Sendagire and Another (Both T/A Bright Future Vocational Secondary School (HC Civil Suit No. 26 of 2008) [2019] UGCommC 238 (26 August 2019)

Full Case Text

### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA

### **COMMERCIAL DIVISION HCCS NO 26 OF 2008 (PREVIOUSLY NAKAWA HIGH COURT CS 423 OF 2007)**

SENDAGIRE STEPHEN...................................

NANYOMBI GLADYS....................................

### (BOTH T/A BRIGHT FUTURE VOCATIONAL SECONDARY SCHOOL) (COUNTER DEFENDANTS)

#### **VERSUS**

10 DCFU LIMITED ........... .........1ST DEFENDANT/COUNTER **CLAIMANT)**

> KABIITO KARAMAGI KENNETH.................................. KIRUMIRA GODFREY KALULE ...................................

## BEFORE HON LADY JUSTICE ELIZABETH JANE ALIVIDZA

#### JUDGMENT

### **Representation:**

Counsel Ssendagire and Richard Rubaale for the Plaintiffs.

Counsel Isaac Walukagga and Alex Ntale for 1st, 2nd and 3rd Defendants.

#### Introduction.

This civil suit No. 26 of 2008 has a protracted history. It was transferred from Nakawa High Court on 5/2/2008. It was first handled by Nakawa High Court as CS 423 of 2007. It is important to consider the pleadings and Court documents from Nakawa inorder to put this dispute in context. In a Plaint dated 14/12/2007, the

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$1.5$

$\mathsf{S}$

Plaintiffs Ssendagire Stepen and Nanyombi Gladys sued DFCU Bank Limited for a declaration that the intended sale of the Land comprised in Busiro Block 383 Plot 214, 724 and 1199 situated at Dundu/Kitende (herein referred to as the suit property) was wrongful and pre-mature and prayed for a permanent injunction as well as an order for redemption. Later, an amended Plaint was filed to include DFCU Limited t/a Dfcu Group as a second Defendant. The particulars remained the same.

- On 15/1/2008, DFCU Bank Limited filed a written statement of 35 Defence and denied all claims raised by the Plaintiff stating that it has never extended any loan to the Plaintiffs or hold any securities over the Plaintiff's property. On 28/1/2007, the 2nd Defendant DFCU Limited filed its Written Statement of Defence. 2nd Defendant admitted that on 17th May 2006, they admitted entering into an 40 investment agreement for UGX 280 million loan for Bright Future Vocational S. S in additional to pending loan of UGX 35 million making a total of UGX 315 million. The loan was secured by the suit property. - On 29/1/2008, the 2nd Defendant DFCU Limited filed another 45, Written statement of Defence(WSD). I note that this was not an amended WSD. It included a Counterclaim praying for the balance on the loan for UGX 68,228,264.

Furthermore, the Nakawa High Court records reveal the following related matters in relation to this case:

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MA 612 of 2007(arising out of CS 423/2007); M/S Bright Future Vocational S. S and Ssendagire Stepen Vs DFCU Limited, filed on $14/12/2007$ . This was an Application for an interim injunction restraining DFCU from selling or transferring the suit property until the main Application MA611 of 2007 is determined. An interim order was granted on 14/12/2007 by His Worship Kisawuzi to run for 60 days within which the main Application will be fixed.

MA 638 of 2007 was filed on 28/12/2007(Arising out of MA 611 and 612 of 2007): Ssendagire Stepen and Nanyombi Vs DFCU Bank Limited and DFCU Limited T/A Dfcu group. This was for another interim order extending the 14/12/2007 interim order until main suit and the pending application are determined. On 31/12/2007, the Nakawa registrar extended the interim order for another 60 days.

From the Court records, I note that the above Applications were handled ex-parte. I see no record of proof of service. There are no 65 pleadings from the Respondents in both of the above Applications. This appears to be the norm for interim applications.

Meanwhile, in February 2008, the case file was transferred to the commercial court on an application by letter from the Defendant's Counsel. The file was given new number CS 26 of 2008.

This same application from Nakawa MA 638 of 2007 was handled in the Commercial Court and an interim order dated 13/2/2008 was issued until other orders after the main application is heard. On $7/2/2008$ , the Registrar extended the interim order until $27/2/2008$ .

- A Commercial Court Judge considered MA 0054/2008 interparty. From the Pleadings (Affidavit in reply), it became clear that on 75 $10/12/2007$ , the 2nd Defendant (Receiver) sold the suit properties to the 3rd Defendant (Kirumira). On 19/3/2008, the Application for temporary injunction restraining the sale or transfer of the property to a third party was dismissed. - 80

I note that all the above Applications had already been overtaken by events. The suit property had already been sold and from an advert (New Vision 28/1/2008), the school had already been advertised as belonging to GKK Group.

Then the Plaintiffs filed MA 623 of 2008 (Arising from CS 26/2008). The Applicants (Plaintiffs) applied to join Godfrey Kirumira and 85 Kabiito Karamagi as co-Defendants. The Application was granted on 18/12/2008.

On 22/1/2009, the Plaintiffs filed the 3rd Amended Plaint including Godfrey Kirumira and Kabiito Karamagi as co-Defendants. Summons to file a defence were issued to Godfrey Kirumira and Kabiito 90 Karamagi on 9/2/2009. On 13/3/2009, 2nd Defendant Kabiito filed a defence denying liability.

On 8/4/2009, the Applicants/Plaintiffs filed MA 186 of 2009 for substituted service to serve the 3rd Defendant Kirumira. Further summons were again issued to Kirumira on 2/6/2009. On 25/6/2009, the 3rd Defendant filed his defence insisted he had

brought the suit properties from the Bank after the Plaintiffs had failed to repay the loan. All this above processes took over 2 years.

Between 2009 and 2014, this case appears to have become 100 redundant. Due to changes at the Court, records show no progress for five years. In 2012, the Court ordered for a Joint Valuation of the suit property. Mediation report dated 2/5/2013 indicates time for mediation had lapsed. Pre-trial conferencing process was protracted. Finally on 13/6/2014, a signed Joint Scheduling Memorandum 105 (JSM) was filed by both parties. A final version was filed on $26/9/2014.$

## **Agreed Facts**

As per the JSM, parties agreed on the following facts;

- 1. The Plaintiff was advanced credit facilities by the 1st Defendant to the tune of UGX 315,000,000. - 2. The said borrowing was secured by a mortgage over property comprised in Busiro Block 383 Plot 214 and 1199 at Dundu and a further charge over property comprised in Block 383 Plot 724 at Dundu (herein after referred to as the "Suit Property"). - 3. The Securities above were sold to the $3^{rd}$ Defendant by the $2^{nd}$ Defendant. - 4. At the time of realization of the securities, the Plaintiff was indebted to the 1st Defendant. The 1st Defendant claimed UGX 358 million while the Plaintiffs were not very sure of the amount.

## **Agreed Issues**

The agreed issues were;

- 1. Whether the suit property was lawfully sold to the $3rd$ Defendant by the $2^{nd}$ Defendant? - 125 - 2. Whether there were any movable properties belonging to the Plaintiffs at the suit property unlawfully taken over or retained by the Defendants jointly or severally? - 3. Whether the Plaintiffs are still indebted to the 1st Defendant and if so to what extent? - 130 - 4. What remedies are available to the parties?

# Case management

This case continued to be redundant until this Court issued notice to show cause why the case should not be dismissed. On $26/2/2016$ , parties appeared before me and the conferencing process was concluded. Hearing dates were fixed and trial commenced.

Then there was MA 43 of 2018 (Arising from CS 26/2008) the Applicants (Plaintiffs) applied to amend the Plaint late in the trial to include a material fact that had just came into their possession. Court dismissed the Application and advised the Plaintiff to raise the matter during trial.

The case proceeded by way of witness statements. Witnesses appeared only for cross examination.

