Court name
Commercial Court of Uganda
Judgment date
22 August 2013

Sarope Petroleum Ltd v Orient Bank & 2 Ors (Miscellaneous Application-2011/72) [2013] UGCommC 146 (22 August 2013);

Cite this case
[2013] UGCommC 146

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL COURT DIVISION)

MISC. APPLICATION NO. 72 OF 2011

(Arising Out of Civil Suit No. 178 OF 2009)

 

SAROPE PETROLEUM LTD::::::::::::::::::::::::::::::::::::::::::APPLICANT

VERSUS

  1. ORIENT BANK LIMITED
  2. BARCLAYS BANK (U) LTD                  ::::::::::::::::::::     RESPONDENTS
  3. FRED MUWEMA (RECEIVER)

 

BEFORE HON. LADY JUSTICE HELLEN OBURA

RULING

This application is brought by Chamber Summons under Order 6 rules 19, 20 and 31 of the Civil Procedure Rules (CPR), Section 98 of the Civil Procedure Act (CPA) and section 33 of the Judicature Act seeking for leave to amend the plaint specifically to provide for the following orders which also form part of the grounds of this application:

 

  1. That the purported sale of the property comprised in LRV 2872 Folio 17 Plot 2 Majanga Road Mbale and LRV 3191 Folio 7 Plot 40 Soroti Road Mbale was illegal, null and void and be set aside while the property whose certificate of title comprised in LRV 342 Folio 20 Plot 1 Agule Road Pallisa is not a subject of  any mortgage to the respondents/defendants and therefore its attachment under a receivership was null and void as neither Robert Sasagi nor Peace Sasagi the registered proprietors on the certificates of title ever gave any power of attorney to the respondents/defendants.
  2. That in the alternative the respondents pay compensation  equivalent to the current market value of the property comprised in LRV 2872 Folio 17 Plot 2 Majanga Road Mbale and LRV 3191 Folio 7 Plot 40 Soroti Road Mbale illegally sold by the respondents.
  3. That also in the alternative the respondents account for motor vehicles Reg. No. UAS 596R Isuzu and Reg. No. UAA 898K Isuzu which were driven from Mbale the applicant’s commercial premises to unknown places on the 7/1/2011.
  4. Costs of this application be provided for.

 

The application is supported by the affidavit of Robert Sasagi, the Managing Director of the applicant. On their part, the respondents filed two affidavits in reply. One deposed by the 3rd respondent, Mr. Fred Muwema (the receiver) and the other by Chris Engola Otyek, an advocate with M/s Sebalu & Lule Advocates and Legal Consultants.

 

The other grounds of this application are that: when the learned Justice Lameck Mukasa delivered the ruling in HCT-00-CC-MA-0267-2009 he did not dismiss the applicant/plaintiff’s suit against the respondents nor did he order the sale of the said properties and they are still a subject of litigation in HCCS No. 0178 of 2009 pending hearing in the High Court; the third respondent/defendant as receiver without any colour or right, a court order and a warrant of attachment purported to sell the abovementioned properties on the 6th of December 2010 to Habib Oil Ltd while there was in existence a pending application and a temporary order issued by the Registrar of the Court of Appeal in Civil Application No. 215 of 2010. Further, that the third respondent/defendant as receiver did not have the powers to sell the said properties as he only had the mandate to receive and manage the applicant/plaintiff’s premises. Lastly, that it is fair and equitable that the applicant/plaintiff be allowed to amend its plaint/reply to the written statement of defence.  

 

The brief background to this application is that on 20th May 2009 the applicant/plaintiff filed HCCS No. 178 of 2009 against the respondents/defendants seeking to invalidate and nullify the Mortgages and Debentures that had been registered on its assets by the respondent banks. The applicant/plaintiff also sought to stop the third respondent from selling the properties to third parties through the receivership process. On 25th May 2009 the applicant obtained an ex parte Order from the Deputy Registrar of this court to halt the intended advertised sale pending the determination of the main application.  On 30th November 2010 Lameck Mukasa, J dismissed the main application for temporary injunction which was heard inter-parties.

 

On 6th December 2010 the third respondent sold the two properties and other movable assets of the applicant. Thereafter Habib Oil Ltd took over the management of the said properties. The applicant then proceeded to the Court of Appeal seeking to stay the ruling and orders of the Learned Judged but on 17th December 2010 and 22nd December 2010 when the matter came up, the application had already been over taken by events. The applicant still maintains an application for stay of execution of the ruling and orders of this court and is yet to file the appeal. As the foregoing applications were pending the applicant filed this application seeking to amend its pleadings.

