Court name
Commercial Court of Uganda
Judgment date
6 February 2015

BM Consult (1999) Ltd v Uganda National Farmers Federation & Anor (Miscellaneous Application-2015/51) [2015] UGCommC 28 (06 February 2015);

Cite this case
[2015] UGCommC 28

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISC APPLICATION NO 51 OF 2015

ARISING FROM HCCS NO 481 OF 2014

BM CONSULT (1999) LTD}..................................................................APPLICANT

VS

  1. UGANDA NATIONAL FARMERS FEDERATION}
  2. NATIONAL SOCIAL SECURITY FUND}......................................RESPONDENT

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant’s application is brought under Order 1 rule 10 (2) and (4) of the Civil Procedure Rules as well as section 98 of the Civil Procedure Act for the addition of the second Respondent as a Defendant in the main suit. Secondly it is for amendment of the plaint to reflect the addition of the second Respondent and the cause of action against it. Furthermore it is for an order for the amended plaint to be served upon the second responded together with summons to file its written statement of defence within 15 days. The Applicant further seeks for costs of the suit be provided for.

The grounds of the application in the notice of motion are that the Applicant is the Plaintiff in the main suit with only the first Respondent as the Defendant. Secondly the main suit is based on the claim for relief is stemming from the first Respondent's breach of a contract entered into between the first Respondent and the Applicant. Thirdly the Respondents entered into a separate contract by which the second Respondent assumed rights and obligations arising from the contract between the Applicant and the first Respondent. Thirdly the effect of the contract between the Respondent vis-à-vis the contract between the Applicant and the first Respondent raises questions as to who between the Respondent is ultimately liable for the bridge of the latter contract and to what extent. Fourthly the addition of the second Respondent as Defendant in the main suit is necessary to facilitate the effective and complete determination of the matters in controversy therein. Finally that it is just and equitable that the second Respondent is joined in the suit as the second Defendant.

The application is supported by the affidavit of Deo Bigirwa, a shareholder and director in the Applicant Company. He deposes that the Applicant Company filed an action against the first Respondent to recover the sums due and other reliefs arising out of breach of contract. The contract which is referred to as the first contract was executed between the Applicant and the first Respondent on 15 August 2008 for the provision of services for the benefit of both Respondents. The Respondents entered into a separate contract referred to as the second contract on 10 September 2008 by which the inter alia agreed in clause 13.0 that all that by the contracts entered into by the first Respondent would have the second Respondent as a counterparty and further that in the absence of these, the Respondents would have a separate agreement to that effect. Further provision in clause 2.14 of the second contract is to the effect that the second Respondent would be a party in all contracts concluded in relation with the execution of works or implementation of the project.

The first contract was of the kind envisaged under clause 2.14 and 13.0 of the second contract and the second Respondent became a party to the first contract by virtue of the provisions of the said clauses in the second contract and thereby assumed rights and obligations arising there under. The assumption of rights and obligations under the first contract by the second Respondent is demonstrated by the agreement of the Respondent who undertook to shoulder the payment obligations born out of the said contract. The assumption was communicated and discussed between the Applicant Company and the Respondent in this series of correspondences attached to the affidavit. The second Respondent for no apparent reason reneged on its undertaking and this was communicated to the Applicant by the first Respondent in a letter dated 18th of February 2014. On the basis of information of his lawyers, Deo Bigirwa deposes that in the circumstances it is necessary for the second Respondent to be joined as a Defendant in the main suit so that the matters in controversy and in particular the liability for breach of the first contract as between the Respondents can be fully and effectually determined.

