Peoples Transport Company Limited (In recievership) v Afric Co-operatives SOC limited (Civil Appeal 41 of 1997) [1999] UGCA 32 (4 March 1999)

#### THE REPUBLIC OF UGANDA

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

HON. MR. JUSTICE G. M. OKELLO, J. A.; CORAM: HON. LADY JUSTICE A. E. MPAGI-BAHIGEINE, J. A HON. MR. S. G. ENGWAU, J. A.

#### CIVIL APPEAL NO.41 of 1997

............... APPELLANT PEOPLES TRANSPORT CO. LTD. ...... (In-Receivership)

**VERSUS**

AFRIC CO-OPERATIVE SOC. LTD. .......... ....... RESPONDENT

> (Appeal 1 arising from an order of Ntabgoba, P. J. made on $6-12-96$ , in HCCS No. 467/1995).

#### JUDGMENT OF JUSTICE A. E. MPAGI-BAHIGEINE, J. A.

This is an appeal by the Plaintiff in the action from an order of Ntabgoba, Principal Judge, made on 6-12-96 whereby he struck out HCCS No.467/1995, on the ground that it was instituted by a non-existent plaintiff.

The history is as follows. Pursuant to the Public Enterprise Reform and Divestiture (PERD) Statute No.9 of 1993, the Minister of Transport, Works and Communications decided to put the plaintiff, Peoples Transport Company Limited, under receivership on 10-6-94, when it had become clear it could no longer justify its existence as a public enterprise.

It was classified under class IV which meant that the State was to divest itself totally of its interest therein in favour of the private sector. The Divestiture and Reform Committee was charged with the implementation of the Government's policy and programme of

$\mathbf{1}$

privatisation. The Committee comprises the Minister responsible for finance who is chairman; the Attorney General; the responsible Minister, amongst others. The Minister responsible, acting under Section 25(7), appointed two receivers, Mr. E. L. Kaggwa and Mr. F. Mungereza, who advertised the assets of the plaintiff company for sale for purposes of winding it up. The divestiture was carried out in accordance with the Divestiture Guidelines laid down in the Second Schedule to the Statute.

The defendant, Afric Co-operative Society Ltd offered to buy the plaintiff company and issued a cheque for Shs.200,000,000/= "F" as part payment of the purchase price of Shs.750,000,000/=. The cheque was drawn in favour of "Peoples Transport Company Ltd in Receivership". It was dishonoured twice on presentation.

The suit to recover the purchase price was brought in the names of the company "under receivership". On 20-11-96, when it came up for hearing, Mr. R. Odimbe for the defendants raised a preliminary objection to the effect that the plaintiff had no capacity to sue and that the suit should have been brought in the name of the Government or its agents. The learned Principal Judge sustained the objection and struck out the suit. Hence this appeal.

The memorandum of appeal comprised five grounds.

- The learned trial Judge erred in law and fact in holding that $1.$ the suit was instituted by a non-existent plaintiff or a wrong party. - The learned trial Judge misdirected himself and erred in law 2. when he arrived at a wrong conclusion that the Receivers appointed under the PERD Statute could not bring a suit in the name of the company under receivership to recover a debt due to the company under receivership, after agreeing with the presumption that the PERD Statute under which the Receivers

were appointed had been complied with.

- The learned trial Judge erred in law when he agreed with the 3. Respondent's proposition that it should have been either the Government or the liquidators appointed by it who would sue or be sued as agents of the Government in the matter. - The learned trial Judge erred in failing to hold that the 4. negotiated which with the Defendant/Respondent Appellant/Plaintiff to purchase the latter's assets and issued to the Appellant/Plaintiff Greenland Bank Limited cheque No.516743 dated 20.1.95 for Shs.200,000,000/= towards partial settlement of the purchase price was/is estopped in law and fact from asserting that the Appellant/Plaintiff is/was nonexistent. - The learned trial Judge erred in law and facts to strike out 5. the Plaintiff's suit which was legally before the court under the law of receivership, the PERD Statute and the Bills of Exchange Act.

I think all these grounds can crystallise into one, namely, whether the plaintiff company had capacity to file the suit.

