Court name
Commercial Court of Uganda
Judgment date
20 September 2013

Nakanyonyi Development Association Ltd & 2 Ors v Stanbic Bank (U) Ltd (Miscellaneous Application-2013/611) [2013] UGCommC 162 (20 September 2013);

Cite this case
[2013] UGCommC 162

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA

 AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 611 OF 2013

(ARISING FROM CIVIL SUIT NO 137 OF 2013)

  1. NAKANYONYI DEVELOPMENT ASSOCIATION (NADA) LTD}
  2. ALI KIRUNDA }
  3. NAMUTEBI MARTHA}.............................................................. APPLICANTS

VERSUS

STANBIC BANK (U) LIMITED}........................................................ RESPONDENTS

BEFORE HON MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant’s application is for orders to be allowed to file a counterclaim out of time and for costs of the application. The grounds of the application are that the Respondents sued the Applicants in civil suit number 137 of 2012 for recovery of loan arrears of UGX 116,814,442/=. After scrutiny of documents attached to the plaint and subsequent clarifications from the Applicants, it was apparent that a notice of default was not given to the Applicants by the Respondent until 2 September 2011, eight months after impounding, advertisement and sale of the leased property. Failure to give notice of default to the applicant's was in fundamental breach of the lease agreement on the part of the Respondent and deprived the applicant of the right to salvage the item before the sale and entitled the Applicants to sue for damages. The Applicants also intend to add the valuation surveyor as a party to the counterclaim for valuing the drilling machine/truck at an unreasonably low value, despite the fact that a previous valuation quoted a much higher right value. The Applicants case is that the issues arising can properly be adjudicated upon by way of a counterclaim against the Respondent. Finally they aver that it is just and equitable that the application is allowed.

The application is supported by the affidavit of the second applicant Mr Ali Kirunda. His affirmation is that he is a director of the first applicant company. Sometime in October 2008, the applicant company obtained a lease facility amounting to 150,000,000/= Uganda shillings from the Respondent to finance the purchase of a water drilling rig mounted on a motor vehicle. The Applicants promptly paid instalments until after two years when due to unavoidable circumstances the account went into arrears. The Respondent through its auctioneers impounded the leased item and auctioned it at a price of Uganda shillings 25,000,000/= which was a very cheap price. The Respondent later sued the applicant's in civil suit number 137 of 2012 for recovery of the loan arrears of 116,816,442/= Uganda shillings. Upon scrutiny of the documents attached to the plaint and subsequent clarifications from the Applicants, the applicant’s lawyers found out that a notice of default was not given the applicant's by the Respondent until 2 September 2011. The deponent more or less repeats the averments in the notice of motion. The additional fact averred by the deponent is that the drilling rig had been valued by one Raymond Mugisha of Auto Mobile Association of Uganda at a market value of Uganda shillings 300,000,000/=. Thereafter it was re-valued for purposes of the sale by one Nabusoba Irene of Messieurs Auto Mobile Association of Uganda at Uganda shillings 30,000,000/=. The deponent avers that there is implicit fraud on the part of the valuation surveyor and it was necessary to add her as a defendant to the counterclaim. The Respondents would not be prejudiced if the application is allowed and the counterclaim filed out of time. The proposed joint written statement of defence and counterclaim is annexed to the affidavit in support.

In reply the legal manager, personal and business banking and operations of the Respondent bank Sarah Nambasa made a deposition in reply. She had read and understood the applicant’s application, accompanying affidavits and annexure thereto. It is denied that the Applicants were promptly paying the loan until after two years. The fact that the lease item was sold at Uganda shillings 25,000,000/= at a very cheap price is also denied. The Respondent’s suit was filed in court on 12 April 2012 and the Applicants were served with summons on 24 April 2012. The Applicants filed their joint written statement of defence on the 8th of May 2012. The issues raised in the proposed counterclaim were raised in the written statement of defence. Furthermore the counterclaim proposed discloses no cause of action against the Respondent or any other intended party to the suit. The first valuation of UGX 300,000,000/= is dated 1 September 2008 whereas annexure "C" which is the second valuation is dated 9th of April 2011. The Applicants had put the machine to work and utilised it until it was impounded. The deponent asserts that the Applicants claims were speculative and an utter abuse of the court process. Consequently the Respondent intended to submit that the application is barred by the law and have it dismissed with costs.