The first Respondent did not file a reply to the application. The second Respondent opposed the application and this is contained in the affidavit of Rachel Nsenge, a legal Counsel with the second Respondent. She deposes in reply that the Applicant in HCCS number 481 of 2014 6 to recover sums are due and other reliefs of the business feasibility study concluded in August 2007 under a contract with the first Respondent according to the amended plaint filed on 7 August 2014. The contract between the Applicant and the first Respondent dated 15th of August 2008 was solely for the benefit of the first Respondent as their business feasibility report was a prerequisite or requirement/qualification for sourcing of possible financiers for the project. Under a separate and distinct BOOT agreement executed between the Respondents on 10 September 2008, the first Respondent warranted that they had investor plans and feasibility studies for the project and all the required was funding according to the copy of the agreement attached. The second Respondent has never been a counterparty to any third party agreement entered into by the first Respondent nor has any third party contract had been executed between the Respondents under clause 13.0 of the BOOT agreement between the Respondents. The second Respondent has never exercised its "step in" rights and is not directly or indirectly assumed any rights or obligations of the first Respondent related to any contract is between the first Respondent and any third parties. The second Respondent has never concluded and is not a party to any contract in the relation to the execution of works or implementation of the project as described in clause 2 of the BOOT agreement executed between the Respondents. Furthermore the business feasibility report was a pre-requisites requirement for which the first Respondent warranted that it had before execution of the BOOT agreement. The contract between the Applicant and the first Respondent was consummated before the BOOT agreement between the Respondents and is not the kind of contract envisaged under clauses 2.14 and 13.0 of the BOOT agreement. The Respondents agreed to terminate the BOOT agreement. The first Respondent sought to recover costs it allegedly expended on the project and the second Respondent in this period of conservation requested the first Respondent was submitted for consideration, and indicative reasonable costs schedule with supporting documents directly related to the project. The first Respondent submitted its reasonable costs and it was rejected by the second Respondent who agreed to pay costs related to the transfer of the collateral back to the first Respondent. From her knowledge as a lawyer she deposes that the remedies sought by the Applicant in HCCS 481 of 2014 not raise any issues of controversy that would require the second Respondent to be joined as a Defendant.

The application came for hearing on 29 January 2015. The Applicant was represented by Counsel Arthur Murangira while the first Respondent was represented by Counsel honourable Ben Wacha. The second Respondent was represented by Counsel Isaac Ogwang, the Legal Manager of the NSSF. Counsel for the first Respondent intimated to court that he did not intend to be heard in the application and sought leave of court to be absent. Leave was granted and the submissions proceeded between the Applicant and the second Respondent Counsels.

The Applicant’s Counsel submitted that the application is lodged under section 98 CPA Order 1 rule 10 (1) and (2) and rules 1, 2 and 3 Order 52 of the Civil Procedure rules for orders as prayed for in the notice of motion.  The application is supported by the affidavit of Deo Bigirwa a director of the Applicant. The facts have been detailed above. The Applicant sued first Respondent in the main suit seeking various orders based on breach of contract. Thereafter it emerged that the second Respondent had entered into a separate contract with the first Respondent and in the contract there is a provision that binds it. The contract is annexure “A” to the affidavit in support and clause 2.14 and clause 13.0 thereof refers. the argument is that whereas the Applicant and the Respondent entered into a contract, the breach of which forms the subject matter of the main suit, Deo Bigirwa deposes that the first and second Respondents executed a separate contract where they agreed inter alia in clause 2.14 that the second Respondent would be a party in all contracts executed with third parties and in the implementation of project. Clause 13.0 further stipulates that all third party contracts by first Respondent would have the second Respondent as a counter party. Furthermore the contract (second contract) gave rise to rights and obligations to the second Respondent. As between the two Respondents any contracts entered into would have the second Respondent as a party thereto.

The second Respondent shouldered the burden of obligations that arose in the said contracts according to the correspondence annexes B1, B2 and B4 to the affidavit in support. These are correspondences where the second Respondent asks the first Respondent to submit a reasonable costs schedule relating to the project. The first Respondent wrote and requested the Applicant for the required information. The gist of the communication is that as an indication of the second Respondent bearing the costs, they forwarded the costs implications sought. The Applicant forwarded costs estimation as written. This was further forwarded to the second Respondent. The second Respondent undertook to acquire rights under the contract.  In those circumstances the second Respondent is a necessary party for complete and effectual adjudication of matters in controversy in the suit. This is because the tripartite nature of the contract requires such an addition of party and the application should be granted with costs as costs follow the event.

