Court name
Commercial Court of Uganda
Judgment date
2 June 2017

Excel High School Ltd & 4 Ors v Kabakumba (Civil Suit-2011/105) [2017] UGCommC 77 (02 June 2017);

Cite this case
[2017] UGCommC 77

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

CIVIL SUIT NO 105 OF 2011

  1. EXCEL HIGH SCHOOL LTD}
  2. BYANOBYE FRED}
  3. MANIGAMUKAMA REUBEN}
  4. BYAMUKAMA WILSON}
  5. KIZZA DANIEL}..............................................................................PLAINTIFFS

VERSUS

HON. KABAKUMBA LABWONI MASIKO ABWOOLI}........................DEFENDANT

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

JUDGMENT

The Plaintiffs filed this suit against the Defendant for a declaration that the Defendant committed repudiatory breach of an Asset Purchase Agreement and Memorandum of Understanding between the Plaintiffs and the Defendant. It is also for vacant possession of the properties referred to in the Asset Purchase Agreement; account of profits from the said properties;, alternatively but without prejudice for an order of specific performance against the Defendant for Uganda Shillings 840,000,000/- as balance of the contract price,  general damages for the said breach, interest and costs of the suit.

The facts disclosed in the plaint in support of the suit are that by an Asset Purchase Agreement dated 20th January 2009, the Plaintiffs collectively as owners of Excel High School entered into a contract with the Defendant by which it was agreed that the Plaintiff’s sell and transfer to the Defendant the property in Messrs Excel High School, Messrs Excel Boarding School, Messrs Masindi Academy, and other identified properties comprised in LRV 2983 Folio 7 Plots 16, 17, 18 and 20 Tibanyenda Road, Plot 27 Nyange Road at Masindi Town, LRV 864 Folio 25 Plot 33 Buruli Block 6 at Kihande, Plot 164 Buruli Block 4 at Kijuura. Pursuant to the said agreement the Shareholders and Directors of the 1st Plaintiff at an extraordinary meeting held on the 7th of April 2009 agreed that all shares in the 1st Plaintiff be transferred to the Defendant and all transactions involving the contract of 20th January be upheld. Further that all debts and liabilities accrued by the 1st Plaintiff shall be payable and managed by Messrs Tumwesigye, Baingana & Co. Advocates and the former shareholders shall introduce the Defendant to the financial institutions having a charge over its assets namely: DFCU, Post Bank (U) Ltd and FINCA (U) Ltd. In consideration for the transfer of shares the Defendant was to pay a sum of Uganda Shillings 1,000,000 (Uganda Shillings One Million Only).

By the Asset Purchase Agreement the consideration for the sale and transfer of assets was to be in the sum of Uganda Shillings 1,200,000,000 (Uganda Shillings One Billion Two Hundred Million only) payable to the Plaintiffs by the Defendant within 60 days from the date of execution of the agreement. It was to be payable as follows:

  • Uganda Shillings 349,000,000 (Uganda Shillings Three Hundred Forty Nine million only) was payable to DFCU Bank to cover debt obligations owed to the Bank by the Plaintiffs
  • Uganda Shillings 276,000,000/= was payable to Post Bank (U) Ltd on a Mortgage taken out by the Plaintiffs and;
  • Uganda Shillings 575, OOO, OOO (Uganda Shillings Five Hundred Seventy Five Million Only) was payable to the Plaintiffs through Tumwesigye, Baingana & Co. Advocates Centenary Bank Account No. 3010308249 to clear all other debts owed by the Plaintiffs.

Accordingly, a transfer of share-stock was duly signed and registered in the belief that the Defendant would pay the said consideration. It is alleged that the Defendant in breach of the agreement failed to pay the aforesaid sums within the mandatory 60 days as per the agreement and there is no receipt to that effect. Consequently, the Plaintiffs at an extra-ordinary meeting of Shareholders and Directors of Messrs Excel High School Ltd held on the 26th of March 2009 resolved that since the Defendant had breached a fundamental term of the contract, the Asset Purchase Agreement was rescinded. It is further alleged that on the 14th April, 2009 the Defendant, having connived with the Plaintiffs' creditors to cause their arrest, compelled the Plaintiffs to enter into a Memorandum of Understanding with her on terms skewed in her favour. Despite executing the said Memorandum, the Defendant fundamentally breached the terms thereof as the payment instalments received thereafter did not conform to the arrangements made there under. Further, even when making the little payments to the Plaintiff's creditors the Defendant has disowned full responsibility for the debts as the Plaintiffs have hitherto remained indebted in principal to (and continually harassed by) the Banks and other creditors. Two years after the execution of the Agreement, the Defendant has only paid UGX. 366,727,840/= (Uganda Shillings Three Hundred and Sixty Six Million Seven Hundred Twenty Seven Thousand and Eight Hundred Forty Only) as follows;

  1. Amount Paid to DFCU Bank Uganda Shillings 162,400,840/-(Uganda Shillings One Hundred Sixty Two Million Four Hundred Eight Hundred and Forty Only)
  2. Amount Paid to Post Bank Uganda Shillings 29,000,000/-(Uganda Shillings Twenty Nine Million Only)
  3. Amount Paid to Creditors 70,577,000/-(Uganda Shillings Seventy Million Five Hundred Seventy Seven Thousand Only)
  4. Amount Paid to the Plaintiffs before the Memorandum of understanding is Uganda Shillings 41,750,000/-(Uganda Shillings Forty One Million Seven Hundred and Fifty Thousand Only) and Uganda Shillings 63,000,000/= (Ugandan Shillings Sixty Three Million Only), most of the above sums paid having come from profits made from the properties themselves now under the absolute control of the Defendant.