 

On the 4th of April 2013 when this matter came up for hearing, Mr. Justin Semuyaba together with Mr. Brian Othieno represented the applicant while Mr. Allan Wanialla represented the 2nd respondent. Ms Doreen Nanvule holding brief for Mr. Andrew Kibaya represented the 1st respondent while the 3rd respondent’s representative was absent. Upon the direction of this court, all the parties filed written submissions and the matter was fixed for ruling. 

 

In their written submissions, counsel for the applicant reproduced the content of the Chamber Summons and supporting affidavit. The applicant’s counsel also reproduced passages from some cases and text books that state the law on amendment of pleadings. It was then submitted for the applicant that the principles that govern applications for amendment of pleadings are clearly summarized in the case of Eastern Bakery v Castelino [1958] EA (CAK) 461 at 462 where Sir Kenneth O’Connor P, in a nutshell, held that amendment to pleadings sought before the hearing should be freely allowed, and if they can be made without injustice to the other side, and that there is no injustice if the other side can be compensated by costs. Further, that the court will not refuse to allow an amendment simply because it introduces a new case but amendment that substitutes one distinct cause of action for another or changes the subject matter of the suit or that which would change the action into one of a substantially different character should not be allowed.

 

As far as the general principles followed by English court in applications for amendment of pleadings are concerned, the applicant’s counsel cited D.B Casson and I.H Dennis, “Odgers’ Principles of Pleading and Practice in Civil Action in the High Court of Justice” 22nd Edition and Odgers on Pleadings and Practice 20th Edition at page 170 as well as Mulla, the Code of Civil Procedure 17th Edition Volume 2 at page 333-335

 

The applicant also relied on the cases of Mbayo Jacob Robert v Electoral Commission & Another [Election petition No. 7 of 2006] and Gaso Transport Services (Bus) Ltd v Obene [1990-1994] EA 88 at 96 for the principles that are recognized as governing the exercise of discretion in allowing amendments.  It was submitted for the applicant that the proposed amendment should be allowed as the application conforms to the abovementioned principles.

 

In response, counsel for the 1st respondent submitted firstly; that this application was brought in bad faith because of the existence of the application in the Court of Appeal to stay hearing of the suit and the orders sought therein. He contended that this application offends the principles for amendments and referred to the case of Lubowa Gyaviira & Others v Makerere University H.C.M.A No. 471 of 2009 for the principle that an amendment sought before the commencement of the hearing of the case whose pleadings the intended amendment relates, should be freely allowed if the amendment does not prejudice the other party. There would be no prejudice caused if the other party can be compensated by costs.

 

He submitted that the applicant in this matter is a company under receivership and alluded to the principle that a company under receivership cannot bring a suit in its own name. On that basis, he argued that the applicant cannot bring this suit and so the plaint is defective as it does not disclose a cause of action. For that position he cited the case of Aya Bakery (U) Ltd & Another v Roko Construction Ltd CA No. 661 of 2010 where it was held that a company under receivership cannot bring a suit in its own name. In light of that principle, counsel for the 1st respondent contended that the effort to amend the plaint cannot be entertained because the plaint itself is defective, a nullity and cannot be amended as the plaintiff is not identified. According to counsel for the 1st respondent the position of an unidentified plaintiff was considered in the celebrated case of Auto Garage v Motokov (No. 3) [1971] EA 514 at 523 as per Mustafa J.A. stated as follows:

“…SPRY V.P has come to the conclusion that there are three essential elements to support a cause of action.

  1. The plaintiff enjoyed a right.
  2. The right was violated
  3. The defendant is liable

If any of these essential elements is missing the plaint is a nullity and no amendment can be made as there is nothing to amend. SPRY V.P held that in this case the identity of the plaintiff as the aggrieved…was missing and therefore there was no cause of action disclosed and no amendment could be made of a nullity.”