Mr. Bwanika for the appellant argued that the learned P. J. failed to appreciate the law of receivership and liquidation which is consistent with Section 25 of the Statute and to which he failed to give a proper interpretation. He said that the P. J. had no basis for concluding that the character of the plaintiff company had changed as this amounted to condemning the appellant unheard contrary to the rules of natural justice. He pointed out that it was necessary to call the Registrar of Companies or the responsible Minister to clarify such matters otherwise the learned P. J. was indulging in conjecture.

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Mr. Odimbe for the respondent supported the order of the learned P. J. striking out the suit. He argued that the suit ought to have been filed by the receivers appointed to dispose of the property, in their names and not by the company under receivership. Referring to Section 25, he submitted that the Companies Act is subject to the PERD Statute. Under the PERD Statute the plaintiff had to become a public company under the Companies Act for purposes of effecting the divestiture and therefore the original company no longer existed at the time of sale. He asserted that the question of receivership should be considered under the PERD Statute and not the Companies Act. The Receivers were appointed to look after the property and not the company. He further pointed out that this issue was raised in their Written Statement of Defence but was not replied to.

Para 2 thereof states:

"The Defendant avers that the plaintiff is non-suited as the plaintiff is under receivership thereby ridding the plaintiff of its capacity to sue and as such the suit is a nullity and unmaintainable."

The learned P. J. held:

"The process of divestiture starts with converting the private limited liability company to a public limited liability The process ends when the receivers and managers company. submit their final report.....

Once the company was divested, it ceased to be. A nonexistent company could not sue nor be sued".

- S.25 of the PERD Statute provides: - "(1) Subject to this Statute the Companies Act shall apply to the divestiture of enterprises under this Statute". - $\hbox{``(2)}$ Where a public enterprise is subject to divestiture under class II, III or IV of the First Schedule to this Statute

and t.he ent.erprise is not already a public llmited liability company under Ehe Companies Act, the enEerprise shalI be regisEered as a public l-imited J,iability under that Act for lhe purpose of effecEing the divestiEure wiE.h the respective share-holding as prescribed by Section 20 of this Statute".

- ,,(3) Any divesEiEure required by tshis SEaEute in respecE of any ent.erprise, sha11 be carried ouL in accordance wiEh the enactmenE under which the enterprise exisEs or under the Companies AcE, as Ehe case may be". - ,'(4) The Registrar shaLl give every ass.istance for expediting the registraEion of a company, the esEabl-ishmenE of which has become necessary by reason of any provision of this StaEute <sup>u</sup> .

Under S.25 (2) therefore, the plaintiff company which was originally a privaEe limited liabiliEy company had to be converted into <sup>a</sup> public one and registered under t.he Companies Act as such for commencement of Ehe process of divestiture.

Mr. Bwanika argued EhaE this was a mere presumption and that evi-dence should have been cal-Ied to esEablish this fact. I cannot. agree. It is clear from s.25(2) this is Ehe init.ial sEep in Ehe process, there is no way shares intended for divestit.ure could be Eransferred wit.hout first having the company regisEered as a public company under the Companies Act, for the process to proceed.

- I Ehink guideline No.15 renders this posiEion clearer: - ''15 The enEerprise shall noE be puE on Ehe market or adverEised unEil a businessman's profile of t.he enterprise has been prepared conEaining evaLuat.ions of the market, f inancj.al condition, projected income, managements, capital needs, short or Long - Eerm buyers'

proposals and the Committee's response to these proposals and legal matters" (emphasis mine).

If indeed Mr. Bwanika was of the view that the requirements of the law had not been met, it was incumbent upon him to show it, by replying to the Written Statement of Defence. It is I think pertinent to invoke the maxim "Omnia praesumuntur legitime facta donec probetur in contrarium" (all things are presumed to have been legitimately done, until the contrary is proved).

The defendant cannot be made to bear the legal burden of proof of this factor - see Section 102 of the Evidence Act (Cap 46). which states:

"The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person."

I therefore find that the learned P. J. was correct in holding that the personality of the company had changed from a private limited liability company to a public company at the commencement of the process of divestiture.

