Court name
Commercial Court of Uganda
Judgment date
24 August 2012

Miter Investments Ltd v East African Portland Cement Co Ltd (Miscellaneous Application-2012/336) [2012] UGCommC 104 (24 August 2012);

Cite this case
[2012] UGCommC 104

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

 

MITER INVESTMENTS LIMITED}..................................                                                                                                                                           APPLICANT/DEFENDANT

VERSUS

EAST AFRICAN PORTLAND}

CEMENT COMPANY LIMITED}..................................                                                                                                                                              RESPONDENT/DEFENDANT

 

BEFORE HONOURABLE JUSTICE CHRISTOPHER MADRAMA

RULING

The Applicant applied to court for unconditional leave to appear and defend civil suit number 205 of 2012 and for costs. The grounds of the application are that the Applicant/Defendant is not indebted to the Respondent/Plaintiff in the amounts claimed in the plaint. Between April 2011 and July 2011 the Respondent supplied cement to the Applicant and the Applicant paid Uganda shillings 520,572,000/=. Consequently it was necessary to carry out an audit of the amounts of cement supplied by the Respondent/Plaintiff to the Applicant. The plaint raises triable issues of fact and law in respect of the extent of indebtedness of the Applicant/Defendant to the Respondent/Plaintiff. Finally that it is just and equitable that the prayers sought in the application are granted.

The application is supported by the affidavit of Peter Abaliwano a director of the Applicant. The facts disposed to add that the Respondent is not indebted to the Plaintiff as alleged in the plaint. The mode of transaction of business between the parties was that the Respondent would only deliver cement to the Applicant after payment had been received and confirmed by the Respondent’s Nairobi office. The Applicant paid to the Respondent money in excess of Uganda shillings 520,474,000/=. Consequently it was necessary to carry out a complete audit of the cement delivered to the Applicant by the Respondent against payments made by the Respondent for the year 2011.

In reply Abraham Kiprotich avers for the Respondent that it is untrue to say that the Respondent would only deliver cement after it had been paid. The facts are that the Respondent delivered cement on credit to the Applicant in all the delivery notes/tax invoices attached to the plaint and the Applicant secured payment thereof by issuing post dated cheques. Furthermore that all paid for cement by the Applicant would have been delivered and what was claimed in the suit is cement delivered to the Applicant and not paid for. The payments are ordinarily secured by cheques which cheques were dishonoured. Consequently the amounts thereon remain outstanding. He further avers that it is unnecessary to carry out an audit for reason that the Respondents claim is based on the quantity of delivered cement stated in the delivery notes/tax invoices whose payments were severally secured by cheques issued by the Applicant. Consequently the Respondent maintains that the application lacks merit and raises no triable issues. This is because the Applicant does not state what it paid for under the claim and what is outstanding. On the other hand the Respondents claim is based on delivery notes and dishonoured cheques.

Alternatively without prejudice the Respondents director avers that if the court is inclined to grant leave to the Applicant, then it should require the Applicant to deposit in court shillings 163,607,000 representing half of the claimed amount.

In rejoinder the Applicants director deposes that the Respondent did not supply any cement on credit and there are no credit terms. All supplies of cement were the subject of cleared payments. Referring to the bank statements of the Applicant he deposes that they were in excess of Uganda shillings 520,572,000/= for the period between April to July 2011.

At the hearing of the Application, learned Counsel Anthony Wabwire represented the Applicant while learned Counsel Patrick Alunga represented the Respondent. 

