Court name
Commercial Court of Uganda
Judgment date
23 November 2012

Kisubi High School Ltd v National Social Security Fund (Miscellaneous Application-2012/505) [2012] UGCommC 150 (23 November 2012);

Cite this case
[2012] UGCommC 150

THEREPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 505 OF 2012

(ARISING FROM CIVIL SUIT NO. 440 OF 2011)

KISUBI HIGH SCHOOL LIMITED} .......................................................                                                                                                                                       APPLICANT

VERSUS

NATIONAL SOCIAL SECURITY FUND}...........................................                                                                                                                                           RESPONDENT

BEFORE JUSTICE CHRISTOPHER MADRAMA

RULING

The Applicants application is brought under order 9 rules 12, 27, order 22 rules 26, order 52 rules 1, 2 and 3 of the Civil Procedure Rules and section 98 of the Civil Procedure Act and all other enabling laws for orders that the ex parte decree/default judgement entered against the applicant be set aside; execution of the decree/judgment is stayed; and the applicant is granted leave to file a defence to the suit and for costs.

The grounds of the application are that no proper and efficient service of court process was effected on the applicant who was not aware of a pending suit against her. The improper service was compounded by the respondent’s representative’s representation that the suit had been withdrawn and in the reliance on the representation the applicant settled the claim oblivious of the respondent’s deceit and continuation of the suit. Consequently the applicant was prevented by sufficient cause from filing a defence. The applicant contends that it is only fair, just and equitable that the ex parte decree/default judgement is set aside, execution of the same is stayed and the applicant is granted leave to file a defence. The application is supported by the affidavit of Herman Joseph Semakula, the Managing Director of the applicant company. The deposition is that he was not aware of the suit against the company up to 28 August 2012 when he had gone to the companies bank (at the Diamond Trust Bank) to transact business on the account. He was informed that he could not transact any business on the account owing to an order nisi to garnishee the account. Subsequent to obtaining a copy of the order he rushed to his lawyers and to the High Court. His advocates established from the commercial division of the High Court that the file had been transferred to the execution Department of the High Court. That is when he realised that the suit had been filed against the applicant in the year 2011. He came across an affidavit of service showing that the deputy headmaster Mr Deus Twinomuhwezi had been served with summons. The deponent contends that the deputy headmaster was not one of the officials of the applicant company. He is neither a secretary nor a director of the company and not even a principle officer of the company but one of the employees of the academic arm of the company in charge of academic affairs. The deputy headmaster informed him that he did not bother to bring to the attention of the company officers the fact that he had been served with court process. After the deputy headmaster had been served, he saw a group of people from the respondent company from whom he enquired about the way forward. He was advised by the respondent’s officials that the office was sorting out the case with the applicant and it was not necessary to proceed with the case. There were negotiations between the applicant and the respondent which resulted into an agreement to pay outstanding arrears of Uganda shillings 17,012,125/= payable on the 18th of May 2012. After paying the outstanding arrears, the respondent demanded interest on the arrears and a schedule indicating how the interest accrued. The applicant paid money and interest on 22 June 2012. While doing all these, the applicant was oblivious of the fact that the respondent was proceeding against it. Because service was not duly made the applicant was not in a position to file a defence. The applicant was prevented by sufficient cause to file a defence. The respondent acted in bad faith to receive payment on the 18th of May 2012 prior to the judgement and went ahead to execute for the payment. Consequently the applicant avers that it is just and fair and equitable that execution of the ex parte decree/judgment is stayed and the applicant is granted leave to file a defence. And the ex parte judgement is set aside.