The Plaintiff produced the following witnesses: PW1 Stephen Sendagire, teacher and joint proprietor of Bright Future Vocational 145 Senior Secondary School. PW2 Mrs Nanyombi Gladys, Administrator and joint proprietor of Bright Future Vocational Senior Secondary School., PW3 Mukasa Solomon former student of the school, PW4 Magembe Dickson, a Pastor, PW5 Eddie Nsamba-Gayiiya, Surveyor, PW6 Andrew Ntakwe, Photographer and PW7 Mathew Basiimbe 150 Producer.

The defence produced DW1 Elizabeth Ssenkaali Business Support/ **Recoveries** Manager, DW2 Kenneth Kabiito Karamagi Advocate/Appointed Receiver/Manager, DW3 Moses Busulwa, 3rd Defendant's property supervisor and DW4 Kirumira Godfrey Kalule, businessman and buyer of suit property.

Parties filed written submissions. I have carefully read them and I will not refer to them except where necessary.

## Burden of proof

- From the onset, court reminds itself that the burden of proof in civil 160 cases is on a balance of probability. I am also reminded of **Section** 101 of the Evidence Act CAP 6 provides that; - (1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he or she asserts must prove that those facts exist. - (2) When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person.

Reference is also made to Section 103 of the Evidence Act CAP 6 provides that "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 proof of that fact shall lie on any particular person".

Furthermore according to G. D. Nokes, in An Introduction to EVIDENCE, Fourth Edition at page 489, it is stated that "in contested actions, that party succeeds whose evidence establishes a 175 preponderance of probability, or balance of probabilities in his favour. One party may succeed on some issues, and the opposite party on other issues".

This court is also mindful of the fact that in commercial disputes, memory evidence by its very nature may not be as useful as 180 documentary evidence about facts that happened years back. The weight attached to documentary evidence is higher.

This above thinking was underscored in the case of **Gestmin SGPS** SA Vs Credit SUISSE (UK) Ltd and another (2013) EWHC 3560 (Comm) Leggatt J states; "In the light of these circumstances, the best 185 approach for a judge to adopt in the trial of a commercial case, in my view, to place little if any reliance at all on witness recollections of what was said at meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful 190

purpose-though its utility is often disproportionate to its length. But its value lies largely as I see it, in the opportunity which cross examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivation and working practice of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, the evidence based on that recollection provides a reliable guide to the truth".

I will now go ahead to determine issues as presented by the parties Resolution of issues.

# Issue number one: Whether the suit property was lawfully sold to the 3rd Defendant by the 2nd Defendant?

Counsel for the Plaintiff submitted that the dispute was about the 205 way the loan was disbursed by the 1st Defendant, how the suit property was sold by the $2^{nd}$ Defendant and registered in the names of the 3rd Defendant. The Defendant's Counsel argued that the sale was not conducted in secret and that the Plaintiffs were privy to the sale and therefore could not redeem the property. 210

I will consider the first grievous briefly. This is especially so since disbursement of the loan and amount was not part of the agreed issues. PW1 Sendagire stated that they had applied for UGX 465 million but were given only 280 Million. That in 2005 they got UGX 180 million immediately and UGX 100 million, five months later. That

$\overline{9}$ from the last instalment, the bank reduced the interest accrued and the Plaintiffs received only UGX 79,754,027. This lead to the need for the additional loan of UGX 35 million. However, he admitted that they defaulted on the loan.

From the evidence, I took note of the following. On $9/7/2007$ , the 1st 220 defendant wrote to PW1, indicating that though the arrears were UGX 66, 201, 08, they were demanding the whole amount (UGX 360, 642,684) due to their failure to honour their obligations. Then, on 23/10/2007, the 1st Defendant appointed the $2^{nd}$ defendant as receiver to collect the money from the Plaintiffs. 225

I will start by determining the nature of the relationship between the parties. There was a tripartite relationship between the Plaintiffs, 1st and $2^{nd}$ Defendant. The 3rd Defendant was a third party who comes in at the tail end of this relationship. The original relationship was between the Plaintiffs and the 1st Defendant. The 2nd Defendant was an agent for the 1st Defendant bank in the loan recovery process.

The banker and customer relationship between the $1^{st}$ Defendant and the Plaintiff was strengthened further when the parties entered what they have called an "Investment agreement". The contract between the Plaintiff and their bankers was not termed as a loan agreement, initially.

Looking at the Conditions. The opening term is as follows..."We DFCU are pleased to enter into an investment agreement to invest UGX

280,000,000 ...in the school, for the purpose of expansion. Our investment will be structured as follows.... 240

This investment agreements also has many other terms and conditions that include restricted borrowing and other conditions that are not normally included in standard loan agreements.

My conclusion from this is that the relationship between the parties $\bullet$ went further than usual close proximity of banker and customer. It 245 was more of a partnership aimed at mutual benefit. Clause 8 of the investment agreement is very clear. In essence the 1st Defendant bank was to be involved in key management decisions that went beyond the usual creditor and debtor relationships. It excludes external borrowing, change in school business, payment of dividends 250 and company related internal affairs. The agreement covers; insurance of school properties, a seat on the board by appointment of board member with voting rights, participation in financial decisions, access to all school records and their board member to attend school meetings. 255

It is interesting to note that the $1^{st}$ Defendant had a controlling interest in the said school and in essence the duty of care went way beyond the usual banker and customer relationship. The 1st Defendant was an investor in the said school business. This implies an element of risk taking and higher stakes at the success of the business.

PW1 inferred that a fire broke out at the school the same time the 1st Defendant Bank terminated the agreement and appointed a Receiver. However I note that this fire happened after the loan repayments had become due. 1st Plaintiff admitted that he only paid back about UGX 72 million out of about UGX 315 million due. It is my finding that the investment agreement had been terminated after the 1st Defendant exercised their rights and instructed the $2^{nd}$ Defendant to recover the money invested with the Plaintiffs.

- I note that despite a few irregularities especially on disbursement, 270 the fact is that the Plaintiff's failed to repay the loan. I also find that there is no evidence adduced by the Plaintiff on a balance of probability that the loan disbursement process was mishandled. - I conclude that the Plaintiffs were given final notice on $9/7/2007$ . Money became due and within 3 months the property is sold by the 275 banker/investor. It is the process of sale that is being contested. This then leads to the sale of the mortgage property. The key player then becomes the 2nd Defendant.

Was the sale of mortgaged property properly handled by the $2^{nd}$ Defendant? 280

The case from the beginning was based on stopping the sale and redeeming the suit property and this will remain the focus of my I am mindful of the evidence of the Plaintiffs which decision. described the banker and customer relationship with the 1st Defendant. I note that this was a struggling business. PW1 in his

witness statement stated that when they failed to keep up with the repayments, the 1st Defendant appointed the $2^{nd}$ Defendant as a receiver.

## What does the law say on what amounts to a lawful sale?

The law applicable at that time was the Registration of Titles Act. 290 These events happened before enactment of the Mortgage Act 2009. Court also relies on court decisions on good practices. I will go ahead to use these good practices as a measuring glass to determine the lawfulness of the $2^{nd}$ Defendant's actions surrounding the sale of the mortgaged properties. 295

I will first consider the mortgages. The laws applicable are the Mortgage Act Cap 229 and the Registration of Titles Act (RTA) CAP 230.

Section 116 of RTA provides that: A mortgage under this Act shall, when registered as hereinbefore provided, have effect as a security, but shall not operate as a transfer of the land thereby mortgaged; and in case default is made in payment of the principal sum or interest secured or any part thereof respectively, or in the performance or observance of any covenant expressed in any mortgage or hereby declared to be implied in a mortgage, and the 305 default is continued for one month or for such other period of time as is for that purpose expressly fixed in the mortgage, the mortgagee or his or her transferees may serve on the mortgagor or his or her transferees notice in writing to pay the money owing on the mortgage

or to perform and observe the aforesaid covenants, as the case may 310 he.

Section 117 of the RTA provides that; Where money is secured by a mortgage under this Act is made payable on demand, a demand in writing pursuant to the mortgage shall be equivalent to the notice in writing to pay the money owing provided for by section 116; and no

other notice shall be required to create the default in payment.