The application came for hearing on 4 September 2012 wherein Counsel Godfrey Himbaza represented the applicant while Counsel Isaac Bakayana represented the Respondent. The Counsels presented oral arguments for and against the application.

The Applicants Counsel submitted that the application was brought under order 8 rule 8 and 10, order 51 rules 6 and order 52 rules 1, 2 and 3 of the Civil Procedure Rules together with section 98 of the Civil Procedure Act for extension of time to file the Applicants counterclaim out of time. He further relied on the above detailed grounds of application and those contained in the affidavit of Ali Kirunda, the Second Applicant and a director of the first applicant. The basic fact is firstly that the Applicants obtained a lease facility from the Respondent for Uganda shillings 150,000,000/= in October 2008 for purchase of a water drilling rig. Out of an amount of Uganda Shillings 250,000,000/= the Applicants paid Uganda Shillings 100,000,000/=. In 2012 the Respondent sued the applicant for recovery of arrears of rent amounting to 116,816,442/= shillings. The Applicants filed a defence on 8th of May 2012 but upon scrutiny of the documents attached thereto, the Applicants discovered that notice of default was not given to them under the lease agreement. Counsel submitted that the requirement to give notice is provided for under clause 11.2.1 of the lease deed annexure “A” to the affidavit in support. This was a fundamental term and required 14 days written notice before the lessor can take possession of leased property.

The Applicants intend to file a counterclaim against the Respondent for breach of contract. Counsel submitted that failure to give notice deprived the Applicants of the right to salvage the leased item and entitled them to sue for breach of contract. Furthermore, the Respondents wish to add the Valuation Surveyor as a defendant to the counterclaim. Counsel relied on order 8 rules 1 (2) of the Civil Procedure Rules which sets the time frame for filing a counterclaim. He further relied on the decision of this court in MA 149 of 2013 Steven Kavuma and Cellular Galore Ltd vs. Stanbic Bank where it was held that a counterclaim introduced for the first time cannot come by way of amendment of the written statement of defence but through application to extend time to file it out of time. The proposed WSD and counterclaim were attached to the application. Finally the Applicant’s Counsel submits that no prejudice is likely to be suffered by the Respondent.

In reply Counsel Isaac Bakayana strongly opposed the application. His submission is that the grounds of opposition are contained in the affidavit of Sarah Nambasa:  The first ground is that the application is barred by law because it was filed outside the prescribed time. Counsel submitted that Order 12 rule 3 (1) of Civil Procedure Rules require all interlocutory applications to be filed within 21 days after completion of alternative dispute resolution (ADR). ADR by way of mediation proceedings between the parties took place and was completed on 25th of June 2012. The application ought to have been filed within 21 days from 25th of June 2012. Counsel relied on the case of Bokomo Uganda Ltd versus Rand Blair HCCA 22 of 2011. The applicant’s application was filed on the 18th of July 2013 out of time. Furthermore the applicant advanced no reason why the application was not filed within the prescribed time. The affidavit in support does not mention any reason. In the case of Rosette Kizito vs. Administration General and Others KALR Vol 5 {1993} at page 4 the Supreme Court held that sufficient reason must relate to the inability or failure of the applicant to take a necessary step in time. The third ground of opposition is that the statements of the applicant are not supported by any evidence at all. The applicant seeks to challenge a valuation report but there is no prima facie proof to suggest an alternative figure. Section 101 – 103 of Evidence Act requires someone who alleges a fact to prove the allegations. No such proof has been produced. Counsel prayed that the application is dismissed with costs.

In rejoinder the Applicants Counsel submitted that the application for extension of time was brought under order 51 rules 6 of the Civil Procedure Rules which gives this court discretion to enlarge time envisaged under order 12 rules 3 of the Civil Procedure Rules. Counsel further submitted that the Applicant had earlier applied to amend the pleadings. On ground 3 the Respondent argued that the application disclosed no prima facie case. The attached WSD contains relevant averments in the counterclaim i.e. particulars of fraud. To go into the issues pre determines the merits of the counterclaim. The issue should be raised when the counterclaim is determined.

Resolution of Issues

The first issue is whether the applicant's application is time barred under order 12 rule 3 (1) of the Civil Procedure Rules.