The affidavit in reply is sworn by one Proscovia Mbabazi, the contributions relations manager of the respondent Entebbe branch office responsible for the operational area under which the applicant is located. She avers that the applicant is one of the non-compliant employers for whom a compliance audit was conducted by the respondent and final audit report issued on 2 March 2012. The audit details the indebtedness of the respondent and the details of the discussions held between the applicant and the respondent. The final compliance audit report was received by one Namukasa Jane on behalf of the applicant on 4 March 2011. Thereafter no payments were made and the respondent’s branch manager issued a demand delivered on the 17th of May 2011. The applicant failed to remit the contributions and the file was referred to the legal department on 23 August 2011 for further action. On 8 September 2011 the applicant was served with a notice of intention to sue. On 16 April 2012 the legal department informed the deponent that judgement was delivered in the respondents favour on 13 April 2012. On the 18th of May 2012 the applicants director Herman Joseph Semakula and the school Bursar came to the deponents offices with a letter stating that they had a cheque of Uganda shillings 17,012,125/= for Social Security contributions for its a registered employees for the period October 2005 to April 2012. She advised the applicant’s director that the amount was not a full payment for the outstanding Social Security arrears owed by the applicant but they would have received the same and the applicant would be required to pay interest thereon. The applicant requested the respondent to register its unregistered employees. On 23 May 2012 the deponent went to the applicant’s premises to register and sensitise employees. On 22 June 2012 the applicant paid interest of Uganda shillings 3,405,434/= on the contribution arrears remitted on 18th of May 2012. The applicant’s application has no merit and is meant to delay.

A further affidavit in reply is sworn by Rachel Nsenge a legal officer of the respondent. That because the applicant was not remitting Social Security contributions for its employees, they were referred to the respondents legal services Department on 23 August 2011 for the recovery of the Social Security contributions which had not been remitted by the applicant. On 8 September 2011, the respondents served the applicant with a notice of intention to sue. The applicant ignored the notice of intention to sue and was subsequently on 2 December 2012 served with summons to file a defence. The summons was received by the deputy headmaster who acknowledged receipt thereof on behalf of the applicant. Thereafter the respondent’s agents did not engage into negotiations with the applicants since the case was before the court. Judgment was entered in favour of the respondents on 13 April 2012. Subsequently the applicant paid Uganda shillings 17,012,125/= as part of the principal arrears and Uganda shillings 3,505,434/= as statutory interest thereon. On 15 June 2012 the respondent made a demand on the applicant for the decreed sums but the applicant has failed/neglected to satisfy the same. That the setting aside of the ex parte judgement/decree would be unfair and unjust to the applicants current and former employees who were claiming benefits from the respondent.

The respondent therefore opposes the applicant’s application to set aside the ex parte judgment/decree and the application for stay of execution in civil suit number 440 of 2011.

At the hearing of the application Counsel David Sempala appeared for the applicant while Counsel Isaac Ogwang appeared for the respondent. Counsels agreed to address the court in written submissions.

In the detailed submissions learned counsel for the applicant submitted that there was improper service of court summons, plaint and annexure on the applicant. He contended that under section 394 of the Companies Act service of documents may be done on the company by personally serving it on an officer of the company or by sending it by registered post to the registered postal address of the company in Uganda, or by leaving it at the registered office of the company. Section 1 (1) (y) of the Companies Act defines an officer to include a director, manager or secretary. In the case of Kampala City Council verses Apollo Hotel Corporation [1985] HCB at page 77 it was held that a process must be served on the senior officers of the Corporation responsible for the management of the Corporation and who are in a position to take legal action on behalf of the Corporation. The deputy headmaster is not a director or company secretary. Moreover he did not even bother to bring it to the knowledge of the company's officers that he had received summons. Counsel submitted that the case of Kampala City Council versus Apollo Hotel Corporation [1985] HCB page 77, establishes the law that where court process is served on a person who was not an officer of the company, the applicant would be given a chance to appear and defend the suit. The Supreme Court in Kanyabweru vs. Tumwebaze [2005] EA LR at page 86 held that courts should be cautious before granting application is to proceed ex parte. Counsel further contended that the respondent ought to have proceeded under order nine rules 5, 6 and 7 of the Civil Procedure Rules because the suit was brought under orders 4 and 7 of the Civil Procedure Rules. He contended that the affidavit of service on record is defective and was the basis upon which the court allowed the respondent to proceed ex parte against the applicant without any other formal proof of service of any hearing notice, and it amounted to a mistrial.

The record shows that the applicants were never served with any hearing notices despite the fact that the respondent was allowed to proceed and actually proceeded ex parte. Consequently counsel prayed that the court finds that the service of summons was not effective having been made on the deputy headmaster who is not a principal officer of the applicant company. The affidavit of service was defective and not made in accordance with the rules of procedure. Counsel prayed that the court sets aside the decree in civil suit number 440 of 2011. Secondly pending negotiations between the applicant and the respondent, the respondent and the applicant were in the process of settling matter amicably when civil suit number 440 of 2011 was going on without the applicant’s knowledge.

