Court name
Commercial Court of Uganda
Judgment date
13 June 2014

Africana Clays Ltd v Arinaitwe (Miscellaneous Application-2013/820) [2014] UGCommC 75 (13 June 2014);

Cite this case
[2014] UGCommC 75
Coram
Izama, J

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 820 OF 2013

(ARISING FROM CIVIL SUIT NO 376 OF 2013)

AFRICANA CLAYS LTD}........................................................................APPLICANT

VS

HARRIET ARINAITWE}....................................................................RESPONDENT

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant commenced this application under Order 9 rule 12 of the Civil Procedure Rules and section 98 of the Civil Procedure Act for orders to set aside the ex parte judgment and decree in High Court Civil Suit No 376 of 2013 and for setting aside or staying execution of the decree therein for good cause and for costs of the application.

The grounds of the application are summarised in the notice of motion and are that the Defendant was prevented by court cause from filing a defence to the suit within the prescribed time. Secondly the Defendant has a good defence to the suit and should be allowed to be heard on the merits of the suit. Thirdly the Respondent applied for execution and obtained a warrant of attachment of the properties of the Applicant and finally if the application is not granted, the Applicant shall suffer great loss, inconvenience and irreparable damage as the matter involves a colossal sum of money.

Initially the main file for the main suit could not be traced and therefore the application could not be heard on the 18th of December 2013 when the application has been fixed. Subsequently the main suit file was discovered after the application had been fixed for 11 June 2014. The record shows that on the 14th of May 2014 the application was mentioned when Counsel George Mike Musisi appeared for the Applicant while Counsel Kakama Simon appeared for the Respondent. Because the main file was unavailable the suit was adjourned to 11 June 2014 at 11 a.m.

On 11 June 2014 the Respondents Counsel was absent and so was the Respondent. The Applicants Counsel prayed for the matter to proceed ex parte and an order was issued for the application to proceed ex parte under Order 9 rule 20 (1) (a) of the Civil Procedure Rules.

The Applicant relies on the ground and facts in the notice of motion and affidavit evidence. With reference to the grounds and affidavit evidence the Applicant’s Counsel submitted that the Applicant has shown sufficient case for its failure to file a defence in time. This is because the director who was served was not able to declare the summons to the company in time. The facts show that the company was diligent because as soon as summons was received they instructed Counsel to immediately file a defence albeit subsequently discovered to be out of time. He noted that at the time judgment was entered the Defendant had filed on record a written statement of defence.  Sufficient cause has been discussed in many authorities and Counsel referred to the case of Barclays Bank Uganda Ltd vs. Edision Kikwaya Musinguzi MA 128 of 2012 of the High Court Commercial Division before Justice Helen Obura. After sufficient cause is shown it is the discretion of the court to set aside the ex parte judgment. The second ground is that the Applicant has a good defence to the claim. The amount demanded is colossal and the original amount is 220,000,000/= and together with interest of 10% per month give a total of 480,000,000/= Uganda shillings. Counsel seeks intervention of Court under section 26 of the Civil procedure Act on the ground that the interest is unconscionable and the Defendant ought to be allowed to defend the suit on the merits in the circumstances of the case.

Thirdly the Applicant states that even though there was a company resolution, there is no record of receipt of a loan from the Respondent with the company. The receipt acknowledging receipt of a loan of Uganda shillings 220,000,000/= attached to the plaint is issued by the same director who received the summons. The rest of the company does not know the Respondent who is said to have lent the money to the company. It is important that the company is allowed to defend the suit since the Respondent has no disclosed identity.

On the above grounds and those in the application, Counsel prayed that the e parte judgment is set aside with costs in the cause.

Ruling

I have carefully considered the Applicant’s application and the pleadings together with submissions of Counsel. The application was heard ex parte and there is no affidavit in reply by the Respondent. On the 14th of May 2014 the Respondent’s Counsel informed court that they had lost contact with the Respondent though they still had instructions. On 11 June 2013, on the day to which the application had been adjourned, the Respondent’s Counsel did not appear neither did the Respondent when the matter proceeded ex parte. In the absence of an affidavit in opposition, the facts deposed to by the Applicant’s Managing Director in support of the application are unchallenged and deemed proven.

The facts in support of the application deposed to by the Managing Director of the Applicant Mr.  Lubega Kikome John is as follows:

On 11 July 2013 the Respondent filed civil suit number 376 of 2013 against the Applicant/Defendant claiming Uganda shillings 484,000,000/= on the allegation that the Applicant had borrowed money from the Respondent. An affidavit of service sworn by a process server one Mr Okalang Dennis shows that he served the summons upon one Patrick Kizito, a director of the Applicant on 11 July 2013. Mr. Kizito is a director of the Applicant company and summons were served on him on 24 July 2013 at the Applicant's offices. He did not declare to the company when the summons was served upon him. On the same day the deponent got the summons he rushed to the Chambers of the company lawyers and presented the summons and plaint with instructions for the lawyers to file a defence to the suit.

