise of opening up a bar and restaurant business. That

as a result of this relationship, the Appellant and 2nd Respondent agreed to incorporate the 1st Respondent on 24th April 2017. That there was no dispute regarding the operations of the 1st Respondent until October 2017 when the Appellant and the 2nd Respondent ended their relationship. Counsel submitted that according to the evidence before this Court, the 2nd Respondent, as a caring 515 boyfriend, agreed to open a business for the Appellant to deal in bar and restaurant services.

Counsel further submitted that the magistrate's finding is erroneous since there is no law that bars an employee from submitting a hand written letter and no person with knowledge as to how letters in the corporate world are written was brought to

Court to prove otherwise.

That in his examination in chief, the $2nd$ Respondent led evidence to the effect that the Appellant and himself resolved to open a bank account for the 1st Respondent but no such resolution was admitted into evidence to that effect.

That the learned Trial Magistrate erred in law and fact when he found that the 525 Appellant fraudulently hoodwinked the 2nd Respondent without properly evaluating the evidence on Court record.

In reply the Respondents' counsel submitted that the Appellant engaged in cyber fraud because according to the Respondent's case in the trial, the Appellant and the

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RWW - 2nd Respondent met via Facebook in 2013 and managed their relationship online. 530 That during their relationship the Appellant kept proposing a business idea of a bar and restaurant stating that if given money by the $2^{nd}$ Respondent, she would resign from her job. That in 2016 the business idea was conceived between the parties and in 2017 various monies were sent to the Appellant. Counsel submitted that the hand written resignation letter from FINCA was fake because the Appellant did not resign 535 at all but was rather promoted to another branch. He further submitted that the Appellant's concealment of information that the resignation had been withdrawn and the promotion was fraudulent. He further submitted that the Appellant faked an email of her resignation which only had the subject but no body and no reference to any attachment. That this was all done to hoodwink the 2nd Respondent in 540 believing that she was ready to do private business and send her money and prayed that this ground be dismissed with costs. - In rejoinder the Appellant reiterated their earlier submissions and further submitted that the relationship ended in 2017 upon which the 2nd Respondent instituted a suit against the Appellant claiming that the Appellant had defrauded him money. That 545 the parties never intended for the 1st Respondent to actually operate beyond incorporation of the same as they never opened a bank account for it. That this ground should succeed.

### **COURT'S DETERMINATION**

In his judgment, the learned Trial Magistrate found that the defendant/Appellant 550 was fraudulent because she tried to paint a picture of genuine transactions to hoodwink the $2^{nd}$ Plaintiff/ $2^{nd}$ Respondent.

In the case of Henry Kifamunte - Vs - Uganda (1999) 2 EA 127 the Supreme Court stated as follows:

$\bullet.$

"We agree that on first Appeal from a conviction by a judge the Appellant is entitled to the Appellant Court's own consideration and views of the evidence as a whole and its own decision thereon. The first appellate Court has a duty to re-hear the case and to reconsider

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the materials before the trial judge. The appellate Court must then make up its own mind not disregarding the judgment Appealed from but carefully weighing and considering it. When the question arises which witness is to be believed rather than another and that question arises which witness is to be believed rather than another and that question turns on manner and demeanour, the appellate Court must be guided by the impressions made on the judge who saw the witnesses, but there may be other circumstances quite apart which may show whether a statement is credible or not and which may warrant a Court to differ from the judge even on a question of fact turning on the credibility of a witness which the appellate Court has not seen..."

In evaluation of the evidence of the lower Court, this Court will first seek to understand "fraud", which was extensively defined by the supreme Court in the case of Zabwe Fredrick versus Orient Bank & Others SCCA No. 4 of 2006 as;

An intentional perversion of truth for the purpose of inducing another in reliance upon it 570 to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which deceives and is intended to deceive another so that he shall act upon it to his legal injury."

- The record shows that in her testimony the Appellant testified that she resigned her 575 job in FINCA Mbale in February 2017 but a week later the HR refused her letter and the Appellant continued working with FINCA but at Katwe branch not Mbale. That her relationship with the 2nd Respondent ended in October 2017. - According to the 2nd Respondent's testimony the parties had agreed that the Appellant resigns her job at FINCA so that the $2nd$ Respondent sends her money for 580 the 1st Respondent. Upon the Appellant notifying the 2nd Respondent that she had resigned, the 2nd Respondent sent her money and it is around the same time that the 1st Respondent was incorporated. However, according to the Appellant's testimony, just a week later after resigning, the HR Manager declined the resignation and gave

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her a promotion and a transfer to Katwe branch, a development which the Appellant 585 never notified the 2nd Respondent about.

