Specioza Kalungi and Others v Attorney General (Civil Appeal No. 76 of 2011) [2014] UGCA 145 (19 November 2014)

| J<br>\ | | |----------------------------------------------------------------------------------------------------------|-----| | THE REPUBLIC OF UGANDA | | | IN THE COURT OF APPEAL OF UOANDA | | | AT KAMPALA | | | CIVIL APPEAL N0.76 OF 2011 | | | PECIOZA KALUNGI & 62 OTHERS<br>APPETLANTS | | | vs<br>HE ATTORNEY CENERAL<br>RESPONDENT | | | orum<br>Hon. Justice c. K Byamugisha, JA<br>Hon. Justice s. B. K Kavuma, JA<br>Hon. Justice A. S Nshimye, JA | | | JUDGMENT OF THE COURT | | | CORRECTED tON PAOE 15I UNDER RULE 56(1) OF THE RULES OF<br>THIS COURT). | | | ackground of the Appeal. | | | 2008, the appellants filed a suit against the respondent for | | | eclarations that the respondent should pay the appellant's | | | aim from divestiture account and an order directing the | | | spondent to seek a budgetary contribution from the relevant | 4/, | | thoritv and pay the plaintiffs, aggravated damages for the | | | ppressive and unconstitutional behavior of government | | | icials, interest from the date of filing, and costs of the suit | | | ith interest. | |


F,, <sup>1</sup>

he appellants were creditors of Uganda Transport company 975) Ltd. which the government decided to divest by quidation.

/s. F. Mungereza and Ceorge Egaddu were appointed as the quidators of the company under the Public Enterprise Reform nd Divestiture Act (PERD). Claiming that the assets from the uidation were not sufficient, some appellants were paid 10o/o, y the liquidators and others 20o/o ?s ex- gratia payments while thers were not paid at all. After a long wait without full ayment, the appellants decided to file a suit against the spondent out of which this appeal arises.

t the trial, the respondent raised a preliminarv objection that e appellant's claim was time barred, and that their claims ere fullV settled ex- gratia through their lawyers.

vidence was adduced at the trial and submissions were made both counsel. The learned trial judge ruled in favour of the fendant stating that;

"...the plaint clicl not clisclose the cause of action and or facts necessitating the application of section 25 @) of the PERD statute to the plaintiff's allegations. He further held that the Minister is accountable to parliament under section 40 of the PERD Act ancl has discretionary powers whether to pay the creclitors or

not. Ancl Chat in the absence of the eviclence that the minister acted contrary to the principles of natural iustice, equiCy, gtoocl conscience and governance or that the exercise of the minister's Erace to pay exgratia to the plaintiff was exercisecl arbitrarily, selectively or discriminatorily, the plaintiffs suit and eviclence aclclucecl on record lackecl merit" hence this appeal. The appellants raised five grounds of appeal.

r. Mugabi Everest represented the appellants while Mr. wabutsya a State Attorney represented the respondent.

uring conferencing, the parties agreed on the issues to be solved by this court namely:-

# sues for court resolution.

7. Whether the trial iuclge rightly reiectecl the appellant's claim when he reliecl on Priamit Enterprises v. Attorney Oeneral, Supreme Court Civil Appeal lvo. 10 of 2oo1 ancl uugenyi & company Aclvocates v. Attorney Oeneral, Supreme Court Civil Appeal tvo.45 oF 1995.

2. Whether the trial juclge rightfully interpretecl the provisions of the PERD Acts.

3. Remedies available.

# ubmissions for the a ellants

r. Mugabi stated that the appellants filed written submissions nd had nothing more to add thus adopting the same.

# bmissions for the res ndent.

r. Murambatsva submitted that the appellant's claim was ghtly rejected. He cited the cases of Priamit Enterprises v. ttorney General, Sapreme Court Civil Appeal lvo. 70 of 001 and uugenyi & company Aclvocates v. Attorney eneral, supreme court civil Appeal No- 4!t of 7995, where urt held that one had to show that there was money mewhere which, the appellants failed to do in the lower <sup>u</sup>rt.

e argued that the money that was recovered went to pay for e expenses of the liquidators. The claimants were paid some gratia sums in full and final settlement.

unsel adopted the authorities he relied on in the lower cou d prayed that the appeal be dismissed with costs.

