Court name
Commercial Court of Uganda
Judgment date
8 February 2012

Sobetra (U) Ltd & Anor v Leads Insurance Ltd (Miscellaneous Application-2011/454) [2012] UGCommC 204 (08 February 2012);

Cite this case
[2012] UGCommC 204
Coram
Obura, J

 

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

[COMMERCIAL DIVISION]

MISCELLANEOUS APPLICATION NO.0454 OF 2011

(ARISING FROM CIVIL SUIT NO. 69 OF 2011)

SOBETRA (U) LIMITED & ANOTHER:::::::::::::::::::::::::::APPLICANT

VERSUS

LEADS INSURANCE LIMITED:::::::::::::::::::::::::::::::::::::RESPONDENT

BEFORE: THE HON. LADY JUSTICE HELLEN OBURA

RULING

This application was brought under section 33 of the Judicature Act, section 98 of the Civil Procedure Act (CPA), Order 9 rule 12 and Order 52 rules 1 & 3 of the Civil Procedure Rules (CPR). It sought for orders that the default judgment and decree dated 24th May 2011 and the consent judgment and decree dated 13th July 2011 in Civil Suit No. 69 of 2011 be set aside and costs of the application be provided for.

The application was supported by an affidavit sworn by Mr. Giorgio Pentrageli the 2nd applicant. He deposed that the respondent filed Civil Suit No. 69 of 2011 against him and the 1st applicant seeking recovery of UGX 100,000,000/= but they were never served with the court summons. A photocopy of the summons and the plaint were attached to the affidavit as annextures “A” and “B” respectively. Further that the affidavit of service contained falsehoods as the deponent had not been to his office. A photocopy of the affidavit of service was attached as annexture “C”.

He further deposed that an ex parte judgment and decree were passed against them without their knowledge and yet the claim of Shs. 100,000,000/= in the plaint was illegal as there was no consideration for it. Further that the undertaking made by the applicant and the cheque payment were conditional to waiver of the termination notice and renewal and extension of the contract which was not done but instead a consent judgment was signed between the parties where all penalties arising from the contract were waived. He further deposed that the respondent requested for release of the performance bond securing the guarantee and the applicant duly released the same. Photocopies of the undertaking, cheque, termination notice, consent judgment and request for release of the performance bond were attached as annextures “F”, “G”, “H”, “I” & “J” respectively.

The 2nd applicant also deposed that the consent judgment/decree was entered into through duress because he was under arrest in execution of an ex parte decree and the schedule of payment he made did not bind the 1st applicant since it was not privy to it. Photocopies of the consent judgment and the warrant of arrest were attached as “K” and “L” respectively. He further deposed that he had a good defence to the suit and prayed that the judgment/decree and all execution proceedings be set aside.

 An affidavit in reply was sworn by Mr. Yesse Mugenyi in his capacity as an advocate who is fully conversant with the facts of this case. He deposed that the affidavit in support was false in so far as the 2nd applicant stated that he was never served with court summons. He confirmed that he knew the 2nd applicant as well as his office on Hannington Road Plot 2 where he had previously met him in the company of one Mr. Joseph Serubiri in respect of another matter between the 1st applicant and another party which was resolved amicably. He described the location of the applicants’ office in details and stated that when he received summons in Civil Suit No. 69 of 2011, he went to that same office with the intention of establishing whether the applicants were interested in an amicable resolution of the matter.

He deposed that when he was ushered into the 2nd applicant’s office he introduced himself to the 2nd applicant who recognized him whereupon he served him with the summons and plaint and inquired whether the matter could also be resolved amicably. He further deposed that the 2nd applicant said that he would pass the court documents to his lawyers and get back to him.  Further that on 1st July 2011 before the consent judgment was drafted, the applicants’ lawyers of M/S Kabega, Tumusiime & Co. Advocates first confirmed that he had indeed effected service of summons and on that basis the 2nd applicant voluntarily instructed his said lawyers to draft the consent decree that excluded the 1st applicant which was eventually filed in court.

Mr. Mugenyi also deposed that the 2nd applicant denied being indebted to the respondent yet the 1st applicant issued a cheque dated 31st January 2011 to which he was a sole signatory and earlier he had issued a personal guarantee which were attached to the plaint as annextures “A” and “B”. He further deposed that on 1st July 2011, he gave the applicant the option of depositing collateral security in court if he was dissatisfied with the ex parte decree but he instead opted to sign a consent decree after consultation with his lawyers who also witnessed the same.