In my view, this amounts to an intentional perversion of truth about the new appointment and transfer for the purpose of misleading the 2nd Respondent into believing that the 1st Respondent was still ongoing whereas not, so that the Appellant can part with the money sent her by the $2nd$ Respondent. This false representation that the Appellant had resigned to run the 1st Respondent whereas not by concealment of the information that HR declined resignation of Appellant and instead promoted her, is indeed fraudulent misrepresentation by the Appellant. On that note, I am inclined to agree with the learned Trial Magistrate that the Appellant

was fraudulent when she hoodwinked the 2nd Respondent leading to loss of monies. 595 This ground fails.

# GROUND 5: THAT THE LEARNED TRIAL MAGISTRATE ERRED IN LAW AND FACT WHEN HE MISAPPLIED THE LAW AND EVIDENCE AS ADDUCED BEFORE THE TRIAL COURT THEREBY ARRIVING AT A WRONG DECISION THAT THE MONEY WAS 600 INTENDED FOR BUSINESS AND AS SUCH WAS RECOVERABLE.

The Appellant's Counsel submitted that all the monies sent to the Appellant were intended for her maintenance and was not recoverable. That had the learned Trial Magistrate properly evaluated the evidence on record, he would have established that the monies sent to the Appellant by the $2^{nd}$ Respondent were intended for different purposes such as upkeep, maintenance and onward transmission to third parties.

That there is no dispute of the fact that the 2nd Respondent always sent the Appellant money for her up keep and maintenance. That there is no proof on record that that money was deposited with the purpose of accumulating it to start a business in the 610 future. That even after incorporation, the 2nd Respondent was still sending money to the Appellant for different purposes. That it was erroneous for the learned Trial

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Magistrate to find that the money was recoverable without properly evaluating the evidence on record which would prove that the 2nd Respondent sent money to the

Appellant for different reasons. 615

> In reply the Respondents' Counsel submitted that the Appellant alleged that the monies were for her personal upkeep which the Respondent do not agree with.

In rejoinder the Appellant reiterated their earlier submissions and further submitted that the Respondent's arguments are based on presumptions as to the purpose of money allegedly sent to the Appellant's telephone between January 2017 and October 2017. That however, the purpose of the money was for the Appellant's upkeep, rent and mantainence and for onward transmission to the 2nd Respondent's family. That the 2nd Respondent sent money on the Appellant's phone but never explained its purpose.

#### **COURT'S DETERMINATION** 625

The evidence on record confirms that both the Appellant and the 2nd Respondent acknowledged the existence of financial transfers from the 2nd Respondent to the Appellant. The 2nd Respondent testified that he began remitting funds to the Appellant on 11th January 2017, approximately a month before her alleged resignation from employment, and that further payments continued thereafter.

The Trial Magistrate found that, based on the timing, amounts sent, and the context of the relationship, the funds appeared more aligned with an intention to invest than to provide mere upkeep. The Magistrate concluded that the money was recoverable, characterizing it as part of a business understanding between two individuals acting as directors in a pre-incorporation arrangement.

Upon re-evaluating the evidence, this Court notes that multiple transactions indeed occurred between the parties over time. The Appellant testified that as early as May 2013, the 2nd Respondent sent her money through Western Union and via her friend, Mr. Alex Mutaasa, to cover personal upkeep. From May 2014, she began

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receiving mobile money from the 2nd Respondent to cater for rent and general 640 expenses in Busia until their relationship ended in October 2017.

In February 2017, the Appellant moved to Kampala to allegedly pursue a bar business venture with the 2nd Respondent, who then began paying her rent in Namugongo. She also testified that she later received a promotion at work, which led both parties to shelve the business plan, though the 2nd Respondent continued to remit money under the guise of personal support. She further stated that the 2nd

Respondent promised to send UGX 11 million for the business—funds which never materialized—but continued to send money as a demonstration of affection. Part of the money, she noted, was intended for relatives or acquaintances, including transactions backed by documentation. 650.