This issue arises from the submissions of the Respondents Counsel and amounts to an objection to the applicant's application. Order 12 rule 3 (1) of the Civil Procedure Rules provides as follows:

"All remaining interlocutory applications shall be filed within 21 days from the date of completion of the alternative dispute resolution and where there has been no alternative dispute resolution, within 15 days after the completion of the scheduling conference; that date shall be referred to as the cut-off date."

The question is whether the Applicants application for enlargement of time is time barred. The applicant's application cites Orders 8 rules 8 and 10 and order 51 rules 6 of the Civil Procedure Rules and section 98 of the Civil Procedure Act.

The Respondent's objection raises a double issue on the question of time bar. The applicant has applied for enlargement of time prescribed by order 8 rule 2 of the Civil Procedure Rules which envisages the filing of a counterclaim, at the option of the defendant, together with the defence. Order 8 rules 1 of the Civil Procedure Rules prescribes a period of 15 days from the date of service of summons on the defendant within which a defendant should file a written statement of defence. The application for enlargement of time is made under order 51 rules 6 of the Civil Procedure Rules which provides that where a limited time has been fixed for doing any act or taking any proceedings under the rules or by order of the court, the court shall have power to enlarge the time upon such terms, if any, as the justice of the case may require and the enlargement:

"… may be ordered although the application for it is not made until after the expiration of the time appointed or allowed; except that the costs of any application to extend the time and of any order made on the application shall be borne by the parties making the application, unless the court shall otherwise order."

The applicant has applied for extension of time to file a counterclaim. The Respondent objects to the application on the ground that the application ought to have been brought within 21 days from the date of completion of the alternative dispute resolution (ADR) which in this case is the mandatory mediation prescribed by the rules of this court. In other words the Applicants application to enlarge time to file a counterclaim is itself time barred. Counsel relied on the case of Bokomo Uganda Limited and Michael Richardson versus Rand Blair Trading as Momentum Feeds High Court Commercial Division Civil Appeal Number 22 of 2011 for the holding that all other interlocutory applications have to be filed within 21 days from the date of completion of the ADR. At page 24 of that ruling the court held as follows:

"Unless a party is exempted from mandatory mediation under the Mediation Rules 2007, all interlocutory applications in any matter other than those which arise after the suit has been filed have to be filed within 21 days from the date of completion of mandatory mediation under the Mediation Rules 2007 as far as the Commercial Court Division is concerned."

The court did not rule out any interlocutory applications based on any matter arising after the suit had been filed. In this application, one of the grounds of the applicant's application is that the applicant discovered upon perusal of the pleadings and attachments thereto that no notice had been issued under the agreement as required by the lease agreement. In other words, the above ruling in the case of BOKOMO (supra) does not exclude the applicant from making this application. Secondly I agree with the applicant's Counsel that the court still retains discretion under order 51 rules 6 of the Civil Procedure Rules to enlarge any time prescribed by the rules for sufficient cause. It would be complicated and protracted to argue that the applicant should have first applied for leave to file the application for extension of time out of time before applying for leave to extend the time within which to file the counterclaim. Thirdly on a question of fact, the applicant filed miscellaneous application number 389 of 2013 on 11 June 2013 for amendment of its written statement of defence to include a counterclaim. Upon being informed about an earlier decision of court that a counterclaim is not an amendment because it was being introduced for the first time, and that the proper application was an application for enlargement of time, on 12 June 2013, Counsel withdrew the application. Secondly, the application itself arose during the scheduling conference. The record of the court shows that on the 21st of March 2013, scheduling was adjourned to 18th May 2013 to enable Counsels to meet and come up with a joint trial bundle. The question of completion of pleadings before scheduling was considered at the conference. Subsequently the Applicants filed an application to join the valuation surveyor which application was argued on 12 June 2013. Ruling was thereon delivered on 14 June 2013. The current application was subsequently filed on 18 July 2013. Specifically the scheduling conference could not be concluded because the pleadings were incomplete. In the case of Bokomo (supra) mandatory mediation was said to be an ADR envisaged by order 12 rule 3 (1) of the Civil Procedure Rules for purposes of applying the timelines in that the rule. Nonetheless, the timelines can be extended. Moreover, the grounds of the application fall within the exception to the general rule that applications can be filed on the basis of matters arising after pleadings have been filed. Last but not least, if the application had been for amendment of pleadings, the Commercial Court judge can direct the parties to complete the pleadings for a complete and effectual adjudication of the issues as can be discerned during a preliminary hearing under the Constitution (Commercial Court) (Practice) Directions and specifically rule 6 sub rules (3), (4) (5) and (6) thereof. Sub rule 3 provides that Counsel appearing at the preliminary hearing before a Commercial Court judge would be expected to be aware of the issues and principal contentions on each side and to be in a position to inform the court of them. In any event, the court may direct that no further pleading is required. It is apparent that at this stage where the matter comes for preliminary hearing, further pleadings may be directed arising from a discussion of the principal contentions on each side. Sub rule 2 provides that the aim of the preliminary hearing will be at achieving a serious discussion of the issues in the cause and the steps necessary to resolve them. If one of the parties believes that a counterclaim is necessary, the court has power to direct that the same is included for purposes of resolution of the actual matters in controversy between the parties. At this stage of the preliminary hearing, the commercial court judge is required to deal with all interlocutory matters. As noted above, the matter arose during the preliminary hearing/scheduling when the question of counterclaim or addition of parties came up.