He pointed out that the 2nd applicant even issued a number of postdated cheques to settle the debt. He averred that if the applicants were dissatisfied with the ex parte decree they would have contested its validity instead of signing a consent decree and even issuing cheques. Copies of the cheques were attached as annextures “C”, “D” and “F”.

An affidavit in rejoinder was sworn by the 2nd applicant who basically denied all the contents of the affidavit in reply and contended that it contained falsehoods. He deposed that since December 2010 he spent most of the time at the construction site in Nakawa and was hardly in his office where he would only go in the evening hours to sign documents. He averred that he had been receiving court summons in the past and should have received this one if it was served upon him.

He deposed that he was advised by his former lawyers to either enter a consent or go to Luzira until Monday 4th April 2011 when they would file an application for his release from civil prison pending determination of application for staying execution and setting aside the ex parte decree but he opted to sign a consent decree under duress so as not to be imprisoned. He further deposed that both applicants are not indebted to the respondent because the undertaking which is the basis of its claim was conditional and the conditions were not fulfilled. He also deposed that in any case the consent judgment and the cheques referred to in paragraphs 12 and 16 of the affidavit in reply were issued by the 1st applicant and not him.

He also deposed that pursuant to their filing of this application, the respondent withdrew the suit against the 1st applicant so as to defeat justice and as a result of that withdrawal, he had no liability to the respondent because he was merely the Managing Director of the 1st applicant at the time of making the undertaking.

The brief facts that gave rise to this application are that in October 2007, the first applicant was awarded a contract by the Government of Uganda (GOU) represented by the Ministry of Education and Sports to execute proposed infrastructure development in selected PPET Institutions in Karamoja. The respondent was contracted by the 1st applicant to provide performance guarantee in accordance with the terms of the contract between the applicant and GOU. To that end, the respondent provided a performance bond which the 1st applicant fully paid for. In the course of performing the contract, there were delays that led to warnings and subsequent termination of the contract by a letter dated 28th May 2009.

Following the termination of the contract, on the 17th of August 2009, the Permanent Secretary Ministry of Education and Sports wrote to the respondent demanding proceeds of the performance security worth Shs. 933,028,870/=. On 16th October 2009, the 1st applicant made an undertaking to pay premiums and penalties to the respondent to the tune of Shs. 100,000,000/= on waiver of what was referred to as the termination notice and issued a cheque post-dated 31st January 2010 to the respondent. Since I could not find a copy of the termination notice on court record, I later sought for clarification from both counsels as to whether a termination notice referred to in the undertaking was issued and I was informed that it was actually the termination letter dated 28th May 2009 that was referred to as the termination notice.

Meanwhile, from the documents attached to this application, it appears that following the termination of the contract, the 1st applicant sued Attorney General vide HCCS No. 344 of 2009 and obtained an interim order. On 6th July 2010, a consent judgment was signed between the 1st applicant and the Attorney General. In that consent judgment, all penalties arising from the contract including the release of the performance guarantee provided by the respondent vide Performance Bond No. LIL/01-B51/002-40/2007 dated 15th October 2007 were waived and it was agreed that payments would be made to the 1st applicant company for the work it had carried out up to the time of termination of the contract in accordance with the contract Bill of Quantities.

On 28th February 2011, the respondent sued the applicants for recovery of special damages of Shs. 100,000,000/= allegedly being the premium arising from policies issued. The applicants did not file a written statement of defence and so a default judgment was entered and a decree extracted. In execution of that decree, the 2nd applicant was arrested whereupon he signed a consent judgment/decree with a schedule of payments of the decretal sum and issued seven post-dated cheques.

This application was subsequently brought to challenge the consent judgment/decree and the default judgment.

At the hearing of this application, the applicants were represented by Mr. Nandaah Wamukota Charles as lead counsel together with Mr. Allan Kikwe and the respondent by Mr. Asa Mugenyi. Counsels for the applicants based their submissions on the affidavits of the 2nd applicant and contended that the applicants were never served with summons to file a defence and the ex parte decree was passed without their knowledge.

They further contended that the claim of Shs. 100,000,000/= was illegal because there was no consideration since the undertaking upon which the claim was based was conditional upon waiver of termination notice by the Ministry of Education & Sports. They submitted that the waiver was never done since the parties opted to settle the matter by terminating the contract and waiving of all penalties. They argued that the undertaking did not relate to the performance bond but to the termination of the contract. They further argued that the moment the consent was executed and all the penalties/liabilities against the respondent waived, then the respondent did not have any claim against the applicants under that undertaking which by its very wordings could only be enforced if the termination notice was waived. On the basis of the above, they submitted that the respondent did not have any cause of action against the applicants.