 

For the 2nd respondent, it was argued that the applicant seeks to introduce a new inconsistent cause of action in seeking an account for Motor Vehicles Reg. No. UAS 596R Isuzu and Reg. No. UAA 898K Isuzu. The 2nd respondent relied on the case of Mbayo Jacob Robert v Electoral Commission & Another (supra) where it was held that an amendment can only be allowed if it does not introduce a new inconsistent cause of action. It is the 2nd respondent’s submission that the cause of action in this suit seeks to challenge the validity of the charges registered in the various land properties used to secure a loan from the 1st and 2nd respondent and also to challenge the appointment of the 3rd respondent as receiver. Accordingly, it was argued for the 2nd respondent that a cause of action seeking an account of motor vehicles above named is brought in bad faith because it is inconsistent with the cause of action which seeks to challenge the validity of the charges used to secure property in favour of the applicant with the 1st and 2nd respondents.

 

With regard to multiplicity of proceedings, it is the 2nd respondent’s submission that this court on 27 August 2012 made an order that this application should await the outcome of the application in the Court of Appeal in Civil Application No. 72 of 2011 that is seeking, inter alia, stay of proceedings/execution. It is the 2nd respondent’s contention that court in making this ruling was alive to the fact that an appeal in the Court of Appeal and the subsequent civil application thereto were filed before this application to amend the plaint. Secondly, that the Court of Appeal is likely to make a pronouncement which might have an effect on the proceedings in this court and to this application. Counsel for the 2nd respondent submitted that a ruling to amend the plaint has the uncanny likelihood of undermining proceedings in the Court of Appeal and vice versa and its filing while the appeal and applications in the Court of Appeal have not been withdrawn is an abuse of court process and made in bad faith.

 

Counsel for the 2nd respondent argued that the amendment which seeks to investigate whether the properties were sold or are held pursuant to a valid power of attorney from the registered proprietor is barred by law. The reason for this is that the alleged rightful persons to bring such a claim should be the alleged registered proprietors Peace Sasagi and/or Robert Sasagi and not the applicant. In that respect the 2nd respondent contends that to allow an amendment introducing a cause of action by a party with no locus is tantamount to condoning an illegality yet the case of Makula International v Cardinal Nsubuga [1982] HCB 11 is emphatic on court’s role not to sanction an illegality which the proposed amendments seek to introduce in the plaint. 

 

The third respondent opted to oppose the application based on three broad grounds which are prejudice, action is barred and abuse of court process. Firstly, it was argued for the 3rd respondent that he will be greatly prejudiced if the amendment is allowed. It was contended that the sale of the property was lawful and expected result of the security documents that the applicant/plaintiff signed with the 1st and 2nd respondents in the event of default. It is the 3rd respondent’s case that he is a wrong party to the suit and the continued maintenance of the suit as well as the amendment will entrench him further to the suit.

 

The other argument raised in relation to prejudice is that the 3rd respondent as receiver heads the management of the plaintiff company and so the plaintiff cannot sue him as is sought to be done by the amendment. It is the 3rd respondent’s submission that being the agent of the plaintiff, he acted on the instructions of a company in receivership pursuant to the terms and conditions of the securities. Finally, on the ground of prejudice, it was argued for the 3rd respondent that the intended amendment is not sustainable since the process of receivership is not at an end yet. It is argued further that even though the receiver is accountable to the creditor debenture holders and the debtor, to request the receiver to account or indeed to hold him liable as alleged in the plaint is premature.

 

Secondly, counsel for the 3rd respondent submitted that the main suit and the intended amendment are prohibited by law. It is submitted that the plaintiff instituted the suit when there was already an existing receiver and therefore it could not bring the suit in the name of a company under receivership. Counsel referred to Aya Bakery (U) Ltd & Another v Roko Construction Ltd (Supra); Nyali Beach Hotel Limited v Kenya Commercial Bank Ltd and another (2006) 1 EA 30. In line with that, the 3rd respondent argued that a suit cannot be brought against the receiver in the name of the company under receivership but can only be done when the receivership is discharged or finalized.

 

Regarding abuse of court process, counsel for the 3rd respondent argued that the applicant is acting in bad faith in continuing to prosecute the matter in the lower court which is contrary to the orders sought of stay of proceedings of the lower court in the Court of Appeal. It is the 3rd respondent’s contention that the applicant is seeking to undermine the process of both this court and the Court of Appeal by pursuing a multiplicity of actions in the two courts concurrently that may give rise to contradictory and conflicting orders.

 

In rejoinder, counsel for the applicant argued that the application is not prejudicial, that the action is not barred and there is no abuse of court process. It was the contention of the applicant’s counsel that the applicant has never signed any contract and security documents with the 1st and 2nd respondents. Furthermore, that there has never been any deeds of assignment from Nile Bank Ltd to Barclays Bank and later Orient Bank since the original loan documentation and debentures were with Nile Bank.

