Court name
Commercial Court of Uganda
Judgment date
23 September 2014

Asante Aviation Ltd v Stanbic (U) Ltd & Anor (Miscellaneous Application-2014/670) [2014] UGCommC 143 (23 September 2014);

Cite this case
[2014] UGCommC 143

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 670 OF 2014

(ARISING FROM HCCS NO 532 OF 2014)

ASANTE AVIATION LTD}.....................................................................APPLICANT

VS

  1. STANBIC BANK (U) LTD}
  2. MUHANGI NOEL}................................................................RESPONDENTS

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant seeks an order of a temporary injunction restraining the Respondents/Defendants, its agents, assignees, servants, workman or all others acting under with it instructions from selling, disposing, wasting, damaging, alienating, taking over or otherwise interfering or dealing howsoever with the possession, enjoyment and/or ownership of aircrafts 5X – AMC and 5X – SUS or doing anything thereon which may constitute interference with the said aircraft until the hearing and final determination and final disposal of the main suit. Secondly the Applicant seeks an order for costs of the application are provided for.

There are five grounds of the application namely:

  1. The Applicant has instituted civil suit number 532 of 2014 against the Respondents seeking for orders, among others, for relief and protection against enforcement and crystallisation of the Plaintiff/Applicants securities by way of debenture, or charges by the first Defendant and for discharge of the performance of obligations under the aviation loan facility – contract.
  2. The Respondent is likely to take the opportunity and has demonstrated the intention to deal with the said aircraft 5X – AMC and 5X – SUS contrary to the suit unless restrained by an order of this court.
  3. It is fair and just that a temporary injunction is granted to the Applicant for preservation of the aircrafts 5X – AMC and 5X – SUS until the hearing and final disposal of the main suit.
  4. Unless the Respondent is restrained from selling or otherwise disposing of the aircrafts, the Applicants are likely to suffer irreparable loss and damage to wit deprivation of the said aircraft and the main suit will be rendered nugatory.
  5. It would be in the interest of justice if this application for a temporary injunction is granted otherwise the main suit shall be rendered nugatory.

The facts in support of the application are deposed to by Ronald Kasozi, a director of the Applicant Company. He deposes that the Applicant is an investor in the aviation industry with a regional air operator's certificate and carrying out business in Southern Sudan, Congo and Liberia. The Applicant applied for and was granted an aviation loan facility by the first Respondent to part finance the purchase of three aircrafts namely IX2009 Cessna Grand Caravan Aircraft registration number N424JP 5X — AMC, a used IX2009 208B Cessna Grand Caravan Aircraft W/G 1000 with a current registration number D – FAAL and serial number 208B – 2128 and a used 1997 Cessna Grand Caravan Aircraft serial number 208B0633 registration number 5X – SUS totalling to US$4,213,964 for a period of five years including a grace period of six months with a copy of the loan facility letter attached collectively. The security documentation for registration of the charge/debenture was completed and executed by both the Applicant and the first Respondent. Proceeds from the major contracts of the Applicant mainly operational in South Sudan were assigned to the first Respondent.

In December 2013 war broke out in South Sudan during the subsistence of the aviation loan agreement and contracts for which proceeds had been assigned to the first Respondent were frustrated by failure to operate flights to South Sudan. Towards the end of May 2014 the Applicant resumed flights in Juba. The Plaintiff returned to its operations on 1 June 2014 and secured more contracts on board. Despite the Applicant’s resumption of flights and running contracts, the Uganda Civil Aviation Authority issued new Air Operator’s certificates (AOC) limiting scope of all Ugandan registered aeroplanes to domestic flights, until re-certification to include international operations is undertaken to include international flights.

The Applicant substantially reduced all the loan and overdraft obligations under the charge and debenture and supplemental deeds by US$3,183,807. The first Respondent appointed an interested party i.e. the second Respondent as a receiver to sell aircraft 5X – AMC and 5X – SUS instead of managing the same as a receiver and in accordance with the security documents. Accordingly the second Respondent advertised the securities for sale claiming that the Applicant has failed to pay the loan when the loan repayment period is still subsisting despite the frustrations occasioned to the Applicant. The first Respondent has prematurely recalled the loan due to ill motives with the sole intention of selling the Applicant’s aircrafts. Furthermore aircraft number 5X – SUS is the subject of ownership dispute in HCCS number 431 of 2004 at the Commercial Division of the High Court of Uganda. The Respondent's actions amount to a clog on the right to redeem the aircrafts 5X – AMC and 5X – SUS since the loan term is yet to expire and the Applicant is neither insolvent as she has running contracts and the frustrations caused are beyond her control and not the result of the Applicant’s own acts. The acts of the Respondent in enforcing the crystallisation of the securities deposited are in breach of the loan agreement and are a ploy to deprive the Applicant of its valuable property. The Applicant's actions will jeopardise the pending contracts of the Applicant and her clients, which damage would be irreparable. The Applicant filed High Court civil suit number 532 of 2014 seeking inter alia an order for relief and protection against enforcement and crystallisation of the securities by way of debenture or charges by the Respondents and discharge of obligations under the aviation loan facility. HCCS 532 of 2014 is pending before the court and may not be fixed for hearing in the near future owing to the busy schedule of the court.

Unless the Respondent is restrained they shall continue to deal with the aircrafts in issue in a manner prejudicial to the Applicant's interest rendering the application and suits before the court nugatory. It would be in the interest of justice if the application is granted to preserve the status quo and the Applicant shall suffer more inconveniences than the Respondents who have no claim of right over the aircrafts. There is an arguable case with serious questions of law and fact to be determined in the pending suit with a high probability of success which would be rendered nugatory if the order is not granted because it is clear that the Respondents did not properly handle the Applicant’s account. It would be in the interest of justice if a temporary injunction is issued against the Respondent pending disposal of the main suit.

