Court name
Commercial Court of Uganda
Judgment date
6 March 2015

Tuliraba v Bank of Africa Uganda (Miscellaneous Application-2014/339) [2015] UGCommC 43 (06 March 2015);

Cite this case
[2015] UGCommC 43

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 339 OF 2014

(ARISING FROM HCCS NO 477 OF 2011)

KENNETH TULIRABA}...............................................APPLICANT/2ND DEFENDANT

VS

BANK OF AFRICA UGANDA}........................................RESPONDENT/PLAINTIFF

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

This ruling arises from an application by the second Defendant to the main suit to join Uganda Finance Trust Limited, Gatsby Micro Finance Ltd, Brac Micro Finance Ltd, Post Bank (U) Ltd, Uganda Micro Credit Microfinance, and Messieurs Beya Auctioneers and Court Bailiffs to be made Defendants to the suit and for the plaint to be amended accordingly as well as for costs of the application to be provided for.

The grounds of the application detailed in the chamber summons are that the Applicant duly purchased this suit property from Messieurs Beya Auctioneers and court bailiffs who were acting as auctioneers for the suit land on behalf of Uganda Finance Trust Ltd and the other parties sought to be joined in this suit for a consideration of Uganda shillings 25,000,000/= on 22 December 2010.

Secondly the intended Defendants obtained interest in the suit land as mortgagees from the former owner Ganyana Edina of the suit property.

Thirdly that it is the Defendants sought to be added who can explain what happened at the time of entering into the mortgage agreements, what kind of mortgages were created, what security or securities were given to them, what information Ganyana Edina give them at the relevant times and how they dealt with the Bank of Africa or whether they knew about any interest of Bank of Africa, what procedures were followed prior to dealing with the Applicant.

Fourthly that the addition of the bailiffs who were acting on behalf of the intended Defendants is necessary to enable the court to effectually and completely adjudicate upon and settle all questions involved in the suit land in order to avoid a multiplicity of proceedings.

Fifthly that the addition of the intended Defendants will not cause any injustice to the Respondent who is the Plaintiff in the main suit.

The application is supported by the affidavit of the Applicant who deposes that he duly purchased this would property as pleaded and a copy of the sale agreement is attached. The sale agreement notes the other intended Defendants as mortgagees but does not note the Plaintiff as such. The property was sold by Beya auctioneers and court bailiffs and purports to be sold under the Mortgage Act 2009 by agreement executed on 22 December 2010.

He deposes that the mentioned mortgagees obtained interest in the suit land as mortgagees from the former owner. The former owner failed to pay the loan amount whereupon the mortgagees elected to realise the security by selling off the mortgaged land after advertising it on the 22nd day of November 2010 and causing notice to be served on the mortgagor and consequently selling the property to him. He further deposes that the sale was through public auction where he was the highest bidder. He bought the suit property free from any encumbrances, adverse claims or effects whatsoever and the vendor/auctioneer guaranteed or warranted the same pursuant to the sale agreement annexed.

On the basis of information of his lawyers he deposes that the Micro finance companies can defend what happened at the time of entering into mortgage agreements and what kind of mortgages were created etc in terms of the pleadings in the chamber summons reproduced above. The rest of the depositions of the Applicant verified the averments in the chamber summons which have been reproduced above.