The deputy headmaster believed that the parties were settling the matter and deemed that it was not necessary to inform the applicant’s officials about service of summons on the company.

On stay of execution, counsel submitted that execution should be stayed to enable the applicant to file a defence in civil suit number 440 of 2011. Order 22 rule 26 of the Civil Procedure Rules allows an application for stay of execution to be filed against a decree holder and the court may on such terms as to security or otherwise as it thinks fit stay execution of the decree until the pending suit has been decided. Counsel prayed for unconditional stay of execution. That the judgement/decree is set aside and the applicant is granted leave to file a defence so that the suit is heard inter partes with costs of the application to be provided for.

In reply the respondent repeated the facts averred in the affidavits in support.

On the question whether there was proper service of court summons with attached plaint on the defendant. Counsel contended that section 394 (1) of the Companies Act cap 110 allows service on the company by leaving it at the registered office of the company. Secondly order 29 rule 2 of the Civil Procedure Rules allows a summons to be served against the Corporation by leaving it or sending it by post address of the Corporation and the registered office or where there is no registered office at the place where the Corporation carries on business. In the case of JF Ijjala vs. Corporation Energo Project [1988 – 1990] HCB at page 157 the High Court held that summons had left at the principal place of business or head office of a Corporation was effective service. Counsel submitted that according to annexure E to the affidavit of Rachel the applicant registered with the respondent as a reputable employer offering education services and declared its physical address as Namulanda Wakiso district. The respondent has been conducting inspections at the physical address at which the school is located. Regulation 7 (a) of The National Social Security Fund (Registration and Records Regulations) requires any employer to notify the managing director of the respondent without delay if he or she changes her address and to furnish a new address. The affidavit of service of the court summons on record clearly indicates that the deputy headmaster was served; he accepted service by acknowledging the same in writing. Counsel for the respondent therefore submitted that the court summons were effectively served upon the applicant as required by section 394 of the Companies Act and order 29 rule 2 of the Civil Procedure Rules. Additionally learned counsel submitted that the claim in the suit was both for a liquidated demand and pecuniary damages. Consequently counsel prayed that the court finds that the respondent was properly served with summons and the court rightly entered an ex parte judgment against the applicant.

The respondent denies that there was any interaction between the applicant and the respondent after delivery of the notice of intention to sue and the respondent's premises on 8 September 2012. It was the applicants director who came to the respondent's offices with a cheque of Uganda shillings 17,012,125/= as payment for only registered employees and upon the advice of Proscovia Mbabazi, the contributions relationship manager of the respondent, the applicant paid a further Uganda shillings 3,405,434/= as interest on the amount delivered by the respondent. The contributions relationship manager further advised the applicant that what they had paid was not in full and final settlement of the outstanding amounts owed to the respondent as Social Security contributions. The submissions that upon the purported negotiations it was unnecessary to file a defence is unfounded as summons were issued by the court and the respondents did not encourage the applicant to defy court orders. Finally counsel submitted that no negotiations were period between the parties subsequent to the filing and service of court summons in civil suit number 440 of 2011 and there was no justifiable reason for failure to file a defence. Counsel prayed that the application is dismissed with costs.

With regard to stay of execution, order 9 rule 27 of the Civil Procedure Rules provided that one can apply to set aside an ex parte judgment where summons was not duly served or that he or she was prevented by any sufficient cause from appearing when the suit was called for hearing. Counsel contended that under the National Social Security Fund Act cap 222, every contributing employer was obliged to pay 50% of an eligible contributor’s wages to the Fund on a monthly basis. Finally the respondents counsel contended that the court has to be satisfied that there was a defence on the merits before a judgement can be set aside. The application falls short of the principles set out in the case of JF Ijjala versus Energo (supra) the applicant had a statutory obligation to register its employees and remit Social Security contributions. Consequently the applicant does not have a plausible defence with a chance of success and the court should be pleased to dismiss the application with costs to the respondent.

In case the court is inclined to grant the application to set aside ex parte judgement/decree and stay execution of the decree, counsel prayed that the applicant should furnish security in the form of a bank guarantee for the decreed sum of Uganda shillings 400,379,866/= which sum is less Uganda shillings 20,517,559/= already paid by the applicant.