Under the Mortgage Act Cap 229, the law that was applicable at the time, it Section 2 states that;

(1)Upon failure of performance of any covenant in a mortgage under the Registration of Titles Act, the mortgage may-

(a) Sue the mortgagor, obligor, if any, or both as the case maybe, on the covenant; or

(b) Realize his or her security under the mortgage in any manner hereafter provided in this Act

Under the provision of Section 10 of the Mortgage Act Cap 229, it allows for a sale other than by foreclosure and states; ... Where the 325 $e^{-\frac{1}{2}e^{2\pi i \theta}}$ mortgage gives expressly to the mortgagee to sell without applying to Court, the sale shall be by public auction unless the mortgagor and encumbrancers subsequent to the mortgagee, if any, consent to a sale by private treaty. 330

The Supreme Court offered an interpretation of the above Section 9 (Now Section 10 of the Mortgage Act Cap 229), in Barclays Bank of Uganda V. Livingstone Kakende Civil Appeal No. 22/93. They

cited with approval in Jemeo Twase & 3 Ors Versus Attorney General & Benson Ninsiima Civil Suit No. 421 of 2002; where it 335 was held that; Firstly that; the bank does not require leave of Court to realize its security once the terms of the mortgage are clear that the mortgagor irrevocably expressly consented to the sale without recourse to Court in the event of failure to repay the loan. Secondly that the clause in a mortgage decree which allows a mortgage to sell without 340 recourse to court does not oust the jurisdiction of Court. Thirdly that there can be no principle of natural justice which outshines an express legislative provision such as Section 9 of the Mortgage Decree and *finally that the sale was sanctioned by Section 9.*

In the case of **Jemeo Twase & 3 Ors Versus Attorney General &** 345 **Benson Ninsiima Supra, this Court cited with approval the decision** in the case of *Epaineti Mubiru Versus Uganda Credit and Saving* **Bank HCCS No. 567 of 1965** where it was stated that the mortgagee has a duty to take reasonable precautions in the conduct of the sale so as to obtain the true market value for the property as was stated. 350

In Roger Michael and others Versus Douglas Henry Miller and Another (2004) EWCA C.v. 282 cited in the case Jeme Twase & 3 Ors Versus Attorney General Supra. Lord Justice JONATHAN PARLKER stated that; "in my Judgment, just as applying the Bolam Principle, there will not be breach duty of care if the valuation falls within an acceptable margin of error..., so a mortgagee will not breach his duty to the mortgagor if in the exercise of his power to sell the mortgaged property, he exercises his judgment reasonably; and to the

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extent that judgment involves assessing the market value of the mortgaged property the mortgagee will have acted reasonably, if his assessment falls within an acceptable margin of error."

Furthermore, in *Downsview Nominee Ltd & Another Versus First* City Copr Ltd and Another (1993) 3 ALL ER 626 at p. 637 as per **Lord Templeman.** it was held that; If a mortgagee exercises his power of sale in good faith for the purpose of protecting his security, he is not liable to the mortgager even though he might have obtained a higher price and even though the terms might be regarded as disadvantageous to the Mortgagor.

In addition, rules have been developed that include; the Mortgagee should not act in secret, should obtain the best price and not act in bad faith. The court decisions below confirm this line of thinking.

The Court of Appeal for Eastern Africa (on appeal from Uganda) in Yosiya Sajabi v Musa Umar Amerliwalla and Matia Wamala Civil Appeal No. 72 of 1955, (1956) 23 EACA 71 stated the law applicable to this area. Briggs Ag. V P, stated as follows: 'The English rule that, although a mortgagee in selling is not a trustee for the mortgagor, he must sell in good faith and at a reasonable price than he knows to be obtainable. It also, I think, leads to the conclusion that, if the mortgagee acts in secret and conceals what he is doing from the mortgagor, he may expose himself to some suspicion of not having acted in good faith.'

This English rule is restated in **Cuckmere Brick Co Ltd and another** v Mutual Finance Ltd [1971] (2) All ER 633 at page 644 by Salmon LJ., in the following words, '....... He (the Mortgagee) has the right to 385 realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low.'

Salmon, LJ., continued to say with regard to the duty of care to obtain a reasonable price, ... It is impossible to pretend that the state of the authorities on this branch of the law is entirely satisfactory. There are some dicta which suggest that unless a mortgagee acts in bad faith he is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which suggest that, in addition to the duty of acting in good faith, the mortgagee is under a duty to take reasonable care to obtain whatever is the true market value of the mortgaged property at *the moment he chooses to sell it: .......*

The Lord Justice went on to state that "The proposition that the mortgagee owes both duties, in my judgment, represents the true view of the law. Approaching the matter first of all on principle, it is to be observed that if the sale yields a surplus over the amount owed under the mortgage, the mortgagee holds this surplus in trust for the mortgagor. If the sale shows a deficiency, the mortgagor has to make it good out of his own pocket. The mortgagor is vitally affected by the result of the sale but its preparation and conduct is left entirely in the

hands of the mortgagee. The proximity between them could scarcely be closer. Surely they are 'neighbours'. Given that the power of sale is for the benefit of the mortgagee and that he is entitled to choose the moment to sell which suits him, it would be strange indeed if he were under no legal obligation to take reasonable care to obtain what I call the true market value at the date of the sale. Some of the textbooks Vaisey $J$ in refer to the 'proper price', others to the 'best price'. Reliance Permanent Building Society v Harwood-Stamper ([1944] 415 2 All ER 75 at 76, 77, [1944] Ch 362 at 364, 365], seems to have attached great importance to the difference between these two descriptions of 'price. My difficulty is that I cannot see any real difference between them. 'Proper price' is perhaps a little nebulous, and 'the best price' may suggest an exceptionally high price. That is 420 why I prefer to call it 'the true market value'.

I summarized these above good practices in my decision Civil Suit 189 of 2010 Afro Moto Ltd & 2 others Vs Barclays Bank Uganda 425 **Ltd.** where I stated as follows "It is also my opinion that the rights of the mortgagee to sell are not absolute and are caveated by the duty to exercise care. These are principles grounded in equity and natural justice and applied by the courts over time and are enshrined in current Mortgage Act of 2009. 430

It is now the statutory duty that despite the right of a mortgagee to sell the mortgaged property in recovery of the debt owned by mortgagor, it owes a duty of care to do the following. - 1. The first rule is not to act in secret. The Mortgagee should also obtain the best price and not act in bad faith. - 2. Value the property before sale to establish the current market and forced sale value, obtain the best price and not to sell the secured property under forced sale and under value price. - 3. Property before sale should be advertised after mortgager has been notified. - 4. Method of sale. Public auction is competitive and more transparent and if private treaty is used, the best price and involvement of the mortgagor is preferable especially access to information." - I will go ahead to examine the sale process in this case especially 445 since each case should be judged based on its unique circumstances. It is also my opinion that this notwithstanding, the relationship of banker and customer is one of close proximity based on trust and confidence founded on duty of care and mutual benefit. This creates common applicable rules that apply across the board and provide the 450 necessary safe guards to protect the interests of both parties in this delicate relationship. I will use set perimeters (explained above) to determine whether the $1^{st}$ Defendant and $2^{nd}$ Defendant discharged their duty of care as Mortgagee. - The first rule is not to act in secret. The Mortgagee should also 455 obtain the best price and not act in bad faith.

The Plaintiff's evidence indicates that they knew about the sale long after, the fact. Therefore did the $2^{nd}$ Defendant act in secret?

DW1, the 1st Defendant's Business Support/Recoveries Manager in her witness statement stated that"...on 3rd December 2007, the securities were sold to the 3rd Defendant at a consideration of UGX $300,000,000$ /= although the formal agreement was executed on the 10th December 2007. In cross examination, she confirmed that the 1st Defendant received the money on 3rd December 2007. I find this hard to believe since there is no evidence that the $3rd$ Defendant made an offer or submitted a bid on $3/12/2007$ . Infact it is not certain from the evidence that he was at the auction.

This evidence was supported by the $2^{nd}$ Defendant who stated that "following the advertisement, I received bids from various individuals and companies with the $3^{\ensuremath{\text{rd}}}$ Defendant's bid being the highest bid after due process". He explained how the Hared bid championed by the Plaintiffs came to be part of the sale.