In his written skeletal arguments the Applicant relied on the case of Begumisa George vs. East African Development Bank MA 451 of 2011 for the principle that an Applicant who comes to the court seeking for leave to defend the suit under order 36 of the Civil Procedure Rules must show that he or she has a good defence on the merits or that in the circumstances there was a bona fide defence. Learned Counsel relying on the facts in the affidavit in support of the application submitted that the Applicant paid Uganda shillings 520,572,000/= and the bank statements of the Applicant company where attached as proof. The relationship between the Applicant and the Respondent was long term and cement was usually only delivered after payment had been confirmed. In view of the payments and the long term relationship between the parties it was necessary to carry out an audit. Furthermore cheques worth Uganda shillings 106,704,000/= were not banked by the Respondent and could not found a cause of action against the Applicant/Defendant. Additionally he contended that no credit terms had been disclosed in the pleadings of the Plaintiff. Consequently triable issues have been raised particularly the issue of whether the Applicant/Defendant is indebted to the Plaintiff in the sum claimed in the plaint or at all and whether the Respondent/Plaintiff supplied cement to the Applicant/Defendant over and above the sum of Uganda shillings 520,472,000/= for the period April 2011 to July 2011.

The Respondent’s Counsel submitted in reply that the averment that the amount claimed is not due, that the Defendant had paid and that there was no need for an audit to reconcile accounts. He contended that paragraph 5 of the affidavit in support is false because the claim of the Plaintiff is based on delivery notes secured by cheques drawn on Standard Chartered bank. Payments are not made direct to the office of the Plaintiff at Nairobi. Cheques issued had been banked and were dishonoured. The Plaintiffs claim is therefore in respect of deliveries which were not paid.

The Applicant has not given particulars of what they dispute and were making evasive denials. He relied on the case of Elizabeth Muganza and others versus Ecumenical Church Loan Fund HC MA 177 of 2005 at pages 3 paragraph 7, the judgment of Egonda-Ntende. In that case the Applicant were denying the sum and making evasive denials. The learned judge held that the Applicant’s evidence was evasive and did not provide sufficient particulars that would allow a court to evaluate whether or not what appears a good defence to the Respondents claim had been raised or whether a triable issue has been raised with regard to the facts that would be in issue. The application did not specify the sums of money that is due from the members who had not been paid their portion of the loan or the sums paid by the members who had paid their portions. The Applicant admitted taking a loan but failed to disclose the sum they received. The omission to declare what is outstanding offended order 36 rules 4 of the Civil Procedure Rules which require an Applicant to state clearly which part of the Plaintiffs claims the alleged defence is directed to. The exact part of the Plaintiff’s claim which the Applicants wished to defend was not disclosed.

The Applicant was expected to particularise how much they dispute. Under order 36 rules 4 of the Civil Procedure Rules the application is supposed to be supported by affidavit which shall state whether the defence goes to the whole or part of the claim. He therefore prayed that the application be dismissed. Alternatively that the Applicant be ordered to deposit half of the sum claimed in the plaint as security.

In rejoinder Counsel for the Applicant submitted that a liquidated demand is in the nature of a debt and if ascertainment thereof requires investigation then it is not a debt but a claim for damages. Learned Counsel reiterated his submissions in support of the application and concluded that there was a need for reconciliation of accounts through ascertainment of payments against supplies. Furthermore the Plaintiffs claim is founded on 23 cheques 8 of which were not banked.

As far as conditional leave is concerned, learned Counsel submitted that it is an exercise of the discretion of the court. He contended that the Applicant has averred that he is not indebted to the Respondent at all and the entire sum is denied. Furthermore the Respondent has not demonstrated in any way that paragraph 5 of the affidavit in support is false. He repeated that if payment is not confirmed, the Respondent would not deliver any cement.

Ruling

I have carefully gone through the pleadings of the parties and considered the submissions of Counsel. The Plaintiffs claim against the Defendant is for recovery of a debt in the sum of Uganda shillings 327,214,000/= arising from a credit supply of cement to the Defendant. The Plaintiff is a manufacturer of cement products in Kenya under the brand name "Blue Triangle". It is averred that between April 2011 and July 2011 the Plaintiffs supplied to the Applicant Blue Triangle cement as invoiced and collectively marked annexure "A".  It is further averred that the Applicant secured payment of the cement by issuing post dated cheques to the Plaintiff which cheques when presented for payment were severally returned marked with the words “amount in words and figures differ”; “confirmation awaited”; and “cheques stopped”.  Eight of the cheques were not presented to the bank and the amounts thereon remain unpaid.  Consequently the Plaintiff contends that it is entitled to judgment in the sum of Uganda shillings 327,214,000/=.  Furthermore that notice of dishonour of the cheques was communicated to the Defendant Company and the Defendant promised to pay but to date no payments have been made.