## solution of issues.

Whether the trial judge rightly rejected the appellant's diaim by relying on Priamit Enterprises v. Attorney General, Supreme Court Civil Appeal No. 10 of 2001 and Mugenyi & Company Advocates v. Attorney *General*, Supreme Court Civil Appeal No. 43 of 1995.

This is based on the contention of the state attorney that:

$13<sub>0</sub>$

$13\overline{5}$

$14<sub>p</sub>$

$\mathsf{S}$

$120$

"...because the plaintiffs had no legal rights, they have no cause of action. That in the alternative, the plaintiffs were paid ex-gratia in full and final settlement of their claim and as such they have no right whatsoever to demand for payment from the defendants..."

According to the Public Enterprises Reform and Divestiture (Amendment) Act section 2, Divestiture is defined to mean:-

"the transfer of the proprietary interest in or operational control of, a public enterprise or its assets from the state or that enterprise to private persons utilizing one or more of the methods referred to in paragraph 7(1) of the second schedule to this statute, and includes where appropriate the winding up or dissolution of that enterprise".

The cases of Priamit and Mugenyi were based on the issue of cause of action. It was held that UTC was a corporate body with

dapacity to sue and be sued since, by that time, the divestiture 145 process had not vet been complete.

The original plaint in Priamit's case did not indicate in its pleadings that the creditors were claiming under section 23 of the PERD Statute but was founded on the allegation that by $190$ reason of the Government being the sole shareholder of UTC, the attorney General was liable.

The claims in the Mugenvi case had not been proved and it was impossible to bring the case under the law of Divestiture since $1\overline{5}$ none of the provisions of the **PERD Act** were pleaded and violated.

The term Cause of Action refers to a set of facts or allegations that make up the grounds for filing a lawsuit. A plaint must mention the cause of action if it is to be entertained. There is a wealth of $100$ authorities to this effect (Auto Garage and others vs. Motokov (1971) $EA)$ .

Let us briefly examine the contents of the plaint:

$145$

#### Paragraph 5,

$170$

$6$

"On 9<sup>th</sup> January 1992, the government of Uganda made *Development* **Credit** with the *Agreement* $\boldsymbol{a}$ International Development Association and the World Bank whereby the Government of Uganda undertook to reform and to divest itself of the public enterprises it was engaged in at the time".

Paragraph 6,

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$180$

$190$

$20<sub>b</sub>$

$7$

said "TO operationalise the agreement, the Government of Uganda parliament enacted the PERD Statute 1993. The PERD (Amendment) Statute 1998 and the PERD (Amendment) Statute 2000. Under these statutes, the Minister of Finance and the 2<sup>nd</sup> defendant were vested with statutory powers to *implement government of Uganda policy on reform* and divestiture of all public enterprises as stated above".

Paragraph 7.

"In pursuit of the said government policy, the **Enterprises Reform and Divestiture Committee, DRIC** decided to divest Uganda Transport Co. (1975) Ltd by liquidation under the PERD Statute 1993 and not under the Companies Act. The said company is listed as no. 38 in class IV of the first schedule to the statute.

*Paragraph 8,* $19<sub>b</sub>$

> "F. Mungereza and G. Egaddu then of M/s Coopers and Lybrand an international firm of accountants were appointed as joint liquidators of Uganda Transport Co. (1975) Itd... the plaintiffs are listed as proved creditors of the liquidated company".

### 9,

fln the above report/letter, Che joint liquiclators requestecl the PERD secretariat ancl Minister of Finance to remit funcls to enable them to pay off the plalntiffs' proven claims. 7o clate the Minister oF Finance ancl DRIC have failed, neglectecl and/ or refused to pay the plaintiffs. They have not macle any money available to the liquidators to pay the plaintiffs' proven claims".

### Paragraph 1O,

"The plaintiffs' claim from the clefendants is for the amounts they proved in the liguiclation of Uganda Transport company n975) Ltd. as statecl in the liquiclators report annexed hereto and marked 'B'. They also claim interest on the amounts at commercial lending rates since 7994'.