It was also contended for the applicants that there were two subsisting judgments in this case; the first one being the default judgment from which an ex parte decree was extracted and the consent judgment which was executed at the High Court Civil Division. It was argued that the consent judgment did not vary the ex parte decree and yet the position of the law is that if there is a subsequent judgment then the previous one should be varied by it. For this contention, the case of Peter Mulira v Mitchel Cotts Ltd CA No. 15 of 2002 was relied upon.

On another note, it was contended that the consent judgment that the 2nd applicant entered into with the respondent was not freely executed as the 2nd applicant was under duress. It was contended that the 2nd applicant had only three options namely; to go to Luzira civil prison, pay the money or sign the consent decree. It was submitted that the law allows court to take into account such threat and set aside the consent as was stated in the case of Maureen Tumusiime v Macario Detoro and Another [2006] HCB Vol. 1 page 127. It was also submitted that as per the holding in the case of Ladak Abdallah Mohamed Hussein v Griffiths Isingoma Kakiiza and Others SCCA No. 8 of 1995 [1997] HCB 18, this court is given unfettered discretion to set aside all kinds of judgments whether ex parte or by consent.

 It was also contended for the applicants that where a matter is ex parte, parties could not record a consent judgment at execution stage. To support this contention, counsels relied on the case of Kisambira Ssentamu v Ecima Elikana and Another whose citation was never given and a copy thereof not availed to court.

Counsel for the respondent in reply first of all pointed out that the ex parte decree was overtaken by the consent decree that superseded and varied it in the sense that the applicant put down the mode of payments and issued postdated cheques.

As regards the prayer that the consent judgment be set aside, counsel submitted that the grounds for setting aside ex parte judgments as stated in Brooke Bond Liebig (T) Ltd v Mallya [1975] 1 EA 266 CAD and Kenindia Assurance Co. Ltd v Muturi [1990-94] 1 EA 193 are fraud, collusion and any other factors that can set aside an agreement. He submitted that the consent judgment in this case was drawn and filed by the 2nd applicant’s former counsel M/S Tumusiime, Kabega & Co. Advocates between 1st and 13th July 2011. He argued that the 2nd applicant had ample time between the time of signing and filing the consent decree to set aside the ex parte decree if he was not satisfied with it.

On the 2nd applicant’s contention that he signed the consent decree under duress, counsel argued that the applicant had not explained whether his former counsels who drew the consent decree were also acting under duress, collusion or undue influence. He pointed out that the 2nd applicant had stated in paragraphs 9 and 10 of his affidavit in rejoinder that he signed the consent decree on the advice of his lawyers who had enough brief about the facts of this case to give him rational advice. He submitted that advise or misadvise by counsel do not constitute grounds for setting aside a consent judgment.

On the contention that there was no consideration and as such there was no cause of action, counsel for the respondent submitted that this did not constitute a ground for setting aside a consent decree. At this juncture, counsel for the respondent sought leave of court to cross-examine the 2nd applicant on his affidavit in support, particularly to seek clarification on some letters that were annexed thereto and he was allowed to do so. During cross-examination, he referred the 2nd applicant to a number of correspondences which were neither attached to the affidavit in support nor the affidavit in reply.

He then submitted that the respondent issued performance bond to the applicants on 15th July 2007 and it was valid until 28 days after the issue of the Certificate of Completion. He further submitted that the 2nd applicant made a personal guarantee undertaking to pay in the event of default. He also submitted that the 1st applicant did not perform the contract within the agreed period of 8th January 2007 and 7th January 2009 and so it asked for extension of time which was granted but eventually the contract was terminated in May 2009. Further that upon termination of the contract, the Permanent Secretary Ministry of Education & Sports demanded payment of the performance bond in the sum of Shs. 933,028,870/= from the respondent.

He contended that it was at this time that the undertaking was made whereby it was agreed that the 1st applicant would pay the premium for the period for the extension of time from 1st January 2009 to May 2009 and the penalties for renewal upon waiver of the termination notice. He submitted that the premium for the period the contract was supposed to be running was received by the respondent but the undertaking was for the period of extension of the contract which was the basis of Civil Suit No. 69 of 2011.

On the contention that the withdrawal of the suit against M/S Sobetra (U) Ltd was done in bad faith, counsel for the respondent submitted that since it was the 2nd applicant who signed the consent decree, maintaining a suit against the 1st applicant would be superfluous. He noted with concern that if this application is granted, the respondent would be prejudiced because the applicant is not resident in Uganda. He submitted that if the 2nd applicant was ready to deposit the amount that was in the consent judgment in court, he would not have any problem with the consent decree being set aside so that the matter is heard on its merit. He prayed that short of that, this application be dismissed with costs.