In reply Francis Niwagaba, a Legal Officer (Corporate and Investment Banking) of the first Respondent deposes in reply to the application and affidavit of Mr Ronald Kasozi on behalf of the first Respondent. The first Respondent advanced the Applicant three separate aviation loans. The Applicant defaulted on the terms of payment and regardless of the first Respondent's demands; the Applicant continued to be in default. The deponent relies on a copy of the first Respondent’s demand letter dated 23rd of September 2013. The Applicant’s default on the said facilities started long before December 2013 when the war in South Sudan broke out. Secondly the repayment of the aviation loan was not hinged to the subsistence of the performance of the Applicant's flight contracts in South Sudan or any other place. The alleged frustration of the Applicant's contracts does not affect the obligation of the Applicant to pay the amounts due to the first Respondent. Pursuant to the terms of repayment of the aviation loans, upon default in payment and the demand by the first Respondent all the outstanding sums became due and payable by the Applicant and the first Respondent is entitled to immediate recovery of the same.

It is therefore not true as deposed to on the Applicant's behalf that the first Respondent has prematurely recalled the outstanding loans due to ill motives or that the first Respondent is not entitled to recovery of its money because the Applicant’s operations have purportedly been frustrated by war in South Sudan and Civil Aviation Authority.

Having understood the Plaint in HCCS 431 of 2014, the dispute therein has no effect on the first Respondent’s right to recover its outstanding dues by disposing of the Applicant’s assets. The first Respondent duly and lawfully exercised its right of appointing the second Respondent as a receiver for purposes of recovering the sums due under the debenture. Under the terms of the debenture dated 2nd of November 2011 clause 10 (2) (C) thereof confers upon the second Respondent powers to sell the assets of the Applicant to recover the sums due to the first Respondent and it is not true that the second Respondent is an interested party or that his powers as receiver are only restricted to managing the security charged under the debenture. From information of the second Respondent prior to the hearing and disposal of Miscellaneous Application No. 671 of 2014, on 6 August 2014, the second Respondent had taken possession and legal/action control of the two aircrafts. The main suit has no likelihood of success and the current application is unnecessary as any purported damage to the Applicant is reparable. The grant of any of the orders sought by the Applicant shall instead endanger/jeopardise the first Respondent's security for the credit facilities advanced the Applicant and also prejudice the first Respondent's efforts for recovery of the sums due. The Applicant is a wilful defaulter and its application is a scheme to further delay and frustrate the first Respondent's efforts to recover its money.

Mr Francis Niwagaba further deposes that the affidavit in support of the application should be rejected as the same is tainted with falsehoods as demonstrated above in paragraphs 5, 7, 8 and 11 of the affidavit in reply.

For his part the second Respondent Mr Muhangi Noel deposes that on 3 July 2014 he was duly appointed as a receiver by the first Respondent to take possession, custody and control of the suit aircrafts described above. This was for purposes of selling the same to recover sums outstanding and due to the first Respondent. Following the appointment on 29 July 2014 and 30 July 2014 respectively, he published a notice of his appointment as receiver pursuant to section 178 (2) of the Insolvency Act No 14 of 2011 in the Uganda Gazette and the New Vision newspaper. He is not a party or privy to any purported advertisement for the sale of the Applicant's aircraft and neither has he ever instructed any person or entity to do the same. It is not true that he advertised the said aircraft for sale but simply published a notice of his appointment as a receiver. Under the terms of the debenture dated 2nd of November 2011 clause 10 (2) (c) thereof confers upon him as a receiver powers to sell the assets of the Applicant to recover the sums due to the first Respondent. It is however untrue that he is an interested party or that his powers as receiver are only restricted to managing the securities charged under the said debenture. Following his appointment as receiver, he took possession and actual control of the two aircraft currently located at Kajjansi airfield and accordingly informed the Applicant and Civil Aviation Authority according to the correspondence therefore dated 10th of July 2014 and 11th of July 2014 respectively. On 15 July 2014 he personally held a meeting with Mr Ronald Kasozi and Ms Sheila Busingye the directors of the Applicant at his offices and further informed him that the securities were not in his possession and control and requested them to avail him the necessary documents to enable him execute his obligations as a receiver. On 1 August 2014 he entered into an arrangement with Messieurs Ndege Juu Africa Limited for custody of the aircrafts. He further paid rent for hangar space for the two aircraft at Kajjansi airfield for the month of August 2014. He reiterates that the affidavits in support of the application should be rejected because it is tainted with falsehoods as demonstrated in his paragraphs 6 and 7 in the affidavit in reply. Secondly the main suit has no likelihood of success since he was lawfully appointed by the first Respondent as receiver. Thirdly the application is unnecessary as any purported damage to the Applicant is reparable.

In rejoinder to the first Respondent's affidavit in reply Ronald Kasozi a director of the Applicant deposes that the Applicant has never defaulted on the terms of the loan and has since then substantially reduced all the aviation loan obligations under the charge and debenture and supplementary deeds by US$3,183,807. The repayment period for the loan was for a maximum of 60 months and so the loan was prematurely recalled. There were no specific documents attached as proof that the second Respondent has taken possession of the aircrafts and this information is baseless and intended to mislead the court.

