Court name
Commercial Court of Uganda
Judgment date
25 October 2012

Western Highland Creameries Ltd & Anor v Stanbic Bank Uganda Ltd & 2 Ors (Civil Suit-2011/462) [2012] UGCommC 130 (25 October 2012);

Cite this case
[2012] UGCommC 130

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

HIGH COURT CIVIL SUIT NO 462 OF 2011

  1. WESTERN HIGHLAND CREAMERIES LTD}
  2. LEE NGUGI}.........................................................................                                                                                                                               PLAINTIFFS

VS.

  1. STANBIC BANK UGANDA LTD}
  2. MICHAEL MAWANDA }
  3. ALPHA DAIRY PRODUCTS LIMITED}.....................................                                                                                                                        DEFENDANTS

 

BEFORE HON. JUSTICE CHRISTOPHER MADRAMA

RULING

 

This ruling arises out of agreed preliminary issues for trial by court before determination of any other issues. The agreed issues:

  1. Whether the plaintiffs have a cause of action as against the defendants.
  2. Whether the suit is barred by the law of limitation.

At the hearing the plaintiffs were represented by Messrs Nyanzi, Kiboneka and Mbabazi Advocates while the first defendant was represented by Messrs Kateera and Kagumire Advocates, and the second defendant represented by Messrs Owen Murangira and Co Advocates. Counsels addressed the court on the agreed issues through written submissions.

Background facts of the first defendant submissions on the preliminary agreed issues is that in 1995 and as pleaded in the plaint the plaintiffs were granted a loan of Uganda shillings 945,211,000/= secured by a debenture over the first plaintiffs assets and a mortgage of the first plaintiffs land LRV 2398 folio 3 plot number 4 – 8 Mbarara. In February 1997 the plaintiff requested for more funding and was given credit facilities by way of a term loan, short-term loan and overdraft to the tune of Uganda shillings 1,924,645,000/= secured among other things by a further charge on the mortgaged first plaintiffs land and a bank guarantee of US$600,000 issued by the National Bank of Kenya Ltd. Due to persistent failure by the plaintiff to pay the credit facility, the first defendant recalled the guarantee of US$600,000 in March 1999 and as of 28 March 2001, the plaintiff was indebted to the first defendant to the tune of Uganda shillings 754, 965,195/=. The first defendant under its powers granted in the debenture, mortgage and further charge and mortgage, appointed the second defendant as a receiver/manager of the first plaintiff on 4 June 2001. After a period of over 10 years since the appointment, the plaintiffs bring this action against the defendants for orders and declarations that:

  1. The enforcement and crystallisation of the debenture and mortgage on the land and property comprised in LRV 2849 folio 23 plot 4 – 8 (the suit land) was fraudulent and illegal.
  2. The appointment of the second defendant by the first defendant as a Receiver of the first plaintiff was fraudulent and illegal.
  3. The sale and transfer of the suit land by the first and second defendant to the 3rd defendant was fraudulent and illegal.
  4. Recovery of physical and vacant possession of the suit land and property through the eviction of the 3rd defendant.
  5. Recovery of legal title through the reinstatement of the first plaintiff as the registered proprietor of the suit land and cancellation of the third defendant's name off the register.
  6. Alternatively the plaintiffs pray for an order of restitution and restoration of the plaintiffs land at the market value of US$5 million.
  7. Compensatory damages for economic, financial loss, loss of profits and investment return from the date of takeover of the plant and business by the second defendant.
  8. Aggravated, punitive and exemplary damages.
  9. Interest at 20% per annum.
  10. Costs of this suit and any other relief.

Background of the Plaintiffs address on the issues

Learned Counsel for the plaintiff submitted on the background facts. The cause of action in the plaint arises from the acts of the first and second defendants in selling the plaintiffs land and plant valued in excess of US$5 million to the third defendant at Uganda shillings 300,000,000/= which is approximately US$171,713. The plaintiff’s action against the defendants jointly and/severally is for the redemption of the plaintiffs securities that the defendants unlawfully, illegally and fraudulently took over and sold to the third defendant. The genesis of the action is that the first plaintiff and the first defendant entered into a loan agreement dated 2nd of June 1995 for the provision of a facility of Uganda shillings 945,211,000/=. The first loan was secured by means of a mortgage over all the estate and interest in the first plaintiffs land; a debenture, the first plaintiffs undertaking, goodwill, plant, machinery, current assets, uncalled capital and other movable assets and property both present and future and book debts. Under clause 3 the debenture specifically excluded immovable assets.

The first plaintiff was granted further facilities amounting to a sum of Uganda shillings 1,942,645,000/= which was a second loan. The second loan was secured by means of a further charge on mortgaged land dated 13th of February 1997. The loans were further secured by means of a personal guarantee from the second plaintiff for the sum of US$600,000. The original leasehold title LRV 2398 folio 3 plot 4 – 8 expired on 20 June 2000 and was a renewed (not extended) as LRV 2849 folio 23 plot 4 – 8 on 6 December 2000. Before acquiring LRV 2849 folio 23 the parties executed a variation of mortgage on 24 November 2000 which was subsequently registered on LRV 2849 folio 23.  On the 4th of June 2001 the plaintiff was placed under receivership by the first defendant for an outstanding loan of Uganda shillings 754,965,195/=. The second defendant was appointed by the first defendant to be the receiver of the first plaintiffs land and property with specific instructions of what to do and to sell land comprised in LRV 2398 folio 3 within 90 days. The second defendant acting on instructions of the first defendant disposed of the land comprised in LRV 2849 folio 23 and other assets of the company unlawfully, illegally and fraudulently to the third defendant dispossessing the first plaintiff of its main asset, the land and causing the second plaintiff to lose his investment in the first plaintiff. These actions prompted the filing of the suit.

I have carefully considered the written submissions of counsels for and against the agreed issues. Both issues raised points of law which are preliminary in nature in that if it is answered in favour of the defendants, the suit will not proceed. Both issues deal with the competence of the action against the defendants. Order 15 rules 2 of the Civil Procedure Rules provides that:

"Where issues both of law and fact arise in the same suit and the court is of the opinion that the case or any part of it may be disposed of on issues of law only, it shall try those issues first, and for that purpose may, if it thinks fit, postpone the settlement of the issues of fact until after the issues of law have been determined."