In contrast, the 2nd Respondent claimed that he sent funds beginning in January 2017 specifically for securing rental premises, after the Appellant allegedly resigned from her job to focus on their joint business. He stated that he funded the business expenses according to a budget sent by the Appellant on 23rd February 2017 and

- that funds were to be disbursed in tranches. He also testified that, despite formal 655 company registration, the Appellant failed to open a business bank account. Upon further inquiry, he discovered the business did not exist and that the Appellant had not, in fact, resigned from her employment. He alleged that the Appellant eventually admitted to using the money to purchase a personal vehicle. - The central issue therefore is not whether money was sent, but the nature of the 660 remittances—whether they constituted business investments recoverable at law or gratuitous support given within a personal relationship.

The Court finds the 2nd Respondent's assertion—that all monies sent after 2016 were strictly for business—unconvincing. Annexure B to the Appellant's statement contains WhatsApp messages dated 29th June 2017 in which the 2nd Respondent appears to send her money for dinner. Annexure C further indicates funds were sent to a third party named Amos. These communications show that not all payments

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were business-related; personal support continued even after the alleged business arrangement had been shelved.

This scenario is analogous to the case of Ziruntusa v Mbabazi & 3 Others, CS 670 No. 352 of 2020, where Justice Musa Ssekaana stated:

"If there is evidence that one party intended to benefit another party with the amount which he or she paid, then the presumption of constructive trust or resulting trust would not apply... The Plaintiff was using 'a sugarcane as a walking stick' and failed to separate the romance from investment/business... The Court cannot convert romantic pleasures and 'pillow talk' into contractual obligations."

Applying this reasoning to the instant case, the 2nd Respondent's conduct indicates that the money was largely sent with the intent to benefit the Appellant personally whether as affection, maintenance, or informal support. There is insufficient clarity or evidence to support the existence of a clear business arrangement or enforceable contractual obligations. As held in Ziruntusa (supra) and further reiterated in Kua Tee Beng v Caiyan [2015] SGHC 53, romantic relationships, even when overlapping with financial exchanges, require well-defined terms if such exchanges are to be regarded as investments or binding business dealings.

- Moreover, as the Appellant testified, the parties were unmarried and cohabiting. The 685 legal position is well-settled that in cases of cohabitation, financial contributions made during the course of such relationships are generally not recoverable unless there is proof of joint ownership—whether through registration, a joint bank account, or other legally cognizable indicia of joint property or enterprise. - In Bigala Freidman v Lornah Namuwenge, CS No. 98 of 2020, the Court 690 reaffirmed that a status of "concubinage" or "meretricious cohabitation" does not confer enforceable rights for recovery of financial contributions unless made under duress or a mistaken belief of marriage.

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In the present case, aside from jointly registering the 1st Respondent company which bore no evidence of operational activity or joint financial arrangements there is no indication of shared accounts, assets, or business undertakings.

In conclusion, the 2nd Respondent has failed to discharge the burden of proving that the funds remitted were part of a business transaction rather than gratuitous support within a personal relationship. The financial exchanges were ambiguous and tainted by the parties' romantic involvement, making it impossible for the Court to

infer the existence of a constructive or resulting trust.

Accordingly, this ground of appeal is allowed.

GROUND 6 AND 7: THAT THE LEARNED TRIAL MAGISTRATE ERRED IN LAW AND FACT WHEN HE AWARDED THE APPELLANT TO PAY AN UNJUSTIFIED SUM OF UGSHS. 14,952,335 (UGANDA 705 SHILLINGS FOURTEEN MILLION NINE HUNDRED FIFTY TWO THOUSAND THREE HUNDRED THIRTY FIVE) AT AN EXCESSIVE INTEREST RATE OF 25% PER ANNUM FROM THE DATE OF CAUSE OF ACTION TILL PAYMENT IN FULL.

THAT THE LEARNED TRIAL MAGISTRATE ERRED IN LAW AND 710 FACT WHEN HE AWARDED AN EXCESSIVE AND UNJUSTIFIED SUM OF UGX 1,000,000 (UGANDA SHILLINGS ONE MILLION) AS PUNITIVE DAMAGES.

The Appellant's Counsel submitted that Court find that the learned Trial Magistrate erred in law and fact when he awarded an excessively high interest of 25% per annum 715 on the decretal sum from the date of cause of action. That the Trial Magistrate awarded the punitive damages without evidence of deceit on Court record which was erroneous. He prayed that the Appeal be granted and judgment set aside with costs to the Appellant.

