Patel v Mbabaali and Another (Civil Appeal No. 63 of 2002) [2005] UGCA 93 (11 January 2005)

### THE REPUBLIC OF UGANDA

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

HON. JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ CORAM: 10 HON. JUSTICE C. N. B. KITUMBA, JA HON. JUSTICE C. K. BYAMUGISHA, JA

### CIVIL APPEAL NO. 63/2002

## J. V. PATEL :::::::::::::::::::::::::::::::::::: VERSUS

#### **1.** MUYANJA M. MBABAALI

#### **3M CORPORATION LTD :::::::::::::::::::::::RESPONDENTS** $2.$

### 20

(Appeal from the Ruling and order of the Hon. Mr. Justice Rugadya Atwoki in the High Court of Uganda at Mbale dated the 27<sup>th</sup> August, 2001 in High Court Civil Suit No. 27 of 1998)

### JUDGEMENT OF L. E. M. MUKASA-KIKONYOGO, DCJ

This appeal arises out of the Ruling in High Court Civil Suit No. 27 of 1998 of the High Court sitting at Mbale delivered on $21 - 08 - 01.$

J. V. Patel the appellant jointly and severally sued Muyanja Mbabaali and 3M Corporation Ltd, hereafter to be referred to as the $1^{st}$ and $2^{nd}$ respondents. The appellant's claim from the respondents was recovery of U. S. D 6500 at that time the equivalent of Ug. Shs. 8.000.000/.

The background of the appeal is that in 1993, the appellant was the Managing Director of a company known as African

$\mathbf{1}$

Textile Mills, abbreviated as ATM, in which the Government of Uganda had shares. The 1"t respondent was the Chairman, Board of Directors of the 2"d respondent. In 199 1 ATM entered into an agreement with the 2nd respondent to supply it with specified industrial chemicals. Pursuant to that contract 10 the 2"d respondent supplied and delivered to ATM industrial chemicals valued at shs. 43.200.753/=. Apparently due to financial constraints ATM paid for the chemicals by post dated cheques which the appellant as the Managing Director and signatory, signed. Due again to lack of funds the said cheques were dishonoured by the bank.

I

The l"t respondent reported the matter to the Police which led to the arrest of the appellant as the signatory on the cheques. To avoid further inconvenience and imprisonment the 20 appellant raised USD 6500 and made one bounced cheque good. He paid it to the l"t respondent in person and it was credited to his personal account in the Nile Bank at Jinja Road. ATM being a parastatal body was, in October <sup>1993</sup> closed and the Government of the Republic of Uganda took over management of its a-ffairs under its Privatization Program. It (the Government of Uganda) also undertook to pay all tiabilities of ATM including the debt owed to the respondents. On 22109 195, the Government of Uganda, through the said Privatization Unit in the Ministry of Finance paid the 2na 30 respondent a tota-l of shs. 46,386,632/= which was the

balance of the principal sum and interest at the rate of 10%o per month due to it.

Subsequent to the payment it was the contention of the appellant that since the entire debt owing to the respondents 10 was paid the appellant was entitled to recover U. S. D 6500 paid to the 1"t respondent. The respondents disputed the claim, hence, the appellant filed this suit in the High Court. His prayer was for Judgement in his favour for USD 6500 or Ug. Shs. 8.000.000/= with interest and costs.

When the suit was called for hearing counsel for the respondents raised three preliminar5r issues two of which were overruled but one sustained. It was contended by counsel for the respondents that the appellant had no cause of action 20 against them. Upon hearing the addresses of the counsel for both parties the learned trial judge held the view that it was difficult to see how the appellant would have made payment in a personal capacity in respect of a company in which he was a chief executive. Similarly as the Chairman of the Board of Directors of the 2"d respondent, the 1"t respondent could not have been liable unless there was evidence to show that he had received the money in his personal capacity. If as argued the failure by the respondents'to declare USD 6500 amounted to overpayment, as they were paid twice, the proper party to 30 sue would have been the Attorney General as the Government Legal Representative and perhaps jointly with the Privatization

Unit. The appellant would then have been called as a witness. Further, the learned trial judge, held that even if the appellant had paid the money personally, for the benefit of ATM, as the Managing Director, his claim lay with the successor of ATM, namely, the Privatization Unit and not the respondents. As far

10 as the learned trial judge was concerned the appellant had no locus standi in this case to claim USD 6500 from the respondents.