The Plaintiffs contended that the outstanding balance of Uganda Shillings 833,272,160/= (Uganda Shillings Eight Hundred Thirty Three Million Two Hundred Seventy Two Thousand and One Hundred Sixty Only) still remains unpaid by the Defendant despite several reminders and/or demands, to pay the said sums as per the Agreements. The Defendant's continued earning profits from the Plaintiff's properties while refusing to honour her obligations under the Agreements constitute unjust enrichment for which the Plaintiff's demand restitution and account. By reason of the matters aforesaid the Plaintiffs have suffered a multiplicity of suits from its individual creditors in addition to threats of foreclosure by the Banks the Plaintiffs cannot obtain loans from other banks. Consequently the Plaintiffs have been put to great inconvenience, mental anguish, loss and damage for which they seek general damages. Notice of repudiation of the contract and intention to sue was duly communicated to the Defendant, but ignored.

In reply the Defendant denied the alleged breach and averred that the 60 days payment period in the agreement was varied by the Memorandum of Understanding when the Defendant established that the Plaintiffs had not made full disclosure of the creditors. The Resolution was illegal and inconsequential but it was unilaterally withdrawn. She never connived with creditors to arrest the Plaintiffs who had issued bounced cheques to various individuals whose claims were never officially transferred to the Defendant.

The Defendant averred that she had full control of the payments to the Plaintiffs and the creditors and settled several people including Court Decrees. She has continued and had continued to pay the disclosed creditors of the school including the Banks. The Plaintiffs had no interest in the school at all but each individual Plaintiff still had separate financial claims arising differently but their payment was subject to other outstanding claims, which accrued before the sale including NSSF Contributions, staff salaries and general proof of claims. The Defendant averred that all creditors were catered for in the main and subsequent agreements as such the Plaintiffs have no interest at all to claim against her. The Defendant is a co-proprietor of the school whose physical, corporeal and incorporeal interest were passed on at the time of the contract.

At the time of purchase of the schools and interests therein were under final notice of the threat of foreclosure and the Defendant’s positive negotiations with the Banks alleviated the threat and rejuvenated the schools.

The Plaintiffs were represented by Counsel Festus Akunobera and Godfrey Akena while the Defendant was represented by Counsel John Paul Baingana.

Submissions of the Defendant’s Counsel

The Defendant’s Counsel submitted that in the Defendant’s written statement of defence, the Defendant averred that the 60 days payment period in the Agreement was varied by the Memorandum of Understanding when the Defendant established that the Plaintiffs had not made full disclosure of the creditors. She denied ever causing arrest of the Plaintiffs at all and the Plaintiffs have no locus standi to claim money payable to creditors since the Defendant was already paying disclosed creditors. Save for the NSSF contribution, staff salaries which accrued before the sale and had not been disclosed.

The Defendant’s Counsel submitted that during the proceedings, the parties reached a partial settlement that is reflected in a consent judgment and the terms of which were duly satisfied by the Defendant.

Issue 3: Who is liable to pay the NSSF outstanding obligation?

The Defendant’s Counsel submitted that there is nowhere in the Plaint that the issue of NSSF is pleaded. With reference to paragraph 15 of the Written Statement of Defence it is averred that:

"The Plaintiffs have no interest in the school at all but each individual of the Plaintiffs has separate financial claims arising differently but payment is subject to other outstanding claims, which accrued before the sale including; NSSF Contribution, staff salaries and general proof of claims. "

The Defendant’s Counsel submitted that no evidence was adduced by the Plaintiffs on that point at all. In paragraph 8 of the Defendant’s written testimony she testified that:

"The Plaintiffs did not disclose to me that they had not paid money to NSSF or that they had issued bounced cheques to NSSF to over Uganda Shillings 20,000,000 (Twenty million only) yet they were aware of it. The Plaintiffs disclosed some bounced cheques in respect of other creditors for instance February Amos who had a bounced cheque and was cleared over and above Uganda Shillings 30,000,000 (Thirty million only) decreed in Civil Suit No. 029 of 2007; Amos February vs. Excel High School Limited. "

Counsel submitted that DE 8 is a document from NSSF detailing the bounced cheques sent by NSSF to Excel High School worth Uganda Shillings 22,297,500 (Twenty two million two hundred ninety seven thousand five hundred only). Counsel further submitted that PE 7 is a List of Creditors 2009 and it disclosed all the creditors which the Defendant was obligated to pay. He submitted that NSSF bounced cheques were not disclosed in the list of liabilities and creditors. Counsel submitted that clause 3.2 of PE 1 clearly exonerates the buyer who is the Defendant herein from any liability to creditors of the Plaintiffs and Messrs Excel High School that were not disclosed. He further submitted that the Plaintiff’s want to read PE 2 in isolation of the PE 1 and PE 7 the List of Creditors. From the above, there is only one conclusion that NSSF contribution disclosed in PE 8 is solely payable by the Plaintiffs. The Defendant’s Counsel further submitted that if NSSF has to sue on the cheque then the person or persons who endorsed it are held liable under the Bill of Exchange Act.

Issue 2: Whether the Plaintiffs are entitled to general damages

The Defendant’s Counsel submitted that the evidence on record with regard to allegations raised in general damages were never pleaded or alluded to in the pleadings. Counsel relied on Mohamad Jabane vs. Highshone Tongei Olenja, Civil Appeal No. 02 of 1986 reported in 1986 KLR 661 (cited in Odunga's Digest Volume 2 Page 1930 paragraph 4302) - Per Kneller that “the correct approach in award of damages is that each case depends on its own facts"

In the same book of Odunga’s Para 4304 and the cited case of Isabella Wangira Karanga vs. Washington Malela Civil Appeal No. 50 of 1981- 1983 KLR 142 vol. 11 Potter JA is cited as having said that:

"there are two elements in the assessment of liability namely causation and blame worthiness per Baker vs. Willoughby (1970) AC 467.”