Though I have no reason to disbelieve the $2^{\rm nd}$ Defendant, I would have expected documentary proof of all the bids received and how the whole sale process was conducted. A receiver entrusted with sale of mortgaged property should have all the processes documented since there is an underlying duty of care. There is fiduciary duty owned that is very different from an ordinary broker of estate agent. The only way to guard against liability is to adduce proof of correct processes. Word of mouth or reputation is not enough. As pointed out in the beginning of my decision, documentary evidence is a golden egg in commercial disputes.

Therefore, it is my finding that this sale to the 3rd Defendant was conducted in secret. My findings are strengthened by the fact that by the time this case was filed on $14/12/2007$ , the sale was still a secret. Infact in its written statement of defence filed on 15/1/2008, no mention was made about the sale that happened on $3/12/2007$ nor the purchase agreement of $10/12/2007$ .

Infact the first mention of the sale was in the $21/1/2008$ letter to the Principal Judge by the $2^{nd}$ Defendant law firm; Ligomarc Advocates. 490 In this complaint on Court record, was in regard to "registrar's issuance of unnecessary interim orders that were causing confusion to the advantage of debtors". This letter contains some interesting facts. In part, it reads as follows:

"That on 3rd December 2007, the Receiver/Manager opened the bids 495 he had received as indicated in the advert. Significantly, Mr. Sendagire was personally present during the bid opening process which $M/s$ Hared Petroleum Ltd's bid of Ush 400,000,000 (Uganda shillings Four Hundred Million) was declared the highest.

"However $M/S$ Hared Petroleum Ltd failed to pay the offer price 500 following which on 10th December, an offer was made to Mr. Godfrey Kirumira whose offer of Ushs 300,000,000 ...... " The letter indicates that the money was paid to the $2^{nd}$ Defendant and sale agreement concluded that same day. That the sale was made on $10^{th}$ December 2007 and not 3rd December 2007. 505

The inconsistent accounts by the Defendants about when and how the sale of the suit property to the $3^{\rm rd}$ Defendant was conducted casts doubt as to the transparency of the whole sale transaction. The $2^{nd}$ Defendant was only to sell by private treaty with the consent of the 1st Defendant and money paid directly to them. However the 2nd Defendant did not follow these instruction.

$2^{nd}$ Rule: establish the value the property before sale to establish the current market and forced sale value, obtain the best price and not to sell the secured property under forced sale and under value price.

The 1st Defendant produced a valuation report dated June 14th 2007 that indicated that the current market value was UGX 550,000,000 and forced sale value was UGX 330,000,000. According to the 2nd Defendant, the Receiver, he sold the property to the 3rd Defendant at UGX 300,000,000. This was below forced price and thus under value.

The $1^{st}$ Plaintiff also had a valuation report made dated 20/7/2009 (long after the property was sold) which was based on inspection carried out on $8/11/2007$ . The value as of $3/12/2007$ was UGX 1,450,000,000.

PW5 Eddie Nsamba-Gayiiya valuation surveyor with M/S Consultant 525 Surveyors and Planners defended his valuation and stated that he assessed the suit property when one of the structures was burnt. He stated that he did not include this fact in the assessment since the owner told him that the room had been repaired. I note that the evidential value of this report is limited due to the fact that is was 530

made in 2009. More so, PW5 never considered the forced sale value. However he explained that forced sale value is about 60-70% of the market value.

The $2^{nd}$ Defendant indicated that he used the valuation report of May 2007 which put the forced sale value at UGX 330,000,000. He also 535 indicated that when he visited the school, the environment was not good with smelly toilets and a burnt dormitory. As such the value was very low and would not attract a good price.

$2nd$ Defendant in cross examination explained the different bids he received. He stated: "My Lord, I have three bids Hared petroleum ltd 540 submitted through the law firm of Mubiru Musoke Musisi it is dated 1st December". When asked by the Court how much Kirumira offered, he stated.." 300 million, Hared Petroleum Bid was for 400 million, and we have chifer Belinda 220 million , Kabojja Secondary school 250 million , first instalment of 150 million to be paid by $8^{th}$ December it is dated 545 30th November my Lord, $2^{nd}$ instalment 50 million to be paid within a period not exceeding two weeks after the $1^{st}$ instalment , $3^{rd}$ instalment 50 million to be paid in a period not exceeding two weeks after the $2^{nd}$ instalment , my Lord, the last bid submitted $27^{\text{th}}$ November was John M Agaba for 300 million."

$2^{nd}$ Defendant explained further that .."400 million was the best price from Hared and I must also say that the bid from Hared was sourced by Mr. Sendagire himself. They called him and some called Kiryowa who was with him in my office and also called Yusuf and they talked to him and asked him to submit the bid and since the process was

ongoing they rushed to the next office Mubiru Musoke's office and that was how that bid was secured but Hared called me and said he would not be interested in this and I told them that this phone call I have just received is from Yusuf he is not interested and now as we sat and $\emph{w}$ wondered what next they said there was Mr. Kirumira . And said that yes is here so from my understanding and based on the interaction $\ensuremath{\mathsf{I}}$ had with Mr. Sendagire they were comfortable with Mr. Kirumira , their preference was Hared who made it clear he would not participate in the process and I discussed this with them with Mr. Musisi himself...."

Normally even where the bids are low, the Mortgagee has a right to sell at any price bearing in mind that it should be the best price. But 565 selling well below forced sale value was negligent act.

$3^{\rm rd}$ Rule is that Property before sale should be advertised after mortgager has been notified. The 2nd Defendant clearly notified the Plaintiffs and advertised the sale of the property. The evidence clearly indicates that the $2^{nd}$ Defendant, the Receiver issued the Plaintiff's a notice of his appointment and intention to sale the securities. Notice was dated $4/10/2007$ . That the 1st Plaintiff picked it from his office.

On 24/10/2007, the $2^{nd}$ Defendant wrote to the 1st Plaintiff (PW1) asking for immediate payment of UGX 358,303,078 or else he would proceed to sell the property within 30 days. On $29/10/20007$ , the 1st Plaintiff wrote back to the $2^{nd}$ Defendant requesting for 3 months to make good on the debt. He indicated that they got problems when a fire erupted at the school on 24/10/2007 and this was affecting their opportunity to repay the loan.

I believe that this process was regular and I find no fault in the $2nd$ Defendant in this regard.

4th Rule: Method of sale. Public auction is competitive and more transparent and if private treaty is used, the best price and involvement of the mortgagor is preferable especially access to information.

The advert was clear. I will reproduce parts of it: Notice of intended *sale by Public Auction/Private treaty.*

Date of sale: Monday 3rd December 2007 at 11.00am.

Terms of payment: full payment upon acceptance of the offer price. 590

The terms of appointment of the $2^{nd}$ defendant are very clear. I will highlight a few. Clause 5 states as follows: Any sale of the assets of the company shall be conducted through a process of competitive bidding that ensures a high level of transparency. Clause 6 states that payment for any assets at the time of sale shall be made directly on to the DFCU limited account limited. Clause 7 states that no sale should be conducted by private treaty without the prior consent of DFCU.

The $2^{nd}$ Defendant clearly did not follow these instructions by the 1st Defendant. There was only one bid that was accepted. It is not clear 600 why the $2^{nd}$ Defendant did not advertise again the sale until he got a buyer offering the best price.

I also note that the sale to the $3rd$ Defendant was by private treaty rather than public auction. A public auction is a public event where interested parties attend and present bids. While a sale by private treaty is determined privately between the parties to the exclusion of all others. This form of sale required the consent of the $1^{st}$ Defendant. More so, the money was paid to the $2^{nd}$ Defendant rather than directly to the 1st Defendant.

From the evidence it is clear that the $1st$ Plaintiff and his agents attended the said sale. He insisted that he was not informed of the 610 sale to the 3rd Defendant. That the highest bidder was Hared. That on $3/12/2007$ , the auction was not effective. He then went abroad to look for money only to learn that the 3rd Defendant had bought the suit property and taken over the school. The $2^{nd}$ Defendant did not adduce any evidence to prove that the Plaintiffs were informed of the 615 sale to the 3rd Defendant.