Aggrieved by the decision of the High Court the appellant instructed his counsel, Mr. Dagira to lodge this appeal to this court. It is based on the following three grounds:-

- " lil The leanted trial judge erred in lqw when he sttltck out the appellant's plaint on the ground that lt dtd not disctose ang co;use of action - (ii) The learned triql judge en'ed in law when he held that the plaintiff lacked locr'ts stqndi to bring the original s-uit against the defendants - (iii) The decision complalned against has occo,sion,ed a sub stqntial miscarrlag e of Jrtstlce.

The Coura utas praged to allow the appeal' set aslde the Ruling of the High Court' grant an order to remit the suit to the High Court for trial on its mcrtts qnd mc,ke provlslons for costs of thls appeal".

Mr. Dagira opted to argue the three grounds together because they overlap.

It was his contention that the respondents were liable to refund USD 6500 which the appellant paid to l"t respondent 10 at the Central Police Station after his arrest. When the debt which ATM owed to the respondents was eventually paid, the 2"d respondent acknowledged receipt of that money. However, USD 6500 was not declared. It was submitted that USD 6500 was paid in the appellant's individual capacity because he had been arrested by the Police. To avoid criminal liability he raised USD 6500 and paid it to l"t respondent. Counsel argued that the learned trial judge failed to realize the predicament the appellant was in. Criminal liability is personal liability, a company cannot be arrested and imprisoned. The 20 2nd respondent did not declare the payment when its debt was paid in full. As far as Mr. Dagira was concerned the appellant was entitled to claim his money. Counsel relied on holding No.3 of Auto Garase & Others vs Motokov no. 3 1971 EA 514 where the East African Court of Appeal held as follows:-

> " Plaint mag disclose d cctuse of action uithout containing o.ll the facts constitutlng the cause of rl,ctloln provided that the ulolation bg the defendant of a right plaintilf is shown".

He, therefore, submitted that the appellant's plaint as it stands has enough material to disclose a cause of action. It was a miscarriage of justice on the part of the learned trial judge to strike out the respondent's plaint without giving him a hearing. The appeal should be allowed and the suit remitted 10 to the High Court for a proper trial on merit.

Mr. Wakida, learned counsel for the respondents, opposed the appeal. The critical issue for him which this court had to determine is the capacity in which the money was paid. The appellant should not have paid for a company because it is common knowledge that it is different from a director. Its debts are not the debts of directors. The cheques which bounced were not issued by the managing director but ATM. The trial judge, to Mr. Wakida, was justified to hold that it was 20 hard to see how the appellant came into the picture. Mr. Wakida submitted that the trial judge rightly found that the appellant had no locus standi. He invited this court to dismiss the appeal with costs.

I will adopt the same approach as both counsel for the parties did by evaluating the three grounds together. As it was rightly argued by Mr. Wakida the critica-l issue on which this appeal hinges is to determine the capacity in which the USD 6500 was paid by the appellant and received by the respondents. 30 This court has to decide whether the said USD 6500 was paid by the appellant in his individual capacity and not as the

managing director of ATM which was privatized. It is correct as submitted by Mr. Wakida, a managing director is different from a company. He could not, therefore, claim on its behalf and he cannot be liable for its debts.

10 However, it must be conceded that each case must be decided on its facts. In the instant case the respondents do not dispute the fact that the appellant paid U. S. D 6500 to the l"t respondent. It is a-lso not denied that a-ll the outstanding debts owed by ATM had been fully paid. However, there is no explanation by the respondents as to what happened to USD 6500 paid to l"t respondent. The respondents did not declare it as overpayment.