In reply Counsel Isaac Ogwang relied on the affidavit in reply deposed to by Rachel Nsenge Legal Counsel of NSSF. He submitted that Order 1 rule 10 (2) of the Civil Procedure Rules under which the application is granted affords court power to join a Defendant where the presence of the party is necessary to enable the court to effectually and completely adjudicate and settle all matters in controversy. The Supreme Court in DAPB vs. Jaffer Bros SCCA No. 9 of 1998 per Mulenga JCS held that under Order 1 rule 10 (2) the Applicant must prove one of two things. Firstly that the orders sought by the Plaintiff would legally affect interest of that person and secondly it would be desirable to avoid multiplicity of suits to have the party sought to be added joined. He invited the court to consider the prayers in the main suit. With reference to annexure “A” being the amended plaint in the main suit, the Applicant seeks an order for payment of a sum described as an unpaid contract price. The sums arise from a feasibility study which was a pre-requisite to source for a financier.  It was presented to the first Respondent who approved it. The subject matter as detailed in the plaint arises from consummation of a contract between Applicant and first Respondent prior to the conclusion of an agreement. The second Respondent submits that the contract between Applicant and Respondent was for the benefit of the Applicant to enable it source for possible financiers one of whom was NSSF, the second Respondent to this application.

In fact in the agreement the first Respondent undertakes or warrants is between the first and second Respondent and is a financing agreement. The first Respondent was required to obtain a feasibility report. As between the Applicant and first Respondent, the second Respondent did not derive any benefit and can therefore not be asked to indemnify the first Respondent for actions taken prior to execution of a separate agreement. Secondly clause 2.14 and 13.0 under the BOOT agreement do not apply. It shows that it related to a project which can be discerned from clause 2.1. The project had nothing to do with a business feasibility report. 13.0 on documentation should be read with 2.0 and documents referred to in 13.0 relate to design contraction and implementation of a twelve storey project. No third party contract has been executed as between first Respondent and 2nd Respondent with regard to the project.

Whereas second Respondent had rights those rights have not been exercised. The parties agreed to the termination of the BOOT agreement. Furthermore the second Respondent at no time undertook to indemnify the first Respondent for contracts outside the BOOT contract. As a financier, the second Respondent asked the first Respondent for information to allow it make an investment decision.  As far as the correspondences annexure B1, B2, B3 and B4 are concerned; they are contingent on three things. The spirit of the correspondence was about rendering an account of the 12 storied structures. The agreement upon which the suit is founded is not binding on the second Respondent.

As between first and second Respondent, the first Respondent submitted the costs incurred under the project. As between the Applicant and the second Respondent the payment was contingent upon the contract being implemented. In the case of Suffish International Food Processors (U) Ltd and another vs. Egypt Air corporation T/a Egyptair Uganda, the Supreme Court held that for a party to be bound when are not privy to the contract, they have to be aware of that contract. In this particular circumstance the first contract was consummated in August 2007 (the second Respondent was no aware or envisaged). We pray that the application is dismissed with costs.

In rejoinder Counsel Arthur Murangira submitted that the duty of the court in an application of this nature is to inquire whether the orders to be made shall affect the party sought to be joined. The main suit makes reference to the first Respondent but that deficiency can be cured by amendment to spell out the cause of action. The substance of the application sheds light on the case against the second Respondent. The second consideration is that the court ought to be concerned with preventing a multiplicity of suits. This should be taken together with the overriding principle of law that the Plaintiff is entitled to sue whomsoever he or she pleases. Counsel relies on the case of Major Ronald Kakooza Mutale vs. AG and IGG MA 665 of 2003 arising from HCCA No. 40 of 2003 at page 13.  The Plaintiff may still file a separate suit. The question is whether the party sought to be added is a necessary party?