 

It was also the applicant’s contention that the action is not barred by law as the applicant never signed any debenture agreement with the 2nd respondent. Relying on the case of Standard Chartered Bank (U) Ltd & Anor v EMAG AG CACA No. 3 of 2003 counsel for the applicant argued that a company can commence a suit even if it is in receivership. The applicant’s counsel also cited the case of Nyali Beach Hotel v Kenya Commercial Bank Ltd & Anor (Supra) to the effect that a director of a company under receivership would presumably also have the right to bring proceedings in the name of the company to challenge acts of a validly appointed receiver on the grounds of excess authority or misfeasance on his part. Additionally, the applicant’s counsel contended that LRV 3191 Folio 7 Plot No 40 Soroti  Road Mbale and LRV 2872 Folio 17 Plot 2 Majanga Road Mbale are the personal properties of Robert Sasagi and Peace who gave powers of attorney to M/S Sarope Petroleum Ltd and thus cannot be sold under receivership which is also being challenged.

 

It was further argued that the applicant does not seek to introduce a new and inconsistent cause of action by seeking an account for Motor Vehicles Reg. No. UAA 596R Isuzu and Reg. No. UAA 898K Isuzu since this will be a consequential order flowing from the cause of action which seeks to challenge the validity of the charges used to secure property in favour of the applicant with the 1st and 2nd respondents.

 

It was also the submission of the applicant’s counsel that the matter in the Court of Appeal does not affect the main suit as it is an appeal against the refusal of grant of temporary injunction by Lameck Mukasa, J. The applicant’s counsel contended that this court should not wait for the outcome of the application in the Court of Appeal because the applicant is not seeking to stay proceedings in this court and therefore the pronouncement of the higher court will not affect these proceedings.

 

Finally, the applicant’s counsel submitted that the amendment proposed seeks orders to investigate whether the properties mentioned were sold under a valid receivership or were sold by the respondents pursuant to a valid power of attorney from the registered proprietors. It was further submitted for the applicant that the amendment has been brought before the scheduling and hearing of the main suit and it does not seek to substitute a distinct cause of action nor change the subject matter of the suit. The applicant’s counsel also contended that the proposed amendment does not change the action into one of a substantially different character from the one that was filed and nor does it in any way prejudice the rights of the opposite party.

 

It is the view of the applicant’s counsel that the proposed amendment will enable the court to determine the real questions in controversy between the parties while at the same time averting a multiplicity of proceedings.  The applicant’s counsel also maintains that the applicant company has locus standi to bring this action against the respondents as the certificates of title were in the hands of the applicant when they were mortgaged to M/s Nile Bank Ltd. It was also argued that the applicant has a duty to hand back the said title to the rightful owners and the receiver is interfering with that right hence the need to sue him.

I have looked at the application with all the affidavits for and against it as well as carefully considered the submissions of all the counsel. The issue before this court is whether the proposed amendment should be granted. Order 6 rule 19 of the CPR gives this court wide discretion at any stage of the proceedings to allow either party to alter or amend his or her pleadings as may be just and necessary for the purpose of determining the real questions in controversy between the parties.

The principles for amendment of pleadings highlighted by counsel for the applicants are in line with the above provision and it is more precisely summarized in the case of Gaso Transport Services (Bus) Ltd v Obene (Supra) where Tsekooko JSC stated that the four principles that appear to be recognized as governing the exercise of discretion in allowing amendments are as follows:

 

  1. “The amendment should not work injustice to the other side. An injury which can be compensated by an award of costs is not treated as an injustice.
  2. Multiplicity of proceedings should be avoided as far as possible and all amendments which avoid such multiplicity should be allowed.
  3. An application which is made mala fide should not be granted.
  4. No amendment should be allowed where it is expressly or impliedly prohibited by any law (for example limitation actions.).”

 

In Mulowooza & Brothers v N. Shah Ltd SCCA No. 26 of 2010 Tumwesigye, JSC observed that the test is whether the proposed amendment introduces a distinct new cause of action instead of the original or whether and in what way it would prejudice the rights of the respondent if it was allowed.

 

In the instant case, the respondents argued vehemently that the amendment is barred by law since the applicant/plaintiff is in receivership and yet the amendment is being brought in its name. To that end, it was argued that the applicant has no cause of action and the amendment sought should be denied as a plaint with no cause of action cannot be amended. For the applicant, the argument is that even a company under receivership can bring a suit to seek appropriate redress.

