Predire House of Styles Limited & Anor v Fredimi Enterprises Limited (Miscellaneous Application 2709 of 2023) [2024] UGCommC 353 (21 October 2024)

Full Case Text

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISIONI MISCELLANEOUS APPLICATION NO 2709 OF 2023 IARTSTNG FROM CML SUIT NO 1366 OF 20231 PREDIRE HOUSE OF STYLES LTD & ANOR:::::::::::::::::::::APPLICANT VERSUS

# FREDIMI ENTERPRISES LTD::::::::::::::::::::::::::::::::::::::RESPONDENT

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

#### RULING

The applicants brought this application under Order 36 rule 4 and Order 52 rules 1,2 & 3 ofthe Civil Procedure Rules(CPR) for orders that unconditional leave be granted to the applicants to appear and defend civil suit no. 1366 of 2023 and the costs of this application be provided for.

This application was supported by the affidavit of Susan Muwonge and opposed by the affidavit in reply of Fred Mawanda.

The facts giving rise to this application are that the respondent sued the applicants under summary procedure for breach of contract and sought the recovery of Ugx 93,253,4091: being monies owed by the applicants and the costs of the suit. The respondent contended in the specially endorsed plaint that the applicants had obtained a working capital non-interest bearing investment from the respondent and when the business later terminated, the applicants entered into a dissolution of business relationship agreement where they undertook to pay the outstanding investment amounts and the 2nd applicant undertook to guarantee the repayment of the investment.

The applicants then filed an application for unconditional leave to appear and defend the suit.

#### REPRESENTATION

The applicants were represented by IWs Sage Advocates and the respondent was represented by IWs Signum Advocates.

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## **RULING**

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I have read the pleadings and taken into consideration the submissions of the parties in this matter. The respondent raised a preliminary objection in their submissions that the applicant's affidavit is tainted with falsehoods and should therefore be struck out.

The respondent submitted that in the previous statements sworn by the $2^{nd}$ applicant in divorce cause no. 0036 of 2024, she acknowledges the receipt of a loan from the respondent for the purpose of growing her business however in the affidavit in support to this application, she contradicts herself and avers that they never entered into a loan agreement with the respondent. Counsel relied on the case of Rutuku Francis & Others v Eliphas Ndamagye CACA No 111 of 2017 where the Court of Appeal held that where the misleading and false averments in the affidavit form the crux of the case, such an affidavit cannot survive and the entire application collapses.

The respondent also relied on a letter dated the 22nd of August 2024 addressed to the deputy registrar where they alleged perjury against the applicant and based their allegation on the sworn statements in divorce cause no. 0036 of 2024.

The applicants contend under paragraph 13 of the affidavit in support that the monies that the respondent allegedly claims to have given to the applicants as a loan in form of an interest free working capital investment, was actually money paid by the respondent for purchase of equity in the applicant in form of shares.

I have had the opportunity of reviewing the annexures to the respondent's affidavit in reply mainly those in divorce cause no. 0036 of 2024. There is no mention of the loan by the 2nd applicant in her petition, similarly in her reply to the cross petition in paragraph 23, she does not talk about a loan but avers that the respondent invested in the business as a result of the good will she had with them. The affidavit in rejoinder in the divorce cause sworn by the 2nd applicant stops at paragraph 6 and there is no evidence of her admitting that she entered into a loan agreement with the respondent.

I therefore dismiss this preliminary objection as there is no evidence in the divorce cause no. 0036 of 2024 annexed to show that the applicants' affidavit is tainted with false hoods.

I will now deal with the main application

The main issue to be considered is whether the applicant should be granted unconditional leave to file a defense in civil suit no. 1366 of 2023.

Order 36 rule 4 of the CPR provides that a defendant served with a summons filed under Order 36 rule 2 of the CPR may seek leave to appear and defend the suit.

The settled law is that for an application for unconditional leave to appear and defend to be granted, the applicants have to show that there is a bonafide triable issue of fact or law that they will advance in the defence of the suit.