In this case the agreed issue of whether the suit is barred by the law of limitation is a point of law which if determined in favour of the defendants would dispose of the suit. On the other hand the question of whether the plaint discloses a cause of action though preliminary, requires the court to consider the pleadings and attachments thereto and proceed on the assumption that the suit is not barred by law. Under order 7 rule 11, the court shall reject the plaint where the suit appears from the statement in the plaint to be barred by any law. Though counsel submitted on both issues as to whether the suit was barred by the law of limitation and whether the plaint discloses a cause of action, it is proper in terms of order 15 rule 2 to determine the second issue of whether the suit is barred by the law of limitation first. If the issue is answered in the affirmative, it would be unnecessary to consider the second issue which is whether the plaint discloses a cause of action. In the circumstances the second issue will only be considered in this ruling, if the issue of whether the plaint is barred by the law of limitation is answered in the negative.

In its written submissions objecting to the suit, counsel for the first defendant submitted on the issue of limitation in objection to the suit.

Whether the suit is barred by the law of limitation

Written submissions of the Defendant

Learned counsel submitted that in addition to the plaintiff’s action for recovery of vacant possession and reinstatement of the first plaintiff as the registered proprietor of the suit property, the plaintiffs also seeks a declaration that the enforcement and crystallisation of the charge or the debenture /mortgage on the suit land was fraudulent and illegal, that the appointment of the second defendant as Receiver of the first plaintiff company was fraudulent and illegal, that the sale and transfer of the suit land to the third defendant was fraudulent and illegal and for compensation, aggravated, punitive and exemplary damages, interests and costs of the suit.

Counsel contended that the relationship between the first plaintiff and the first defendant is based on security documents executed by the parties.  These are the debenture deeds dated 10th of September, 1995, the mortgage deed dated 31 September, 1995 and the further charge and mortgage dated 13 February, 1997.  Clauses 9, 4 and 5 of the debenture, mortgage and further charge and mortgage respectively provided that upon default, the first defendant was empowered to sell or concur with any other person to sell the first plaintiffs assets or mortgaged property to recover any outstanding sums.  The instruments also empowered the first defendant to appoint a receiver in cases of any default by the first plaintiff in repaying the loan.  The first plaintiff defaulted in the repayment of the loan and by 28th of March, 2001 the outstanding balance of Uganda shillings 754,965,195/= was due and payable to the first defendant.  The first defendant on the 4th of June, 2001 exercised its powers under the deeds and appointed the second defendant as receiver/manager of the first plaintiff and the appointment was duly filed with the Registrar of Companies on the 5th of June, 2001.  Annexure “P” and “Q” of the plaint shows that the plaintiff’s Attorneys were aware of the appointment.  Consequently the enforcement and crystallisation of the charges occurred in June 2001.  The first defendant appointed the second defendant as receiver of the first plaintiff who proceeded to take over the first plaintiff’s property which he eventually sold to the third defendant to repay the loan.  Annexure “N” to the plaint which is a transfer deed dated 24th of August, 2001 executed by the second defendant as receiver/manager of the first plaintiff transfers the suit land to the third defendant. Under section 3 (i) of the Limitation Act actions founded on contract or tort shall not be brought after the expiration of six years from the date the cause of action arose. The plaintiff’s suit is founded on an alleged breach of the terms of contract in the debenture, mortgage and further charge on mortgaged land which alleged breaches are shown to have occurred in June 2001 with enforcement and crystallisation of the charges through the appointment of the second defendant as receiver/manager of the first plaintiff. If the plaintiffs had been aggrieved by the actions of the first defendant in the appointment of the receiver and enforcement of the terms of the debenture and mortgage, they ought to have brought an action founded on contract within six years from 2001 and in any case not beyond the year 2007. The plaint was filed on the court record on 7 December 2011 after a period of over 10 years. The plaint does not plead any grounds of exemption in terms of order 7 rule 6 of the Civil Procedure Rules.

Counsel submitted that a plaint barred by law must be rejected. He relied on the case of Iga versus Makerere University (1972) EA 65 where the Court of Appeal for East Africa rejected a plaint barred by limitation. Learned counsel prayed that the court be pleased to strike out the plaint with costs or dismiss it under order 6 rule 29 of the Civil Procedure Rules.

Second Defendants written submissions in support of the objection

Second Defendants counsel supported the first Defendant’s submissions on whether the suit is barred by the law of limitation. Learned counsel submitted that on 10 August 1995, the first plaintiff executed a debenture deeds with the first defendant in respect of its business and assets. Clause 9 (iii) of the debenture deeds provided that in the case of default by the first plaintiff to repay the loan, the first defendant should appoint a receiver/manager and or sell the assets. Clause 9 further authorised the first defendant to sell the first plaintiffs assets in case of default. Additionally on the 31st of September 1995 the first plaintiff executed a mortgage deed with the first defendant mortgaging its property comprised in leasehold register volume 2398 Folio 3 Plot 4 – 8 Ntengye Road Mbarara (subsequently described as LRV 2849 Folio 23 Plot 4 – 8 Ntengye Road Mbarara). Clause 3 (h) of the mortgage deed gave the first defendant the right to dispose of the mortgaged property upon default of the first plaintiff. Clause 4 of the mortgage deed authorised the first defendant to appoint a receiver, manager in the case of default by the first plaintiff. On 13 February 1997 the first plaintiff executed a further charge and mortgage with the first defendant. Having the same powers as in the mortgage granted to the first defendant.