In rejoinder learned counsel for the applicant reiterated submissions about the status of the deputy headmaster of the applicant. He further contended that the case of JF Ijjala versus Corporation Energo Project (1988 – 1990) HCB page 157 was distinguishable because in that case court summons were made on an officer of the company authorised to accept summons. Secondly the case was a negligence case and the transport officer admitted liability. In the current case, the applicant does not deny liability, but disputed the amounts claimed by the respondent in the suit.

Ruling

I have duly considered the submissions of learned counsel and the materials on the court record. The applicant’s application was brought under order 9 rules 12 and 27 of the Civil Procedure Rules. Order 9 rule 12 provides as follows:

"Where judgement has been passed pursuant to any of the preceding rules of this order, or where judgement has been entered by the registrar in cases under order L of these rules, the court may set aside or vary the judgement upon such terms as may be just."

Rule 12 allows the court to set aside or vary the judgement entered pursuant to the preceding rules to order 12. This includes order 9 rules 6, 7 and 8 of the Civil Procedure Rules. In this particular case judgement was entered after formal proof in terms of order 9 rules 8. However the court observed that the plaintiffs suit was for a liquidated demand and judgement could as well have been entered under order 9 rule 6 which allows default judgement be entered upon failure of the defendant to file a defence within the prescribed time and upon an affidavit of service being filed on the court record under order 9 rule 5 of the Civil Procedure Rules. The registrar however proceeded to enter interlocutory judgement under order 9 rule 8. Rule 8 deals with plaints where there is a claim for pecuniary damages only or for detention of goods with or without a claim for pecuniary damages. The plaint had been drawn with a claim for a liquidated demand and pecuniary damages. Notwithstanding judgement was entered after formal proof. In either case the court has jurisdiction to vary or set aside the judgement. Rule 27 of order 9 on the other hand allows the court to set aside a decree passed ex parte against a defendant upon satisfaction of the court that summons were not duly served or that he or she was prevented by any sufficient cause for appearing when the suit was called for hearing.

In this particular case the applicant alleges that it was not duly served. The first issue therefore is whether the applicant was duly served with summons. Learned counsel for the applicant contended that the deputy headmaster who received the summons on behalf of the school was not an officer of the company and therefore was not authorised to receive summons on behalf of the applicant. He contended that service on the deputy headmaster was not proper service of summons. There is no controversy about how a company may be served. There is also no dispute about the fact that the applicant is a company. The applicant relied on section 394 (1) of the Companies Act which provides as follows:

"A document may be served on the company by personally serving it on an officer of the company, by sending it by registered post to the registered postal address of the company in Uganda, or by leaving it at the registered office of the company."

The applicant went ahead to define an officer of the company under section 1 of the Act, to mean "in relation to a body corporate, includes a director, manager or secretary;". The respondent on the other hand dwelt on the latter part of section 394 (1) of the Companies Act which provides that documents may be left at the registered office of the company for there to be service of the same. The respondent also relied on order 29 rule 2 of the Civil Procedure Rules. It provides as follows:

"Subject to any statutory provision regulating service of process, where the suit is against a Corporation, the summons may be served –

  1. On the secretary, or on any director or other principal officer of the Corporation; or
  2. by leaving it or sending it by post addressed to the Corporation and the registered office, or if there is no registered office, then at the place where the Corporation carries on business.

Consequently the narrow controversy is whether service on the deputy headmaster of the applicant school amounted to leaving the document at the registered office of the company. Alternatively whether the school is the place where the Corporation carries on business. In either case, the facts are that the deputy headmaster acknowledged service of summons. There is no difference in quality between handing over summons to the deputy headmaster and also leaving it at the principal place of business or registered office of the Corporation. I have considered the case of Kampala City Council versus Apollo Hotel Corporation [1985] HCB at page 77. The case is clearly distinguishable because the High Court held that Apollo Hotel Corporation was established by an Act of Parliament and it had a board of directors, a chairman of the board, general manager and the secretary to the board who were the proper persons to be served in accordance with the rules. In that particular case the court did not consider the latter part of the rule which included sending the documents by registered post to the registered address of the Corporation or leaving it at the registered office. The respondent contends that the school is the registered office of the Corporation according to its records.

It is my finding that service on the deputy headmaster was as good as leaving the document and the registered office of the company.