He submitted that this may be a good principle in assessing damages for injury caused to a person and is also very relevant in this matter. On the facts available if any damage was suffered in this regard, the Plaintiffs are blameworthy. He contended that from the evidence on record, the Plaintiff’s major or fundamental negative action in the transaction is the Resolution rescinding the agreement DE2; not fully disclosing the debts or the creditors. Therefore when the Defendant established that there were more creditors than disclosed, the parties had to re-adjust the payment schedule. He submitted that the above virtually stagnated implementation of the agreement.

Furthermore, there is no evidence that there was loss of prospective income especially where PW4 testified that he operates a school called Albert S.S.S in Hoima District. PW1 was at the rank of Senior in the Ministry of Housing, Lands and Urban Planning, PW3 Maanigamukama Reuben is now a civil servant as Senior Assistant Town Clerk and PW2 is a Professional Teacher. No damage was suffered as a consequence of the alleged breach of the contract. Counsel submitted that in any case the alleged breach was squarely the fault of the Plaintiffs which does not warrant exercise of discretion of this Honourable Court to award damages. The bottom line is the Defendant bought the schools to help the Plaintiffs salvage something because the banks had already issued a final demand notice and the Plaintiffs were heavily indebted according to PW1 during cross-examination. Counsel prayed that court finds that the facts, pleadings and evidence on record do not warrant this Honourable Court's exercise of discretion to award general damages against the Plaintiff.

He further submitted that ordinarily the Plaintiffs would be entitled to general damages if Court found that there was breach of contract and the Defendant is liable. He cited the case of Messrs Bisons Consult Int. Ltd Vs. KCC and Another; Civil Suit No. 338 of 2009 (unreported) where this court awarded damages when it held:

"I agree with the Plaintiff's submission that it has been kept out of its money contrary to clause 4.1 of the contract. Failure to pay the Plaintiff on a monthly basis and in any case not later than the 7th day of the following month amounts to breach of contract. Secondly, the Plaintiff had been kept out of its money for several years until it sought redress in a court of law. In those circumstances the Plaintiff is entitled to general damages for breach of contract. "

Counsel submitted that that would be the ideal situation but in the instant case, the Plaintiffs were authors of the failure to properly manage the payment schedule, by failing to fully disclose the creditors, revoking the entire sale transaction and by receiving monies outside the agreed upon time, therefore, making payment periods not fundamental.

Counsel further submitted that the character of the Plaintiffs individually and collectively affect the need to grant them general damages, interest or any award. He cited S.54 of the Evidence Act, Cap. 6 which provides that;

"In civil cases, the fact that the character of any person is such as to affect the amount of damages which she ought to receive is relevant.”

The Defendant’s Counsel submitted that indeed the facts in the instant case make it difficult to award damages. The Plaintiffs are blameworthy. The court should find that any presumed natural and probable consequences of the loss lay squarely on the Plaintiffs and not the Defendant and decline to award damages.

All the allegations in the witness statement of PW1, PW2, PW3 and PW4 relating to the alleged damages had not been pleaded at all. The allegations are an afterthought and the loss ought to have been pleaded in the set of facts.

The Defendant’s Counsel submitted that the general rule according to McGregor on Damages 17th Edition at page 8 is that the object of an award of damages is to give the Plaintiff compensation for the damage, loss or injury he has suffered. The basis of the criterion is what the Plaintiff has lost and not what the Defendant ought fairly and reasonably to pay.  He prayed that court find that no loss was pleaded nor proved by the Plaintiff and decline to award general damages.

Whether the Plaintiffs are entitled to interest?

The Defendant’s Counsel submitted that the law applicable on the award of interest is Section 26 (2) of the Civil Procedure Act which provides that:

"where the decree is for the payment of money, the court may in the decree order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the court deems reasonable on the date of payment or to such earlier date as the court think fit.”

He cited the case of Adjumani Services Station vs. Frederica Batte; Civil Suit No. 345 of 2014 in which the High Court adopted the principle in Riches vs. Westminster Bank Ltd [197]1 All E.R. 467 HL at page 472 where Lord Wight explains the assent of an interest award in the following words:

‘...the contention is that money awarded as damages for the detention of money is not interest and has not the quality of interest. Evershed J in his admirable judgment rejected that distinction. The appellant's contention is, in any case artificial and is, in my opinion erroneous because the essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made is he had the use of money, or, conversely, the loss he suffered, because he had not that use. The general idea is that he is entitled to compensation for the deprivation..."

The Defendant’s Counsel cited the case of Adjumani Services Station (supra) where the learned Judge stated that;

“An award of interest falls under the doctrine of restitution intergrum according to Forbes J in Tate & Lyle Food and Distribution Ltd Vs. Greater London Council and Another [198173 ALL ER 716 where he held at page 722 that:

“I do not think, the modern law is that interest is awarded against the Defendant as a punitive measure for having kept the Plaintiff out of his money. I think the principle now recognized is that it is all part of the attempt to achieve restitution in intergrum. One looks therefore not at the profit which the Defendant wrongfully made out of the money he withheld but at the cost to the Plaintiff of being deprived of the money which he should have had. I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the Plaintiff would have had to borrow money to supply the place that whish was withheld. "

Counsel submitted that the Plaintiffs would be entitled to costs if the agreements P.E1 and P. E2 had provided for an interest but in the instant case no interest was agreed upon. He further submitted that the Plaintiffs seek to obtain interest by indulging the court to invoke its discretion to award interest. He invited court to look at the entire case, the evidence available and presume certain facts when exercising its discretion judiciously as provided for under S.113 of the Evidence Act, Cap. 6 which provides that;

"the court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events human conduct and public and private business in their relation to the facts of the particular case. "

He prayed that court presume the difficult financial moment the Plaintiffs were in before the Defendant intervened.