#### 2


aragraph 11,

"The plaintiffs aver that the defendants have <sup>a</sup> statutory cluty to pay the plaintiffs' claims under section 2 ancl 34 of the PERD Statute 1999 ancl section 21 of the PERD (Amendment) statute 2OOO with funds from the Divestiture Account'. o us, the appellants pleaded and alleged material facts in their laint in a way that brings out the cause of action.

his case is quite dissimilar to the Priamit Enterprises case and at of Mugenyi and company Advocates because the plaint learly shows that there was divestiture and designated persons authority to take care of the issues pertaining to claims by e creditors of the liquidation. These included the Ministry of inance and the liquidators that were appointed on behalf of e Covernment, who are represented hy the office of the ttorney Ceneral.

ccording to annexure "C", M/s. F. Mungereza and Ceorge addu were appointed joint liquidators of the company and ere to discuss anv details to be sorted out with the ermanent secretarV, Ministry of Transport and Communication d the Co-coordinator, Public Enterprise Reform and ivestiture (PERD) by the then Minister of Works, Transport and mmunication, Hon. Ruhakana Rugunda (Dr).

cording to annexure "D" a letter from the Attorney Ceneral's ambers to the Minister of State for Finance (Privatisation) as 4th January 2005 indicated that the matter of payment was ferred to the Minister of Finance who is specificallv charged ith the responsibility of determining the use of proceeds of

al

ivestiture under the PERD Act with a further recommendation at the claims be settled out of the Divestiture Account.

nnexure "E" is the liquidators statement of account presented y Mr. F. Mungereza the joint liquidator, that no surplus funds ere available for payment into the Companies liquidation count and creditors had not been paid in full due to lack of nds. A list of registered creditors as at 3'l't July 1998 was tached.

ue to the fact that there was divestiture, the liabilitv there and en shifted to the government through the Minister of nance and the liquidators who acted on it's behalf not rgetting the fact that this was a government programme. us a suit against UTC would have been a nullity because it had ased to be a legal entity.

<sup>e</sup>judgment of Justice Kirvabwire in the case of Uniclron & 25 thers vs. Attorney Oeneral HCCS lvo. 04 of 2OO7 is very elpf ul and persuasive. He held that divestiture is not nsidered complete untilall proved creditors have been paid.

unsel for the respondent suhmitted that the plaintiff's claim as based on the plaint whose subject reference w?s: "RE: CLAIM CREDITORS OF UTC'1975 LIMITED lN LIOUIDATION RE: AUTHORITY R EX CRATTA PAYMENT." lt',s a letter relied on to bring this atter to court. He also referred to annexure "H", an agreed cument, which makes reference to the matter of ex gratia

tt a

ayments being referred to the Attorney Ceneral for review nd consideration. The respondent argued that according Black's Law Dictionary 6th edition, page 573, ex-gratia ayment means payment made out of kindness.

he cause of action is drawn from the plaint. Documents are nly helpful in proving the case. The State Attornev's ubmission based on reference to annexure "H" alone are nacceptable.

he Attornev General recommended an ex gratia payment to he plaintiffs and also indicated that the money could be paid rom the compensation fund in the Attorney Ceneral's hambers.

n law, an ex gratia payment is a payment macle without the iver accepting liabilitV or legal obligation. This does not, in law, ke away the obligation to pay a debt. The learned trial Judge rred in relying on the cases of Priamit Enterprises v. ttorney Oeneral, Supreme Court Civil Appeal ilo. 70 of 2001 and Mugenyi & Company Advocates v. Attorney Oeneral, Supreme Court Civil Appeal ilo. 45 of 1995, because their facts are different and distinguishable from the facts in this case.

We find this issue in favour of the appellants because they had a legitimate cause of action.

sue 2.