In reply Nambale John of Messieurs Sekaana Associated Advocates and Consultants deposes that he is the legal manager of the Respondent/Plaintiff. In his deposition, he states that the Respondent advanced a loan of Uganda shillings 30,000,000/= and a further sum of Uganda shillings 40,000,000/= which was secured by the land with developments registered in the names of Ganyana Edina in Block 306 Plot 1535. The Respondent registered its interest as encumbrances on the original title as the mortgagee. Upon default by the mortgagor the bank sought to realise its security by way of sale of the land and all the developments thereon. The Applicant was found in the house and resisted eviction to pave way for the foreclosure by way of sale and it was on that basis that the Respondent instituted a suit against the Applicant and the mortgagor to secure vacant possession and facilitate the sale of the property. He deposes that the Respondent has no interest in any of the Microfinance institutions as Defendants and has no remedy is to get from them. The bank exercised its mortgage rates by recalling the loan with the notice of default and exercising the right of sale. The order sought from court is for vacant possession by way of eviction of the Applicant. He further deposes that the Applicant’s remedy lies in seeking an indemnity from the Microfinance institutions since they guaranteed to him that the land was sold without any encumbrances. Furthermore the addition of parties shall not in any way assist in the resolution of the issues but shall complicate the whole matter since there are five financial institutions which were involved under unknown circumstances. Furthermore the addition of the parties is not necessary for determination of this suit and in any case the application was made belatedly to delay determination of the suit.

At the hearing of the application, the Applicant was represented by Counsel Sam Kiwanuka while the Respondent is represented by Counsel Ssekaana Musa.

Both Counsels put in written submissions. The Applicants application was filed in May 2014 and written submissions had been completed by 7 July 2014. Unfortunately the application file was not forwarded for ruling and for some unknown reason I only got the application file very belatedly in February 2015 and fixed it for ruling on 6th of March 2015.

The Applicant’s submissions recount the facts in the chamber summons and affidavit in support of the application and need not be repeated as far as the facts are concerned.

As far as the law is concerned, the Applicants claim or defence is mainly brought under section 3 (1) of the Mortgage Act 2009 which provides that a person holding land under any form of tenure may by an instrument in the prescribed form, mortgage his interest in the land or part of it to secure a loan. Furthermore that the enactment confers the power to create third-party mortgages, second subsequent mortgages and sub mortgages.

The Applicants Counsel submitted that it is only the parties to be added that will enable this court to adjudicate on whether there was a form of mortgage created under section 3 (1), section 3 (2) of section 3 (8) of the Mortgage Act 2009. The court will need to know about how mortgagor was able to create all the mortgages together with the creation of the mortgage of the Respondent. Counsel wondered what if the added parties agreed with the mortgagor to create third-party mortgages, second, subsequent mortgages, or sub mortgages. What if this mortgages were registered or not and thus making section 3 (4) or section 3 (5) of the Mortgage Act 2009 to apply. He submitted that all the questions can only be answered by the addition of the parties sought to be added.

Furthermore he submitted that section 3 (2) of the Mortgage Act 2009 gives powers to a mortgagor to create third party mortgages, second, subsequent mortgages and sub mortgages. In this case, the court will need to know whether the mortgagor also created other mortgages and hence, the logical conclusion whether or not to evict the Applicant from the suit land. The court will also have to determine whether section 3 (4) and section 3 (5) of the Mortgage Act was the modus operandi. Furthermore the court will also determine whether in the circumstances of this case, the third parties are equitable mortgages or otherwise. The Applicants Counsel submitted that if the court issues an eviction order against the Applicant, it would not have catered for the legal or equitable right of other mortgagee parties and or the rights of the Applicant. He wondered what if the proposed added parties had mortgages that perhaps were never registered on the certificate of title.

Furthermore the Applicants Counsel contends that the Applicant is bound to plead all of the foregoing rights as having derived interest from the proposed added parties and the court will not be able to resolve the issues without first having heard from the parties. Even if the Applicant produces them as witnesses, the court would pass judgment against them by decreeing that the mortgages were invalid without giving them an opportunity of being heard.

Furthermore the Applicant’s Counsel contends that even the court bailiffs who sold the property ought to have been added in order to resolve the issue on how they conducted the sale without considering the interests of the Respondent. The issue is whether they were aware of the interest of the proposed added parties.