From the evidence of PW1 who was cross-examined, he stated that at the time of the purchase of the school, it was heavily indebted to banks, and other financial institutions, private companies, Individual suppliers, Individual service providers, Teachers, Pension scheme (NSSF), Claims on cheques and Decrees as provided by PE 7.

The Defendant’s Counsel made reference to paragraph 10 and paragraph 12 of the written statement of defence which provides as follows respectively;

"In further reply to paragraph 6 (e) of the Plaint, the Defendant shall aver that the 60 days payment period in the agreement was varied by the Memorandum of Understanding when the Defendant established that the Plaintiffs had not made full disclosure of all the creditors. "

Para. 12:

"The Defendant shall aver that she has never connived with the creditors to arrest the Plaintiffs who had issued bounced cheques to various individuals whose claim he never officially transferred to the Defendant.”

Counsel submitted that the character of the Plaintiffs is very relevant as court exercises its discretion in accordance with S.54 of the Evidence Act. The Defendant cannot be liable for the delay in payments in the wake of D.E2 - Resolution revoking the transaction and failure to disclose all the debts.

Counsel further submitted that the balance of probabilities, cannot be said that the Defendant in anyway engineered the complaints at the Police as the complainants in the criminal cases were clearly known to the Plaintiffs. As such the allegations against the Plaintiffs are utterly baseless.

Costs

Counsel submitted that costs follow the event but court has to exercise its discretion judiciously. The suit was not warranted at all if the Plaintiffs had acted in good faith. Surely in any event the Plaintiffs do not deserve any costs because they unnecessarily filed this suit and included matters that were not for them like:

  1. Inclusion of Excel High School as Plaintiff without a resolution.
  2. Inclusion of Excel High School as Plaintiff yet they had long sold and
    transferred all the shares and good will to the Plaintiff and another
    shareholder.
  3. The inclusion of other creditor’s interest in the suit yet the Plaintiffs
    had commenced payment to individual creditors.
  4. Concealment or failure to disclose the other debts which were
    discovered later - e.g. teachers' arrears, various claims or decrees in
    civil suits.
  5. Including bank outstanding loans in the Plaint yet they executed a
    Novation Agreement
  6. Garnishee application on a debt that had been concealed vide; Miscellaneous Application No. 092 of 2009
  7. The resolution dated 14/4/2009 - D.E2 which had purported to rescind
    a transaction between the parties

Counsel submitted that this is where the court’s discretion has to be exercised to deny the Plaintiffs costs and it is a matter in which the Defendant should be awarded costs in any event especially where the Defendant had to deal with various applications which were unnecessary. He prayed that court dismiss the rest of the suit with costs.

Judgment

I have duly considered the pleadings, evidence on record and submissions of the parties. While evidence has been adduced by both the Plaintiffs and the Defendant, the Plaintiffs Counsel did not file submissions as scheduled and the suit was fixed for judgment after the Defendant had filed written submissions.  The background to this is that there was a partial settlement of the suit by a consent judgment/decree executed on the 10th of July 2012 and filed on court record on the 20th July, 2012. The remainder of the controversy not resolved in the consent judgment was to go for trial. Among other things the amount of money to be paid to the 2nd, 3rd, 4th and 5th Plaintiffs was agreed and a schedule agreed for payment. Secondly it was agreed that the Defendant shall pay the 2nd, 3rd, 4th and 5th Defendant’s individual creditors the amounts owed and the individual creditors were agreed to and included in the consent judgment. Thirdly it was agreed that the Defendant would pay FINCA bank Ltd Uganda shillings 8,200,000/=. The Defendant was to pay Uganda shillings 1,000,000/= as consideration for the shares of Excel High School Ltd. Paragraph 6 of the consent judgment is pertinent to the remainder of the issues because in it is agreed as follows:

“The Defendant shall pay all creditors on the list/schedule provided to the Defendant and attached to the Memorandum of Understanding dated 14th of April 2009.”

In paragraph 8 it is agreed that: “The areas not agreed upon will go for trial”.

At the scheduling conferencing the parties agreed to the following issues for trial namely:  

  1. Whether the interest should be paid?
  2. Whether general damages are payable?
  3. Whether NSSF obligation should be payable by the Defendant as a
    statutory debt?
  4. Remedies available to the parties?

The hearing was concluded after the witnesses of the respective parties testified. There had been protracted negotiations between the parties since the suit was mentioned in November 2011. By the 24th of June 2014 there was an attempt to narrow down the issues pursuant to the consent judgment to:

  1. Construction of clause 2 (2) of the Memorandum of Understanding dated 14th April, 2009 with regard to whether NSSF payments are a statutory liability under that clause.
  2. Whether an award of interest and damages should issue against the Defendant?
  3. Whether costs should be awarded.