3 0 hether the trial iudge riEhtfully interpreted the rovisions of the PERD Acts.

ection 23 0t the PERD 1995 (now section 19 0f the PERD ct 2OOO) provides;

ction 19,

1,

'Subiect to the provisions of this statate (but notwithstanding the provisions of the companies Act, any other enactment or the articles of association oF any public enterprise or any rale of law), the Minister responsible for finance shall have the power, in relation to a public enterprise, to enter into, execute, make or give, on behaff of the oovernmenf (emphasis mine) or guch enterprise, as the case may be, such contracts, agreements, conveyances, deeds, leases, licenses ancl other instruments, unclertakings and notices as shall be necessary or clesirable to give effect to the clivestiture of such enterprise.

(2)

6)

rt t'

U) all proceeds of clivestiture oF a public enterprise (inclacling For the avoidance of doubt, any proceeds

to which, but for this subsection, the enterprise concerned would be entitled) shall be deposited in the divestiture account to be maintained in commercial banks and development banks designed Minister responsible for **Finance** bv the in consultation with the committee and used solely in *accordance with this statute".* (emphasis is ours)

**Section 20 of the Amendment Act** provides for the power of the responsible Minister to direct transfer of shares into the mame of the responsible Minister or the Minister responsible for $340$ Finance on behalf of Government. This, combined with the above sections, indicate the liability of the government and or its agents (liquidators).

**Section 21 of the Act** which replaced section 23 of the old law provides for the use of the proceeds of divestiture and states $345$ thus:-

> "21(1) the minister responsible for finance may use the proceeds of divestiture in the **Divestiture** Account to meet- (emphasis mine)

$350$

$(a)$

$\overline{a}$

$3\overline{3}5$

Liabilities of a public enterprise specified in any $(b)$ of the classes referred to in paragraph (a) which-

(i) For the purposes of divesting the enterprise, in the manner approvecl by the committee requires satisfaction before that enterprise's clivestiture; or

(ii)

(c)

H)

(2 Any costs ancl expenses associatecl with termlnation of contracts of employment between a public enterprise ancl its employees shall be paicl from the proceecls of divestiture of that enterprise in priority to ail other liabilities, costs ancl expenses referred to in subsection fl)

proceeds of clivestiture of an enterprise in the Divesticure account which, in the opinion of the Responsible Minister are not requirecl to meet any present or future costs, expenses or liabilities of the type mentionecl in subsection n) whether relating to that enterprise or otherwise ntdy, if so cleterminecl by Che Minister, be transFerrecl wholly or partly to the Redunclancy Account and subiect to the foregoing, shall be

..

## usecl for promoting uganclan Entrepreneurs for agricultural ancl inctustrial clevelopment

1 n proper reading of the above sections, one realizes that unsel for the appellants read section 21 in isolation of section of the PERD Act because although the minister is given andate to utilize the monev in the way specified, it must first e deposited in the Divestiture Account.

ere seems to be a lacuna in the law since it does not expressly rovide for a situation where the money from the assets of the ivested company is not enough to pay off all creditors of the mpany.

ccording to Annexure "E," which is the liquidators statement f account presented by Mr. F. Mungerezatne joint liquidator, it as stated that no surplus funds were available for pavment to the Companies liquidation and creditors have not been id in full due to lack of funds and a list of registered creditors a at 31st July'1998 was attached.

owever this does not mean that the appellants have no medy. lt was incumbent on the Minister of Finance to find or ek budgetary support and pay the creditors.

3 T is issue is also decided in favour of the appellants.

I

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s

e therefore allow this appeal and order that the Minister of inance should make a budgetary allocation in order to pav all he appellants their decretal amount as orig:nally proved and ound due by the liquidators with interest of 8% from the me the money was due until payment in full.

- ounsel for the appellant is given'15 days from the date of elivery of this judgment to compute the total amount due ith interest and submit it to the respondent for approval to e responsible Minister of Finance for compliance. - he responclent is also ordered to pay costs of this appeal in is court and in the court below.

his decision was agreed upon bV all members of the panel but nfortunately the head of the panel the late LadV Justice C. K yamugisha passed on before signing the juc,gment.

l- ,t ATED AT KAMPALA THIS DAY OF. J... 2014.

HON. JUSTICE C. K. BYAMUGISHA, JUSTICE OF L. JUSTIC ti <sup>I</sup> JUSTICE APPEA t HON. J ICE A. HIMYE, JU CE OF APPEAL.