In those circumstances the objection on the ground of time bar cannot be sustained, it is a matter which came up during the preliminary hearings/scheduling before the court. The Applicants further aver that they realised that the counterclaim was necessary after the pleadings had been closed and after filing their own defence.

The first ground of objection having failed, the second ground that the applicant advanced no reason why the application was not filed within the time prescribed, also fails.

Lastly the Respondents strongly submitted that the statements of the applicant in support of the application do not contain any evidence at all on the question of the valuation report. There is no alternative figure to challenge the valuation of the Respondent.

I agree with the applicant’s Counsel that the court cannot decide on the merits of the counterclaim at this stage. All that the Applicants need to show is that they need to file a counterclaim. A counterclaim is a separate suit against the Respondent/plaintiff. If the counterclaim filed against the Respondent is devoid of merit, the Respondent would have an opportunity not only to file a defence in which it raises the question of the merits of the counterclaim but also have it dismissed on a preliminary point of law. However, the plaintiff or counterclaimant should not be barred for filing an action on the basis of an anticipatory merit of the counterclaim. Every person is free to commence an action well knowing that the consequence of filing an incompetent action is the payment of costs. Right now the only matter which the court would consider is whether the Respondent would be prejudiced if time is extended for the Applicants to file a counterclaim. The underlying principle is that anybody has a right to sue whomsoever he or she wants to sue and the court cannot be seen to restrain the exercise of that right. For instance the defendants have a right to sue the valuation surveyor and are not saddled by the fact that no counterclaim has been preferred against the plaintiff. As to whether the action would have merit is not the courts business at this stage. What matters is that the valuation surveyor is not a party to the suit. It may be convenient, since the allegation arises from the same transaction involved in this suit, to have it conveniently tried in the same suit. The Respondent to this application has not demonstrated any prejudice it would suffer if the counterclaim is filed out of time. Suffice it to point out that the Respondent thinks that the counterclaim would be devoid of merit. If that it is so, it would only attract costs against the Applicants/defendants. Moreover it is the duty of the court under section 33 of the Judicature Act to see to it that a multiplicity of proceedings is where possible, avoided. I see no prejudice to the Respondent if time is extended for the applicant to fulfil its intention to sue the valuation surveyor and counterclaim against the Respondent as well. The Respondent still has an opportunity to defend itself against any counterclaim. Last but not least, the pleadings had been completed but no hearing of the suit or defence has taken place. In other words pleadings can be completed without prejudice to anybody. As for the time taken, it can be compensated in costs.

In those circumstances the applicant's application for extension of time to file a counterclaim against the plaintiff/Respondent is granted. The applicants will file amended pleadings to the extent that it will include a counterclaim against the Respondent/plaintiff. The applicant is at liberty to include the valuation surveyor as a defendant to the counterclaim. If the applicant does so, summons would be issued to the new party. Leave is granted for the applicant to file the amended written statement of defence for purposes of including the counterclaim as stated above within 14 days from the date of this order. Costs of this application shall be borne by the Applicants as prescribed by order 51 rules 6 of the Civil Procedure Rules.

Ruling delivered in open court on the 20th day of September 2013

 

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

Godfrey Himbaza for the Applicants

Isaac Bakayana for the Respondent

Charles Okuni: Court Clerk

 

Christopher Madrama Izama

Judge

20th September 2013