PW4 Magembe stated that he attended the auction of $3/12/2007$ . That there were only 2 bids that day. This included Hared Petroleum and another from someone represented by person called Moses. That the 3rd Defendant was not there at bid opening and did not present a bid. In cross examination he confirmed that the auctioneer read out the bids. Hared offered UGX 400,000,000. He did not know why Hared did not pay. It is also clear that the 3rd Defendant never attended the auction on the said date.

In cross examination, the 3rd Defendant gave explanation as to the bidding process. I will reproduce the transcript.

**DW5:** I tendered in my bid on the $3^{rd}$ December 2007.

Mr. Rubaale: To who?

DW5: To DFCU. 630

**Mr. Rubaale:** I am saying that to whom did you tender your bid?

**DW5:** To the receiver of DFCU bank.

Mr. Rubaale: Who was this?

**DW5:** This was somebody called Kabiito.

**Mr. Rubaale:** Do you remember the exact time when you submitted 635 your bid?

**DW5:** I went there in the morning between 8 and 9.

**Mr. Rubaale:** Did you attend the bid opening?

**DW5:** Yes I attended.

**Mr. Rubaale:** Who else attended the bid opening exercise? 640

DW5: So many even Sendagire himself was there that is when I happened to see him, there was Hared a Somali's company which brought in the bid, then there was another person working with Ministry of Education and so many others.

**Mr. Rubaale:** How many bids were opened by the receiver? 645

**DW5:** I think they were 3 or 4.

**Mr. Rubaale:** Do you remember the values?

**DW5:** The highest I saw which was tendered in by the former owner was like 400 million.

Mr. Rubaale: The next one? 650

**DW5:** The next one was about 300 something.

Mr. Rubale: Who tendered in that one? **DW5:** That is the man from Ministry Of Education.

Mr. Rubaale: It was about how much?

**DW5:** I think 310 and something like that. 655

Mr. Rubaale: Okay the next one?

DW5: Mine was 300 million.

Mr. Rubaale: And the others?

**DW5:** Those are the ones I remember.

**Mr. Rubaale:** But is it possible that there were other bids or should we take it that you remember all of them. 660

**DW5:** I remember those three.

**Mr. Rubaale:** But there could have been other bids.

DW5: I have answered your question that I remember only those three.

**Mr. Rubaale:** Mr. Kirumira when was your bid accepted?

**DW5:** That day the receiver told me that do you have the money and I said that I can pay in 7 days and he said okay go and bring the money that means he accepted my bid.

**Mr. Rubaale:** So your bid was accepted on the $3^{rd}$ . 670

**DW5:** Yes they accepted it on $3^{rd}$ .

**Mr. Rubaale:** And it was communicated to you on the same day?

DW5: Yes.

**Mr. Rubaale:** But you did not have the money on that day?

**DW5:** I stated my terms and they accepted it. 675

Mr. Rubaale: Answer my question; you did not have the money on that day?

**DW5:** Yes, I stated my terms and they accepted 7days.

**Mr. Rubaale:** Did the advert state the terms of payment?

**DW5:** That full payment should be made upon acceptance. 680

**Mr. Rubaale:** When did you pay the money?

**DW5:** On 10th of December 2007.

**Mr. Rubaale:** To whom did you pay the money?

**DW5:** DFCU bank.

**Mr. Rubaale:** You transferred the money to a DFCU bank account? 685 DW5: Yes.

**Mr. Rubaale:** Do you have proof of this transfer of your money to a DFCU bank account?

**DW5:** Yes I made RTGS direct from Crane bank to DFCU bank.

**Mr. Rubaale:** When were the securities sold to you? 690

**DW5:** On $10^{th}$ we made the agreement after receiving the money because they received the money in the morning then we signed a sale agreement.

**Mr. Rubaale:** On when.

## DW5: On 10th December 2007. 695

I also find some contradictions between the evidence of $2^{nd}$ and $3^{rd}$ Defendants. 2nd Defendant indicated that the money was paid to him and he removed his commission and expenses and remitted the balance to the 1st Defendant. The 3rd Defendant insisted that he transferred the money to DFCU bank. The auction process was conducted informally. The $2^{nd}$ Defendant never tendered into court

the bids he received to prove that it was competitive biding and transparent.

Role of the $3^{rd}$ Defendant is also a point of determination especially as to whether he was a bona fide purchaser for value. 705

3rd Defendant explanation is that he purchased the said property on 10/12/2007 at UGX 300,000,000 and there were no irregularities. That he was a bona fide purchaser for value. His evidence has been reproduced below.

**Court:** Sendagire told Court that he is the one who introduced you to 710 the bank and the receiver.

**DW5:** That is a big lie my lord.

**Court:** Did you go to the school before buying the property or you just looked at the advert and then you bought?

**DW5:** When I read the advert in the newspaper I picked interest so $\overline{quietly}$ I went around and looked at the school before the receiver took 715 me there because I have a primary school so I was interested in a secondary school.

**Court:** Wasn't this school of a higher value than 300 million?

## **DW5:** 720

My LordI wish you saw that school because it was in a bad shape the compound was muddy, toilets were bad, the other side was gutted fire so there was a lot to do and I believe even 300 million of that time was too much of 11 years ago by the time I bought it because when I bought it I built a new building for staff quarters, I paved the way, I built a wall, I did a lot on the school my lord.

I note from the different versions by the $1^{st}$ and $2^{nd}$ defendant as to date of sale that the whole process was not transparent. The 3rd Defendant did not avail credible evidence of how he purchased. Whether he made a bid or not is not clear especially in light of the 1st and $2^{nd}$ defendant's evidence that the sale was conducted on $3/12/2007$ .

On the alleged relationship with the Plaintiffs, 3rd Defendant explained as follows in his witness statement; 735

"The plaintiffs have never approached me and I have never promised to advance financial assistance to them so that they settle their indebtedness with the $1^{st}$ Defendant. The allegations that I promised the Plaintiff financial assistance and took advantage of their situation are unfounded for the following reasons.

- I have never met the Plaintiff and promised to sort out their $i$ financial wrangles. - The Plaintiff has never been to my office as alleged in the $ii$ Plaint. - Prior to the purchase of the suit property, I have never iii) contracted the $1$ st Defendant on matters to do with the suit property. - I did not know the Plaintiff till after the purchase of the suit $i\nu$ ) property - I have never referred the Plaintiff to any lawyers let alone Mr. $v)$ Kato Ssekabanja as alleged to prepare any legal documents for whatever purpose."

1st Plaintiff PW1 claimed that the 3rd Defendant who was to be their redeemer ended up acting fraudulently and taking the property at giveaway price. During cross examination, he stated as follows. Mr. Kirumira who is declared as the highest bidder was a redeemer to me. I visited Mr. Kirumira when we had some challenges in the bank that they gave us less money that they gave us instalments. The loan they split it into 2 and our business was not going on well. I visited Mr. Kirumira at his place being directed by one of our relatives Mr. Mperese to assist us with some funds. The funds we needed were to help us bridge the gap as we were waiting for some funds from our friends in the USA.

Mr. Kirumira requested me to furnish him with some copies I had available like letters the bank was writing to me, my re-payment schedule, copies of the titles and he gave me a small note to direct me to his lawyer and they photocopied them all and he promised to help me to solve that problem.

The second time after being given a letter from the receiver we realised a puzzle at our school that we didn't have money these people are demanding. Again I and Madam Wegoye a sister to my wife and Mr. Dickson Magembe we moved again and rushed to Kirumira and Mr. Kirumira told us here you have come these people had already told me to buy your property. But it was earlier before even the sale."

His evidence is corroborated in part by the evidence of the $2^{nd}$ 775 Defendant. In his witness statement; About his meeting with the 1st Plaintiff when he picked the notice on 25/10/2007, he stated that

"During my meeting with Sendagire, he did not only acknowledge his indebtedness but also told me of serious hardships he had suffered at the school resulting in a decision to end the term early for some classes as he could not afford feeding. He also told me he intended to solve his hardships through appeals to State House and a charity in the United States that he intended to visit after getting a visa. Finally, he also mentioned that he had friends in kwagalana group headed by the third defendant who he would approach for assistance".