Instead it is traced in the l"t respondent's personal account in 20 Nile Bank Ltd, Main Branch, Jinja Road Kampala, Uganda. This is supported by Annexture 3 to the plaint at page 12 of the record of proceedings. In annexture No. 2 at pagell the appellant requests Mr. E. Mugabi of Texbeufra Consult Ltd,

P. O. Box 4126, Kampala \*to pag shiltings Etght million (8. OOO. OOO) on mg occount to Mr. Mbabaall of 3M Corpco Ltd, utithout fail tomorrow 75-O9-93'.

The above documentary evidence was never denied or rebutted by the respondents. The money paid by the appellant was raised in his personal capacity as shown by evidence (see 30 Anextures 2, 3 on page 11, 72 & 13) and paid to l"t respondent as an individual Following Mr. Wakida's line of

argument the money paid to the l"t respondent and deposited on his personal account could not be looked for into the company's account. The Attorney General and the Privatization Unit Program were not the right parties to be sued. The appellant had no cause of action against them. 10 They were not liable to refund the money to the appellant but the respondents who received and kept it, in the l"t respondent's personal account.

With regard to issue of consideration as it was submitted by Mr, Dagira it was important to understand the predicament, the appellant was in. He was under arrest and threatened with imprisonment. Although the cheques which had bounced were issued by ATM, the latter could not be arrested and detained. As a signatory the appellant was, instead, arrested. 20 He, therefore, made one of the bounced cheques good to gain his freedom. The money he paid to the l"t respondent was not ATM's but he had raised it personally. He did not owe any money personally to any of the respondents. Consideration did not arise because in my view this was a case of " Moneg had and receiued" which had to be accounted for by the recipients.

I accept the submission by Mr. Dagira that the learned trial judge wrongly struck out the plaint on the ground that it did 30 not disclose a cause of action. The appellant had a claim against the respondent which the trial court should have

allowed him to establish. On the documentary evidence on record the learned trial judge should not have ruled that the appellant had no locus standi. Clearly he had. It was, hence, a denial of justice for the appellant not to be given opportunity to prosecute his case whatever the outcome.

For the aforesaid reasons I would allow this appeal, set aside the Ruling of the High Court and remit the suit to the High Court for trial on merits. I would also order the respondents to pay costs of this appeal and in the court below.

Since both my learned sisters C. N. B. Kitumba J. A and C. K. Byamugisha J. A agree with the conclusions reached the appeal is hereby allowed with the proposed orders.

Dated at Kampala this 1.5. May 2005. 20

# Hum 1 L. E. M. MUKASA-KIKONYOGO HON. DEPUTY CHIEF JUSTICE # THE REPUBLIC OF UGANDA IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

CORAM:

HON. LADY JUSTICE L. E. M. MUKASA-KIKONYOGO,DCJ HON. LADY JUSTICE C. N. B. KITUMBA. JA HON. LADY JUSTICE C. K. BYAMUGISHA,JA

### **CIVIL APPEAL NO.63/03**

#### **BETWEEN**

J. V. PATEL::::::::::::::::::::::::::::::::::::

#### AND

#### 1. MUYANJA M. MBABALI

2. 3M CORPORATION LTD::::::::::::::::::::::RESPONDENT $15$ Appeal from the ruling and orders of the High Court of Uganda sitting at Mbale(Rugadya Atwoki J) dated $27<sup>th</sup>$ August '01 in HCCS No.27/98

#### Judgement of Byamugisha, JA

$\overline{5}$

$10$

This is an appeal against the ruling and orders of the High Court sitting at Mbale wherein the appellant's suit against the respondents was struck out with costs for not disclosing a cause of action.

$25$ I had the benefit of reading in draft the judgement prepared by the Deputy Chief Justice and I agree with the conclusions she has reached in allowing the appeal. The facts that led to the institution of the suit in the court below are sufficiently set out in the judgement and I need not repeat them here. However, I have a few remarks of my own to make.