Witness statements were filed pursuant to the narrowed down issues and the suit came for hearing on 2nd of October 2014. PW1 Byamukama Wilson commenced his testimony and he was partially being cross examined. The Plaintiff’s Counsel in the course of cross examination by the Defendant’s Counsel objected to the conduct of the cross examination by Counsel John Paul Baingana and the suit adjourned to the 27th of November 2014. On 27th of November 2017 Excel High School was struck off as a first Plaintiff by consent of Counsel. In the meantime a formal application was filed for disqualification of Counsel John Paul Baingana and fixed for hearing on the 15th of December 2014. Hearing did not take off for one reason or another. Ruling in Miscellaneous Application No. 1019 of 2014 was delivered on the 8th of May 2015 resulting in a dismissal of the application to disqualify Counsel John Paul Baingana. Thereafter, negotiations between the parties continued but did not result in a settlement of the remainder of the suit. On the 14th of Feb 2017 both Counsel agreed that the remainder issues could be determined through submissions of Counsel on the basis of facts on record. However witness statements could be admitted in evidence and a brief cross examination done. The issues for trial were rephrased as follows:

  1. Whether interest should be paid on account of the delay to settle the Plaintiffs their contractual sums?
  2. Whether an award of damages should issue?
  3. Whether NSSF obligations are a civil or statutory debt within the meaning of the MOU dated 14th April, 2009?
  4. Whether costs should be awarded?

A list of agreed documents was generated and agreed to as exhibits and to be filed on the court record. Secondly, PW2 Fred Byonabye testified and was cross examined.  DW1 being Hon. Kabakumba Lwaboni Masiko Abwooli testified by having her written witness statement admitted in evidence. PW3 Reuben Maanigamukama had his written testimony admitted in evidence as his testimony in chief.  PW4 Daniel Kiiza had his written testimony admitted in evidence. All witnesses verified their witness statements on oath in court.

The court directed that agreed documents would be filed on the 21st of February 2017. The Plaintiff would file and serve written submissions by the 7th of March 2017. The Defendant would file and serve written submissions by 28th of March 2017. Any rejoinder by the Plaintiff was to be filed and served by 11th of April 2017 and the suit adjourned for mention on 12th April 2017. On the 12th of April 2017 the Plaintiff’s Counsel had not filed in court or served written submissions on the Defendants Counsel.  The Defendant’s Counsel duly filed written submissions on the 27th of March 2017 and when the suit was mentioned on the 12th of April 2017, neither the Plaintiffs nor Counsel appeared in court. The Defendant’s Counsel prayed that the suit is determined under Order 17 rule 4 of the Civil Procedure Rules, the Plaintiffs having failed to file written submissions as scheduled by the Court. The suit was accordingly fixed for judgment on the 22nd of June 2017 at 2.30 pm.

  1. Whether interest should be paid on account of the delay to settle the Plaintiffs their contractual sums?
  2. Whether an award of damages should issue?
  3. Whether NSSF obligations are a civil or statutory debt within the meaning of the MOU dated 14th April 2009?
  4. Whether costs should be awarded?

The Defendant’s Counsel started with issue no 2 as to whether NSSF obligations are a civil or statutory debt within the meaning of the MOU dated 14th April 2009?

I have duly considered the submissions and perused the MOU dated 14th April, 2009. The MOU is between Excel high school limited and the Defendant and is dated 14th April, 2009. In the preamble it is written that there was a need to amend the provision of the sale agreement of 20th January 2009 by withdrawal of a special resolution of the first party dated 26th March, 2009. In clause 2 it is written that the Defendant takes over and continues to settle the following liabilities:

  • Service the loan taken out by the first party from DFCU bank.
  • Service the loan taken from Post Bank Ltd.
  • Service the loan taken from FINCA, Masindi.
  • Assume and settle all civil, statutory and individual debts accruing against the first party. [From simple loans, court decrees and orders and bounced cheques].
  • The Defendant shall endeavour to settle the above sums. The consideration balance of Uganda shillings 120,000,000/= due to the school shall be payable as follows… (It was payable within a period of four months commencing May 2009 in equal instalments of Uganda shillings 30,000,000/=.

A list of creditors was appended to the Memorandum of Understanding but the list does not include National Social Security Fund among the creditors. Clause 2 of the agreement does not import the appendix which has a list of about 47 debts together with the names of the creditors who are to be settled.

Clause 2 of the Memorandum of Understanding is quite clear that the Defendant assumed all statutory debts. It simply means that, any statutory debt which had accrued or would accrue was assumed by the Defendant.

The Defendant’s Counsel submitted that the issue of NSSF is not pleaded anywhere in the plaint. Paragraph 5 of the plaint avers that the suit was brought for declaration that the Defendant committed a repudiatory breach of the asset purchase agreement and memorandum of understanding between the Plaintiffs and the Defendant, for vacant possession of the properties referred to in the Asset Purchase Agreement, an account of profits from the said properties, general damages for the said breach, interest and costs of the suit. Subsequently the suit was partially settled by an agreement in writing. In other words the agreement was supposed to be enforced under the terms of the consent decree thereby rendering the cause of action pleaded in paragraph 5 of the plaint inoperative. The question of who should pay the NSSF outstanding obligations is not the subject matter of the suit and in any case NSSF is not a party to the suit.

It is quite strange that the Defendant’s Counsel sought to avoid the question as to who is responsible for the outstanding obligations allegedly existing between Excel high school and NSSF. The Defendant took over Excel high school through purchase of shares. The assets of the school were also purchased. Secondly, Excel high school was dropped as a Plaintiff to the suit. Excel High School is a limited liability Company and is supposed to have its own management structure. A contributing employer or company has statutory obligations to NSSF. For instance section 11 of the National Social Security Fund Act provides that contributions for employees to NSSF shall be made within a period every month namely:

“11. Payment of standard contribution by employers.

(1) Subject to this section, on and after the appointed day, every contributing employer shall, for every month during which he or she pays wages to an eligible employee, pay to the fund, within fifteen days next following the last day of the month for which the relevant wages are paid, a standard contribution of 15 percent calculated on the total wages paid during that month to that employee.”