The other aspect convassed by Mr. Bwanika was that the receivers were entitled to maintain this suit in the name of the company under receivership. He took us through a long list of authorities to support this contention. None was exactly in point with the matter before us. They all involved receivers appointed under debentures. It is trite law that a receiver derives his powers from the debenture. Gosling v. Gaskell (1897) AC 575. The powers of the company are delegated to the receiver, which might might include a power to sue in the names of the company under receivership.

In the matter under consideration the receivers were appointed under an instrument under the PERD Statute No.9/1993. Therefore their powers were implied and had effect from such Statute and not from the Companies Act (Cap.85) - See Halisbury's 3rd Edn. Vol.6

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page 505 para 981, where it is stated inter alia.....

..... "Any reference to the appointment of a receiver or manager under powers contained in any instrument includes a reference to an appointment made under powers which by virtue of of enactment are implied in and have effect as if contained in an instrument."

There is a complete analogy, however, to the Companies Act. The effect of the appointment of a receiver is to paralyse the powers of the company to deal with its property.

The two receivers were appointed by the responsible Minister as a member of the Implementation Committee acting under $S.25(7)$ . They were empowered to sell the assets of the plaintiff company. The proceeds were to be deposited in the Divestiture Accounts designated by the Committee.

#### By Guideline $5(3)$

"Thereafter every response to the advertisement shall be communicated to the Committee for final decision."

The Committee had ultimate responsibility for the sale.

It is abundantly clear that the negotiations for the purchase were never carried out with the plaintiff as alleged by Mr. Bwanika. The plaintiff was incapacitated though by no means defunct. It had a changed personality. It could no longer bind its estate. Needless to say it could not sue to claim what did not belong to it as a result of the divestiture.

Regarding Mr. Bwanika's contention that the defendant having issued the cheque in the plaintiff's name "under receivership" is estopped from denying its capacity to sue under the Bills of Exchange Act and S.113 Evidence Act, I would say that I do not dispute the general principles of law governing estoppels, but the legal position is that no question of estoppel can be invoked to override the provisions of the Statute. The duty of each party is to obey the Statute. - see In re a Bankruptcy Notice (1924) 2.

### Ch.76.

I therefore find that the learned P. J. came to a right conclusion. The plaintiff company under receivership could not maintain this action, but the Government and or its agents.

For the above reasons I would dismiss the appeal with costs here and below.

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

# THE REPUBLIC OF UGANDA

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

## **CORAM:** HON. MR. JUSTICE G. M. OKELLO, J. A.; HON. LADY JUSTICE A. E. MPAGI-BAHIGEINE, J. A. AND: HON. MR. JUSTICE S. G. ENGWAU, J. A.

### CIVIL APPEAL NO. 41 OF 1997

#### **BETWEEN**

PEOPLES' TRANSPORT CO. LTD::::::::::::::::::::::::::::::::::::

**AND**

AFRIC CO-OPERATIVE SOCIETY LTD::::::::::::::::::::::::::::::::::::

(Appeal arising from an Order of Ntabogoba, P. J. in HCCS No.467 of a995, dated 6/12/96)

### JUDGMENT OF ENGWAU, J. A.

I have had the benefit of reading the judgment of Mpagi-Bahigeine, J. A. in draft and I agree with it.

In the result, I would dismiss the appeal with costs here and in the Court below.

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

S. G. ENGWAU **JUSTICE OF APPEAL.**

# **THE REPUBLIC OF UGANDA**

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

## **CORAM:** HON. MR. JUSTICE G. M. OKELLO, J. A.; HON. LADY JUSTUCE A. E. MPAGI-BAHIGEINE, J. A. AND HON. MR. JUSTICE S. G. ENGWAU, J. A.

### CIVIL APPEAL NO. 41 OF 19997

#### **BETWEEN**

PEOPLES TRANSPORT CO. LTD::::::::::::::::::::::::::::::::::::

AND

AFRIC CO-OPERATIVE SOC. LTD.::::::::::::::::::::::::::::::::::::

### JUDGMENT OF G. M. OKELLO, J. A.

I have had opportunity to read in draft the judgment of Mpagi-Bahigeine, J. A. just delivered. I agree with it and have nothing to add. As Engwau J. A. also agrees the appeal is dismissed on the terms proposed by her.

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

G. M. OKELLO **JUSTICE OF APPEAL.**