The main application has a likelihood of success and in specific response to questions of outstanding loans the Applicant was able to pay the loan facility and was never insolvent and was able to make a substantial payment of the loan. The act of the first Respondent in enforcing the crystallisation of the securities deposited is in breach of the loan agreement and is a ploy to deprive the Applicant of their valuable property. The action will jeopardise contracts of the Applicant with her clients and would cause irreparable damage.

In rejoinder to the second Respondent's affidavit in reply Ronald Kasozi discloses that the second Respondent is not in possession and control of the aircrafts and none of the annexure proves his possession and control of the aircraft. The second Respondent is not in possession of the aircrafts as the tax invoices attached does not prove possession.

At the hearing of the application Sharon Tem assisted by Nanteza Hasfah represented the Applicant while Counsel John Fisher Kanyemibwa represented the Respondent.

Sharon Tem addressed court on the Applicant’s application:

After making reference to the facts of the application reproduced above the Applicant's case is that it has instituted HCCS 532 of 2014 against the Respondents seeking relief and protection against enforcement of crystallisation of the Applicant’s security. Secondly the Respondents have shown an intention to deal with or to dispose of aircraft 5X – AMC and aircraft 5X – SUS. The Applicant is likely to suffer irreparable loss and damage rendering the main suit nugatory. The Applicant is in the aviation industry with an original operator’s licence. The Applicant applied for and was granted and given an aviation loan facility for purchase of three aircraft by the first Respondent. A security document namely a debenture was executed by the parties and one of the terms of the aviation loan agreements was that “All proceeds from contracts shall go to the first Respondent.”  War broke out in Southern Sudan in December 2013, rendering the performance of terms under the aviation loan facility letter unenforceable.

Even after the war and after resumption of work, performance of the loan facility letter was further frustrated by the Civil Aviation Authorities through its recall of all domestic registered aeroplanes in Uganda and the Applicant being domestically registered.  By the time of frustration, the Applicant had substantially paid the loan amount under the loan aviation facility letter by almost 80%.  The amount borrowed was 4.2 million dollars and the amount so far paid is 3.1 million US dollars. 

During the course of grounding of the aircraft by the Civil Aviation Authority, the 1st Respondent advertised for crystallisation and for receivership and sale the suit aircraft 5X AMC and aircraft 5XSUS.  The receivership was commenced when the Applicant Company was not insolvent. 

Under Order 41 rule 1 of the Civil Procedure Rules, a temporary injunction may be issued where there would be a wrongful sale.  Aircraft 5XSUS is not the subject for the debenture.  The debenture was in relation to aircraft 5X AMC and the 1st Respondent intends to sell both. The intended sale is wrong and if a temporary injunction is not granted on this issue, the 1st and 2nd Respondents would sell property they do not own.  The same aircraft is the subject of an ownership dispute in HCCS No. 431 of 2014 in the Commercial court. The suit was filed on the 26/06/2014.

One of the grounds for grant of a temporary injunction is that the Applicant must disclose a prima facie case.  The Applicant’s suit raises triable issues and there is no need at this stage to go into the merits of the case. The triable issue is whether the Respondents can sell an aircraft that they do not own and that is not subject to a security under the aviation loan. Furthermore if the sale proceeds not only would the Applicant’s suit be rendered nugatory, but HCCS No. 431 of 2014 would also be rendered nugatory because the subject matter in that suit and in the current suit is aircraft 5X-SUS. Counsel relies on the case of Robert Kavuma vs. Hotel International Supreme Court CA No. 08 of 1990 where the grounds for the grant of a temporary injunction are considered. 

The second ground is whether the Applicant would suffer irreparable damage which cannot be atoned or adequately compensated for by an award of damages.   The Applicant is not insolvent. The basis of the aviation loan was that the proceeds over and above 2 million USD quarterly would go directly to the 1st Respondent’s account.  The Applicant has subsisting contracts which have not been cancelled but have only been delayed or partially frustrated in certain instances.  There are certain contracts which have been frustrated. For the 1st Respondent to sell the aircrafts would not do the company any good. The Applicant Company has been grounded temporarily by the CAA until certain procedures and guidelines are rectified before regional flights can be resumed.  For the moment the Applicant can only fly within Uganda but their main business is in Southern Sudan and Congo.  The circumstances are beyond the Applicant’s control.

If the Respondents sell the very basis for the existence of the company, it would go burst.  An aviation company without aircraft is useless.  The damage goes far beyond the monetary value and includes damage to the Applicant’s name, their presence in the industry and their continuance in business.

The last and final ground is on the balance of convenience. The Applicant will be more inconvenienced than the Respondents.  It borrowed 4.1 million dollars and paid back 3.1 million dollars, the balance outstanding is 900,000 USD.  If the two aircrafts are disposed of, not only will the 900,000 USD not be recovered but they will have lost the aircraft and the 3.1 million USD.  Counsel further relied on the case of Elgon Flyers vs. Stanbic Bank Ltd & Another for the proposition that inconveniences to be considered should be weighed against a scenario where the injunction is granted or inconveniences caused when the injunction is not granted. Once the once the injunction is granted, there is no inconvenience to any party.  But where it’s not granted my Lord, the convenience weighs heavily on the Applicant. 

In reply Counsel John Fisher Kanyemibwa opposed the application. It is true that the 1st Respondent extended a facility of 4,213,964 USD to the Applicant to purchase two aircrafts which are described in paragraph 3 of the affidavit in support of the application. However contrary to the submissions of the Applicant’s Counsel it is not true that the Respondent has attempted to sell an aircraft that is not covered by security. From the Applicant’s affidavit in support of the application and paragraphs 3 – 4 it is deposed that the two aircrafts in respect of which the 2nd Respondent has been appointed a receiver are secured under a debenture which the Applicant choose to keep away from court. The same debenture is annexed to the affidavit in reply of the 2nd Respondent.  It untrue to say that the 1st Respondent is attempting to sell an aircraft not covered by the debenture and in any case this is not averred in the application.