The payments are obligatory irrespective of what relationship existed between the Plaintiffs and the Defendant. The obligations are on the company. By avoiding the issue in this suit, the obligation of the company which is statutory do not go away. If the issue is not part of the suit as disclosed by the pleadings the matter need not be determined. However, the Defendant’s interest will be affected by the statutory obligations of Excel High School.  There are penalties for failure to make the contribution imposed by statute on the Employer. Section 14 of the NSSF Act prescribes penalties for breach of the obligations and provides as follows:

“14. Penalty for delay of payment of contribution

(1) Subject to subsection (2), if a contributing employer fails to pay into the fund a standard or special contribution which he or she is liable to pay under this Act by the end of the month following the month for which the relevant wages are paid, there shall be added, until the whole sum including the penalty is paid into the fund—

(a) a penalty to such contribution of a sum equal to 10 percent of the amount of that contribution; and

(b) on and after the sixteenth day of each month, a penalty to the original amount of that contribution of a further sum equal to 10 percent, calculated in all cases where there is a fraction of a shilling to one shilling, and any such penalty may be recovered in the same way as the contribution to which it is added, and when recovered, shall be paid into the reserve account.

(2) The managing director may remit the whole or part of any penalty under this section subject to such conditions as he or she may determine.”

The Defendant is not the Company and neither are the Plaintiffs. Following the conclusion that the issue of NSSF does not arise from paragraph 5 of the Plaint, the issue is therefore improperly before the court as the obligations of an employer should be between the employer, the employee and NSSF.

Issue number two is whether the Plaintiffs are entitled to general damages.

I have carefully considered the written submissions. Starting with the plaint, the foundation of the claim for general damages can be found in the last three paragraphs namely in paragraph 7 of the plaint, the Plaintiffs averred that the outstanding balance of Uganda shillings 833,272,160/= remained unpaid by the Defendant despite several reminders or demands to pay the sums according to the agreement. In paragraph 8 it is averred that the Defendants continued extraction of profits from the Plaintiff's properties while refusing to honour her obligations under the agreements constituted unjust enrichment for which the Plaintiff demanded restitution and account. In paragraph 9 it is averred that the Plaintiffs contend that by reason of the matters above said the Plaintiffs suffered multiplicity of suits from individual creditors in addition to the rights of foreclosure by the banks and the Plaintiffs cannot obtain loans from other banks. Consequently, the Plaintiffs had been put to great inconvenience, mental anguish, loss and damage for which they would seek general damages.

It is clear that what is alleged by the Plaintiffs is that they were put to great inconvenience, mental anguish, loss and damage and this is the foundation of their claim for general damages.

The relationship between the Plaintiffs and the Defendant is contractual. Under the contract there were some outstanding obligations and the suit was partially settled when on 20th of July 2012 the parties filed in court their agreement dated 10th July, 2012 compromising the suit on the following terms:

"By consent of the parties, it is hereby agreed that a partial consent judgment/decree be entered as follows:

  1. The amount of money to be paid to the 2nd, 3rd, 4th and 5th Plaintiffs as directors of the first Plaintiff (Excel High School Ltd) under the Memorandum of Understanding signed on 14th of April 2009 is Uganda shillings 120,000,000/=.
  2. The outstanding amount from the Uganda shillings 120,000,000/= is 39,400,000/= which is to be paid to the 2nd, 3rd, 4th and 5th Plaintiffs within four months from the signing of this consent judgment/decree.
  3. The Defendant shall pay the 2nd, 3rd, 4th and 5th Plaintiffs as individual creditors of the first Plaintiff (Excel High School Ltd) the following amounts Mr Kizza Daniel, 32,050,000/=. Mr Maanigamukama Reuben 4,200,000/=. Mr Byonabye Fred 7,700,000/= and Mr Byamukama Wilson 900,000/=.
  4. The Defendant shall pay the Uganda shillings 8,200,000/= being the amount that the 2nd, 3rd, 4th and 5th Plaintiffs borrowed from FINCA Bank Ltd in their individual capacities/names. This amount will be paid within four months of the signing of this consent judgment/decree.
  5. The Defendant shall pay Uganda shillings 1,000,000/= as consideration for the shares of Excel High School Limited.
  6. The Defendant shall pay all the creditors on the list/schedule provided to the Defendant and attached to the Memorandum of Understanding dated 14th day of April 2009.
  7. The Defendant would deposit a post dated cheque for the amounts mentioned herein in paragraphs 2, 3, 4 and 5.
  8. The areas not agreed upon will go for trial."

Subsequently, the remaining issue was agreed as to whether general damages should be paid for the alleged suffering of the Plaintiffs and whether interest should be paid. I have duly considered the written submissions of the Defendant’s Counsel in which he opposed the claim for general damages on the ground that the delays were caused by the Plaintiffs own actions. I have carefully considered the issue and it is true that the relationship between the parties had to be renegotiated in a Memorandum of Understanding dated 14th of April 2009. Subsequently the suit was compromised by the parties further changing the terms of payment by agreement. That notwithstanding the relationship between the parties started with the Asset Purchase Agreement signed between Excel High School Limited and the Defendant dated 20th January, 2009. In the Asset Purchase Agreement the Plaintiffs as directors of Excel High School Ltd and shareholders negotiated the consideration for the purchase of certain assets owned by the school. It was agreed among other things that the liabilities of the Defendant which the Defendant assumed under the agreement would not exceed 625,000,000/=. In clause 3.3 the sellers jointly and severally agreed to indemnify the Defendant against all liabilities, losses, claims and expenses of the buyer arising from or in connection with outstanding liabilities pursuant to the purchase of the assets.