Learned counsel supported the first defendant's submission that the plaintiff cause of action arose out of the mortgage and debenture deeds and was not instituted within the prescribed time. Learned counsel submitted that the plaintiffs were at all material times in possession and management of the plant and business comprised in the suit property described above. It was after the appointment of the second defendant that he took over the management of the plant and business of the plaintiff who had full notice of the second defendant's appointment and taking over the management. Consequently the plaintiffs’ cause of action arose in 2001 when the second defendant took over the first plaintiff's property and business and in addition when the mortgaged land was advertised in the new vision newspapers for sale in 2001. The plaintiffs’ action is founded on the mortgage and debenture deed executed by the first plaintiff and the first defendant which led to the appointment of a receiver/the second defendant in 2001. The first plaintiff was aware that the receiver had been appointed by the first defendant in terms of the mortgage and debenture deeds. The plaintiff was also aware that the mortgaged property was up for sale by the public or private treaty as it was advertised in the new vision newspapers in 2001. The cause of action arose out of the contract and the plaintiff ought to have brought the suit within six years from 2001 when the receiver was appointed and when the advertisement for sale run in the newspapers. Counsel submitted that the plaintiffs are guilty of laches and prayed that the court dismisses the suit with costs.

Plaintiff’s written submissions in reply

In reply the plaintiff’s counsel prayed that the court considers the period of limitation applicable to the plaintiffs action as against the defendants and when the limitation period began to run. Counsel submitted that the plaintiff's action against the defendants jointly and severally is for recovery of land or its monetary equivalent at the current market value and consequent economic and financial loss and not for breach of contract. Counsel contended that the plaintiffs land and property was illegally and fraudulently sold by the first and second defendants to the third defendant. The plaintiff was dispossessed of and deprived of the estate and interest in land where they were operating a factory which processed and distributed milk and milk products.

Consequently the limitation period applicable to the plaintiff’s cause of action is 12 years as provided for under section 5 of the Limitation Act Cap 80.  Counsel contended that the plaintiff’s cause of action is not founded on a contract or tort but on the illegal and fraudulent sale of the first plaintiffs land by the first and second defendants. The plaintiffs are seeking recovery of land or in the alternative its monetary equivalent at the current market rates and damages for the consequential economic and financial loss suffered.  Counsel referred to the case of General Parts (U) LTD and Haruna Semakula versus NPART – SCCA number 9/2005 where it was claimed that the plaintiff’s cause of action was barred having been brought more than six years from the date the cause of action accrued.  The court held that the plaintiffs cause of action was a foreclosure action and from the provisions of section 5 and 18 (4) of the Limitation Act, the limitation period was 12 years.  Counsel contended that in terms of section 5, 6 (1), 12 and 13 of the Limitation Act, actions founded on a mortgage which included recovery of a mortgage debt, foreclosure and redemption are not regarded as causes of action in contract but rather as causes of action for recovery of land.

Secondly learned counsels for the Plaintiffs contend that the reliefs sought by the plaintiffs against the defendants jointly and severally include declaratory judgments in terms of paragraph 11 (a) of the plaint. A relief or redress by way of a declaration is not founded on tort or contract but is a cause of action in itself akin to specific performance, injunction or equitable reliefs and is therefore exempted from the limitation periods prescribed by the Limitation Act. Declaratory judgments are catered for under order 2 rule 9 of the Civil Procedure Rules which provides that no suit shall be open to objection on the ground that merely a declaratory judgment or order is sought thereby and the court may make binding declarations of right whether any consequential relief is or could be claimed or not.  Furthermore counsel submitted that under section 6 (1) of the Limitation Act the right of action is deemed to have accrued on the date of the dispossession or discontinuance, where the person bringing the action has been in possession and while entitled to it was dispossessed or discontinued from his or her possession.  The first defendant appointed the second defendant as a receiver on the 4th of June, 2001 and the appointment was registered in the Companies registry on the 5th of June, 2001.  The land was subsequently sold to the third defendant and the transfer was registered on the 27th of August, 2001.  Consequently the issue for determination is when the period of limitation began to run.  Was it the 5th of June, 2001 on the appointment of the receiver or 27th of August, 2001 on the registration of the transfer to the third defendant?  Counsel submitted that though the management of the company’s business is taken out of the hands of its directors and placed in the hands of the receiver, the appointment of a receiver does not disposes a company of its property.  According to Lightman and Moss, the Law of Administrators and Receivers of Companies, Thomson, Sweet and Maxwell (2007) the company's assets are not vested in the receiver and therefore he cannot sue in his own name. Additionally learned counsel relied on the case of Lochab Bros versus Kenya Furfural (1985) L.R.C. (Comm.) 77 CA for the proposition that a receiver is appointed to take care and receive property under his charge. His appointment does not vest any property in him. Consequently the first plaintiff continued to be the legal owner of the property until it was dispossessed of it by the disposal thereof and transfer to the third defendant. Counsel further submitted that time begun to run on 5 June 2001 upon the appointment of the second defendant. The suit was filed on 7 December 2011 just over 10 years after the plaintiffs were dispossessed of the land and well before the period of limitation of 12 years had expired. Counsel prayed that the preliminary objection on time bar is dismissed as being without merit.

Rejoinder of the defendants to the plaintiffs reply

In rejoinder Counsel for the first defendant contended that the plaintiff’s action against the first defendant bank arises out of and is premised on alleged breaches of the relationship between the first plaintiff and the first defendant which relationship emanates from the debenture, mortgage and further charge on mortgaged deeds and hence are contractual. The alleged breaches being acts or defaults allegedly committed by the first defendant in enforcing its rights under the deeds are contractual breaches. The cause of action is in breach of contract and the Limitation Act gives only a period of six years within which to commence any action from the date the cause of action arose.

Furthermore learned counsel submitted that a critical perusal of the prayers in the plaint in respect of recovery of land shows that it is not a prayer sought against the first defendant. The plaintiffs seek physical and vacant possession of land, plant and business. They also seek eviction of the third defendant. The equally seek legal title through reinstatement of the plaintiff on the land and cancellation of the third defendant's name from the land register. Therefore counsel for the defendant contends that the suit is not for recovery of land as against the first defendant. Annexure "F" to the plaint shows that the suit land is registered in the names of Shumuk Properties Ltd registered on 7 October 2010 long before the institution of the plaintiff’s suit. Consequently an action for recovery of land can only be legally sustained against Shumuk Properties Ltd and not the first defendant or any other defendant. Therefore, the submission that the suit is an action for recovery of land as against the first defendant is baseless, false and legally untenable.