He also stated "that I did not in any manner connive with the 3rd Defendant to sell the securities to him and that the sale was conducted on merit and after due process. To my knowledge it is the Plaintiffs who interested the 3rd Defendant ...."

PW4 Magembe Dickson who was the School Administrator gave his 790 version of the relationship between the Plaintiffs and the 3rd Defendant. He stated as follows. "Mr. Kirumira responded positively and assured us that he was going to give us the money we needed. We all believed him and trusted his word. He stated that our visit to him was timely because the lawyers of the bank and the bank's 795 officials as well as the $2^{nd}$ defendant had already entered into a secret deal the school land at a very low price for to sell commissions..........after reading through (documents) he advised us to bother the $1^{st}$ and $2^{nd}$ defendant about that issue not anymore............ He asked me to take him to the school in order to 800 show him the boundaries of the school, plus all the buildings and all assets in them, which I did. ...."

Interestingly, PW4 stated that before the $3/12/2007$ auction, the 3rd Defendant was not within the picture. That they approached the 3rd Defendant to lend them money to pay the bank while they looked for a more permanent solution. I note that this contradicts the evidence of the Plaintiffs and $2^{nd}$ Defendant that dealings with the $3^{rd}$ Defendant started well before the auction.

The 3rd Defendant further explained the relationship with the Plaintiffs. He stated that

Mr. Walukaga: Mr. Kirumira could you explain to Court whether Mr. Sendagire was part of the sale and the bidding process of this property.

**DW5:** To my knowledge I happened to find Mr. Sendagire and actually his wife Gladys there in the receivers premises and as information was 815 going on I was told that he was also bidding he was part of the bidder in the some Somali company, he bided so when we tendered in our bids that is where actually I came to know all this information and then I happened to talk also to Sendagire and he also narrated the same story that he was also trying to bid but he was expecting money 820 from America which would take time.

He even asked me that if you get chance to buy please give me a chance to come and buy from you".

I find $3^{rd}$ Defendant evidence unreliable due to the evidence of the $2^{nd}$ Defendant who corroborated the Plaintiffs' evidence of dealings between the parties. Denial of previous interaction with the Plaintiff

points to deliberate untruthfulness which casts a shadow on the probative value of the 3rd Defendant's evidence.

## Conclusion on issue one

I note that although the sale of the suit property was conducted in 830 the most part in a lawful manner in terms of notice and advert. The property was sold under value and lacks a high degree of transparency. The duty of care owed to the Plaintiff to obtain the best price was not exercised with diligence. Though I believe that the $2^{nd}$ Defendant did not act in bad faith, he should have taken reasonable 835 care to document the whole process and obtain the best price. The 3rd Defendant's offer of UGX 300,000,000 was not the best price. This created loss to the Plaintiffs and left an outstanding loan balance.

## Issue number two: Whether there were any movable properties belonging to the Plaintiffs at the suit property unlawfully taken 840 over or retained by the Defendants jointly or severally?

Despite the circumstances of the sale, an issue was raised about the movable properties. Unfortunately, the Receiver/manager person charged with this task of ensuring any movable property is recorded and vacant possession is effected is scanty on the details. This issue would have been moot if the 2nd Defendant had written to the Plaintiffs informing them of the sale and asking them to vacate the suit property. I also did not see any evidence from the 3rd Defendant that he wrote to the Plaintiff introducing himself as the new owner

and demanding they vacate the school with all their property. Infact 850 it appears eviction took place after this suit had been filed.

There is also no inventory of any movable property on the premises. I also note that all the valuation reports do not relate to the value of the movable properties. This was an operating school and not just structures and building. I would have expected a valuation report that covers all assets include goodwill among others.

I would have expected the Receiver to have filed a report as is good practice. In the absence of documentary evidence of moveable properties or lack of them, this Court has to evaluate the evidence adduced by the parties based on a balance of probability.

The burden of proving the fact that there was property taken by the 3rd Defendant lies on the Plaintiffs. 1st Plaintiff stated that they had list of properties. They lost receipts when the school was taken over by the 3rd Defendant. There were even goats that were taken. The photographs tendered are not of evidential value since they are not dated. It is clear that there was no documentary evidence to prove that at the time the 3rd Defendant took over the school, the moveable property was itemized. Unfortunately, the Plaintiffs have not proved this fact on a balance of probability. What other evidence is there?

$2nd$ Plaintiff (PW2) unlike PW1 was present when the school was taken over by the 3rd Defendant. In her witness statement, she stated that "the $3^{\rm rd}$ Defendant subsequently forcefully evicted us from the suit land and even caused the wrongful arrest of me on the false allegation that

I had stolen his computer. The $3^{rd}$ defendant also forcefully converted our moveable properties worth Ug. Shs 341,191,720 at the time and 875 now worth double that amount. Even all our school records, books of account, registers etc were taken by the $3^{rd}$ defendant". The $3^{rd}$ defendant took all our movable assets and resisted all our efforts to take them away from them.

- PW2 insisted that the 3rd Defendant took possession of the school 880 and was breaking locks of locked rooms. That he even had her arrested after she had taken a computer for repair the day before he took over the school. That the case never proceeded. A police bond was produced to prove existence of the criminal case. - PW3 Mukasa Solomon was a student and witnessed the events that 885 form the basis of this issue. That he stayed at the school from 2006 to 2008 as a bursary student with responsibility of doing odd jobs around the school/

He pointed out the following properties. That they had a big and excellent library full of books including donations from overseas. They had a special room called computer lab for computer lessons. They had modern school facilities including desks, chairs, blackboards, drawers, cupboard, machinery and equipment in the vocational wing plus home economics including catering services.

In particular of relevancy in his witness statement was; ... At the 895 beginning of 2008, Mr. Godfrey Kirumira Kalule brought and posted a number of armed guards who surrounded the school and took over its

security. ......... They seized all the keys from me. At that time, all the school and all its facilities were still intact............ I reported all these incidences to Mrs Sendagire.... In response, Mrs Sendagire came to the school. She was allowed to enter. A day or two earlier, she had come and taken her computer which was at the reception area. On the second occasion, she tried to go around but was being followed by Kirumira's guards who did not allow her to touch or do anything in the school. They could not even allow her to take out their records including the books of account, registers, files cupboards and drawers. A few days later, a vehicle came to the school bearing on its side a name which I later came to know as that of Mr. Kirumira's hotel. I saw Kirumira's guards seizing all the goats and loading them onto the vehicle which was a box body. They took them away...." He indicated that he was in charge of the goat farm and would take them for 910 grazing.

In cross examination, PW3 Solomon stated that the 3rd Defendant took over the school in January 2008. That he had been keeping the keys of the school since he stayed there and never went home. He contradicts PW2 when he confirms that there was no breaking of the doors since he had all the keys. He insisted that the Plaintiffs were not allowed to "take even a fork or a piece of spoon. We just continued using the same property like desks, computers everything because they were not even allowed to come near the gate".

I found this witness PW3 very reliable and consistent under rigorous cross examination. The cogency of his evidence is high and he came across as a very credible witness.

PW6 Andrew Ntakwe a photographer informed Court of the photographs he had taken of the school between 2003 and 2007. 925 These photographs indicate that the school had movable assets that included laboratory, library books, computers and furniture. PW7 Mathew Basimbe developed the pictures into a video that formed part of the Plaintiff's case. However I did not see any dates on the pictures and there is no way for this Court to confirm that these were the 930 assets that the Plaintiffs lost when the 3rd Defendant took over the school in early 2008.

The 2nd Defendant also indicated that the school had movable property. I will reproduce the relevant parts of the Court transcript.

**Mr. Rubaale:** Apart from this agreement, is there any other agreement 935 that you executed.

**Court:** Which agreement?

**Mr. Rubaale:** It is an agreement between the witness and Godfrey Kirumira Kalule. In respect of any other assets that belong to the plaintiffs is there any other agreement? 940

**DW2:** My only charge was in respect to this one.

**Mr. Rubaale:** Did you sell the movable properties?

DW2: No.

