THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
COMMERCIAL COURT DIVISION
(Arising out of HCT-00-CC-CS-070-2009)
Paulo Makumbi and 3 others ……………………………………………………… Applicants
Louis Ntale and 3 Others …………………………………………………………. Respondents
Before: Hon Mr. Justice Lameck N. Mukasa
The grounds for the application are briefly:
2. The suit in question is brought as a derivative action for the benefit of the fourth Respondent, the company and to safeguard and protect the interests of the Applicants as monitory shareholders.
The application is supported by an affidavit deponed to by the 1st Applicant, Paul Makumbi for himself and for the other three Applicants. The 1st Respondent Louis Ntale filed an affidavit in reply deponed to by himself. The 2nd Respondent, Lonaco Limited, filed an affidavit in reply deponed to by its Director Denis Babigumire. The 3rd Respondent, Agaba Services Ltd, filed an affidavit in reply deponed to by its Managing Director Peter Nuwagaba. The 4th Respondent, M/s Natete Bus Terminal Co, Ltd, filed an affidavit in reply deponed to by Peter Tumuramye, an advocate of C/o Mwebe, Ssebagala & Co Advocates. The Applicants filed three affidavits in rejoinder. Two deponed to by the first Applicant, Paul Makumbi, and the third deponed to by Richard Kyabaggu, the 2nd Applicant.
The brief facts are that the four Applicants and the 2nd Respondent, Lonaco Ltd agreed to incorporate Nateete Bus Terminal Co Ltd, which was incorporated on 29th March 2007. The 2nd Respondent was to own 70% and the Applicants, collectively, to own 30% of the shares. The 2nd Respondent was to provide land at Block 20 Plot 751, Plot 826 and Plot 985, Block 18 Plot 1025 Nateete for the purposes of setting up a bus terminal, shopping arcades and other facilities incidental thereto. The Applicants were to inject Shs410,000,000/= as capital towards the cost of setting up and operating the terminal. It was further agreed that ownership of the above described land was to be transferred into the names of the 4th Respondent. In the plaint, the Applicants contend that the 1st Respondent is the secretary of the 4th Respondent having control as Managing Director and shareholder of the 2nd Respondent Company which has majority shares in the 4th Respondent Company. The Applicants claim that in breach of the Joint Venture Agreement the 1st and 2nd Respondents did not transfer title of the land to the 4th Respondent. Thus HCCS No 826 of 2007, Nateete Bus Terminal Co Ltd & 4 others (being the Applicants) Vs Lonaco Ltd (2nd Respondent) and Barclays Bank Ltd. A consent judgment was entered in the above suit whereby the 2nd Respondent agreed to settle its indebtedness to M/s Barclays Bank Ltd for the release of mortgages or securities thereon and thereafter hand over the suit properties, titles to the Applicants and the 4th Respondent Company. The Applicants further claim that contrary to the terms of the Consent Judgment the 1st and 2nd Respondents transferred the land to the 3rd Respondent, Agaba Services Ltd, who thereafter mortgaged the same to M/s Stanbic Bank (U) Ltd. They contend that the transfer to the 3rd Respondent was fraudulent and malafide and that the 3rd Respondent was always aware of the fraud and malafides of the 1st and 2nd Respondents. In the plaint the Applicants, inter alia, seek declaration Orders that:
(b) Cancellation of entries upon the suit land and entering the 4th Respondent Company as registered proprietor thereof.
(c) Permanent injunction against the Respondents from interfering in the quiet enjoyment and property rights for the 4th Respondent in the suit land.
Section 5 of the Commissioner for Oaths (Advocates) Act provides similarly. Counsel argued that the requirement is mandatory and submitted that an affidavit which does not disclose the date in the jurat must be struck out.