A cause of action may be described as every fact that the plaintiff must prove in order to be entitled to judgement. Order 7 rule 11 of the Civil

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Procedure Rules empowers court to reject a plaint that does not disclose a cause of action. The test to be applied when the court has to decide whether or not a plaint discloses a cause of action it has to show three distinct clear heads:-

- $\mathsf{S}$ 1. That the plaintiff enjoyed a right. - 2. That the right was violated by the conduct of the defendant or defendants and - 3. That the defendant is liable. See Auto Garage vMotov(3) 1971 EA 514 and Ismail Serugo v Kampala City Council & Another

#### $10$ Constitutional Appeal No.2/98.

Did the appellant's plaint satisfy the above requirements? In order to answer that question the court has to look at the pleadings and the written statement of defence and any annextures attached thereto. The appellant's claim was set out in the following paragraphs of the plaint:-

15 $(3)$ The plaintiff's claim against the defendants jointly and/or severally is for UD Dollars 6500 or its equivalent in Uganda shillings currency interest and costs.

(4) The second defendant in 1991 entered into an agreement with African Textile Mill Ltd to supply and deliver to the said African Textile

Mill Ltd specified industrial chemicals. Pursuant to that agreement the 20 second supplied and delivered to African Textile Mill Ltd the said *chemicals worth Shs. 43,200,753/=.*

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(5) AfricanTextile Mill Ltd in 1993 issued post-dated cheques to the second defendant in an effort to clear the afore-mentioned debt. The plaintiff was by then the Managing Director of the said African Textile Mill Ltd and in that capacity he signed on the said cheques. Due to

*financial difficulties the said mill was experiencing then the said* $\mathsf{S}$ cheques were not met on maturity.

(6) the first defendant reported the matter of bouncing cheques to police at Kampala and the plaintiff as a signatory on the said cheques was arrested pending institution of criminal charges. The plaintiff on the

- 14<sup>th</sup> September, 1993 caused to be paid to the first defendant on account 10 of the second defendant US \$6500(then equivalent to Ug. Shs $8,000,000/$ =) which money was credited on the first defendant's account on the $20$ <sup>th</sup> September, 1993. (emphasis added) (7) The second defendant was on the $17<sup>th</sup>$ September, 1993 paid Shs - 17,900,000/= and on 15<sup>th</sup> February, 1994 paid a further Shs $15$ 25,000,000/- by African Textile Mill Ltd on the afore-mentioned debt. (8) the said African Textile Mill Ltd was then a parastatal. Subsequently in December, 1993 it was closed and the Government of the Republic of Uganda took over management of its affairs under its - Privatisation Programme. On the 15<sup>th</sup> March, 1996 the Government of 20 the Republic of Uganda sold its shares in African Textile Mill Ltd to *M/s Ranchhodobhai Shivabhai Patel Ltd and under the agreement of*

sole of the soitl shores, the Governmenl of Ugandu undertook to pay oll liobilities of the soid Africon Textile Mill Ltd including the debt owed to lhe second defendont,

(9) The plilntiff shall aver that the Government of the Republic of'

5 Ugarula through the Privalisation Unil of lhe Minislry of Finonce ptid the second defendsnl on the 22"'t September, 1995 o tolal ofShs. 46.-]86,632/= which was the bulance of the principal sum tnd interest ot tlte rate of l0% per month due to il.

(10) The plointiffsholl over thot the defendants havefailed to

- l0 ocknowledge the US \$ 6500 which the pluintiff coused to be poid to the Jirst defendunt tnd have refused to refund the some. The ploinliff overs that he is enlitled to refund of US \$ 6500 since the debt to te second defendont wos settled by the Government of Ugando. He is also enlitled to interest ot tlte same rate of l0t% per month with effectfrom - l5 Seplember, 1995".

The appellant attached to the plaint a number of documents. One of the docurnents was a letter dated l4th Septernber. 1993 addressed to one Mr E. Mugabi of Texbefra Consult Ltd. It was signed by the appellant. The

letter was instructing the addressee to pay 8 million shillings to Mr M. M. Mbabali of 3M Corpo Ltd by l5-09-93 without fail. Another document relevant to the appellant's claim was a fax dated9l03l99.lt indicates that 20

l

the account of Mr M. M. Mbabali with Nile Bank Ltd Main Branch Jinja Road was credited with the surn of US\$ 6500. The last document that is relevant is a letter frorn Texbevfra Consult Ltd dated 9th March 1998 addressed to the appellant. The letter was reminding him to pay back the