The application lacks merit and discloses no prima facie case. The application is apparently against a Respondent who is not defined and yet there are two Respondents.  The point is that those grounds do not disclose against which of the Respondents the application is brought.  On the merits concerning war braking out in S. Sudan in December 2013, the Applicant admits that it does not only operate in S. Sudan but regionally in the Congo and Liberia.  The question of alleged frustration of the contracts held by the Applicant in S. Sudan should not stop the Applicant from servicing its obligations under the debenture.

On the allegation of frustration by acts of CAA, the breaches by the Applicant commenced well before that war broke out.  This can be inferred from annexure SB1 to the affidavit of Mr. Francis Nuwagaba showing that a demand was made for an outstanding sum of 3,233,786.54 USD by the September 2013. This was before the war broke out when the Applicant was in default. It is not true that the Applicant is not insolvent.  Where a demand has been made and is not honoured, then prima facie the debtor is insolvent.

While the Applicant claims to have so far paid a sum of 3,186,807 USD, no bank statements have been furnished to court to prove it. There is no proof that the Applicant serviced the loan to the extent alleged of paying off 80% of the outstanding. Furthermore the Applicant alleges that the 2nd Respondent was supposed to manage the assets and not sell them but no debenture deed was attached for the court to scrutinise.  Consequently there is not prima facie case that the 2nd Respondent is not supposed to sell but only to manage.

It can be shown that under Clause 10 of the debenture the receiver has powers. Secondly the allegation that the second Respondent advertised the aircraft for sale is a false averment in as far as the 2nd Respondent only advertised his appointment as a receiver. The Applicant’s affidavit in support and paragraph 9 thereof does not disclose the nexus between the 2nd Respondent and Africa Air Incorporated.  An advert for the aircraft was run on the 17/07/2014 before even the 2nd Respondent was appointed.  There are documents attached to the advert by the 2nd Respondent notifying the general public of his appointment and there is also a gazette notice.

Then there are some documents dated before the 2nd Respondent was even appointed.  The affidavit in support of the application does not explain the 2nd Respondent’s connection with the advertisement which was made before the 2nd Respondent was appointed a receiver. 

The Applicant contends that there is an ownership dispute before this court in respect of one of the aircrafts. However the dispute has nothing to do with the 1st Respondent’s debenture rights. If anybody is aggrieved, they should seek a temporary order in that suit.  In paragraph 12 it is alleged that the 1st Respondent’s action is a clog on the Applicant’s right to redeem.  However in the same affidavit the Applicant admits that the 1st Respondent has recalled the facility.  While the first facility was supposed to be paid in the 60 months they cannot say in the same breath that they have failed to pay the loan and it has been recalled prematurely.  For the loan to be recalled prematurely the Plaintiff must show that it has been servicing the loan properly. 

On the issue of irreparable damage, the mere assertion that the Applicant will suffer irreparable damage is not sufficient and the damage must be demonstrated.  This being a chattel and the contract in question presumably being of monetary value, monetary compensations can be made. In as far as the affidavit is concerned there is no evidence of irreparable damage other than just a bare statement.

Lastly on the question of balance of convenience, paragraph 15 of the 1st Respondent’s affidavit in reply deposes that the grant of a temporary injunction would instead endanger and jeopardise the 1st Respondent’s security for the facilities advanced to the Applicant and also prejudice the 1st Respondent’s efforts for recovery of the sums due. In the premises the application should be dismissed and the 1st Respondent to proceed and realise its security in the aircraft.

In rejoinder Sharon Tem submitted that the debenture speaks for itself and is attached to the affidavit in reply.  That is why there is a triable issue before the court.  It refers specifically to aircraft 5X - AMC and a further charge was granted on it.  The debenture does not refer to aircraft 5X - SUS.  There is no security in regard to aircraft 5X SUS and for the bank to attempt to sell it or alienate it is wrong.  The Plaintiff seeks inter alia a permanent injunction against the Respondents in the main suit.

The Applicant’s Counsel agrees with the Respondent’s Counsel in as far as flights to Liberia are concerned. One of the terms of the aviation loan facility letter is that proceeds from the 5 contracts identified under that aviation loan all deals with flights based in S. Sudan.  None of the contracts or proceeds of the deeds of assignments given to the 1st Respondent were from flights to or from Liberia. Consequently it does not matter whether the Applicant had a right to fly to Liberia because the gist of the subject was in S. Sudan.

The aviation loan provided for a grace period of 6 months to be granted before the loan started taking effect.  But the 1st Respondent breached that term and started deducting payments from the first day.  As far as the first Respondent’s demand is concerned it was not correctly given at the time it was given because there were issues as to why that demand was given in breach of contractual terms.  With reference to annexure SBI it is dated 23/09/2013 and is a demand to the directors of the Applicant. The demand letter is tagged to the grounds raised in the plaint.  Reference was made at the beginning to 3 aircrafts and that the Respondents are selling two aircrafts.  It relates to 5X – AMC which is not the subject of this application.  In the premises these goes back to the main suit and raises arguable issues.  To go into the details of the annexure would be on the merits of the main case.