Counsels for the applicants in rejoinder, refuted the contention that the 2nd applicant is not resident in Uganda and submitted that the applicant is resident and does business in Uganda at Plot 12 Hannington Road, Kampala. They also submitted that all the documents the 2nd applicant was referred to during cross-examination had no bearing on this application because they were all written before the termination notice was issued. They further submitted that the undertaking did not relate to the performance bond but to the termination notice which was never waived. They contended that the consent judgment relieved the respondent from paying the penalty under the performance bond.

As regards the submission that the 2nd applicant deposits the decretal amount in court if this application is to be granted, counsels submitted that this would be unfair because the 2nd applicant would be acting on behalf of M/S Sobetra (U) Ltd that issued the guarantee cheques and is no longer a party to the suit. He prayed that this application be granted unconditionally so that the dispute between the parties is heard on its merit.

Upon looking at the facts of this case as contained in the application, affidavits and the documents attached thereto and listening to the submission of counsels for both parties, I now turn to consider the merits of this application. It was contended that the applicant entered into the consent judgment under duress because he was under arrest in execution of the ex parte decree in civil suit no. 69 of 2011. It was argued that the applicant had only three options upon being arrested namely; to either go to civil prison in Luzira, pay the money, and/or sign the consent judgment and be released. It was submitted that the arrest was effected on Friday 1st July 2011 and if the applicant had been taken to Luzira his lawyers would have only sought redress from court to secure his release on Monday 4th July 2011 after the weekend. It was therefore contended that the threat of imprisonment amounted to duress. Counsels for the applicant relied on the case of Ladak Abdallah Mohamed Hussein v Griffiths Isingoma Kakiiza and Others SCCA No. 8 of 1995 [1997] HCB18, to buttress their submission thatthis court is given unfettered discretion to set aside all kinds of judgments whether ex parte or by consent.

Order 9 rule 12 under which this application was brought and which was interpreted in the case of Ladak Abdallah Mohamed Hussein (supra)provides that:-

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

I wish to point out that the holding in Ladak Abdallah Mohamed Hussein (supra) was re-considered and clarified by the Supreme Court in the case ofAttorney General and Another v James Mark Kamoga and Another (Civil Appeal No.8 of 2004) [2008] UGSC 4. Mulenga, JSC who wrote the lead judgment in that case while referring to Order 9 rule 12 and its application in the case of  Ladak Abdallah Mohamed Hussein (supra)stated at page 10 that:-

“….Secondly, I am constrained to observe with the greatest respect, that while it is correct to say that the rule “gives the court unfettered discretion to set aside the judgment” to which it refers, it is questionable if the unfettered discretion is applicable to consent judgments in view of the wealth of authorities to the effect that consent judgments may be set aside only on limited grounds. I think however, that they justify a reconsideration of the holding with more focus on the text of the rule”.

Odoki, CJ who wrote the lead judgment in Ladak Abdallah Mohamed Hussein v Griffiths Isingoma Kakiiza and Others (supra) in concurrence with the holding of Mulenga, JSC in Attorney General and Another v James Mark Kamoga and Another (supra) agreed with the comments he made on his judgment in the following words:-

“I wish to observe that I entirely agree with my learned brother’s comments on my judgment in the case of Ladak Abdallah Mohamed Hussein v Griffiths Isingoma Kakiiza and Others Civil Appeal No. 8 of 1995 (SC) regarding the scope of discretion exercised by courts in setting aside ex parte judgments and consent judgments under Order 9 Rule 12 of the Civil Procedure Rules. I agree that the discretion in setting aside ex parte judgments is broad and unfettered while the discretion in setting aside consent judgments is more restricted and is exercised upon well established principles”.

I believe if counsels for the applicants had addressed their minds to that case they would have known that the case ofLadak Abdallah Mohamed Hussein (supra) is no longer good authority having been reconsidered as afore stated.

In the case of Attorney General and Another v James Mark Kamoga and Another (supra), Mulenga, JSC stated at page 11 that unlike judgments in uncontested cases, consent judgments are treated as fresh agreements, and may only be interfered with on limited grounds such as illegality, fraud or mistake. He further stated at page 17 that:-

“It is a well settled principle therefore, that a consent decree has to be upheld unless it is vitiated by a reason that would enable a court to set aside an agreement, such as fraud, mistake, misapprehension or contravention of court policy. This principle is on the premise that a consent decree is passed on terms of a new contract between the parties to the consent judgment. It is in that light that I have to consider the consent decree in the instant case”.