The applicant however applied under order 9 rule 12 which gives the court a wide discretion to set aside or vary a judgement passed under the preceding rules to rule 12. In the case of Evans v. Bartlam [1937] 2 All E.R. 646 at page 650 Lord Atkin held that whenever a judgment is not on the merits, the court has power to set aside the exercise of its coercive powers by making an order in default upon failure to follow any rules of procedure:

“The principle obviously is that, unless and until the court has pronounced a judgment upon the merits or by consent, it is to have the power to revoke the expression of its coercive power where that has been obtained only by a failure to follow any of the rules of procedure.”

The applicant has not demonstrated that it has a good defence to the suit. Secondly, the applicant does not deny its indebtedness to the respondent or its obligations to register its members and pay monthly contributions to National Social Security Fund on behalf of its members. According to the submissions of learned counsel for the applicant, the applicant disputes the amount in the decree but not its liability. In other words the applicant is liable to the respondent but requires the trial of how much is due.

I have no doubt that it is easy to establish how much is due to NSSF based on the employees obliged to contribute from the applicant Company. The applicant has a list of employees and how much they are to be paid. The percentage that is due is statutory. It does not require trial by a court of law to establish how much money is due because the formula for calculating what is due is statutory. Penalties are also statutory. In the judgement of the court pursuant to the interlocutory judgement and after formal proof, the court noted that it had no jurisdiction to apply a different rate than that stipulated in the statute itself. This is because penalties and interest are prescribed by the National Social Security Fund Act. It is also my humble opinion that contributions made on behalf of employees to National Social Security Fund is made under a statutory scheme which may not require adjudication unless there is a dispute about the records of the applicant. In this particular case the controversy relates to whether the total amount is due. It is not a defence to say that the applicant was trying to amicably settle its liability. The question is what that liability is. Lastly contributions are made on behalf of employees who are not parties to the suit. National Social Security Fund acts own behalf of the employees of the applicant because the money involved is for the benefit of the employees and not the applicant. Failure to remit monies is an offence. Monies are also remitted from the wages of the employees as a percentage thereof. Penalties are applied by the Act and are not liable to be set aside. The applicant may contest the penalty only on the ground that it was wrongly calculated or that it was not due.

Section 27 (c) of the Judicature Act provides that where a question or dispute consists wholly or partly of accounts, the high court may at any time order the whole cause or matter or any question of fact arising in it to be tried before a special referee or arbitrator agreed to by the parties or before an official referee or an officer of the High Court. By the time an order was made in default of filing the defence, the respondent proved in evidence that the monies and penalties were due. National Social Security fund is only duty bound to charge what is statutory. In those circumstances there would be no prejudice to the employees or the fund if the proper amount due is ascertained afresh. I have further noted that any monies that are due are for the benefit of the employees who are entitled to earn interest on their contributions.

Exercising the discretion of the court to establish the actual amount due to the satisfaction of both parties, the judgment of the court will be varied to the extent that the judgement holding the applicant liable will remain. For emphasis, the applicant is liable to pay the respondent in accordance with the law but the amount would be ascertained through an audit process. In the premises the following orders shall issue:

  1. The judgement of the court delivered on 13th  April 2012 is hereby varied as follows:
  2. The applicant/defendant in the main suit is liable to pay any outstanding arrears of the statutory contributions on behalf of its employees to the respondent/plaintiff in the main suit.
  3. The applicant is liable to pay interests and penalties as prescribed by the National Social Security Fund Act.
  4. The applicant and the respondent shall agree on auditors who are hereby appointed to carry out an audit/reconciliation of accounts as between the applicant and the respondent to ascertain the amount the applicant is liable to pay in terms of outstanding arrears of contributions, interest and penalties for the period September 2005 to March 2012.
  5. The parties shall agree to the independent auditors within a period of two weeks from the date of this ruling.
  6. Costs of the auditors shall be borne by the applicant and the respondent equally.
  7. Upon the auditors establishing the amount due, it shall become the decreed amount and the respondent shall be entitled to execute against the applicant/defendant in the main suit to realise the amount due.
  8. Costs of the main suit are awarded to the plaintiff/respondent to this application.
  9. Each party shall bear its own costs of this application.

Ruling delivered in open court this 23rd day of November 2012

 

Hon. Christopher Madrama Izama

Judge

 

Ruling delivered in the presence of:

David Sempala for the Applicant

Isaac Ogwang for the respondent

MD of Applicant Mr. Semakula Herman in court.

Charles Okuni: Court Clerk

 

Hon. Christopher Madrama Izama

Judge

23rd of November 2012.