There are three aircrafts but the application deals with two aircraft.  On the question of advertisement of the aircraft for sale, the advertisement speaks for itself.  It reads inter alia that it is a notice of receivership not notice of appointment of receiver. It reads as follows:

“Notice of receivership, take notice that on the 10/07/2014 I Muhangi Noel of C/O Kateera & Kagumire Advocates 10th floor, Kampala was appointed ... for purposes of taking possession and disposal of two aircrafts 5X AMC & 5X SUS”. 

The notice of receivership includes an intention to sell and dispose of the aircraft. The annexure referred to by the Respondent Counsel of an advert is an advert on the internet of the aircraft.  The Respondent’s Counsel submitted that the aircraft was advertised on the 11/08/2014 prior in time to the appointment of the second Respondent. It is on the 2nd last page 15, 07, 2014 at the bottom. It shows that there is an interested party and the intention to sell is wrongful.

Last but not least it is not a disputed fact that there is a debt and it had to run 60 months and the 60 months have not yet elapsed to date as pleaded in the affidavit in rejoinder.  So the 1st Respondent’s issue of whether it recalled or did not recall the loan will be the subject of trial in the main suit.  In the premises the temporary injunction should be granted so that the triable issues that have been raised by the Respondent Counsel are actually adjudicated upon in the main suit.

Ruling

The grant of a temporary injunction is the exercise of the court’s discretion in all cases and its major objective is to maintain the status quo until arguable questions disclosed for trial are investigated and disposed off finally after the parties have opportunity of adducing evidence on the merits with rights of cross examination of witnesses or having any material controversy tried on a pure point of law.

The principles applied by court are summarised in Kiyimba Kaggwa vs. Katende [1985] HCB at page 43. Firstly the Applicant must show a prima facie case with a probability of success. The principle for the Applicant to show a prima facie case with a strong probability of success has been criticised in the case of American Cyanamid Co. Ltd v Ethicon [1975] 1 ALL E.R. 504. Lord Diplock at page 510 held that there is no requirement for the Plaintiff to establish a strong prima-facie case with a probability of success. All the Plaintiff needs to show by his action is that there are serious questions to be tried and that the action is not frivolous or vexatious. It would be sufficient for the Applicant to show that there is an arguable case or serious questions which have been raised and which merit judicial consideration. Because of the inconclusive and contested nature of affidavit evidence in the interlocutory application the court should not at this stage resolve controversial issues of fact but wait for final resolution at the trial of the main suit.

The first question is therefore whether the Plaintiffs application discloses serious or arguable issues for trial.  Secondly the Applicant should demonstrate that its suit is not frivolous or vexatious. The second principle in the Kiyimba case (Supra) is that injunctions will normally not be granted unless the Applicant might otherwise suffer irreparable injury which may not be adequately compensated for by an award of damages.  The third test is only applied where the court is in doubt on the first two principles and is that of the balance of convenience.

Under Order 41 rules 1 (a) of the Civil Procedure Rules where it is proved by affidavit or otherwise that any property in dispute in a suit is in danger of being wasted, damaged, or alienated by any party to the suit, or wrongfully sold in execution of a decree, the court may grant an injunction to maintain the status quo. The applicable rule in this case is order 41 rule 1 (a) and the issue is whether the property of the Applicant is in danger of being sold or alienated pursuant to alleged default in payment of the loan instalments.

In terms of Order 41 rules 1 (a) of the Civil Procedure Rules the issue is whether it has been proved by affidavit or otherwise that any property in dispute is in danger of been wasted, damaged or alienated by any party to the suit or wrongfully sold in execution of a decree. The property in dispute are two aircraft namely registration numbers 5X – AMC and 5X – SUS and the question is whether there are in danger of being alienated or sold by a party to this suit. It is not in dispute that the Applicant filed High Court civil suit number 532 of 2014 and therefore there is a suit pending between the parties. Secondly the second Respondent is a receiver appointed by the first Respondent in respect of the two aircraft according to annexure "B" which is a letter of the second Respondent to the Director Safety Security and Economic Regulation of Civil Aviation Authority. Secondly by a letter dated third of July 2014 the first Respondent wrote to the second Respondent appointing him receiver to specifically take possession/custody and control of the two aircraft registered as 5X – AMC and 5X – SUS belonging to the Applicant and comprised in and charged in the bank under the charges in order to exercise all necessary powers conferred therein and sell the aircrafts for purposes of recovering all outstanding sums of money owed by the Applicant to the first Respondent. The debenture is dated 2nd of November 2011 and registered on 23 November 2011 under certificate number 15229. Furthermore the first Respondent executed an indemnity deed dated 3rd of July 2014 in favour of the second Respondent indicating that the first Respondent pursuant to a debenture deed dated 2nd of November 2011 and registered on the 23rd day of November 2011 under certificate number 15229 appointed a receiver to specifically take possession/custody or control of the two aircraft of the Applicant for purposes of disposing of the said aircraft to recover all the outstanding sums of money owed by the Applicant to the bank under the said debenture. The appointment of the receiver was notified in the New Vision newspaper and annexed to the affidavit in support of the application by the second Respondent/receiver notifying the public of his appointment for purposes of taking possession and disposal of the two aircrafts registered as 5X – AMC and 5X – SUS.

In the affidavit in reply in favour of the first Respondent Mr Francis Niwagaba the Legal Officer (Corporate and Investment Banking) agrees that as a receiver the second Respondent has powers under the debenture dated 2 November 2011 and clause 10 (2) (c) thereof to sell the assets of the Applicant to recover the sums due to the first Respondent. The first Respondent's case is that the 2nd Respondent in his capacity as a receiver has already taken over possession and control of the aircraft. Secondly the Applicant is in default under the facility granted to it. By a letter dated 23rd of September 2013 annexure SB1 to the affidavit in reply the first Respondent’s lawyers wrote a letter to the directors of the Applicant informing them of default under several credit facilities in the form of aviation loans and overdraft and the outstanding total balance being US$3,233,756.54 while the outstanding balance on the overdraft is US$127,494.94.