In the recent case of M.M. K Engineering v Mantrust Uganda Ltd MA 128 of 2012 the principles for determination of whether leave should be granted to the Defendant to appear and defend a summary suit were summarised from Odgers’ Principles of Pleading and Practice in Civil Actions in the High Court of Justice Twenty-Second Edition pages 71 – 78and Ugandan precedents on summary procedure under Order 36 CPR. These principles are:

  1. An Applicant for leave to defend a summary suit must demonstrate to court that there is or are issues or questions of fact or law which are in dispute and which ought to be tried. (In Uganda an application for leave to defend a suit under order 36 of the Civil Procedure Rules, must disclose bona fide issues for trial of questions of law or fact (see Maluku Interglobal Agency Ltd. v. Bank of Uganda [1985] HCB 65.))

 

  1. Where the Applicant shows a state of facts which leads to the inference that at the trial of the action he may be able to establish a defence to the Plaintiffs claim, he ought not to be debarred of all power to defeat the demand made upon him.

 

  1. Where the court is doubtful whether the proposed defence is being made in good faith, the court may order the Defendant to deposit money in court before leave is granted.

 

  1. Whenever there is a genuine defence either in fact or in law, the Defendant is entitled to unconditional leave to defend. (If the Applicant/Defendant has a plausible defence he should be allowed to defend the suit unconditionally (See Abubaker Kato Kasule v Tomson Muhwezi [1992-93] HCB 212)

 

  1. General allegations however strongly may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any Court ought to take notice.(In Uganda it has been held that “In all applications for leave to appear and defend under Order 33 rules 3 and 4, (now O.36 r 3 and 4) the court must study the grounds raised to ascertain whether the disclose a real issue and not a sham one, i.e. the court must be certain that if the facts alleged by the Applicant/Defendant were established, there would be a plausible defence; (see Kireju J in Abubaker Kato Kasule v Tomson Muhwezi [1992-93] HCB 212,

 

  1. The Defendant may in answer to the Plaintiffs claim rely upon a set off or counterclaim. A setoff is a defence to the action. Where it is a counterclaim, and there is no connection with the Plaintiff’s cause of action, the Plaintiff may be given leave to obtain judgment on the claim provided that it is clearly entitled to succeed upon it and will be put to unnecessary expense in having to prove it. It is within the courts discretion to stay execution up to the anticipated amount of the counterclaim pending the trial of the counterclaim or further order.

It can be properly argued that the Applicant has raised triable questions of fact as to how much money was owed to it.  The Respondent on the other hand has set up order 36 rules 4 to counter that argument.  Order 36 rule 4 provides as follows:

“Application by a Defendant served with summons in form 4 of appendix A for leave to appear and defend the suit shall be supported by affidavit, which shall state whether the defence alleged goes to the whole or part only, and if so, to what part of the Plaintiffs claim, and the court may also allow a Defendant making the application to be examined upon oath.  For this purpose the court may order the Defendant, or, in the case of a corporation, or any officer of the corporation, to attend and be examined upon oath, or to produce any leases, deeds, books or documents, or copies of or extracts from them. The Plaintiff shall be served with notice of the application and with a copy of the affidavit filed by a Defendant.”