In Maluku Inter Global Trade Agency v Bank of Uganda [1985] HCB 65, the Court stated that:

"Before leave to appear and defend is granted, the defendant must show by affidavit or otherwise that there is a bonafide triable issue of fact or law. When there is a reasonable ground of defence to the claim, the defendant is not entitled to summary judgment. The defendant is not bound to show a good defence on the merits but should satisfy the court that there was an issue or question in dispute which ought to be tried and the court shall not enter upon the trial of issues disclosed at this stage."

In the case Geoffrey Gatete & Anor v William Kyobe SCCA No. 7 of 2005 Mulenga JSC explained that:

"In an application for leave to appear and defend a summary suit, the court is not required to determine the merits of the suit. The purpose of the application is not to prove the applicant's defence to the suit but to ask for opportunity to prove it through a trial. What the court has to determine is whether the Defendant has shown good cause to be given leave to defend. What courts have consistently held to amount to good cause is evidence that the defendant has a triable defence to the suit."

Therefore, once an applicant proves to the Court that an application is in good faith and there are issues or questions in dispute that ought to be tried, unconditional leave to appear and defend should be granted.

In the instant case the applicants have attached a draft written statement of defence ("WSD") to their application which has relayed the applicants' would be defense. In their WSD, the applicants raise three preliminary objections to wit;

i)The plaint is bad in law, frivolous and vexatious and does not disclose a cause of action on both the defendants.

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ii) That omission by the plaintiff to attach the alleged working capital investment agreement by the time of filing his plaint renders the entire plaint totally defective.

iii) That the plaintiff has no cause of action against the $2^{nd}$ defendant a director of $1^{st}$ defendant.

Furthermore, in their affidavit in support, the applicants do not out rightly contest that money was advanced to them but do contest the purpose for which the monies were advanced contending that it was an equity finance into the business. They contest the entire sum claimed under the suit and dispute the existence of the working capital non-interest bearing investment agreement and the loan agreement. They also contend that the dissolution of the business agreement was unduly influenced through coercion as they were put under pressure and forced to sign the same. The applicants attached email correspondences to their affidavit in a bid to prove that the money advanced was not a loan but was paid in consideration for shares though the respondents wanted to call it a loan.

The respondent contends in their submission that the $2^{nd}$ applicant in various emails admits the existence of the loan and that they even made several deposits towards its repayment. No evidence of the said payments said to have been made by the applicants was attached by the respondent however email correspondences where the applicants called the money advanced as a loan and expressed her willingness to pay after the termination of the business were attached. Counsel submitted that the 2nd applicant even requested for the loan to be restructured and they have not produced any evidence to deny having made payments towards the repayment of this loan.

This Court notes that there is no loan agreement or working capital non-interest bearing investment agreement attached to prove the existence of the loan agreement save for the email correspondences attached by both parties. The applicants contend that the monies advanced was in consideration for shares in the company however the memorandum and articles of association attached do not indicate the respondent as a shareholder of the $1^{st}$ applicant.

There is a dissolution of business relationship agreement where the 1st applicant acknowledges owing the respondent and the 2nd applicant undertook to guarantee the repayment of the outstanding amount. There are also email correspondences where the 2nd applicant sought for more time to make payments. The applicants in their defence contend that they were unduly influenced and attached an email

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correspondence where they asked the respondents not to put them under pressure to sign. This in itself does not prove undue influence.

From the foregoing it can be seen that it is true that the applicants owe the respondent, however how much is owing to the respondent is an issue that requires an evaluation of evidence, the documents relied on and listening to witnesses. These cannot be determined in a summary way but require a full trial.

In the circumstances, therefore, and in the interest of justice, I will grant the applicants unconditional leave to appear and defend civil suit no. 1366 of 2023.

Costs shall abide the cause.

Mulatie

HON. LADY JUSTICE ANNA B. MUGENYI DATED...................................