The bulk of the Respondent’s submission is unnecessary and should be dealt with after evidence has been adduced. The second Respondents Counsel ought to raise his arguments in the defence in the main suit. Furthermore the court may on its own motion join a party where the party is necessary in order to avoid multiplicity of suits (See Kololo Curing Co Ltd vs. West Mengo Coop Union Ltd and the judgment of Ntabgoba J as he then was). In the premises the Applicant’s Counsel reiterated prayers that the court be pleased to join the second Respondent as a Defendant.

Ruling

I have duly considered the application and submissions of Counsels as well as the authorities on the issue. Order 1 rule 10 (2) of the Civil Procedure Rules provides that:

"The court may at any stage of the proceedings either upon or without the application of either party, and on such terms as may appear to the court to be just, order that the name of any party improperly joined, whether as Plaintiff or Defendant, be struck out, and that the name of any person who ought to have been joined, whether as Plaintiff or Defendant, whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit, be added." (Emphasis added)

In Amon v Raphael Tuck & Sons Ltd [1956] 1 All ER 273 at page 279 Devlin J held that the jurisdiction to join a Defendant turns on the true construction of the words in the rule which are in pari materia with our Order 1 rule 10 (2) and the question being whether that party sought to be added is a necessary party. Devlin J held:

“The question of jurisdiction must depend on the meaning and scope of the rule. One cannot say that the court has no power to join a party against whom the Plaintiff has no cause of action, unless the requirement that he should have one is contained expressly or impliedly in the rule. Nor can one say that some counterclaims, such as that in Montgomery v Foy, Morgan & Co are permissible, and that others, such as that in Bentley Motors (1931) Ltd v Lagonda Ltd, are not, unless the line between them is drawn somewhere in the rule. Accordingly, this case, in my view, really turns on the true construction of the rule, and, in particular, the meaning of the words

“… whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter …”

The beginning and end of the matter is that the court has jurisdiction to join a person whose presence is necessary for the prescribed purpose and has no jurisdiction under the rule to join a person whose presence is not necessary for that purpose.” (Emphasis added)

In other words what needs to be considered is whether the presence of the 2nd Respondent is necessary or not necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit. Furthermore where the presence of the party sought to be added or joined is not necessary the court does not have jurisdiction to add them as parties to the action.

In the case of the Departed Asians Property Custodian Board versus Jaffer Brothers Ltd Supreme Court Civil Appeal No. 9 of 1998 and in the judgment of Mulenga JSC the Supreme Court of Uganda considered Order 1 rule 10 (2) of the Civil Procedure Rules. Mulenga JSC held that for a person to be joined on the ground that his presence in the suit is necessary for effectual and complete settlement of all questions involved in the suit, one of two things has to be shown. Firstly it has to be shown that the orders, which the Plaintiff seeks in the suit would legally affect the interest of that person and that it is desirable, for avoidance of multiplicity of suits, to have such a person joined so that he is bound by the decision of the court in that suit.