The second Respondent denies being a party or privy to the purported advertisement for the sale of the Applicant's aircraft. He denies having advertised the aircraft for sale but simply published a notice of his appointment as receiver. It is in controversy whether the Respondents advertised the suit aircraft for sale. In support of the Respondent’s defence it is argued that the two aircrafts in respect of which the second Respondent has been appointed a receiver are secured under a debenture giving the Respondent powers of management and sale. The application does not disclose a prima facie case against the Respondents. War broke out in the South Sudan in December 2013 but the Applicant was already in default by September 2013. Concerning the allegation of frustration by acts of the Civil Aviation Authority breaches by the Applicant begun before the war broke out. A demand was made for US$3,433,786.54 by September 2013. The demand was not honoured and prima facie the Applicant was insolvent. There was no evidence that the Applicant paid a sum of US$3,186,807 or that the Applicants serviced the loan to the extent of paying off 80% of what is outstanding. The second Respondent was supposed to manage the assets and not sell them. Finally no prima facie case has been made out. The allegation that the aircraft was advertised for sale is false. The documents attached concerned advertisements made before the second Respondent was appointed a receiver. There was no ownership dispute in respect of one of the aircraft.

I agree with the Respondent’s Counsel that there is no advertisement for sale of the aircraft. The advertisement attached to the application merely notifies the public of the appointment of the second Respondent for purposes of management and disposal of the aircraft. However despite the submission that the Applicant deliberately omitted to attach the debenture deed, the first Respondent had the debenture attached and it is consistent with the argument of the Applicant that the debenture is in respect of one aircraft namely 2005 Cessna 208B grand Caravan aircraft registration number 5X – AMC. The notice of the receivership is however in respect of two aircraft. The Applicant in the attachments to the affidavit in support also showed that the appointment of the receiver is in respect of aircraft registration number 5X – AMC and 5X – SUS. The debenture in issue was attached to the plaint as annexure "D". The Applicant averred that it had filed HCCS 532 of 2014 and it is sufficient for the court to peruse the plaint in the civil suit from which the application arises. The plaint also attaches a further supplementary debenture to the first debenture in respect of the same aircraft. There is therefore a serious question to be tried as to whether the Respondents are entitled to take possession of and dispose of aircraft registration number 5X – SUS which is not mentioned in the debenture deed. Secondly there is sufficient evidence of the intention of the Respondent to recover any outstanding amounts due to it under certain aviation loan facilities by control and disposal of the two suit aircraft. This fulfils the requirements of Order 41 rule 1 (a) of the Civil Procedure Rules. It is not important as to whether an actual advertisement, advertising the aircraft for sale has been made.

The Applicant has proved by affidavit that a receiver was appointed for purposes of possession, control and disposal of the aircraft described above.

Furthermore the Applicant pleads that in December 2013 war broke out in South Sudan during the subsistence of the aviation loan agreement. The Applicant's argument is that several contracts were frustrated because the Applicant could not continue with the business in the situation. However by the end of May 2014 the Applicant resumed flights in Juba and even secured more contracts. Unfortunately Uganda Civil Aviation Authority issued new Air Operators Certificates limiting the scope of all Ugandan registered aeroplanes to domestic flights until recertification to include international flights thereby frustrating the Sudanese contracts. The Respondent's arguments are that there was no attempt to sell off the aircraft. The two aircrafts are the subject of a debenture. Secondly concerning the allegations of frustration of the contract, the Applicant was in breach of the contract by September 2013 prior to the war breaking out in South Sudan. Without quoting any specific clause of the contract Counsel for the Applicant maintained that the facility letter specifically provided that money would be deposited from the Sudanese contracts and this accounted for the bulk of the Applicants business.

I have duly considered the Applicants attachment annexure "A" to the affidavit in support of the application deposed to by Ronald Kasozi attaching several facility letters the first being the one dated 13th of March 2012. Clause 3 thereof provides that the first deed of mortgage of US$1,168,778 for one of the aircrafts would be registered with the Ugandan Civil Aviation Authority in favour of the bank. Secondly the registered directors/shareholders were to give personal guarantees for the same amount of money. Furthermore a fixed registered mortgage of US$1,116,500 is registered over the land and buildings comprised in the real property described and registered in the names of Ronald Lubega and Sheila Busingye. In clause 3.5 there should be a deed of assignment of contract proceeds of the worldwide humanitarian contract with the United States government valued at US$165,000 per month and Dynacorp International agreement also valued at US$165,000 per month for the whole period of the financing. This is in relation to existing aviation loan facility 1 and aviation loan facility 2. The facility letter is for part finance of the purchase of a used Cessna Grand Caravan Aircraft Number D-FAAL.

Another facility letter is dated 31st of October 2011 and is referred to as the aviation loan and overdraft facility. In clause 6.1.4 there was supposed to be a deed of assignment of a contract proceeds from the worldwide humanitarian contract with the United States government valued at US$165,000 per month and Dynacorp International agreement also valued at US$165,000 per month. The facility letter dated 16th of July 2010 under paragraph 3.4 also includes deed of assignment of contracts of proceeds of the worldwide humanitarian contract with the United States government valued at US$165,000 per month and the Dynacorp International agreement with the same value per month for the whole period of the financing. I have also considered the other facilities attached which have the same standard clauses. However none of the contracts were attached.