Consequently the Applicants Counsel maintained that under Order 1 rule 10 (2) of the Civil Procedure Rules the court has powers to order the addition of a third party on its own motion. He contended that the court cannot grant the prayers of the Respondent in the plaint which are for the recovery of Uganda shillings 79,998,104/=, interest at 39.5% per annum and an order of vacant possession and eviction against the second Defendant/Applicant without first adding the proposed parties. Finally the court needs to add the proposed parties in order to determine the issues of bona fide purchaser for value especially with regard to the Respondent. He contended that it would be gross injustice for court to come to a conclusion that the mortgage is created in favour of the proposed parties are irrelevant or are not worthy to be looked into and that only the mortgage of the Respondent is the relevant one and the only one that ought to be litigated upon and come to a finding that it is the only valid and subsisting mortgage and that the Applicant derives no rights and ought to be evicted.

In reply the Respondent relies on the affidavit in reply and the facts therein which have been reproduced above. He submitted that the Respondent’s claim against the Applicant in the main suit is for an order of vacant possession to give way for the sale of the suit property. The Applicant claims to have bought the property according to the sale agreement from five mortgagees. Under clause 9 of the agreement, the vendor guaranteed that he has a right to sell the land and the same was being sold free from any encumbrances, adverse claims or effects whatsoever.

The main controversy in the application is whether the five mortgagees proposed to be joined by the Applicant should be joined as parties to this suit?

Counsel submitted that the Respondent has no claim against the six parties since none of them is in possession of the property. The bank is seeking an order of vacant possession to enable it to recover an outstanding loan advanced to Ganyana Edina (the first Defendant in the main suit).

He submitted that the law regarding a situation of this kind is to the effect that the Plaintiff being the Dominus litis cannot be compelled to sue a person whom he does not wish to sue. In the case of David Kayongo versus Resty Nantongo HCCs No. 329 of 1993 [1994] KALR 114, the High Court held that things a Plaintiff cannot be made to sue a Defendant against his wishes. Furthermore the Respondents Counsel relies on the case of Santana Fernandes vs. Kara Arjan and sons [1961] EA 693; Dennis Kimuli Batemuka vs. Sarah Biribonwa and Ltd John Anywar [1987] HCB 71; Makerere University vs. St. Mark Education Institute and others HCCS number 378 of 1993 [1994] KALR 26.

The law under Order 1 rule 10 (2) of the Civil Procedure Rules allows addition of a necessary party in order to enable the court effectually and completely adjudicate upon and settle all questions involved in the suit. A necessary party is one whose presence is indispensable to the constitution of the suit, against whom the relief is sought and without whom no effective order can be passed. In the case of Kingori vs. Chege and Others [2002]2 KLR 243 the court listed guiding principles when intended party is to be joined as follows. Firstly he must be a necessary party. Secondly he must be a proper party. Thirdly in case of the Defendant there must be a relief flowing from the Defendant to the Plaintiff. Fourthly the ultimate order or decree cannot be enforced without his presence in the matter. Lastly his presence is necessary to enable the court effectively and completely adjudicate upon and settle all questions involved in the suit. Similarly in the case of Kamau vs. Makomboki Tea Factory Ltd [2008] 1 EA 154 the court noted that for the determination of the question of who is a necessary party there are two tests. Firstly there must be a right to some relief against such a party in respect of the matter involved in the proceeding and secondly it should not be possible to pass on effective decree in the absence of such a party. In the present case the Applicant does not satisfy the guiding principles or the tests set out in the authorities.

In the premises the application is devoid of any merit and the proposed parties cannot be joined as Defendants since the Plaintiff has no claim against them and their presence is not at all necessary. Furthermore the Applicant can institute his own suit against them to indemnify him for the loss since the loan defaulter had defrauded them by mortgaging the land and house as a kibanja and yet he was a registered owner of land comprised in block 306 plot 1535 and had already mortgaged the same with the Plaintiff/Respondent. The proposed parties can indeed be the Applicant’s witnesses if at all it needs them to prove his defence. In the premises the application ought to be dismissed with costs.