Article 126 (2) (e) of the Constitution reads:
It has been held in a number of cases that the blunders of an advocate should not be visited upon a litigant – see Banco Arabe Espanol Vs Bank of Uganda S.C. C.A. No 8 of 1998. In Mpawulo Anthony Vs Standard Chartered Bank (U) Ltd. Justice Arach – Amoko stated:
However, the Oaths Act imposes theduty to state the place and date on the Commissioner before whom an affidavit is taken and not the deponent or litigant,. The Commissioner’s failure or omission cannot be visited on the deponent, litigant or his Counsel. I therefore find this a proper case for the invocation of the provisions of Article 126 (2) (e) of the Constitution without any conditions attached.
The grant of a temporary injunction is primarily to preserve the status quo pending the disposal of the main suit. The land which is the subject matter of this application is described in Paul Makumbi’s affidavit in support as Kibuga Block 20 Plot 826 Nateete, Kibuga Block 18 Plot 1025 Nateete, Kyadondo Block 20 Plot 757 Nateete, Kibuga block 20 Plot 914 –LRV 2209. Folio 12 Plot 5 Lower Naguru. In paragraph 9 Paul Makumbi avers that the 1st and 2nd Respondent disposed of the suit land to the 3rd Respondent. In his affidavit Louis Ntale avers that the 3rd Respondent is currently the registered proprietor of the suit properties. Also Peter Nuwagaba in the 3rd Respondent’s affidavit in reply avers that the 3rd Respondent is the registered proprietor of the suit lands. I accordingly find that the status quo is that the suit land is currently registered under the proprietorship of the 3rd Respondent, Agaba Services Ltd.
A temporary injunction is a remedy within the discretion of Court which must be exercised judiciously. Whether or not to grant a temporary injunction Court must consider whether the Applicant has raised a prima facie triable issue in its pleadings in the main suit which is not frivolous, vexatious or illegal. Secondly, whether the Applicant has shown that he would suffer irreparable injury which would not adequately be compensated by an award of damages. Thirdly, if court is in doubt on any of the above two, consider whether the balance of convenience is in favour of the Applicant. See Kiyimba-Kagwa Vs Hajji Abdu Nassar Katende (1985) HCB 43, Nitco Limited Vs Nyakairu (1992-1993) HCB 135, Cut Tobacco (K) Ltd VS British American Tobacco (K) Ltd (2001) IEA 24
In their pleadings the Applicants claim that they on one side, and the 2nd Respondent, acting through the 1st Respondent, on the other part, entered into a Memorandum of Understanding on 5th April 2007. That in breach of the said Memorandum of Understanding the 1st and 2nd Respondents failed to transfer the suit properties to 4th Respondent company. This gave rise to HCT-00-CC-CS-826-2007 Nateete Bus Terminal Co Ltd (4th Respondent), Paul Makumbi, Richard Kyabaggu, Norah Makumbi & Sam Kirabira (Applicants) Vs Lonaco Ltd (2nd Respondent) and Barclays Bank Ltd. The above suit was disposed of by way of a consent judgment dated 28th July 2008 whereby, inter alia, the 2nd Respondent was to service any loans obtained on account of the suit property and handover the certificates of title thereto to the Applicants and 4th Respondent. The Applicants and 4th Respondent were to take immediate possession of the suit property. The Applicants claim that in contempt of the Consent Judgment the 1st and 2nd Respondents transferred the suit land to the 3rd Respondents Company. That the 3rd Respondent dealt with the 1st and 2nd Respondent while aware of the Consent Judgment. Finally that the 1st, 2nd, and 3rd Respondent had acted fraudulently and malafidely to deny the Applicants and the 4th Respondent Company interest in the suit properties.
In his affidavit in reply the 1st Respondent, Louis Ntale, contends that he is not a party to the Memorandum of Understanding, that he had signed the Memorandum only for and on behalf of the 2nd Respondent as its authorized officer. The Memorandum of Understanding is indicated as:
“Signed and Delivered by the said LOUIS NTALE for and on behalf of LONACO CO LTD.”