**Court:** Wasn't there a movable property?

**DW2:** Yes it was there but there was no charge over it the bank had 945 no interest in it.

Court: When you sold the property you told the debtor to remove their property.

**DW2:** They were aware and they removed.

**Court:** Do you have proof that they removed the property? 950

DW2: My Lord, I never evicted.

**Mr. Rubaale:** Mr. Kabiito where you there when the plaintiffs removed the movable properties?

**DW2:** Yes but I made it clear to them that I had sold and the process had been completed.

Mr. Rubaale: When was that?

**DW2:** On $10^{\text{th}}$ by the way.

**Mr. Rubaale:** Did you write to them?

**DW2:** I have found the letter here I wrote to the proprietors; this is to advise that I have sold the above property to Mr. Godfrey Kirumira at 300 million possession thereof has been...

Court: Dated what?

**DW2:** $10^{th}$ December but what one I do not have but I seem to see is the letter acknowledging.

**Mr. Rubaale:** Was it received by the plaintiffs? 965

**DW2:** I probably need more time.

Mr. Rubaale: So you do not have it?

**DW2:** I need to check again but I just want to emphasize a point that they were aware.

**Court:** My question is about to do with the movable property, did you 970 value it?

**DW2:** No I had no interest in it my Lord. That would be unnecessary expense.

**Court:** When you were selling it did you sell buildings alone or ?

**DW2:** Just the land and buildings. 975

**Court:** That is what the agreement says?

**DW2:** Yes that is what the agreement says I had no interest in the movables.

The evidence of the $2^{nd}$ Defendant corroborates in part the fact that there were movable properties in the school at the time of sale. 980 However no inventory was made. This I found irresponsible since this was a school premises and not just structures and empty buildings.

DW3 Moses Busulwa supervisor of the 3rd Defendant's properties enlightened the Court of what transpired. He stated that he was the one who took "occupation of the school and arranged for the LCs to 985 inspect the premises". He stated as follows;... "At the time I went to the LCs, all movable assets of the school had been taken and the premises were empty. There are not assets of the Plaintiff on the school premises at all and all furniture, computers, beds, laboratory equipment and all movables on the premises now belong to the $3rd$ Defendant".

His evidence is corroborated in part by DW4 Deogratius Muwanga Kayizzi, Vice Chairpersons of Mawanyi Bwebajja LC 1. In his witness statement he stated as follows. " on $10^{th}$ December 2007, the 3rd Defendant approached me and introduced himself as the purchaser of the Land on which Bright future Sec Sch is sitting...... Upon acquisition of the said property, the 3rd Defendant permitted the Plaintiffs to

remain on the said school premises as they prepared to leave. Occasionally, I got to know that the $1^{st}$ Plaintiff resisted the takeover of the school by the $3^{\ensuremath{\text{rd}}}$ Defendant but ultimately vacated with all the movables items that were on the school premises.

On $1/1/2008$ , I inspected the entire school premises including offices, dormitories, laboratories, staff offices and kitchen and confirmed that all movables had indeed been taken and the structures were empty.

Prior to the 10th December 2007, while conducting my duties on the village, and as I passed by the school premises, I noticed the $2^{nd}$ Plaintiff standing next to a truck with a group loading movable items on trucks but I did not inquire where she was taking them.

I have been shown a list of items allegedly taken over by the $3^{\mbox{\tiny rd}}$ Defendant and my response to this is that the list is fabricated. All movables were taken and the school premises were empty as of 1st 1010 **January 2008".**

In cross examination, DW4 explained that $2^{nd}$ and $3^{rd}$ Defendant came and informed them about the sale. He then changed his story about the movable property. He stated that the property was removed before 10th December 2007.

The specifics below are clear that it was includes hearsay and thus inadmissible as evidence. However, DW4 insisted that he saw a vehicle taking away some items from the school. He states as follows:

1020 **DW4:** I saw a car one day taking items

> **Mr. Rubaale:** Did you see Mr. Sendagire taking movable items? **DW4:** I have never seen Mr. Sendagire taking the movable items. **Mr. Rubaale:** How about the $2^{nd}$ plaintiff?

DW4: I saw some movable items being taken on a vehicle but I asked a certain lady and she told me that the bank had sold their school so 1025 they are taking their movable items.

Sendege: Did you see Ms. Nanyombi Gladys taking the movable items out of the school?

**DW4:** I was told.

- He stated that it was Mr. Busulwa who told him that all movables 1030 were taken. However DW3 Mr. Busulwa in his witness statement stated that; "On the 1st January 2008, I made inquires and was directed to the residence of Mr. Deogratius Muwanga who I went and requested to visit the school." - Court inquired from the 3rd Defendant about the claim made by the 1035 Plaintiffs for movable property. His response is highlighted below.

**Court:** How was the process of taking over the school, take us step by step.

**DW5:** On $10^{th}$ after the agreement the receiver took me to the school and we found there a care taker the one I mentioned the boy who was 1040 on bursary called Mukasa so we went and he handed over the school to me, that time we called the acting chairman who took me to the late chairman Aloysius and then we came to the school so he handed over the school to me, there was Mukasa and then I brought in my security company to guard the school. 1045

**Court:** Did you take stock of what was in the school when it was handed over to you, do you have any document to show what was handed over to you?

**DW5:** I need to check my Lord but when we took over the school there $\overline{was}$ one side of the school the boys side had gutted fire it was in bad shape so when the chairman came in we went round the school and 1050 we found funny things around the school but there was no movable items in the school everything was taken and then the receiver said now I have handed over the school to you so I brought in my guards and they started guarding because the two chairmen were there Mr. Muwanga and the late real Chairman Aloysius . 1055

**Court:** The $2^{nd}$ plaintiff said she was arrested for taking a computer from the school by your security personnel and taken to Police.

**DW5:** It was a long process my Lord. When I started that school I recruited the old staff and they were dealing with the former owners so how they smuggled my computer I had just bought and then we 1060 followed it up to Police because we got some information I was buying things that time for the new development .

**Court:** So the computer was taken by the old owners when you had taken over the school or before. 1065

**DW5:** It was taken the time I had taken over.

**Court:** So the computer was yours or for the school?

**DW5:** It was mine.

The evidence of DW3 and DW4 does not corroborate each other. This lends credence to the evidence of PW2 and PW3 of the take over the 1070 school by the 3rd Defendant. Furthermore the evidence of the 3rd Defendant contradicts that of everyone else. He states that he took over the school on 10th December 2007. That 2nd Defendant took him to the school and they called the chairman and the school was handed over to him. That he then posted his guards to guide the

place. Meanwhile $2^{nd}$ Defendant claims not to have been involved. DW3 and DW4 stated that the takeover took place on $1/1/2008$ . This is corroborated in part by PW3 about what happened.

There is also an important factor of the arrest of PW3 for the computer which she claims was hers. I do not believe the 3rd 1080 Defendant that it was his given the fact that most of 3rd Defendant evidence is inconsistent in material factors. If property like a computer was still on the premises, then this strengthens the Plaintiffs' case that they lost other movable properties.

In conclusion to issue two. I find that they were movable properties 1085 on the suit property that were retained by the 3rd Defendant in particular. Apart from a computer, the Plaintiffs have failed on a balance of probability to prove the exact properties and the value.

## Issue number three: Whether the Plaintiffs are still indebted to the 1st Defendant and if so to what extent? 1090

The 1st Defendant claimed UGX 67,698,327 as outstanding balance. This amount may be disputed. I note that the $1^{st}$ Defendant never submitted a final account. More so there was evidence adduced that insurance paid for the fire direct to the bank but this was not reflected in the final account.

This Court has established that the 2nd Defendant sold the suit property under value. If they had got the best price they would have recovered all their money and even left the Plaintiffs with a surplus.