That notwithstanding that is a serious question for trial as to whether the Sudanese contracts are included in the contracts mentioned in the facility letters. The question of whether there was frustration of the contracts can be considered on the merits in the main suit. For the moment the submission that the Applicant was in breach by September 2013 cannot hold much water because the Respondent took action in July 2014 about 10 after the demand and there is no information as to whether the Applicant paid off some monies after the demand. In any case since September 2013 the Respondent never took any action and the Applicant continued with operations until the alleged frustrating events occurred.

It is further argued for the Respondents that there is no reference to a particular Respondent against whom the injunction is sought. However the Applicant’s application is for a temporary injunction to issue restraining the Respondents/Defendants, its agents, assignees, servants, workman or all others acting under with it instructions from selling, disposing, wasting, damaging, alienating, taking over or otherwise interfering or dealing howsoever with the possession, enjoyment and/or ownership of aircrafts 5X – AMC and 5X – SUS or doing anything thereon which may constitute interference with the said aircraft until the hearing and final determination and final disposal of the main suit. The 2nd Respondent is appointed by the first Respondent and the order is sought against both Respondents.

In the premises the Applicant’s application discloses a prima facie case which merits consideration in the main suit on the merits. This is because if it is proved that the bulk of the contracts were affected by the war in South Sudan and the grounding of international flights by the Ugandan Civil Aviation Authority, a material clause relevant to payment of the Respondent on a monthly basis in the aviation loan agreement would have been incapable of performance and this would constitute a defence to the demands of the first Respondent for the duration of the alleged frustration. It raises a serious question for trial. In the premises there is a prima facie case with a probability of success which is disclosed.

That notwithstanding even if a prima facie case is disclosed or the court finds that there are serious questions to be tried, an injunction would not be granted unless it can be shown that the Applicant would otherwise suffer irreparable loss which cannot be atoned for by an award of damages. In the case of Fellowes and another v Fisher [1975] 2 All ER 829 Browne LJ discusses the principles for consideration in an in an application for a temporary injunction previously considered by Lord Diplock in American Cyanamid Company versus Ethicon Ltd [1975] 1 All E.R. 504. Browne LJ at pages 840 - 841 held that under the principles the court should first consider whether if the Plaintiff succeeds at the trial, it would be adequately compensated by damages for any loss caused by the refusal to grant a temporary injunction. Where damages would be an adequate remedy and the Defendant would be in a financial position to pay, no interlocutory injunction should normally be granted even if there is a prima facie case with a high probability of success. Where the court is in doubt as to the adequacy of the remedies in damages then it would consider the balance of convenience.

Browne LJ  on that the question of balance of convenience, held that it would be unwise to attempt to list all the various matters which may need to be taken into consideration in deciding where the balance lies and the relative weight, to be attached to them as this will vary from case to case. Where other factors seem to be equally balanced it is prudent to take such measures as are calculated to preserve the status quo. The extent of disadvantages which will be occasioned to each party and which is incapable of being compensated is a significant factor in assessing where the balance of convenience lies.

In this case the Applicant has argued strongly that if the aircraft is sold it would not exist as an aviation company because an aviation company without aircraft would cease to exist. Secondly there is the clientele and reputation of the Applicants to consider and damages would not be an adequate remedy if it closes its business. On the other hand a receiver does not have to close the business of the company whose asset it has taken over under the terms of the debenture.

I have duly considered the issue of whether damages would be an adequate remedy. At this stage it is hard to predict the possible effect of the receivership on the Plaintiff's existence as a business. This is coupled with the allegation that substantial payment has been made and that performance was frustrated by facts beyond the control of the parties. There is an apparent intention to dispose of the Plaintiffs aircraft which is reflected both in the letter of appointment of the second Respondent as well as the advertisement notifying the public about the appointment of a receiver. Furthermore the Plaintiff/Applicant has demonstrated that there are several contracts described as a worldwide humanitarian contract with the United States government valued at US$165,000 per month and Dynacorp International agreement also valued at US$165,000 per month. The possibility that the Applicant would lose the good will exists. On the other hand these contracts are alleged to have been temporarily frustrated by the acts of Civil Aviation Authority.

For the first Respondent it is submitted that it exercised powers under a debenture agreement and it took contractual action. Secondly that grant of an injunction would jeopardise its security. I have duly considered the debenture agreement and clause 9 thereof provides that at any time after the principal monies secured has become payable either as a result of the lawful demand been made by the bank or under the provisions of clause 1 the bank may in addition to any other powers enjoyed by it under the contract or the general law and without any previous notice to or concurrence on the part of the borrower sell or concur with any other person in the selling of the property and assets by public auction or private treaty and applying the proceeds in the payment of all expenses properly incurred or incidental to such or any prior attempted sale; or towards payment of all sums due to the bank and to any other encumbrance holder with the same priority and the residue to be paid to the borrower.