In the instant case, I will also consider the grounds for this application in light of the above well established principles. It was rightly submitted for the respondent basing on the authorities of Brooke Bond Liebig (T) Ltd v Mallya [1975] 1 EA 266 CAD and Kenindia Assurance Co. Ltd v Muturi [1990-94] 1 EA 193 that the consent judgment/decree could only be set aside on grounds of fraud, collusion and any other factors that can set aside an agreement. It was then argued that the consent judgment/decree in this case was drawn by the applicant’s advocates in their chambers and if at all the applicant was under duress it could not be true that his lawyers were also under duress.

Duress is one of the factors that can set aside an agreement. It is defined in Black’s Law Dictionary 17th Edition among other meanings as;

“Strictly, the physical confinement of a person or the detention of a contracting party’s property”; “Broadly the threat of confinement or detention, or other threat of harm, used to compel a person to do something against his or her will or judgment”.

In the explanatory notes under the above definition it is stated that today the general rule is that any wrongful act or threat which overcomes the free will of a party constitutes duress.

In the case of Maureen Tumusiime v Macario Detoro and Another (supra), it was held that:-

“Duress of a person may consist in violence to the person or threats of violence or imprisonment, whether actual or threatened. Proof of duress, like fraud requires a standard that is more than a mere balance of probabilities, though not beyond reasonable doubt…..”.

The question that needs to be answered in this case is whether the 2nd  applicant signed the consent judgment that was drawn by his lawyers in their chambers on 1st July 2011 and witnessed by them under duress.

I have noted with keen interest that the 2nd applicant was arrested on Friday 1st July 2011 and as argued by his counsels, if he had been taken to civil prison his release could have only been possible the following week after spending the weekend in prison. I would say, almost everyone is apprehensive of being locked up in prison for whatever reason and I believe the 2nd applicant being a foreigner of an advanced age could not have been an exception. His arrest having been tactfully done on a Friday left him with very limited options and it appeared signing the consent judgment was the most appropriate in the circumstance.

From the definition of duress as quoted above and with the authority of Maureen Tumusiime v Macario Detoro and Another (supra), I agree with the submission that the 2nd applicant was under duress when he signed the consent decree. This is because his arrest had already been done and the threat of imprisonment was eminent. I am convinced that this threat compelled him to sign the consent decree and issue the post dated cheques against his will. Consequently, I find that a good ground has been shown for setting aside the consent judgment/decree dated 13th July 2011.

I do not agree with the contention by counsel for the respondent that the 2nd applicant could not have been under duress in the presence of his lawyers. The presence of 2nd applicant’s lawyers could not have removed the apprehension of going to prison and in any case he blamed them for not properly advising him.

I have also taken into account the fact that the ex parte decree in execution of which the consent decree was executed was not obtained on merit. The 2nd applicant has vehemently denied that he was served with the sermons in Civil Suit No. 69 of 2011. It is his word against that of the deponent of the affidavit of service. It was also submitted for the applicants that there is a good defence on the merit. Indeed upon listening to the proposed triable issues especially the allegation that there was no consideration and as such no cause of action, I find that there is a genuine cry for justice. I am therefore of the opinion that the justice of this case demands that it should be heard on its merit.

Since counsel for the respondent did not have any problem with this matter being heard on its merit provided the decretal amount is deposited in court, I do not see any reason why in the interest of justice, the consent decree which was entered into in execution of a default decree dated 24th May 2011 should not be set aside and the matter heard on its merit.

In the result, this application is granted conditionally with orders that:

i)                    The consent decree dated 13th July 2011 be and is hereby set aside.

ii)                  For avoidance of any doubt, the ex parte judgment and decree dated 24th May 2011 be and is hereby set aside.

iii)                The applicant deposits the principal amount of Shs. 100,000,000/= in dispute in court either in cash or by providing a land title of that value acceptable to this court before filing the written statement of defence in Civil Suit No. 69 of 2011, in any case not later than twenty days from the date of this ruling.

iv)                Costs of this application shall abide the outcome of Civil Suit No. 69 of 2011.

I so order.

 

Dated this 9th day of February, 2012.

 

 

Hellen Obura

JUDGE

 

Ruling delivered at 2.30 pm in chambers in the presence of Mr. Allan Kikwe counsel for the applicants. The respondent’s representative and its counsel were absent.

 

JUDGE

9/02/2012