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In reply the Respondents' Counsel submitted that an interest rate of 25% was 720 justified because the Appellant did not have a legal justification for keeping the money.

In rejoinder the Appellants reiterated their earlier submissions. That the punitive damages were justified because Court found that fraud which is a tort and attracts punitive damages was committed against the Respondents. He prayed that the Appeal be dismissed with costs. In rejoinder the Appellants reiterated their earlier submissions.

### COURT'S DETERMINATION

Grounds 6 and 7 challenge the trial Court's award of UGX 14,952,335 with interest at 25% per annum from the date of cause of action until payment in full, and UGX 730 1,000,000 as punitive damages, which the Appellant contends were both excessive and unjustified in law and fact.

Having re-evaluated the entire body of evidence under Ground 5, this Court found that the money sent by the 2nd Respondent to the Appellant was not solely intended for business investment, but was also intended for personal upkeep, rent,

735 maintenance, and support of relatives, within the broader context of a romantic and cohabiting relationship.

The 2nd Respondent failed to discharge the burden of proving that the financial remittances were made in furtherance of a clearly defined business arrangement enforceable at law. The evidence instead indicated a mixed-purpose transaction, largely informal and unaccompanied by objective indicators of contractual or fiduciary obligations.

In light of these findings, I conclude as follows:

Ground 6: It is a well-established principle that interest should be awarded fairly and reasonably, taking into account the nature of the transaction, applicable commercial rates, and whether a contractual rate was agreed upon. In the absence

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of an agreed rate of interest, the Court must consider prevailing market conditions and the equities of the case to award a just and equitable rate.

In the instant case, no agreement was shown regarding the rate of interest. Moreover, the ambiguous nature of the transactions, straddling between personal and potential business dealings, renders the 25% per annum award manifestly excessive and unjustifiable in the circumstances. The award effectively penalizes the Appellant for sums not definitively proven to constitute recoverable business investments.

# Ground 7: On the Award of UGX 1,000,000 as Punitive Damages

Punitive or exemplary damages are awarded only in exceptional cases, particularly 755 where the defendant's conduct is oppressive, arbitrary, or unconstitutional, or where fraud has been clearly and conclusively established. This principle is derived from Rookes v Barnard [1964] AC 1129 and has been applied in numerous Ugandan decisions including Peter Ziruntusa alias Peter Campbell v Mbabazi Meribel Resty & 3 Ors, HCCS No. 352 of 2020. 760

In this case, although the trial Court found the Appellant to have "hoodwinked" the 2nd Respondent, this Court's independent evaluation concluded that the financial dealings occurred in the context of an ongoing romantic relationship and lacked the degree of calculated fraud or oppressive intent that would warrant an award of punitive damages.

Moreover, as previously discussed under Ground 5, the Respondent's failure to distinguish between personal gifts and business contributions further undermines the justification for a punitive remedy. Punitive damages are not meant to be awarded for failed personal relationships or vague expectations, but rather to deter egregious wrongdoing proven by cogent evidence.

Since the underlying basis for the monetary and punitive awards has not been sufficiently established, both the award of UGX 14,952,335 with 25% interest and UGX 1,000,000 as punitive damages are unjustified in law and fact.

Accordingly, Grounds 6 and 7 of the Appeal succeed.

Under Section 27(1) of the Civil Procedure Act, costs follow the event unless the 775 Court directs otherwise. However, the Court retains discretion to vary this rule based on the circumstances.

In this case, the Appellant has partly succeeded and partly failed in the Appeal. As such, the interests of justice require that:

- 1. The Appellant shall be awarded 75% the costs of the Appeal. - 75% of the trial costs in the trial Court are waived. $\overline{2}$ .

# **Final Orders:**

- 1. The Appeal partly succeeds. - The judgment and orders of the Trial Magistrate in respect of grounds 1, 2, $\overline{2}$ $3, 5, 6,$ and $7$ are set aside. - 785

- 3. Ground 4 of the Appeal fails and is dismissed. - The Appellant is awarded 75% the costs of this Appeal. $4.$ - 5. $75\%$ of the costs in the trial costs are waived.

Delivered at Kampala this 4th of April 2025.

Richard Wejuli Wabwire **JUDGE**

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