In my opinion in order to join a Defendant one must consider the fact that a Plaintiff may join without consent any person to a suit when commencing it. This is evident from the wording of Order 1 rule 3 of the Civil Procedure Rules which provides that a Plaintiff may join all persons as Defendants in whom any right to relief in respect of or arising out of the same act or transaction or a series of acts or transactions is alleged to exist whether jointly or severally where if several suits were brought common questions of fact or law would arise. In other words this would avoid a multiplicity of suits. Why would the rationale in an application by a Plaintiff to add a Defendant not consider the right of the Plaintiff to join all persons against whom he or she claims relief arising from the same series of acts or transactions and where commons questions of law and fact may arise?  Order 1 rule 10 (2) of the Civil Procedure Rules is however wider than the need to have a cause of action against a Defendant and is not to be confined to cases where a Plaintiff has a cause of action against a Defendant but extends to the adding of a party whose presence before the court is necessary for a complete and effectual resolution of all matters in question in the cause of matter. Hon Justice Kanyeihamba JSC in the DAPCB vs. Jaffer Brothers case (Supra) cited with approval the case of Amon v Raphael Tuck & Sons Ltd (supra) and held that the rule allows a party to be joined to a suit not because there is a cause of action against it/him/her but because the party’s presence is necessary to enable the court effectually and completely adjudicate and settle all questions involved in the cause or matter.  Mulenga JSC held that to determine whether a Defendant’s presence is necessary one of two things has to be shown. It should either be shown that the orders sought would legally affect the interest of the person sought to be joined and it is desirable to avoid a multiplicity of action to join that person so that he or she is bound by the decision. Alternatively a person qualifies on the application of a Defendant to be joined where the Defendant applying cannot effectively set up a defence unless that Defendant is joined. This latter aspect is inapplicable as in this application it is the Plaintiff who seeks to join the second Respondent as Defendant.

From the authorities cited the question to be considered is what controversies are involved in the main suit? The affidavit in opposition to the application filed by the second Respondent attached the amended plaint of the Applicant as annexure "A". The claim against the Defendant (the first Respondent) is for breach of contract, damages, interests and costs of the suit. In paragraph 4 it is averred that sometime in 2007 the Defendant contracted and engaged the Plaintiff for the provision of consultancy services in the form of a feasibility study for a proposed construction of a multi-storey building. Secondly it is averred that the feasibility study was a prerequisite to sourcing for a building project financier. It is averred that the first Respondent on 1 October 2007, acting on the strength of the feasibility study applied for and was granted funding for the building project by the National Social Security Fund (NSSF) under a Build, Own, Operate and Transfer (BOOT) Agreement between NSSF and the first Respondent. The Plaintiff relies on an agreement dated 15th of August 2008 in which the Applicant and the first Respondent executed a written contract setting out their rights and obligations. It is averred that in the written contract it was an agreed term of the contract under clause 2 that the Defendant would pay the Plaintiff a gross fee of 2% of the total approved project cost or value. The Plaintiff avers that it duly performed its obligations under the contract and on 4 October 2008 and 11th of October 2008 it presented two invoices for payment of Uganda shillings 106,200,000/= and 417,368,454/= respectively but the first Respondent/Defendant failed or unjustifiably refused to settle the payments due. The Plaintiff seeks payment of Uganda shillings 523,568,454/= as the unpaid contract price; general damages for breach of contract and interest.

In this application the second Respondent argued that its presence before the court is not necessary because it is not privy to the arrangement between the Plaintiff and the first Respondent. As far as this submission is concerned I have duly perused the contract dated 15th of October 2008 annexure "B" to the plaint which is an agreement between the Applicant and the first Respondent who is the only Defendant to the main suit. NSSF is not a party to the agreement in which in clause 2 thereof the first Respondent agreed to pay the consultant a gross fee of 2% of the total approved project cost value.

The Applicant also annexed the agreement between the first Respondent and the second Respondent dated 11th of September 2008. Under clause 2.14 it is provided that:

"In all the contracts concluded in relation with the execution of the works and or implementation of the project, the investor shall be a party thereto."

 A reading of the above clause leads to the simple conclusion that the contracts referred to in the above clause are contracts in the relation to the execution of the works or implementation of the project. Secondly both Counsels addressed court on clause 13.0 of the agreement between the first Respondent and the second Respondent. Clause 13.0 deals with documentation and provides as follows:

            "13.0 Documentation

The investor will be entitled to all documentation related to the project. This shall include but not be limited to approved plans, bill of quantities, consultant, project manager and contractor contracts, site drawings, structural, electrical etc drawings, and the sub contractor contracts. All third-party contracts entered into by the Developer will have the investor as counterparty. In the absence of these, the investor will have a separate agreement with the Developer to this effect. The investor will have "step in" rights i.e. will have the right to assume all the rights and assets of the Developer related to the BOOT construction contract."