It is trite law that where a sale is held to be unlawful or negligently carried out, the successful party is entitled to recover the difference between the true market value of the property and the sale price realised from the sale. In National Bank of Commerce Ltd and 2 others, HCCS No. 0496 of 2003, Yorokamu Bamwine J, had the opportunity to state the law as regards the duty of a mortgagee in a sale of this nature (forced sale). He stated that one of the fundamental equitable principles for the enforcement of mortgages and the protection of borrowers is that the powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment. The burden is on the mortgagee to show that it had taken all reasonable steps to obtain the best price reasonably obtainable on the sale of the property. Also see Moses Jim Jjagwe vs. Standard Charterd Bank (U) Limited HCCS No. 37 of 2004

Similarly in Moses Jim Jjagwe vs. Standard Charterd Bank (U) Limited HCCS No. 37 of 2004 The Court held that it was, ..."unreasonable of the defendant's lawyers to sell the property to 1115 another person at such a low price, far below the forced sale value, without subjecting the property to further bids. He stated that the duty to obtain the best price is a duty owed in equity. While the range and scope of the duty is not closed, implying, so to say, that each case must be decided on its unique facts and circumstances, it is not (that is, the 1120 range and scope of the duty) yielding much flexibility either. Lenders need to be alert to subsequent challenges and ensure not only that they employ the right selling agents for the job, but also that they take the precaution of obtaining a decent second opinion. It may well be

- worth trying to accommodate the borrowers views on sale so far as is 1125 reasonably practicable. Court noted that this is the line of thought and decision in a number of cases, notably **Cuckmere Brick Co. Ltd -Vs.-**Mutual Finance Ltd [1971] 2 All ER 633 and Malayan Banking Bhd-Vs- Hwang Rose and others [1997] 3 LRC 224. - Therefore, I find that the Plaintiffs are not indebted to the 1st 1130 Defendant

## Issue number four: What remedies are available to the parties?

The Plaintiffs sought the following remedies. A declaration that the purported sale of the suit land by the $1^{st}$ and $2^{nd}$ Defendants to the $3rd$ Defendant was done fraudulently and is thus a nullity.

- a) An order for a cancellation of the $3rd$ Defendant's name from the certificate of title of the suit property. - b) An eviction order against the 3rd Defendant from the suit land. - c) An order for the return of the Plaintiff's movable properties or - their return of the Plaintiff's movable properties or their monetary value. - d) A permanent injunction restraining the Defendant's, their servants/ representatives and agents from interfering with the Plaintiff's quiet enjoyment of the suit property. - e) Mesne profits from the date the 3rd Defendant went into illegal possession of the suit property. - f) General damages.

g) Interest of (f) and (g) at a commercial rate of 28% from the date of Judgment till payment in full.

i) And any other remedy court deems fit.

I will consider each category separately:

h) Costs of this suit

- a) A declaration that the purported sale of the suit land by the $1^{st}$ and $2^{nd}$ Defendants to the $3^{rd}$ Defendant was done fraudulently and is thus a nullity. - b) (b) An order for a cancellation of the $3rd$ Defendant's name from the certificate of title of the suit property. (c) An eviction order against the $3^{rd}$ Defendant from the suit land. (e) A permanent injunction restraining the Defendant's, their servants/ representatives and agents from interfering with the Plaintiff's quiet enjoyment of the suit property. (f) Mesne profits from the date the $3rd$ Defendant went into illegal possession of the suit property.

This Court has found that the sale to the 3rd Defendant was negligently handled by the 1st and 2nd Defendant. I take note that the status quo has greatly changed in the last 10 years. Though the 3rd Defendant may have acted in bad faith towards the Plaintiffs, the truth of the matter is that they had failed to repay their loan obligations and thus were vulnerable.

They offered the suit property as security and thus cannot be 1170 reinstated as owners after the sale. Therefore these prayers are not attainable.

## (d)An order for the return of the Plaintiff's movable properties or their return of the Plaintiff's movable properties or their monetary value.

These are a form of special damages. It is trite law that special damages must be specially pleaded and proved. See the case of Provincial Insurance Co. of EA Ltd vs. Mordekai Mwanga *Nandwa (1995-1998) EA 288.* Furthermore in **Diary Development** Authority vs. Ngarambe HCCA No. 10 of 2011; Kiryabwire J (as he 1180 then was) dealt with the issue of special damages in detail. "The *principle of law in awarding special damages is well settled.* Such a claim in special damages must be specifically pleaded and strictly proved – see the judgment of Berko $J$ (as he then was) in the case of Benedito Musisi vs. Attorney General HCCS 708 of 1992. That 1185 case referred a decision of Lord Goddard CJ in Borham-Carter vs. Hyde Park Hotel [1948] 64 TLR where he stated.."... [The] Plaintiff must understand that if they bring action for damages it is for them to prove their damage; it is not enough to write down the particulars and so to speak, throw them at the head of the court saying "This is what 1190 *I have lost; I ask you to give me these damages", they have to prove it* $\ldots".$

Justice Kiryabwire in the Diary Development Authority (supra) stated that he fully agreed with the position because many times a

list of losses is thrown at court with the expectation that is enough to 1195 award special damages. The Hon Judge however noted that it did not mean that the Respondent was not entitled to special damages. He was aware of the decision of Hon. Justice Masika (CJ as he then was) in the case of **Kyambadde vs. Mpigi District Administration** [1983] HCB 44 as quoted by the Respondent's Counsel. In that case, 1200 it was held that special damages must be strictly proved but they need not be supported by documentary evidence in all cases.

In **Diary Development Authority** (supra) Justice Kiryabwire as the first appellate court, subjected the evidence as had been produced before the trial magistrate to exhaustive scrutiny and re-evaluation 1205 and reached his own conclusion. On the strength of the authority of the case of **Kyambadde** (supra), the judge considered the price of milk at Kampala at the time of loss to be Shs. 800 as testified by the Respondent without documentary proof as indeed a lot of this trade in Uganda goes unrecorded and reduced the amount of special 1210 damages from UGX 6 Million to UGX 4 Million.

The Plaintiffs claimed UGX 314,191,720. However they failed to prove this loss to the satisfaction of Court. Thus this remedy is also rejected.

(g)General damages. 1215

> The Plaintiff claimed general damages. In Hall brothers SC Co ltd Vs Young (1939) 1 KB 748, principles of awarding damages was outlines. The court held that... "General damages are awarded so as

to put the plaintiff in the same or as near as possible a position he would have otherwise be in if the wrong complained had not been 1220 done". Court is also guided by the common law doctrine of restituo in integrum. Court must award damages for breach of contract with the object of compensating the plaintiff for his or her loss. Refer to cases of Dharamshi Vs Karan. (1974) EA 41 and Uganda Telecom vs Tanzanite Corporation (2005) EA 351. 1225

The Plaintiffs lost their school and it is not possible to put them back to the status they were. However they are entitled to; the difference between under value and best price of the suit property. If the Defendants had exercised reasonable care, they would have got the best price. Therefore Court grants them UGX 100,000,000 payable by the 1st Defendant as an appropriate compensation.

Court also awards compensation of loss of property taken over by the 3rd Defendant. This decision has revealed the highhanded acts of the 3rd Defendant. He lied to the Court about his previous association with the Plaintiffs. He took advantage of them and eventually took over the property. He even had the 2nd Plaintiff arrested for the theft of a computer.

This Court believed that there was movable property was in the school by the time he evicted the Plaintiffs. He even committed an act of fraud when registering his ownership on the land claiming that the land was not developed. Therefore I award the Plaintiffs UGX 200,000,000 as general and punitive damages payable by the 3rd

Defendant. Interest at commercial rate 21% per annum from 2008 until payment in full.

**Costs of this suit.** 1st and 3rd defendant to pay costs of the Plaintiffs. 1245 1st defendant pays 40% while 3rd Defendant pays 60% of the costs.

## Final orders.

- 1. The 1st Defendant pays UGX 100,000,000 to the Plaintiffs as general damages. - 2. The 3rd Defendant pays UGX 200,000,000 to the Plaintiffs as general and punitive damages.

So ordered.

$\langle \gamma, \gamma \rangle$ Elizabeth Jane Alividza

Judge Commercial court 26th August 2019.