Furthermore counsel distinguished the case of General Parts (U) Ltd and Haruna Semakula versus NPART SCCA number 9 of 2005 relied on by the plaintiff’s counsel for the contention that the plaintiff’s cause of action is that of a foreclosure action and the limitation period thereof is 12 years. Defendant’s counsel contended that a foreclosure action can only be brought by a mortgagee against the mortgagor. The plaintiff is a mortgagor and cannot bring a foreclosure action. The plaintiff’s action was brought by a former mortgagor to recover land that is no longer under a mortgage. There was no existing mortgage at the time the plaintiff filed the action on 7 December 2011. Counsel referred to Black’s Law Dictionary 7th edition for the definition of the word "foreclose". To foreclose is to terminate a mortgagor’s interest in property or to subject a property to foreclosure proceedings. The word "foreclosure" means a legal proceeding to terminate the mortgagor's interest in property, instituted by the lender (mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.

Alternatively the plaintiff submitted that the prayer for declarations could not be time barred. Counsel for the defendant submitted that the import of order 2 rules 9 of the Civil Procedure Rules is that a defendant cannot challenge a plaintiff’s suit on grounds that the suit or action is seeking only a declaratory judgment or order and no more. It does not mean that the law of limitation does not apply to the declaration for instance if it is based or premised on a contractual or tortuous cause of action.

The second defendants counsel associated with the submissions of the first defendant in rejoinder on the points of the suit arising out of a mortgage/debenture and consequently arising out of the contract which was executed in the year 1995 and with a further charge of 1997. Additionally the declaratory orders all relate to the contracts. The prayers for recovery of land cannot be granted or enforced against the second defendant. In conclusion the plaintiffs are barred by time to bring the action against the second defendant and the prayers of recovering it and or its value which is not registered in the second defendant's name or in his possession cannot be maintained. He prayed that the suit against the second defendant is dismissed with costs.

Ruling on whether the plaint is barred by section 3 of the Limitation Act

I have duly considered the written submissions, the plaint and attachments and authorities referred to. Paragraph 3 of the plaint avers that the plaintiffs claim against the defendants jointly and severally is for declarations, orders and judgement. The declarations sought are that the enforcement and crystallisation of the charge or debenture/mortgage on land, plant and business; the appointment of the second defendant as receiver of the first plaintiff company, plant and business; and the sale and transfer of land, plant and business comprised in LRV 2849 folio 23 plot 4 – 8 by the first and second defendants to the third defendant are fraudulent and/or illegal. Secondly the plaintiffs seek recovery of physical and vacant possession of the land, plant and business comprised in LRV 2849 folio 23 (described above), recovery of the legal title through reinstatement of the plaintiff on land (described above) and cancellation of the third defendant's name from the land register and certificate of title. Alternatively the suit is for restitution or restoration of the plaintiffs land, plant and business or its current market value; compensatory damages for economic and financial loss, loss of profits and investment return from the date of takeover of the land, plant and business by the second defendant to date; aggravated, punitive and exemplary damages, interests and costs of the suit.

The question for determination is whether the plaintiff's action is an action for the recovery of land to qualify for a limitation period of 12 years. The defendant's submission is that the plaintiff’s cause of action against the first and second defendants is for breaches arising out of rights and obligations spelt out under security instruments namely the mortgage, debenture and further charge on the plaintiffs land.

I have carefully considered the written submissions of the parties. Both parties in their written submissions dealt with a third element, which is the fact that the property has since been transferred to Shumuk Properties Ltd. The certificate of title attached as annexure "F" to the plaint shows that Shumuk Properties Ltd was registered on 7 October 2010 under instrument number 436666 at 12:40 PM. This introduces a new dimension that complicates the issues a little bit. In the first place, Shumuk Properties Ltd is not a party to the suit. Secondly, it introduces the question as to whether the plaintiff’s action is an action for recovery of land as against the first and second defendants.

The defendant's submission is that one cannot seek an order against a person who is not a party to the suit. Secondly, it is not in dispute that 12 years had not yet elapsed by the time the suit was filed since the alleged cause of action pleaded in the plaint arose sometime in 2001. The property was by transfer deed transferred to the third defendant on 24 August 2001 and transfer instrument registered on 27 August 2001 according to annexure "N" to the plaint. In other words, as far as the first and second defendants are concerned, the property was transferred in the year 2001 to a third party and the transfer was effective on the 27th of August 2001 when it was registered. Annexure "F" to the plaint which is the certificate of title shows that the property was registered in the names of Alpha Dairy Products Ltd on 27 August 2001.  The 27th of August, 2001 can be taken to be the date when the cause of action arose.

What is an action for recovery of land? Learned counsel for the plaintiff submits that an action for recovery of the mortgage debt, foreclosure, and redemption are actions for recovery of land and the limitation period thereof is 12 years under the Limitation Act. The term "recovery of land" is in ordinary English. It means getting back the land. Land can be got back by recovery of actual possession and also through obtaining the registered proprietorship. This may also be taken to mean recovery of title. This is because the registered proprietor of land is deemed to be the conclusive owner thereof under section 59 of the Registration of Titles Act with full authority to transact any business concerning the land. Because the registered proprietor is a necessary party to any action for recovery of land notwithstanding any rule of equity, the courts have held that an action for recovery of land lies against the transferee in title. The rationale for this is that the transferee in title is protected by the statutory provision i.e. section 59 of the Registration of Titles Act cap 230 that the person registered on the title is conclusively deemed to be the owner/proprietor of the land. In the case of Caroline Turyatemba and 4 others vs. Attorney General and Uganda Land Commission Constitutional Petition number 15 of 2006, the Constitutional Court held that the registered proprietors were not parties to the petition and the order being sought would disentitle third parties not before court without being heard:

"This court is asked to make orders cancelling the leases and certificates that already have individual third parties as the registered proprietors of the respective suit lands. The registered proprietors are not parties to this petition. In other words, the petitioners are seeking from us orders to disentitle these third parties of their respective interests in the suit lands, when such parties have not been heard. We are unable to do that, as to do so, would be to condemn such third parties, without having availed to them a fair hearing, which act would be contrary to article 28 of the constitution."