The Applicant emphasises the aspect of the second Respondent being counterparty to all third-party contracts entered into by the Developer. The Developer is the first Respondent. The agreement was made on 10 September 2008. The agreement between the Applicant and the First Respondent was executed on 15 August 2008 about a month prior to the second agreement. The issue that arises is whether the first agreement between the Applicant and the first Respondent dated 15th of August 2008 which was a prerequisite to the funding of the building project was within the contemplation of the parties when they agreed in clause 2.14 and 13.0 of the BOOT agreement (The second agreement between the first Respondent and the second Respondent). It is a fundamental rule of contract law that agreements can only be enforced between parties who are privy to them. The second Respondent is not privy to the agreement between the Applicant and the first Respondent.

Secondly for a party to be a necessary party, the presence of the party must be necessary for a complete and effectual resolution of all questions involved in the suit. Thirdly an order which may be made should have the effect of affecting the rights of the second Respondent. Because the second Respondent is not necessary for resolution of the question of whether the Applicant was paid contractual sums agreed to in the agreement 15th of August 2008 between the Applicant and the first Respondent, the second Respondent is not a necessary party to determine that question. Secondly the second Respondent is not a necessary party to determine the question of whether there was breach of the agreement of 15 August 2008 between the Applicant and the first Respondent. Thirdly in case any order is issued against the first Respondent, the second Respondent is not necessary for that purpose and does not have to be cited in the order.

The question of whether the second Respondent may be bound to indemnify the first Respondent is a matter between the first Respondent and the second Respondent and not of concern to the Plaintiff. The question of how much the total project cost for purposes of determining the 2% fees of the Applicant can be determined from evidence without having to join the second Respondent. Lastly the BOOT agreement has the second Respondent as an investor in the building project under its own terms. The second Respondent agreed to provide financing for the project.

In considering clause 13.0 of the BOOT agreement, the second Respondent became entitled to all documentation related to the project for obvious reasons of establishing the cost of the project and being able to guard its investment via the financing of the project. Without determining the questions in controversy between the Applicant and the First Respondent, using the fundamental legal principle of contract law that it is enforceable between parties who are privy to it, it is my finding that in the circumstances the Plaintiffs claim can be prosecuted without making the second Respondent a Defendant. There is no suggestion by any of the parties that any provisions of the new Contract Act of Uganda should be applied to enable a third party beneficiary who is not privy to the contract to sue for the benefit and I will not determine the question. Secondly the presence of the second Respondent is not necessary for a complete and effectual resolution of all disputes in the Plaintiff’s claim. The question of whether the second Respondent is obliged to indemnify the first Respondent is a question of enforcement and a matter between the first Respondent and the second Respondent which does not have to be considered in an application to add a Defendant. In an application to add a Defendant the provisions of Order 1 rule 3 of the Civil Procedure Rules are relevant. In terms of the wording of the said rule, the Applicant is not claiming any right of relief in respect of an act or transaction or series of acts or transactions against the second Respondent and therefore not adding the second Respondent cannot lead to a multiplicity of proceedings.

In as far as the question of the doctrine that it is not necessary for the Plaintiff to have a cause of action and what is necessary is that the presence of a party is required for a complete and effectual adjudication of all disputes, I have already held that the presence of the second Respondent is not necessary. Finally it is up to the first Respondent to seek indemnity. As far as the Plaintiff’s rights are concerned, it is not necessary to add the second Respondent as a Defendant and the application of the Applicant is denied with costs.

Ruling delivered in Court on the 6th of February 2015

 

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

Arthur Murangira for the Applicant

Noah Kanzira Director of the Applicant in court

Rachel Nsenge holding brief for Isaac Ogwang for the second Respondent

Charles Okuni: Court Clerk

Christopher Madrama Izama

Judge

6/2/2015