Further that he was not a party to Civil Suit No 826 of 2007 and thus not bound by the Consent Order. Mr. Kutesa for the 1st Respondent argued that since the Memorandum of Understanding was the foundation of the Applicants’ main suit yet the 1st Respondent was not a party to the Memorandum of Understanding and not a party to the consent judgment the Applicants had not disclosed a cause of action against him. He submitted that there was not prima facie case disclosed against the 1st Respondent.
True the 1st Respondent is neither a party to the Memorandum of Understanding nor a party to the Consent Judgment in Civil Suit No. 826 of 2007. He signed the Memorandum of Understanding for and on behalf of the 2nd Respondent, a limited liability company. The most outstanding future of an incorporated company is its corporate personality. It is a separate legal entity from its directors, shareholders and other members. The Applicants cannot maintain a claim against the 1st Respondent on the basis of his actions or decisions taken as shareholder, director or other officer of the 2nd Respondent. However, corporate personality cannot be allowed to be blatantly used as a cloak for the fraudulent or improper conduct of the company’s members. In the plaint the Applicants allege fraud against the 1st Respondent. Though corporate bodies act through their officers fraud is personal to the guilty party. Whether the 1st Respondent committed the alleged fraudulent acts or omissions is a matter for court’s determination. I therefore find that the Applicants have raised a prima facie triable issue against the 1st Respondent.
In its affidavit in reply the 2nd Respondent Company does not dispute being a party to the Memorandum of Understanding dated 11th April 2007. However, the deponent thereto contends that the 4th Respondent was not the company envisaged to be incorporated pursuant to the Memorandum of Understanding since the 4th Respondent had already been incorporated on 29th March 2007. By the Memorandum of Understanding made on 11th April 2007 (Annexture) B1) the 2nd Respondent and the Applicants agreed “to incorporate a company to be known as NATEETE BUS TERMINAL CO LTD”. Annexture A1 and A2 are respectively, the Certificate of Incorporation and Memorandum and Articles of Association of Natete Bus Terminal Co Ltd. Both indicate that the 4th Respondent Company was incorporated on 29th March 2007. Therefore the Memorandum of Understanding executed on 11th April 2007 was post incorporation of the 4th Respondent Company.
The deponent to the 2nd Respondents affidavits in reply further avers that the extraordinary resolution of the 4th Respondent (Annexture P4 to the Applicant’s affidavit in support) was, in addition to the Applicants, done in respect of another party called Kateregga Najja Ruth, yet she was not a signatory to the Memorandum and Articles of Association of the 4th Respondent. Further the deponent points out that the 4th Respondent has a share capital of Ugshs1,000,000/= only yet the company contemplated under the Memorandum of Understanding was meant to have a share capital whose 30% equivalent stood at shs410,000,000/= Further that the objects of the contemplated company were exclusively for a bus operation business at Nateete.
On the basis of the above Mr. Frank Kanduho, Counsel for the 2nd Respondent, argued that the 4th Respondent, was not the company envisaged by the Applicants and the 2nd Respondent to be incorporated pursuant to the Memorandum of Understanding executed on 11th April 2007 and on which this application and the main suit is founded.
I have carefully studied and considered the affidavits of the parties, the annextures thereto and the submissions of counsel for the parties and I wonder whether the Applicants and the 2nd Respondent having floated and incorporated the 4th Respondent company on 29th March 2007 intended after the execution of the Memorandum of Understanding dated 11th April 2007, to float and incorporate yet another company with similar names as the 4th Respondent!! This calls for an investigation of the intention of the parties which cannot be done on the affidavit evidence before me at this stage. It can only be upon the full hearing of the parties’ evidence in the main suit.