- sum of US \$ 6500 that the company had paid on his behalf when Mr M. M. Mbabali had locked him up in Karnpala Police Station. The letter further states that the amount of money was paid directly on Mr Mbabali's account No.3948905 in Nile Bank Ltd Jinja Road Main Branch on 20109193 by T. T. The last document to consider is the agreement for the - purchase of shares of African Textile Mills Ltd. ln the 4'h Schedule to the agreement, there is a list of its creditors. The second respondent is stated to be owed the sum of U. Shs. 46,386,6321=. t0

The respondents filed a joint written statement of def'ence. In paragraph <sup>3</sup> l5 thereof they averred as follows:-

groutttls-(3)The letcndunls sltull ruisc u preliminur.l' objection on the Jbllox,ing

- t) The sunrnnns issued by lltis Honouroble courl on I0/06/98 e-rpired belbre the defendanls were served. - 20

- b) The plaint is btrd in hw tnd discloses no couse of aclion agtinst the defendtnts beco use- - trll liubilities of AJricun Te.ttile Mills itrcluditrg all monies owed to lhe 2"'t le/endmt, were loken over by lhe Priwtiscrtion (Jnil on i)

i

behalf of the Government, a fact acknowledged by the plaintiff in paragraph 8 of the plaint.

- Pursuant to this transfer, Privatisation Unit has paid $U$ Shs ii) $46,386,632/$ = to the second defendant, leaving a balance of more than U SHs 20,000,000/ $=$ as the principal sum and interest. - Therefore, if the defendant was over paid, which is denied, the iii) proper plaintiff would be the Privatisation Unit(Attorney-General); - 10

$iv$ )

$\mathsf{S}$

Whatever money was paid to the $1^{st}$ Defendant under the contract of supply of chemicals was received by him as an agent of the second defendant and which he duly handed over to the latter".

From the pleadings as filed by the parties, it is admitted that African Textile Mill Ltd owed the second respondent the sum of Ug. Shs,

- $46,366,632$ and this debt was paid by the Privatisation Unit of the $15$ Ministry of Finance. To me this appears to be the only documented debt that the second respondent was owed and which was eventually settled. The money which is the subject of this appeal was paid into the personal account of the first respondent according to the document on record. This - is the money that the appellant alleges should be refunded to him since 20 the debts of African Textile Mill Ltd was settled. It is the trial court which should determine which of the defendants is liable to refund the money. I think the trial judge was, with respect, wrong to hold as he did that the plaint did not disclose a cause of action.

The appellant's claim was, in my view, stated with sufficient particularity and it disclosed a cause of action. Whether the appellant will succeed in proving his claim against the respondents or one of them is up to the trial

court. Iam satisfied on the pleadings as a whole that the plaint discloses a cause of action. I, would, accordingly, allow the appeal in the terms proposed by the learned Deputy Chief Justice.

Dated at Kampala this. ...day of. May 2005. $\mathsf{S}$

**C. K. Byamugisha Justice of Appeal**

### THE REPUBLIC OF UGANDA

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

# CORAM: HON. JUSTICE L. E. M. MUKASA-KIKONYOGO, DCJ. HON. JUSTICE C. N. B. KITUMBA, JA. HON. JUSTICE C. K. BYAMUGISHA, JA.

## **CIVIL APPEAL NO. 63 OF 2002**

J. V. PATEL ::::::::::::::::::::::::::::::::::::

#### **VERSUS**

#### 1. MUYANJA M. MBABAALI

$2.$ 3M CORPORATION LTD. ::::::::::::::::::::::::::: RESPONDENT

> [Appeal from the ruling and order of the Hon. Mr. Justice Rugadya Atwoki in the High Court of Uganda at Mbale dated 27<sup>th</sup> August, 2001 in High Court Civil Suit No. 27 of 1998]

# **JUDGEMENT OF C. N. B. KITUMBA, JA.**

I had the benefit of reading in draft the judgement of Mukasa-Kikonyogo, DCJ. I agree with it.

Dated at Kampala this 18 day of Micry 2005.

CHES Cilinda' C. N. B. Kitumba JUSTICE OF APPEAL