The Constitutional Court decision deals with a fundamental point that a court cannot make an order cancelling title of parties who are not before the court. Shumuk Properties Ltd which is shown by the attachments to the plaint to be the current registered owner of the suit property is not a party to the plaint/suit. Learned counsel for the plaintiff submitted that this in itself is not fatal as the third party can be joined under order 1 of the Civil Procedure Rules. This may well be true if the plaint against the Defendants before court is not a nullity. However before considering whether it is not fatal, I have to deal with a separate point closely related to the first point which is the proposition that an action for recovery of land can only be brought against the transferee in title.  If that proposition is true, then an action for recovery of land can only be an action to recover land registered in the names of or in the possession of the defendant.

Under section 176 of the Registration of Titles Act, a suit for impeachment of title lies against the transferee in title. This was held by the Supreme Court of Uganda in the case ofKampala Bottlers v Damanico (U) Ltd SCCA No.22/92. In that case the Supreme Court held that production of a certificate of title in the names of a party is sufficient proof of ownership of the land under section 59 of the Registration of Title Act. Such title can only be impeached under the provisions of section 176 of the Registration of Titles Act. These grounds include impeachment of title on the grounds of fraud. The fraud however has to be that of the transferee in title for purposes of recovery of the land. The Supreme Court per Justice Platt JSC held at page 5 of his judgment that:

“That is to say, that primarily, the Respondents allegation of fraud must relate to the way in which the Appellant gained registration, as the Appellant was the only other party in the case.”

In other words it is very material that the fraud or allegations under section 176 which give limited grounds upon which an action for recovery of land as against the registered proprietor have to be proved.  Such actions are actions of ejectment against the registered proprietor or other actions for recovery of land. Wambuzi C.J. as he then in the case of Kampala bottlers vs. Damanico, (Supra) held that the transferee in title whose title is sought to be impeached must be guilty of some fraud.

Actions for recovery of land are defined by section 176 of the Registration of Titles Act cap 230 which reads as follows:

176. Registered proprietor protected against ejectment except in certain cases.

No action of ejectment or other action for the recovery of any land shall lie or be sustained against the person registered as proprietor under this Act, except in any of the following cases—

(a) the case of a mortgagee as against a mortgagor in default;

(b) the case of a lessor as against a lessee in default;

(c) the case of a person deprived of any land by fraud as against the person registered as proprietor of that land through fraud or as against a person deriving otherwise than as a transferee bona fide for value from or through a person so registered through fraud;

(d) the case of a person deprived of or claiming any land included in any certificate of title of other land by misdescription of the other land or of its boundaries as against the registered proprietor of that other land not being a transferee of the land bona fide for value;

(e) the case of a registered proprietor claiming under a certificate of title prior in date of registration under this Act in any case in which two or more certificates of title may be registered under this Act in respect of the same land,

and in any case other than as aforesaid the production of the registered certificate of title or lease shall be held in every court to be an absolute bar and estoppels to any such action against the person named in that document as the grantee, owner, proprietor or lessee of the land described in it, any rule of law or equity to the contrary notwithstanding.”

It can be seen from section 176 (a) that an action can be brought by a mortgagee as against the mortgagor in default. I agree with learned counsel for the defendant that the provision does not cater for an action by a mortgagor against a mortgagee. This is because the cause of action is granted by a statutory provision.

Learned counsel for the plaintiff submitted that an action for recovery of land includes an action for redemption. I agree that an action for recovery of land in practical terms includes an action to redeem the land. This is the equity of redemption to enable the mortgagor retain its/his/her property. In this case however, the property has been sold and transferred to a third party. Section 176 of the Registration of Titles Act provides that the production of a certificate of title shall be held in every court as an absolute bar or estoppels to an action against the registered proprietor “any rule of law or equity notwithstanding”. The equity of redemption is the right of the registered owner/mortgagor to redeem its property as against foreclosure and sale. In other words, the equity of redemption had been extinguished by transfer of the property to Alpha Dairy Products (U) Ltd in August 2001. According to Edward F. Cousins assisted by Sidney Ross in the textbook The Law of Mortgages, London, Sweet & Maxwell 1989, at page 292:

“The equitable right to redeem is thus the right to recover the mortgaged property after the expiry of the legal right to redeem through its non exercise on the contract date.  After the passing of the contract date equity superimposes on the mortgage agreement a condition giving the mortgagor a continuing right to redeem, which he may exercise at any time before the right is destroyed by a foreclosure, sale, or release, or lapse of time.”  

Whether the sale was lawful or not, the property had already been sold by the 27th of August, 2001. Consequently section 176 (a) of the Registration of Titles Act is not available to the plaintiff as far as the equity of redemption is concerned.  In other words the property cannot be redeemed from the first or second defendants. Secondly as far as section 176 (b) of the RTA is concerned, it gives a right of action to a lessor as against a lessee in default and does not apply to the plaintiffs case. Thirdly section 176 (c) is inapplicable as it deals with actions against the transferee in title. The rest of the provisions namely (d) and (e) of section 176 RTA are inapplicable to the plaintiffs case. In other words, the plaintiff cannot have a right of action for recovery of land against the first and second defendants in terms of section 176 of the Registration of Titles Act.

The plaintiff's position is further contradicted by its own submissions in response to the submission of the defendants that the property is registered in the names of Shumuk Properties Ltd, a legal person not before the court. Learned counsel for the plaintiffs surprisingly conceded in submission that the plaintiff’s action against the first and second defendants is not an action for recovery of land.

Plaintiff’s Counsel submitted that under order 1 rule 9 of the Civil Procedure Rules mis-joinder or non-joinder of parties cannot be a ground to defeat a suit. Secondly the plaintiffs have sought severally reliefs which include recovery of the land, monetary compensation at the prevailing market rates, and declarations for diverse orders. In the case of Kyagulanyi Coffee Ltd vs. Francis Senabulya Civil Appeal number 41/2006, the registered proprietor of the property was not a party to the suit, the court ordered the alternative remedy of compensation for the value of the mortgaged property. In the case of Carolyn Turyatemba and others versus the Attorney General and Uganda Land Commission constitutional petition number 15 of 2006 the Constitutional court found the petition competent in so far as related to the reliefs sought between the petitioners but incompetent in respect of those other reliefs which if granted would adversely affect the interest of third parties not before the court. Counsel contended that failure to join Shumuk Properties Ltd did not render the entire suit fatally defective and the court has power to grant the alternative remedy against the defendants. Lastly he submitted that failure to join Shumuk properties Ltd was curable.