A defence was filed on 7 August 2013 in ignorance of when summons had been served upon Patrick Kizito. Upon inquiring from Mr Kizito, the deponent was informed that Mr Kizito had misplaced the summons and when he finally found it, he handed it over for the attention of the deponent. Because of the delay to file a defence and judgment was entered against the Applicant company on 26 August 2013 and a decree extracted on 28 August 2013. The Respondent claimed for Uganda shillings 484,000,000/= which together with costs amount to Uganda shillings 506,063,500/=.

The deponent asserts that the amounts involved are colossal and the Applicant should be permitted to defend the suit as the amount involved is very high. A warrant of attachment and sale of immovable property belonging to the Applicant was issued. The Applicant has a good defence because it never entered into any agreement with the Respondent to borrow from her the claimed amount of money. The directors had agreed to lend money to the company because it was in a poor financial state and each director contributed an amount of money to be lent to the company. Sometime in 2011 one of the directors Mr Patrick Kizito deposited money on the Applicant’s account which he claimed to have received from the Respondent who had accepted to lend it to the Applicant. The total amount lent to the Applicant at that time was Uganda shillings 170,000,000/= by 18th of January 2012. Between the year 2012 and 2013 the Applicant company continued to pay back the loan and payments are made through Mr Kizito one of the Applicant’s directors.

On 16 January 2012 the Applicant’s directors resolved to borrow a sum of Uganda shillings 220,000,000/= from the Respondent

As a matter of fact the Applicant’s directors except only Mr Kizito do not know the identity of the Respondent. The plaint has attached a receipt of for Uganda shillings 220,000,000/= from the Applicant company in favour of the Respondent showing that the Applicant received the same amount of money from the Respondent on the same day of 16th of January 2012 and the receipt is signed by Mr Kizito. Though it is true that the company passed a resolution to borrow the said amount of money, it never received that money whether in cash or by cheque on its own account. The Respondent used this receipt and the company resolution to file the current action being challenged against the Applicant company.

The directors requested Mr Kizito to show where the amount of money was received and disclose the identity of the Respondent but he has never done so. The deponent and other directors generally believe that the said amount of money has never been received by the Applicant company. Furthermore on the ground of information from the company lawyers Mr JM Musisi, the Applicant’s Managing Director deposes that the interest charged on the purported loan is unconscionable and ought to be checked by the court. Secondly the Respondent is not a registered moneylender or a financial institution and cannot be allowed to lend money with interest. The warrant of attachment issued against the company includes immovable property such as offices; office equipment and motor vehicles used in running the company's business and the attachment and sale of company property would stifle the business of the Applicant and sent it into oblivion.

I have carefully considered the facts. The plaint was filed on 11th of July 2013. An affidavit of service sworn by one Okalang Dennis was filed on court record on 26th of August 2013. He deposes that on 11 July 2013 he received summons to file a defence and for service on the Defendant. On 19 July 2013 the Plaintiff took him to “Kisementi” where one of the Defendant's directors works. Upon reaching there, she introduced him to one Patrick Kizito who informed him that he was indeed a director of the Defendant. The process server introduced him and served the summons on Mr Patrick Kizito. The acknowledgement shows that summons were received by Patrick Kizito on 19 July 2013 at 4:30 p.m.

Paragraph 2 of the plaint discloses that the Defendant is a limited liability company with capacity to sue and be sued in its names. Order 29 rule 2 of the Civil Procedure Rules prescribes service of summons on the secretary or any director or other principal officer of the Corporation or by leaving it or sending it by post address to the Corporation at the registered office and where there is no registered office, at the place where the Corporation carries on business. Therefore service on Mr Kizito would in ordinary circumstances be good service on the Defendant/Applicant.

However the Applicant has averred that the receipt issued in the names of the company to the Respondent acknowledging receipt of Uganda shillings 220,000,000/= was unknown to the other directors of the Applicant except Mr. Kizito who issued it. In fact the receipt is apparently acknowledged and signed by Patrick Kizito and claims to be in respect of the resolution of the company which is attached thereto. The signature of Mr. Kizito on the receipt is not dated though the receipt was issued on 16 February 2012 apparently by yet another person.

Secondly there is indeed a registered resolution of the company resolving on 16 January 2012 that the company borrows Uganda shillings 220,000,000/= from Ms Harriet Arinaitwe at a monthly interest of 10% on the reducing balance and that it is repaid within a period of 12 months. The resolution is signed by four directors including Patrick Kizito. It was registered on 16 January 2012 by the registrar of companies.

One of the grounds of the application contained in the affidavit of the Managing Director is that Mr Kizito had misplaced the summons. Subsequently when he forwarded the summons to the company offices, the Managing Director immediately rushed to the company's lawyers with instructions to file a defence. In other words the Defendant was prevented by sufficient cause from filing a defence in time. The defence was filed on 7 August 2013. Summons was served on Mr Patrick Kizito on 19 July 2013. The defence was filed out of time by about four days.

In a letter dated 9th of August 2013 and filed on court record on 26 August 2013 the Plaintiff applied for judgment in default of defence. Judgment was entered on 26 August 2013 under Order 9 rules 5 and 6 of the Civil Procedure Rules. The Managing Director of the Plaintiff acted promptly to have a defence filed.