Subsequently, not all the terms of the Asset Purchase Agreement were fulfilled and the parties renegotiated the terms in a memorandum of understanding dated 14th of April 2009. The amount payable by the Defendant under the agreement was agreed at Uganda shillings 120,000,000/= as what was found to be outstanding. Timelines prescribed in clause 2 for the payment within four months commenced in May 2009 and was to be paid in equal instalments of Uganda shillings 30,000,000/= each. Finally, the terms of payment were not fulfilled by the Defendant and in a partial consent agreement and paragraph 2 thereof it is written that out of the amount of Uganda shillings 120,000,000/=, only Uganda shillings 39,400,000/= was to be paid to the Plaintiffs as directors within four months from the signing of the consent judgment. Secondly, certain amounts were found to be due to the Plaintiffs and were spelt out in the consent judgment. The period within which they were to be paid was also provided for in the consent judgment.

The question therefore is whether general damages should be paid for the delay in the fulfilment of the terms of the Asset Purchase Agreement and the Memorandum of Understanding of 2009. The Defendants Counsel submitted that the Defendant was not to blame for the delay and it was the Plaintiffs to blame. No provision was made for the consequences of breach by delay. Counsel contended that certain liabilities had not been disclosed to the Defendant.

I have carefully considered the evidence and the testimony of the witnesses which are all in writing. The evidence of PW2 Mr Byonabye Fred is that the Defendant breached the asset purchase agreement they entered into with her on 20th of January 2009 when she refused or failed to pay the purchase price as agreed. Following the breach, they could not pay their creditors and this exposed them to undue pressure as the creditors flocked to his home to claim for their payments. Thereafter he was imprisoned with reference to the debt owed to Mr Mohammed Junju. Secondly, even after entering into a memorandum of understanding with the Defendant on 14th of April 2009, by which the Defendant directly assumed obligation to settle their personal debts, the Defendant did not care to pay one Katusiime Peter who eventually had him arrested. Thirdly he experienced unemployment throughout 2009 and failure to pay tuition for his children. His property was not released from a mortgage until July 2012 because it was security to DFCU bank where he had debts which the Defendant had not paid. He claims to have paid over Uganda shillings 35,000,000/= in transport accommodation and feeding as well as communication costs.

PW3 Mr Reuben Maanigamukama also testified that he suffered distress, psychological torture, deprivation and imprisonment as a result of the breach of the asset purchase agreement. He failed to pay his creditors. He suffered unemployment and loss of reputation and he was imprisoned for failure to pay on time. He spent over Uganda shillings 25,000,000/= as a result of the breach and in terms of transport, accommodation, feeding and meetings as well as communication costs.

PW4 Mr Daniel Kizza has a similar testimony and claims that there was excessive expenditure amounting to over Uganda shillings 16,000,000/= as a result of the breach. He faced threats of arrest, imprisonment and the continuous harassment from creditors due to failure to pay him his money and the suffered psychological torture, humiliation and anguish.

PW1 Mr Wilson Byamukama also repeats a similar testimony like the other Plaintiffs and claims having spent over 32,000,000/= in transport, accommodation, feeding, meetings and communication costs. He suffered psychological torture, humiliation and anguish as a result of the breach and prays for general damages.

As I have noted before, all the Plaintiffs rely on the asset purchase agreement for the assertion that there was a breach by failure of the Defendant to pay. However, the asset purchase agreement was modified by the memorandum of understanding dated 14th of April, 2009 which compromised claims earlier on arising from alleged breach of the assets purchase agreement. The rights of the parties were modified by the new agreement of 14th April, 2009 which gave new terms of the relationship of the parties.

According to DW1 Kabakumba Labwoni Masiko Abwooli, she is the majority shareholder in Excel High School Limited. She acquired the school pursuant to the assets purchase agreement dated 20th January, 2009. A list of creditors of the school were not fully disclosed because she received several complaints that the former directors had not settled various people for various supplies and services provided to the school including outstanding teachers salaries. Upon receiving payment on the sale, the Plaintiffs passed a resolution to rescind the asset purchase agreement and the resolution had adverse effect on the plans she had made with the financial institutions.

She duly informed the Plaintiffs about the challenges she was facing and they agreed to another memorandum of understanding over the whole transaction which was eventually signed on 14th of April 2009. She continued to face challenges in the settlement of various creditors who wanted their payments immediately. She renegotiated the payment terms with some creditors who were claiming large sums of money and progressively settled others. Her complaint is that the Plaintiff did not disclose to her that they had not paid NSSF or that they had issued bounced cheques to NSSF for over Uganda shillings 20,000,000/=. The Plaintiffs disclosed the bounced cheques in respect of other creditors and one February Amos, was cleared up to over Uganda shillings 30,000,000/= pursuant to a decree in Civil Suit Number 29 of 2007 against Excel High School Limited. One Mohammed Junju whose claims were certified on the list of creditors as being Uganda shillings 16,000,000/= by the second, third, fourth and fifth Plaintiffs signed a document that the claim was Uganda shillings 24,000,000/=. She further testified that at the time of execution of the sale agreement, the bank had served final notice of foreclosure on the Plaintiffs and it took a payment plan and negotiations with the bank by the Defendant to avert foreclosure. Consequently, due to the conduct of the Plaintiffs for failure to make full disclosure, the signing of the resolution of rescinding the sale affected the transaction negatively. The Plaintiffs were virtually in hiding and were facing arrests for failure to pay debts and others were on the run until she salvaged their situation. The Plaintiffs were always at her offices convincing her to buy the school but later she discovered that they were trying to escape creditors. The Plaintiffs kept on changing position, indulging in intrigue and that was the reason for delayed payments. She alleged dishonesty of the Plaintiffs because they sued as Excel high school when they had sold their shares in the school to the Defendant.