In paragraph 5 of its affidavit the 2nd Respondent argues that the application involves land which falls outside the Memorandum of Understanding on which the Applicants are suing. The Memorandum of Understand relates only to land at Block 20 Plot 751, Plot 826 and Plot 985 and Block 18 Plot 1025 at Nateete Kampala. Yet the application also includes land at Kyadondo Block 20 Plot 757 Nateete, Kibuga Block 20 Folio 12 Plot 5 Lower Naguru. However, all the above described pieces of land were the subject of Civil Suit No 826 of 2007 as can be seen from paragraph 3 of the plaint and thus the suit properties therein. The consent judgment therein, inter alia, provided:
However, it is stated in paragraphs 7 and 9 of the 2nd Respondent’s affidavit in reply that by the time HCCS No 826 of 2007 was filed and the consent judgment therein signed the 1st Respondent had long been relieved of his directorship in the 2nd Respondent Company. Thus had no mandate to sign the consent for and bind the 2nd Respondent. Annexed to the affidavit is a resolution of the 2nd Respondent Company. The Resolution provides that it was resolved on 10th October 2007, inter alia, that:
The consent judgment in Civil Suit No 826 of 2007 was executed on 28th January of 2008. It was signed by Ntale Louise, 1st Defendant, managing Director (i.e. 2nd Respondent Managing Director). The issue arises whether as of then Ntale Louis was a director of the 1st Respondent with the mandate to sign the consent judgment on its behalf and if so whether the 2nd Respondent’s acts are in contempt thereof. I must at this stage warn myself against making a ruling which might have the consequence of setting aside the consent judgment.
A consent judgment once sealed by court, as was the case in Civil Suit No 826 of 2002, becomes the judgment of court binding on all the parties. It is trite that a consent judgment cannot be varied or discharged unless obtained by fraud or by an agreement contrary to the policy of the court or if the consent was given without sufficient material facts or in misapprehension or in ignorance of material facts or in general for a reason which would enable the Court to set aside an agreement. That is not the subject of this Court’s investigation in the instant application.
It is an undisputed fact that the suit properties are currently registered under the proprietorship of the 3rd Respondent, Agaba Service Ltd. In the 3rd Respondent’s Affidavit in reply it is averred that it had in 2007 purchased LRV 2880 Folio 20 Plot 1025 from the 2nd Respondent , LRV Folio 1 Plot 985 from the 1st Respondent and on 17th January 2008 became the Registered proprietor . That when the 3rd Respondent brought the land there was no registered encumbrance prohibiting any transaction on the land., the consent judgment had not been executed yet, the pendency of HCCS No 826 of 2007 was not known to the 3rd Respondent and the memorandum of understanding had not been brought to the knowledge of the 3rd Respondent. Further that the 4th Respondent Company, for whose benefit these proceedings were commenced, at all times had no proprietory interest in the suit land. The consent judgment was filed on 28th January 2008, about ten days after the 3rd Respondent had been registered as proprietor.
In their pleadings the Applicants claim that the 1st and 2nd and 3rd Respondents had fraudulently delt with the suit land. In paragraph 7(iv) they particularly claim:-
That they were acting in concert to defeat the interests of the Applicants and the 4th Respondent Company. In paragraph 4 of his affidavit in rejoinder to the 3rd respondent’s affidavit in reply the 1st Applicant avers that the 3rd Respondent was always aware of the Applicants and the 4th Respondent interest in the suit property before it purchased or dealt with it. In paragraph 4 (c) he avers:
From the annextures it is apparent that in purchasing the suit property the 3rd Respondent financed the satisfaction of the consent judgment with regard to the interests of Barclays Bank Ltd (2nd Defendant in CS No. 826 of 2007). The bonefideness of the 3rd Respondents purchase of the suit land is put in issue by the Applicants. Issues of fraud and of bonafide purchaser cannot be adequately dealt with on evidence by way of affidavits. See (Sanyu Lwanga Musoke Vs Yakobo Mayanja Ntate SCCA No 59 of 1995)
Considering all the above I find that the Applicants have shown triable issues against the 1st and 2nd and 3rd Respondents to be investigated at the hearing of the main suit.
The object of a temporary injunction is to protect the Applicant against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial. See American Cyramid Co Vs Ethicon Ltd (1995) All ER 504, Kiyimba Kaggwa Vs Hajji Naser Katende (1988) HCB 43.