In practical terms, the plaintiffs concede that they cannot recover the property/land from the first and second defendants and that the plaintiffs are seeking compensation/damages. The narrower question that arises from the submission is whether a substitute of the prayer for recovery for land by a prayer for compensation/damages or the fair value of the land sold is a cause of action construed ejusdem generis as an action for the recovery of land.

Firstly the grounds/causes of action permitted by section 176 of the Registration of Titles Act define the kind of actions that may be brought against the registered proprietor of land and by necessary implication exclude or bar any other kind of action. My humble view is that section 176 restricts actions for recovery of land to the instances/causes of action which are spelt out under that section. Secondly, the provision bars any other kind of cause of action which is not laid out under that provision (section 176 RTA). For emphasis the proviso to section 176 of the RTA is reproduced for ease of reference:

"… and in any case other than as aforesaid the production of the registered certificate of title or lease shall be held in every court to be an absolute bar and estoppel to any such action against the person named in that document as the grantee, owner, proprietor or lessee of the land described in it, any rule of law or equity to the contrary notwithstanding."

An action for compensation/market value of the land sold way back in 2001 as pleaded is not an action for recovery of land as far as the right of redemption is concerned. As we have noted above, the equity of redemption was extinguished through foreclosure and sale. Secondly, an action for compensation/market value of the land and damages is founded on rights and obligations existing between the parties as spelt out by the mortgage deed, a debenture and further charge. Before taking leave of the matter, the case of Kampala Bottlers Ltd versus Damanico SCCA No 22/92 which is a decision of the Supreme Court, establishes the law that allegations of fraud/illegality in terms of an action for recovery of land have to be made against the transferee in title. That being the law as it is in Uganda and as established by the highest appellate court, allegations of fraud/illegality are not causes of action for recovery of land in the circumstances of this case as they are not allegations made against the transferee in title in the plaint. By exclusion, the allegations of fraud/illegality of sale are not allegations envisaged under section 176 of the Registration of Titles Act because they are not made against the registered transferee in title, whose title is proved by annexure "F" to the plaint. In other words the impeachment of title can only be made against Shumuk Properties Ltd or any other action for recovery of land authorised by the law.  The transfer of the land was not made after institution of the suit.  It may have been an alleged that the subsequent transfer after a cause of action for recovery of land at the commencement of the action would make the suit an action for recovery of land.  However in this case the property had been transferred way back in the year 2001 to the third defendant.  The action was filed subsequently on the 7th of December, 2011.

The actions against the first and second defendants can only arise from the relationship of the lender/borrower governed by the security instruments and is a cause of action founded in contract. The plaintiffs are alleging that the first defendant did not properly appoint the second defendant. They are also alleging that the sale of the property was improper. I.e. they allege alternatively that the property was sold for much less than its market value. The contractual basis of their rights and obligations of the parties under the security instruments cannot be escaped. Any breach of the relationship would be a breach of the contractual relationship the parties enjoyed.  For in practical terms, an action for recovery of land or for redemption can only be made against the registered proprietor in the sense that the property can be transferred back to the plaintiff or the property can be redeemed and transferred back to the plaintiff.  Redemption is also in the context of having the land set free from the mortgage encumbrance.  Any other kind of action which cannot lead to redemption of the land from the mortgage encumbrance or the transfer of the land back to the plaintiff cannot be an action for recovery of land as envisaged in section 176 of the Registration of Titles Act.

The plaintiffs further allege fraud. They did not indicate when the fraud was discovered. It is a material fact and as pleaded that the property was sold and registered on 27 August 2001. No exemption from the law of limitation was pleaded in terms of order 7 rule 6 of the Civil Procedure Rules. The rule provides that where a suit is instituted after the expiry of the period prescribed by the law of limitation, the plaint shall show the grounds upon which exemption from the law is claimed. In other words, the plaintiff’s position is that it is within time to file the action because it is an action for the recovery of land whose limitation period is 12 years from the date the cause of action arose.

Before concluding the issue as to whether the facts disclosed in the plaint show that the suit is barred by the law of limitation, Counsels addressed court on the implications of order 2 rule 9 of the Civil Procedure Rules on the limitation period. Order 2 rule 9 of the Civil Procedure Rules provides that:

"9. Declaratory judgment

No suit shall be open to objection on the ground that a merely declaratory judgment or order is sought by the suit, and the court may make binding declarations of right whether any consequential relief is or could be claimed or not"

The plaintiff’s contention is that the limitation period does not apply to a suit for a declaratory judgment or order which right of action is akin to a right to sue for specific performance.  On the other hand the defendant’s contention is that a declaratory judgment sought has to be founded on a right.  No authorities were cited by counsels in support or opposition to the contentions.  Declaratory judgments were considered in the case of Ellis vs. Duke of Bedford (1899) 1 Ch 494. Lindley MR between pages 514-515 held that under the Judicature Act, actions can be brought merely to declare rights. The rule is in pari materia with the Ugandan Order 2 rule 9 of the Civil Procedure Rules. In that case the court was interpreting the English Order XXV rule 5 which reads as follows:

 

“No action shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the court may make binding declarations of right whether any consequential relief is or could be claimed or not.”

 

The above quoted provision was further considered in the case of Guaranty Trust Company of New York versus Hannay and Company Limited [1915] 2 KB 536. Pickford LJ at page 562 considered whether a right to sue for a declaratory order existed where the plaintiff has no case of action. He seemed to suggest that such a right to sue existed irrespective of whether there was a cause of action or a right to consequential relief. He said:

 

“The next contention is that, even if there is no necessity for a cause of action, the declaration can only be made at the instance of the person claiming the right and intending to assert it if it should become necessary. I can find no such limitation in the words of the rule, and I can see no reason why it should be imposed if it is once established that a declaration can be made where no consequential relief can be given. … I think the effect of the rule is to give general power to make a declaration whether there be a cause of action or not, and at the instance of any party who is interested in the subject matter of the declaration. It does not extend to enable a stranger to the transaction to go and ask the court to express an opinion in order to help him in other transactions.