I must first of all observe that I find it interesting that the respondents chose to raise so many issues that touch on the competence of the main suit in their submissions in opposition to this application when they should have raised it in the main suit itself by way of a preliminary objection. Be that as it may, I will only deal with one aspect of the issues raised, that is, the allegation that the action is barred.

I have had the benefit of reviewing the authorities relied upon to support the contention that a company under receivership cannot bring a suit in its own name generally and against the receiver. While I agree with that general principle, I hasten to add that there are exceptions to it where the wrong doer is the receiver himself or where the directors wish to litigate the validity of the security under which the appointment has taken place like in the instant case or in any other case where the vital interest of the company are at risk from the receiver himself or from elsewhere but the receiver neglects or declines to act. This position was clearly stated in the Zambian Supreme Court case of Avalon Motors Limited (in Receivership) v Bernard Leigh Gadsen Motor City Limited (1998) S.J. 26 (S.C).

Similarly, in Allied Bank International Ltd v Sadru Kara and Abdul Kara Civil Suit No. 191 of 2002 Ogoola, J. while considering a similar objection stated thus:

“For the third ground, it was contended that in the instant case, only the receiver can sue on behalf of the Company. Yes, but if the receiver (who is by definition “in control of the company”) is at the same time a wrong doer and refuses to sue, then he is no different from a controlling shareholder/director who similarly refuses to sue — see Gower (2nd Edn), p.529. In the instant case, it has been alleged that ALLIED BANK, together with the Receiver (Mr. Mutiso) seized the Company’s property, without benefit of any valid debenture, and then sold that property illegally (see paragraph 13 of the counterclaim). If this is true — and now is not the time to go into the merits of this case — then it would fall squarely within the criterion of “fraud”, constituted by “expropriation of the company’s property.”

In the instant case, I have perused the original plaint which this application seeks leave to amend. It is true that the suit was filed on 20th May 2009 after the 3rd defendant was appointed a Receiver/Manager of Sarope Petroleum Limited on 22nd April 2009 by virtue of Annexture D2 to the 3rd defendant’s Written Statement of Defence (WSD). It is clear from the plaint that the applicant/plaintiff is challenging the validity of the security under which the appointment took place and the receivership.

 

It is therefore my considered view based on the above authorities that the suit which gave rise to this application falls under the exceptions where directors can bring a suit in the name of the company even though it is under receivership. For that reason, I do find that the applicant/plaintiff has a cause of action against the respondents/defendants.

 

Turning to the merit of this application, I have carefully perused the proposed amendments as well as considered the grounds for opposing it and I do not agree that it offends the principles that govern amendment of pleadings. The main reason why the amendment is sought is that the status quo as at the time of filing the suit changed such that property which was alleged to be under the threat of sale was actually sold. The applicant/plaintiff then felt the need to amend the pleadings to capture that fact and change the corresponding prayers. I believe seeking an amendment like the applicant has done would be the most appropriate steps to be taken by any prudent litigant. To that extent I have no basis for denying the application.

 

I have also considered the argument that the applicant/plaintiff seeks to introduce a new inconsistent cause of action by seeking an account and/or compensation for some motor vehicles which is not consistent with the original cause of action that seeks to challenge the validity of the charges registered in the various land properties used to secure a loan and appointment of the 3rd respondent as receiver. With due respect to counsel for the 2nd respondent, I note that the motor vehicles are alleged to have been at the applicant’s/plaintiff’s commercial premises which was taken over by the 3rd respondent/defendant. I therefore find that the cause of action relating to the motor vehicles arose from the same series of transactions as those stated in the original plaint. In the premises, I do not agree that the amendment introduces a new inconsistent cause of action.

 

For the above reasons, it is my finding and conclusion that the amendment sought is allowable. In the result, this application is granted. Costs shall be in the cause.

I so order.

 

Dated this 22nd day of August 2013.

 

 

Hellen Obura

JUDGE

 

Ruling delivered in chambers at 4.00 pm in the presence of:

  1. Mr. Brian Othieno for the applicants
  2. Mr. Mulema Mukasa h/b for Mr. Allan Wanialla for the 3rd respondent.
  3. Mr. Andrew Bwengye h/b for Mr. Andrew Kibaya for the 1st respondent
  4. Mr. Robert Sasaagi, Director of the applicant.

 

JUDGE

22/08/13