In further reply to the Applicant’s submissions, the Respondents Counsel maintains that the Mortgage Act came into force on 2 September 2011 as provided for under section 1 of the Mortgage Act SI No. 44 of 2011. He invited the court to ignore the provisions of the Mortgage Act which were not in operation at the material time.

Ruling

I have carefully considered the Applicant’s application to add five Defendants as co-Defendants to the Respondent’s action. The ground averred for the addition is that the said intended Defendants are mortgagees to the suit property. On the other hand the Applicant’s action against the second Defendant/Applicant is for vacant possession of the land which was pledged as security for a loan by the first Defendant who is not a party to this application. The first Defendant defaulted according to the plaint and therefore the Respondent seeks to foreclose. The loan according to the plaint was secured on the registered title which is also registered in the names of the first Defendant.

The Respondent’s interests were registered under instrument number KLA 428896 and instrument number KLA 432796 as a mortgage and further charge according to a copy of the title attached to the plaint. The registration was made in September and October 2009 respectively. Default notices were issued between September 2010 and October 2010 whereupon the property was advertised for sale.

The Applicant bases his entire submission on the right of the mortgagor to mortgage the property to other mortgagees under the Mortgage Act 2009.

I will refrain from making comments on the merits of the submission that the Mortgage Act, 2009 only came into force on 2 September 2011 after the transactions in question.

I agree that the only question for determination is whether the parties sought to be added as Defendant claimed to be co-mortgagees are necessary parties. The property was sold by Beya Auctioneers and Court Bailiffs to the Applicant. The date of sale is 22 December 2010. The vendor purported in the agreement Annexure "A"  attached to the affidavit of the Applicant, to have derived the right of sale from Messieurs Uganda Finance Trust Ltd; Gatsby Microfinance Ltd Bulenga; Brac Microfinance Ltd; Uganda Micro Credit Micro Finance Bulenga and Post Bank (U) Ltd. It is alleged that the property was mortgaged and sold to the Applicant who was the highest bidder.

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."

In Amon v Raphael Tuck & Sons Ltd [1956] 1 All ER 273 at page 279 Devlin J held under a similar rule that:

“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. ... 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)

Is the presence of the intended Defendants necessary in order to enable the court effectually and completely adjudicate upon and settle all questions involved in the suit? 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 Kanyeihamba JSC 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.

The first difficulty that the Applicant faces is that no documentary proof of any mortgage of other mortgagees has been adduced in the application. On the other hand the Respondent attached the title deed showing that it is the registered mortgagee on the suit property and there are no other mortgagees registered on the title deed. No authority of the auctioneers to sell the property has been attached to the application. There is simply no evidence of any kind to prove any other mortgage arrangement with the first Defendant who is not a party to this application.

My conclusion is that the Applicant does not require the proposed Defendants in order to prove a defence on the merits that he is a bona fide purchaser for value. Secondly he has the option of calling the relevant persons as his witnesses. Thirdly he has the further option of claiming indemnity from the proposed Defendants. For the moment the Respondent is a registered mortgagee. If the Applicant bought from an equitable mortgagee, he can prove that in evidence without having to join them as Defendants. The resolution of the issues is simple and straightforward and revolves around the question of whether the sale to the Applicant was lawful? It is not necessary to join all the other parties for the determination of the question as to whether the alleged sale of the property to the Applicant is lawful. Finally the Respondent has no claim against the parties sought to be joined. That is a matter between the Applicant and the vendors. Moreover as far as the concerns of the Applicants interest to have the Defendants for orders to be made against them, the Plaintiff/Respondent has no claim against them and he/Applicant can claim indemnity under a different procedure from the persons he seeks to add as Defendants.

In the premises I agree entirely with the submissions of the Respondent’s Counsel and the Applicant’s application stands dismissed with costs.

Ruling delivered in open court the 6th of March 2015

 

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

Nabaggala Maureen for the Applicant

Nobody for the Respondent

Charles Okuni: Court Clerk

 

 

Christopher Madrama Izama

Judge

6 MARCH 2015