 

Banks LJ gave the rule a different perspective. At Page 572 he held:

 

“In every action there must be a plaintiff who is the person seeking relief (Judicature Statute Act, 1873, s. 100), or to use the language of order XVI, r. 1, a person in whom a right of relief is alleged to exists, whose application to the Court is not to be defeated because he applies merely for a judgment or order, and whose application for declaration of his right is not to be refused merely because, he cannot establish a legal cause of action. It is essential, however, that a person who seeks to take advantage of the rule must be claiming relief. What is meant by this word relief? When once it is established, as I think it is established, that a relief is not confined to a relief in respect of a cause of action it seems to follow that the word itself must be given its fullest meaning. There, is, however one limitation which must always be attached to it, that is to say, the relief claimed must not be something unlawful or unconstitutional or inequitable for the court to grant or contrary to the accepted principles upon which it exercises jurisdiction. Subject to this limitation, I see nothing to fetter the discretion of the Court in exercising a jurisdiction under the rule to grant relief, and having regard to the general business convenience and the importance of adapting the machinery of the Courts to the needs of suitors I think the rule should receive as liberal a construction as possible. (Emphasis added)

 

Although the rule is coached in general terms, the question remains whether it is inequitable for the court to grant the declaration.  Should the jurisdiction of the court be exercised to establish an academic point which is of no benefit to the litigants?  It would appear that the words used namely: “the right to relief” suggest that the court should not exercise its jurisdiction for academic purposes only.  The scope of the rule permitting the court to grant declaratory relief was narrowed down by the House of Lords in the case of Gouriet v Union of Post Office Workers and others [1977] 3 All ER 70.  Viscount Dilhorne emphasized the need to have a right to bring the action at page 95 of the law report.  He said:

“The majority of the Court of Appeal thought that the court had jurisdiction to make the declarations sought by virtue of RSC Ord 15, r 16, which is in the same terms as RSC Ord 25, r 5, made in 1883. It reads as follows:

‘No action or other proceedings shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the Court may make binding declarations of right whether or not any consequential relief is or could be claimed.’

It does not provide that an action will lie whenever a declaration is sought. It does not enlarge the jurisdiction of the court. It merely provides that no objection can be made on the ground only that a declaration is sought. In my opinion it provides no ground for saying that since 1883 the courts have had jurisdiction to entertain an action instituted by a person other than the Attorney General who does not claim that any personal right or interest will be affected and who is seeking just to protect public rights.

In my opinion the Attorney General was right in his contention that the court had no jurisdiction to grant the interim injunctions. It had no jurisdiction to grant declarations or a final injunction in this suit by Mr Gouriet.”

His lordship was clearly of the opinion that the person instituting the action for a declaratory judgment must have a right to bring the action.  In other words the person must have locus standi before seeking a declaratory order or judgment.  By analogy there must exist a right to bring the action.  In other words a suit barred by limitation cannot lead to a declaratory judgment.  This point was further emphasized by Lord Diplock at page 100 of the law report when he held as follows:

“The early controversies as to whether a party applying for declaratory relief must have a subsisting cause of action or a right to some other relief as well can now be forgotten. It is clearly established that he need not. Relief in the form of a declaration of right is generally superfluous for a plaintiff who has a subsisting cause of action. It is when an infringement of the plaintiff’s rights in the future is threatened or when, unaccompanied by threats, there is a dispute between parties as to what their respective rights will be if something happens in the future that the jurisdiction to make declarations of right can be most usefully invoked. But the jurisdiction of the court is not to declare the law generally or to give advisory opinions: it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not those of anyone else.”

His Lordship emphasized that the right is founded on subsisting legal rights, or where there are contested legal rights, declarations may be made affecting subsisting or future rights.  It is my humble opinion that the defendant is right in the circumstances of this case. The declarations sought are founded on contractual rights or obligations.  The court should not make academic or advisory declaratory orders. In this case the declarations sought though permissible would lead to no possible good other than incurring costs. In other words it would be inequitable to maintain an action for a declaratory judgment for the sake of establishing whether the rights of the plaintiffs had been infringed in the past when the cause of action for relief has been extinguished by the law of limitation. In other words and in the words of Lord Diplock the “jurisdiction of the court” should not be “invoked” in the circumstances of this case. Last but not least, the plaintiffs action is not merely seeking declaratory reliefs. It is an action for consequential reliefs and not merely for declaratory orders/judgment. The consequential reliefs sought flow from the declarations of right prayed for. Because the right to relief has been barred by the law of limitation, the action is not maintainable.

In the premises where a suit is established to be barred by the law of limitation, then the claim for declaratory orders should also fail. However the discretion of the court is required in such cases as to whether to grant the declarations sought.

Lastly I have considered the plaintiffs submissions that the lease title expired on 20 June 2000 while the receiver/second defendant was appointed on the 4th of June 2001. In other words it is an assertion that the lease expired by the time of foreclosure and there was no further interest of the mortgagee in the property. Annexure "F" which is the lease title attaches the lease agreement issued by the District Land Board of Mbarara district. The lease agreement was signed on 30 November 2000. The encumbrance page however shows that the caveat of the first defendant was released on 27 August 2001. The encumbrance page does not show when the first defendant was registered.

Even if the encumbrance of the first defendant was irregularly registered on the title, the plaintiffs cannot recover the land from the first defendant but from the third parties not before the court i.e. Shumuk Properties Ltd. a different description of the land subsequently does not take out the fact that the plaintiff's pledged the factory which forms part of the land. The land has not changed. Even if the lease expired, the mortgage was again registered in the new title. The registration was not challenged. In the premises, the plaintiff’s cause of action would be for damages/compensation. Section 178 of the Registration of Titles Act gives a party deprived of land a right to sue for compensation/recovery of damages. However, such actions have to be brought within six years from the date the cause of action arose in accordance with section 187 of the Registration of Titles Act cap 230. Section 178 provides as follows:

"178. Compensation of party deprived of land.