In the application the Applicants state that the suit in question is brought as a derivative action for the benefit of the 4th Respondent Company and to safeguard and protect the interests of the Applicants as monitory shareholders of the 4th Respondent. The Applicants, in total hold 30% of the shares in the 4th Respondent Company, while the 2nd Respondent Company holds 70%. Circumstances under which minority shareholders can bring a derivative action as parties themselves were discussed in detail by Hon Justice James Ogoola in Allied Bank International Ltd Vs Sandru Kera & Abdul Kera HCT-00-CC-SC-o191-2002 See also Joel Odong, Amen & Another Vs Dr Ocen Andrew & Anor HCT-00-CC—CS-062 -2004, Eng Yeshuat Supra & Anor Vs Sam Ngude Odaka & Anor HCT-00-CC-CS-365-2007 and, Wallerstainer Vs Moir No2 (1975) I All ER 849.
I have carefully considered the Applicants’ pleadings in this application and in the main suit and the annextures relating to the 4th Respondent Company and I have found that the Applicants have satisfied the conditions for them to have instituted this suit on their own behalf with the 4th Respondent Company as a nominal defendant.
Paul Makumbi, in his affidavit in support of the application, avers that the Applicants had brought the action in the main suit to safeguard, protect the interests of the 4th Respondent in the suit land. That the Applicants had entered into a Memorandum of Understanding with the 2nd Respondent Company to set up a joint venture company being the 4th Respondent. The Agreement, annexture P1, shows that the 2nd Respondent was the registered proprietor of land described as Block 20 Plot 751, Plot 826, Plot 985, Block 18 Plot 1025 Nateete. The 2nd Respondent was to provide and transfer ownership of the above described land and all developments thereon into the names of the 4th Respondent Company and for that hold 70%of the business. The Applicants were collectively to contribute Shs410,000,000/= as capital towards the cost of setting up the business and for that hold 30% of the business. Also in the Consent Judgment in CS No. 826 of 2007 the 2nd Respondent undertook to handover the certificates of title and possession of the suit property (which also included the property described in the Memorandum of Understanding) to the Applicants and the 4th Respondent. The Applicants’ case is that in breach of the Memorandum of Understanding and in contempt of the Counsel Judgment the first and the 2nd Respondent have not delivered nor transferred the title to the 4th Respondent but had fraudulently in concert with the 3rd Respondent transferred the suit land to the 3rd Respondent. The Applicants contend that the property is likely to be further alienated, disposed of, charged further or sold to a third party or dealt with in a manner prejudicial to the interests of the Applicants and the 4th Respondent Company. They further content that there is a real danger of irreparable damage, loss and injury being occasioned to the Applicants and the 4th Respondent Company which cannot be atoned for in damages.
The 1st Respondent in his affidavit in reply avers that land comprised on Block 20 Plot 914 Nateete and LRV 2209 Folio 12 Lower Naguru were at all material times owned and registered in his names and were never part of the Memorandum of Understanding. He therefore contends that the Applicants have no claim against it.
As already stated herein above the basic objective of a temporary injunction is to protect the Applicants against injury by violation of their right for which they could not be adequately compensated in damages. The evidence before me clearly shows that the Applicants’ claim of right or interest in the suit properties is founded on the Memorandum of Understanding and it follows from there into the consent judgment. They have no rights or claim on land outside the Memorandum of Understanding. Therefore the Applicants and the 4th Respondent have no protectable rights in the land comprised in Block 20 Plot 914 Nateete and LRV 2209 Folio 12 Lower Naguru.