The Applicant has sought an audit to establish the extent of its liability, if any, to the Defendant.  The Applicant has not explained the extent of its liability if any.  According to learned Counsel for the Respondent, this is fatal.  However I do not agree that this would be fatal and the case of Elizabeth Muganza and Others is distinguishable. That case involved several parties whose indebtedness was not particularised. In this case the Applicant has disclosed how much money he has paid for a particular period of time. It is possible that the exact indebtedness of the Applicant can be established through an audit process.  This is a reasonable request if it was the only matter raised by the Applicant.  However, the Applicant alleges that it is not indebted at all to the Respondent.  His contention is that the nature of the transaction between the parties is that supplies would only be made after payment had been confirmed.  On the other hand the Respondent asserts that payments were made on credit against post dated cheques as security.  When the post-dated cheques were presented for payment, they were dishonoured. The issue of post-dated cheques puts the entire controversy in another perspective.

In the case of Kotecha v Muhammed [2002] 1 EA 112the Court of Appeal of Uganda held that in a summary suit the Applicant has to show bona fide triable issues but the situation is different if the Plaintiff sues upon a bill of exchange. Justice Berko of the Court of Appeal held:

“Under the English Rule the Defendant is granted leave to appear and defend if he is able to show that he has a good defence on the merit(s); or that a difficult point of law is involved; or a dispute as to the facts which ought to be tried; or a real dispute as to the amount claimed which requires taking an account to determine; or any other circumstances showing reasonable grounds of a bona fide defence. See Saw v Hakim 5 TLR 72; Ray v Barker 4 Ex DI 279. The position is however, different where the Plaintiff sues under a cheque or Promissory Note or Bills of Exchange”

The Court of Appeal in Kotecha vs. Mohammad [2002] (supra) at page 118 further held that a bill of exchange (such as a cheque) is to be treated as cash. They held as follows:

“The English authorities, particularly James Lamont and Company Limited v Hyland Limited [1950] 1 KB 585; Brown, Shipley and Company Limited v Alicia Hosiery Limited [1966] Rep 668, establish that a Bill of Exchange is normally to be treated as cash. The holder is entitled in the ordinary way to judgment. If he is a seller who has taken bills for payment, he is still entitled to judgment: no matter that the Defendant has a cross claim for damages under the contract of sale or under other contracts. The buyer must raise those in a separate action. ...” (emphasis added)

The only defence that has been raised by the Applicant to the cheques is that 8 of the cheques were not cashed or presented for payment and cannot found a cause of action against the Defendant.  The face value of the cheques which had not been presented for payment amount to Uganda shillings 106,704,000/=.  This constitutes part of the claim of the Plaintiff for the sum of Uganda shillings of 327,249,000/= against the Applicant.  No explanation has being given as to why the cheques were not presented for payment.  The reason for non presentation of the cheques cannot be inferred from the pleadings.  In those circumstances, it cannot be said that the Defendant has no defence to the entire claim.  I sympathise with the submissions of learned Counsel for the Respondent that the Applicant has not provided particulars of what it contests and what it admits notwithstanding that it sought an audit.

In the above circumstances, there are some bona fide questions of fact which have been raised that ought to be tried in the suit.  However in light of the dishonoured cheques, the court will grant conditional leave to the Defendant.  In the circumstances the following orders shall issue:

  1. The Defendant shall deposit in court a sum of Uganda shillings 121,000,000/= which sum shall be deposited within two weeks from the date of this order.

 

  1. The Defendant is granted leave on the above condition to file a defence within 14 days from the date of this order.

 

  1. Order 36 rules 10 of the Civil Procedure Rules permits the court, where leave whether conditional or unconditional is granted, to give all directions and make all orders as to pleadings, issues, and further steps in the suit as may appear reasonable or necessary. Accordingly it is the direction of this court that the parties shall agree on an independent auditor to reconcile the accounts of the parties relating to the claim in the suit within one month from this order failure for which the court shall appoint an auditor after the parties have forwarded three names that they will have agreed upon to the court for that purpose.

 

  1. Costs of this application shall abide the final outcome of the suit. 

Ruling read in open court and the 24th day of August 2012.

 

Hon. Mr. Justice Christopher Madrama

 

Ruling delivered in the presence of:

Patrick Alunga for the respondent

No other party present

Charles Okuni Court Clerk

 

Hon. Mr. Justice Christopher Madrama

24th August 2012