Secondly the first Respondent may demise or agree to demise of the property and assets or any part thereof for such period at such rate and upon such terms as it deems fit. Thirdly the first Respondent may appoint under the hand of any manager or any officer of the bank or under the seal of the bank any person or persons whether an officer or officers of the bank or not to be a receiver and manager of the property and assets or any part thereof and may in like manner from time to time remove any receiver and manager or receivers and managers so appointed and appoint another or others instead. Clause 10 provides that every receiver and manager so appointed shall be the agent of the borrower and the borrower shall be liable for his acts and defaults and remuneration and shall have authority and be entitled to exercise the powers in the debenture agreement in addition to general powers conferred by law. These include the power to demand or to take action in the name of the borrower or the bank to claim all the income including arrears on the property. In relation to the assets the receiver has powers to enter upon any premises where the assets may be. The receiver may take possession of and collect the assets for purposes of taking proceedings in the name of the borrower or otherwise. The receiver may sell or let or concur in selling or letting the assets as he may think fit. He may carry on or manage or concur in carrying on or managing the business of the borrower and to raise money from the bank or another source with a written consent of the bank either on the security of any such assets or otherwise in the priority to the debenture. He may appoint and dismiss managers, accountants, workman, servants and agents etc.

The power of sale is just one of the powers of a receiver under the debenture. In the premises where there is a default on the part of the borrower, the first Respondent has powers to appoint a receiver to carry out its role inter alia set out above. This is a contractual arrangement. The question is therefore whether granting the injunction would not jeopardise the Respondents security for repayment of the loan. The only counter argument is that the failure to pay was due to frustration of the contract which in some cases can be considered a good defence.  However the frustration alleged in this case is a temporary frustration.  In the premises I cannot without difficulty assess on either side to my satisfaction whether damages would be an adequate remedy. Where there is doubt as to the question of whether damages would be an adequate remedy, the application should be considered on the balance of convenience. According to Philip H. Pettit in Equity and the Law of Trusts 4th edition Butterworth’s at page 412, where other factors appear to be evenly balanced it is a Counsel of prudence to take such measures as are calculated to preserve the status quo:

"It would clearly cause less inconvenience to stop the Defendant temporarily from doing something he has not done before, than to interrupt him in the conduct of an established enterprise.”Status quo" has been said to mean the position prevailing when the Defendant embarked upon the activity sought to be restrained."

In considering whether the balance of convenience favours the Applicant or the Respondent I have taken into account the submission that there is no advertisement for the sale of the aircraft. However there is an intention to sell the assets but no advertisement has been made and no steps have been taken to make the actual sale. Secondly I have duly considered the fact that one of the aircraft namely 5X – SUS is not part of the debenture and there is no basis for the Respondent to oppose an injunction on the basis of the debenture as far as this asset is concerned.

Thirdly the Applicant alleges that there are subsisting contracts which may earn money in accordance with the aviation loan facility terms which contracts are temporarily frustrated. If the injunction is not granted the Applicant’s claims that its repayment was frustrated will not help it and its suit will be rendered nugatory.  It is alleged that the Applicant will not only lose money which it has so far paid but also the aircraft. The evidence that the Applicant has paid money is not documentary evidence and the Respondent’s Counsel has objected to the oral affidavit evidence. In the affidavit in rejoinder to the first Respondent’s affidavit in reply Ronald Kasozi deposes in paragraph 3 of his affidavit that the Applicant has reduced its obligations under the charge and debenture and supplementary deeds by US$3,183,807. There is no documentary evidence attached. Similarly the Respondent in paragraph 4 of the affidavit in reply merely gives the position in a demand letter dated 23 September 2013 written by the first Respondent to the Applicant annexure STB 1 in which the first Respondent demanded full payment of the outstanding total balance of US$3,233,786.54 and the overdraft balance of US$127,494.94. No bank statement was attached by either party. In the premises the evidence is clearly affidavit evidence and that of Ronald Kasozi deposes to the status quo between the parties currently until when this evidence is tested in a full trial. It is a matter for trial and cannot be resolved on the basis of affidavit evidence.

In the premises the Applicant stands to lose more if the injunction is not granted because it would lose both what it has allegedly contributed and two aircraft which would otherwise continue to earn money to the benefit of both parties if it is not sold. Secondly one of the aircrafts is apparently not the subject of a debenture and ought not to be included in the receivership. Lastly a receiver appointed does not have to sell the property but can remain a manager for purposes of ensuring that the proceeds under the contract in the aviation agreement are paid-up to the first Respondent to reduce the alleged indebtedness of the Applicant under the aviation loan facilities until when the suit is determined on the merits. If this is done the first Respondent would continue recovering its alleged money without having to alienate or dispose of the particular aircraft the subject of the debenture in question until the suit is heard on the merits. On the other hand the Applicant would have a chance to prove that money is not owing to the first Respondent. In the premises the balance of convenience favours the grant of a conditional injunction in the following terms.

  1. A temporary injunction issues restraining the Respondents/Defendants, its agents, assignees, servants, workman or all others acting under its instructions from selling, disposing, wasting, damaging, alienating, or otherwise interfering or dealing howsoever with the possession, enjoyment and/or ownership of aircraft 5X – SUS or doing anything thereon which may constitute interference with the said aircraft until the hearing and final disposal of the main suit.

 

  1. As far as aircraft 5X – AMC is concerned, a temporary injunction issues restraining the Respondents/Defendants, its agents, assignees, servants, workman or all others acting under with its instructions from selling, disposing, wasting, damaging, or alienating it without prejudice to the management of the assets by the receiver for purposes of recovery of sums without any prejudice to any subsisting contracts until the hearing and final determination of the Plaintiff’s allegations in the main suit.

 

  1. Costs shall be in the cause.

Ruling delivered in open court the 23rd of September 2014

 

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

Sharon Tem jointly with Hasfa Nanteza for the Applicants

Ronald Kasozi and Sheila Busingye Directors of Applicant in court

Carol Luwaga on brief for John Fisher Kanyemibwa counsel for the Respondents

Charles Okuni: Court Clerk

 

Christopher Madrama Izama

Judge

23rd September 2014