This application is in respect of land comprised in Kibuga Block 20 Plot 826, Nateete, Kibuga Block 18 Plot 1025 Nateete, Kyadondo Block 20 Plot 757, Nateete, Kibuga Block 20 plot 914, and LRV 2209, Folio 12 Plot 5 Lower Naguru. Of these the only land which is the subject of the Memorandum of Understanding is Block 20 Plots 751, Plot 826 and Plot 985 Nateete and Block 18 Plot 1025 Nateete. The Applicants’ and the 4th Respondent’s claim of interest as delivered from the Memorandum of Understanding is limited to only the land described above. I must also point out that of the land which is the subject of the Memorandum of Understanding the land known as Block 20 Plot 751 and Plot 985 Nateete is not subject of this application. I am however ready to regard or consider Plot 757 in the application as an error or misprint for Plot 751. This leaves Plot 985 Nateete outside the scope of this application.
The Memorandum of Understanding shows that the land to be provided and transferred to the 4th Respondent by the 2nd Respondent was “for purposes of setting up a bus terminal, shopping arcades and other facilities incidental thereto.” The Applicants seek several remedies in the main suit, which include general damages and the following:
- Declaration that the defendants were fraudulent in dealing with the suit properties.
- An order directing the Chief Registrar of Titles to cancel entries upon all the suit properties and to enter the 4th Respondent Company’s names as registered proprietor; and
- Delivery up all the duplicate certificates of Titles to the 4th Respondent.
The above prayers cannot be quantified into monetary terms so as to be adequately compensated by an award of damages. The land, the subject of the Memorandum of Understanding, was for a particular purpose. In Betuco (U) Ltd and Anor VS Barclays Bank (U) Ltd and Others HCT-00-CC-MA-070-2008, this court held that location of land is of prime importance. That a Commercial developer has a number of facts peculiar to himself considered before making his choice of location within which to carry out a development. Any developer has non-monetary, sentimental attachments to the property he/she develops. In Shin Construction Co Ltd Vs Endesha Enterprises Ltd SCCA No 34 of 1992 (1994) IV KALR 54, Justice Platt held that in a case of disputes over land damages are not usually sufficient as compensation.
The Applicant’s interest is not only in the sum of Shs. 410,000,000/= contributed towards the capital of the 4th Respondent Company but also the purpose as provided in the Memorandum of Understanding. This was to incorporate the 4th Respondent Company and that company to set up and operate a bus terminal at the land described in the Memorandum of Understanding as Block 20 Plot 751, Pot 826 and Plot 985, Block 18 1025 Nateete. The 4th Respondent Company was also to be incorporated to acquire ownership of the said land and operate at that location. Failure to achieve that purpose cannot be adequately compensated for in damages.
Considering all the above I find that the Applicants have satisfied the condition of irreparable damage with respect to the land which is the subject of the Memorandum of Understanding.
As to the balance of convenience Court should consider the interest of the respective parties. The 3rd Respondent claims to have bought all the properties which are the subject of this application from the 1st and 2nd Respondents. Further that it is currently the registered proprietor thereof, a fact not disputed by any of the other parties. Therefore the 1st and 2nd Respondents cannot be inconvenienced if a temporary injunction was to issue and they succeed in the main suit. As between the Applicants and the 3rd Respondent a temporary injunction will only temporarily restrict the 3rd Respondent’s disposal, alienation, charging or dealing with the land. As to 4th Respondent Company there is the risk of transfer of the land to another party who might enjoy the protection available to an innocent purchaser for value. In such eventuality and the Applicants happen to succeed in the main suit the Applicants and the 4th Respondent stand to have already lost the objective of the venture under the Memorandum of understanding. In the circumstances I find the balance of convenience in favour of the Applicants.
In light of all the above this application is granted and it is hereby ordered that a temporary injunction doth issue against the 1st, 2nd, and 3rd Respondents, their agents, servants or those claiming under them, jointly and severally restraining them from disposing of, alienating, charging or in any way dealing with land comprised in Block 20 Plot 751 and 826 Nateete and Block 18 Plot 1025 Nateete until the determination of Civil Suit No. 70 of 2009. The order as to costs in the main suit shall bind the costs of this application.
Hon. Mr. Justice Lameck N. Mukasa
Commercial Court Division
30th October, 2009