I have duly considered the submission that the main suit proceeded ex parte.  The order issued by the court was that judgment and decree were issued against the Applicant/Defendant under Order 9 rules 5 and 6 of the Civil Procedure Rules on 26 August 2013. This was judgment in default of filing a defence. The provisions of Order 9 rule 12 of the Civil Procedure Rules deals with setting aside an ex parte judgment and provides as follows:

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

The rule gives the court discretionary powers to set aside a judgment entered by the registrar under the preceding rules of rule 12 which include judgment entered under Order 9 rule 6 of the Civil Procedure Rules. Rule 6 provides that upon the court being satisfied that summons were served on the Defendant and an affidavit of service of summons has been filed upon the court record, where the plaint is drawn claiming a liquidated demand and the Defendant fails to file a defence, the court may pass judgment for any sum not exceeding the sum claimed in the plaint together with interest at the rate specified.

In the Kenyan case of Jesse Kimani v McConnell and another [1966] 1 EA 547, a decision of the High Court of Kenya sitting at Nairobi, Harris J considered the purpose of Order 9 rule 10 of the Kenyan Civil Procedure Rules which is in pari materia with Order 9 rule 12 of the Ugandan Civil Procedure Rules and held that the rule gives the court wide discretionary powers to be exercised as the justice of the case demands:

(Counsel submitted that ) “... a Defendant seeking such relief must show, in the first place, that he was prevented from taking the step in default of which the ex parte judgment was granted and, in the second place that he has a good defence to the suit, and subject thereto, that the test in general is similar to that applicable to an application for leave to file a pleading out of time save that regard should be had to the fact of the Plaintiff having, by means of the judgment, acquired a vested right. No authority was cited in support of this proposition and in my opinion it is somewhat too widely stated. The reference to the Defendant having been prevented from taking the proper steps appears to come from r. 24, but that rule makes it mandatory upon the court, in a proper case, to set aside the ex parte decree, whereas r. 10 makes no reference to the Defendant having been so prevented and confers upon the court what would appear to be an absolute discretion to be exercised judicially in the light of the facts, circumstances and merits of the particular case...” (Emphasis added)

The above decision was approved by the East African Court of Appeal in the case of Mbogo versus Shah [1968] EA 93 where Sir Charles Newbold P at page 95 said:

“it is quite clear that the judge has a discretion under O. 9, r. 10, but of course he has got to exercise that discretion judicially. In Kimani v. McConnell ([1966] E.A. 547), Harris, J., dealing with the question as to the circumstances to be borne in mind by a judge on an application under that rule, said this (ibid, at p. 555 G):

“. . . in the light of all the facts and circumstances both prior and subsequent and of the respective merits of the parties, it would be just and reasonable to set aside or vary the judgment, if necessary, upon terms to be imposed.”

This is a very broad statement of the matters to be considered by a judge on such an application and I agree with it.”

Finally in the Ugandan High Court case of Sebei District Administration v Gasyali and others [1968] 1 EA 300 Sheridan J at 301 again applied the law and held that the rule gives a judge wide discretionary powers. He said:

“Order 9, r. 9 provides that “it shall be lawful for the court to set aside or vary such judgment [an ex parte judgment] upon such terms as may be just”. This gives the court a wide discretion, and is to be contrasted with O. 9, r. 24 where an Applicant has to show “sufficient cause” for not appearing at the hearing.”

Order 9 rule 9 is now rule 12 of the revised Civil Procedure Rules. There is a high likelihood of miscarriage of justice if the other directors are not heard in defence of the claim filed by the Defendant. Secondly there is a high probability that Mr Patrick Kizito did not act innocently when he received summons but did not bring it to the attention of the Applicant in time when the suit concerns a loan whose proceeds he received. The other directors claim ignorance of receipt of the loan proceeds. The circumstances raise a reasonable doubt which should be tried as to the circumstances in which the loan was obtained or received and whether that liability should be visited on the company. There is therefore a justifiable cause to have the Defendant/Applicant company file a defence and give all the relevant parties a chance to have their side heard in this suit on the merits.

In any case a default judgment is not a judgment on the merits. There is evidence that if the directors had received the summons in time, they would have taken steps to defend the suit. For whatever reason the summons were received late, this was the action of one of the directors whose activities are being questioned in this application. Finally the Respondent never filed a defence and the Applicant has demonstrated that it is in the interest of justice that the judgment and decree is set aside and that this suit should be heard on the merits. Should the Respondent have a strong case, the Respondent would still have a chance to prove her case on the merits.

In the premises judgment and decree issued by the Assistant Registrar on 26 August 2013 is set aside. Consequently the execution is set aside and any warrants of attachment of property are accordingly set aside. The Applicant should be allowed to file its defence within 15 days from the date of this order with costs in the cause.

Ruling delivered in open court on 13 June 2014.

 

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

J.M Musisi Counsel for the Applicant

Byamugisha Arthur applicants Accountant in court

Charles Okuni: Court Clerk

 

Christopher Madrama Izama

Judge

13th June 2014