Any person deprived of land or of any estate or interest in land in consequence of fraud or through the bringing of the land under the operation of this Act or by the registration of any other person as proprietor of the land, estate or interest or in consequence of any error or misdescription in any registered certificate of title or in any entry or memorial in the Register Book may bring and prosecute an action for the recovery of damages against the person upon whose application the land was brought under the operation of this Act, or the erroneous registration was made, or who acquired title to the estate or interest through the fraud, error or misdescription; …"

The right to bring such an action for recovery of damages has a specific limitation period provided for by section 187 of the Registration of Titles Act which provides as follows:

"187. Limitation of actions

  1. No action for recovery of damages sustained through deprivation of land or of any estate or interest in land shall lie or be sustained against the Government or against the person upon whose application that land was brought under the operation of this Act or against the person who applied to be registered as proprietor in respect to the land, unless the action is commenced within six years from the date of the deprivation; except that any person being under the disability of coverture (except in the case of a married woman entitled to bring the action), infancy, lunacy or unsoundness of mind, may bring the action within six years from the date on which the disability has ceased, so, however, that the action is brought within thirty years next after the date of the deprivation."

On the other hand the Limitation Act cap 80 expressly provides that the provisions of section 187 of the Registration of Titles Act shall continue to apply notwithstanding other provisions of the Limitation Act applicable to land. This is provided for under section 29 of the Limitation Act which provides as follows:

29. Application of Act to registered land.

Without prejudice to the operation of section 187 of the Registration of Titles Act, (which contains certain provisions relating to the limitation of actions), this Act shall apply to land registered under the Registration of Titles Act in the same manner and to the same extent as it applies to land not so registered, except that where, if the land were not registered, …”

Last but not least section 32 of the Limitation Act saves the limitation periods prescribed by other enactments. As I have noted above the plaintiffs causes of action arose by 27 August 2001 when the property was transferred to the third defendant by the second defendant acting on the behalf of the first defendant. It is immaterial that the second defendant acted as a receiver and owed a duty to the plaintiffs. The allegation that the second defendant acted unlawfully is a cause of action giving a right to sue within six years from the date the cause of action arose.

The conclusion is that the plaintiff’s action is founded on the rights and obligations expressly contained or implied in the contract between the parties and is barred by the law of limitation having been brought more than six years from the date the cause of action arose. In the very least it is an action under section 178 of the Registration of Titles Act cap 230 for compensation or damages. Again it is barred by section 187 of the Registration of Titles Act which prescribes a period of six years from the date the cause of action arose. The cause of action arose in August 2001. The plaintiffs’ action was filed in the year 2011 and would still be barred by the law of limitation.

In the case of Iga versus Makerere University (supra) relied upon by the first defendants counsel, the plaint was rejected under order 7 rule 11 (d) of the Civil Procedure Rules. Both defendants prayed that the suit is dismissed. Under order 6 rule 28 of the Civil Procedure Rules a point of law may be raised by the pleadings or upon the application of either party may be set down for hearing and disposed of at any time before the hearing. In this case, the parties agreed on the issues and the same or set down for hearing in terms of order 15 rules 2 of the Civil Procedure Rules. It was the opinion of the court and the parties that the points of law had the potential to dispose of the suit. The points of law would therefore be tried first. Time bar is a substantive defence to any action. In the case of Uganda Revenue Authority versus Uganda Consolidated Properties Ltd [1997 – 2001] UCLR 149 The Court of Appeal held at page 155 of the judgment of the Court that the provisions of section 17 (1) (c) of the Tax Appeals Tribunal Act as prescribes a period of limitation of 30 days from the date a tax payer is served with an objection or taxation decision to file an application for review thereof is mandatory. The intention for enactment of statutory periods of limitation was considered in the case of Birkett v James [1977] 2 All ER 801 by Lord Edmund-Davies between pages 815 – 816:

“Statutory provisions imposing periods of limitation within which actions must be instituted seek to serve several aims. In the first place, they protect defendants from being vexed by stale claims relating to long-past incidents about which their records may no longer be in existence and as to which their witnesses, even if they are still available, may well have no accurate recollection. Secondly, the law of limitation is designed to encourage plaintiffs to institute proceedings as soon as it is reasonably possible for them to do so...

Thirdly, the law is intended to ensure that a person may with confidence feel that after a given time he may regard as finally closed an incident which might have led to a claim against him...

The legislature must be taken to have sought—and achieved—a proper balance between all these competing interests in enacting that, if actions are to be heard at all, they must be instituted within the various specified periods from the accrual of the cause of action.”

It is Parliament to take the credit of blame for barring certain types of action after a period they specify in statute from the date the cause or causes of action accrue. The defendants are entitled to plead limitation of actions by statute as a defence as they have done.

Both defendants relied on the plaint to submit on the question of time bar, the provisions of order 7 rules 11 (d) of the Civil Procedure Rules on rejection of the plaint would have been appropriate only if there was no other defendant who has not be heard. No representations were made on behalf of the third defendant and the suit will not be determined against the third defendant without a hearing. The agreed issues were set for hearing in terms of order 6 rule 28 of the Civil Procedure Rules. Paragraph 4 of the first defendants WSD raises limitation as a defence. Similarly the second defendant raises limitation and statute bar as a defence in paragraph 4 of his written statement of defence.

 In the circumstances the suit as against the first and second defendants is determined on a point of law in terms of order 15 rule 2 and order 6 rule 29 of the Civil Procedure Rules as an action barred by section 3 (1) the Limitation Act and Section 187 of the Registration of Titles Act. For the same reasons contained in the above ruling, the plaint discloses no cause of action against the first and second defendants. The suit against the first and second defendants is barred by statute and is accordingly dismissed with costs.

Ruling delivered this 25th day of October 2012

 

 

Christopher Madrama

Judge

 

Ruling delivered in the presence of:

Pope Ahimbisibwe for the first respondent/defendant

Owen Murangira for the second respondent/defendant

Mohammad Mbabazi for the applicant/plaintiff

Third defendant absent

Charles Okuni: Court Clerk

Sheila Catherine Abamu: Research Assistant

 

Christopher Madrama

Judge

25th October 2012