I have carefully considered the evidence on record. It shows that the Plaintiff suffered alleged arrest around the time of the memorandum of understanding. In the testimony of PW2 that is a warrant of arrest in execution dated 23rd April, 2009. This was around the time of execution of the memorandum of understanding dated 14th of April 2009. He was released on bond on 13th March, 2009 before another memorandum of understanding was executed. As far as Wilson Byamukama PW1 is concerned, he was released on Police bond on 13th of March 2009 before executing a memorandum of understanding with the Defendant. Daniel Kizza PW4 was also released on police bond on 11th of March 2009.

On the other hand the Plaintiffs by special resolution in a meeting held by the directors of Excel high school Ltd on 26th of March 2009 in Kampala resolved to rescind the asset purchase agreement and the resolution was registered with the registrar of companies. Subsequently on 14th of April 2009 it was agreed by a memorandum of understanding that the Defendant takes over Excel boarding school, Masindi Academy, and Excel high school with all the assets which are written in the memorandum of understanding. Secondly in paragraph 2 of the memorandum of understanding, she assumed and agreed to settle all civil and individual debts accruing against the Plaintiffs. It was further agreed that above the settlement of the obligations, she should pay the balance of Uganda shillings 120,000,000/= in equal instalments for four months.

By executing the memorandum of understanding, the parties waived their complaint arising from the asset purchase agreement which they in any case rescinded. However, this suit had been filed on 25th March, 2011 alleging among other things repudiatory breach of contract but it was settled. It follows that the Plaintiffs cannot get general damages for suffering and anguish or humiliation for things done prior to the execution of the memorandum of understanding dated 14th April, 2009. If their money had been withheld pursuant to the agreement of 14th April, 2009, I will only consider that on the merits.

Where money has been withheld, the Plaintiffs can be compensated by an award of interest on the amount withheld and I agree with the submissions of the Defendant’s Counsel following the judgment of this court in Adjumani Services Station vs. Frederick Batte Civil Suit No. 345 of 2014 quoting therein authorities to the effect that the essence of interest is the payment which becomes due because the creditor has not had this money at the due date. The rationale was that interest is awarded to achieve restitutio in integrum which is the same object for the award of general damages.

In the evidence adduced it is clear that there was further delay of payment on the amounts found to be due and owing as withheld payments as evidenced by the amounts agreed to in the partial judgment following the execution of a memorandum of understanding dated 14th April, 2009. The amounts became due 4 months after the 14th of April 2009 which is 14th August, 2009. There is however no evidence as to when other amounts was paid reducing the Defendants liability to what is contained in the partial judgment.

The principle for the award of general damages is restitutio in integrum. The East African Court of Appeal in Dharamshi vs. Karsan [1974] 1 EA 41 held that general damages are awarded to achieve restitutio in integrum which principle is that the Plaintiff has to be restored as nearly as possible to a position he or she would have been in had the injury complained of not occurred. In Johnson and another vs. Agnew [1979] 1 All ER 883 Lord Wilberforce held that award of general damages is compensatory and is intended to put the innocent party as far as money can do so in the same position as if the contract had been performed. The principle seeks to achieve the same purpose as an award of interest. According to Halsbury’s Laws of England, 4th Edition Reissue Volume 12 (1) paragraph 812, general damages are those damages that arise naturally and in the normal course of events. This principle was applied in Okello James vs. Attorney General in HCCS No. 574 of 2003 where it was held that general damages are compensatory in nature.

The Plaintiffs were delayed and had they been paid in good time they could have invested it.  The purpose for award of interest is to achieve restitutio in integrum and is not meant to be a punitive measure for keeping the Plaintiff out of his money as held by Forbes J in Tate & Lyle Food and Distribution Ltd vs. Greater London Council and another [1981] 3 All ER 716.

The conclusion is that general damages are unnecessary to award and the Plaintiffs can be compensated by an award of interest on the delayed amounts.

Reasonable interest is calculated as to reflect the rate at which the Plaintiff would have had to borrow money to supply the place of that which was withheld or conversely the profits the Plaintiffs would have made had they had the money in due time. In Riches vs. Westminster Bank Ltd [1947] 1 All ER 469 HL at page 472 Lord Wright held that an award of interest is compensation may be:

“...regarded either as representing the profit he might have made if he had had the use of the money, or, conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation...”

Section 26 (2) of the Civil Procedure Act permits interest to be awarded at a reasonable rate from the date the cause of action arose till date of judgment and further interest may be ordered to run from the date of judgment till payment in full. What is reasonable in commercial disputes was considered in the above case of Riches vs. Westminster Bank Ltd [1947] 1 All ER 469 HL at page 472. It follows that it should be the rate at which a financial institution would lend the money.

Section 26 (2) of the Civil Procedure Act provides that:

“26. Interest.

(2) Where and insofar as a decree is for the payment of money, the court may, in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit.”

I accordingly find that the Defendant is not liable to pay damages but in answer to issue 3 she is liable to pay interest on the money withheld up to the time when it was paid.

Interest shall be paid under paragraph 2 of the Consent judgment being Uganda shillings 39,400,000/- from 14th August, 2009 until 20th December, 2012.

Interest shall be paid on the sum of Uganda shillings 32,000,000 as awarded to Daniel Kiiza.

 Interest shall be paid on the sum of Uganda shillings 4,200,000/= as awarded to Maanigamukama Reuben.

Interest shall be paid on the sum of Uganda shillings 7,700,000/= as awarded to Fred Byonabye.

Interest shall be paid on the sum of Uganda shillings 900,000/= as awarded to Wilson Byamukama.

All the above were awarded in paragraph 3 of the consent judgment. Interest shall be paid under paragraph 3 of the Consent judgment from 14th August, 2009 until 20th December, 2012.

Interest shall be paid on Uganda shillings 1,000,000/= in paragraph 5 of the consent judgment from 14th August, 2009 until 20th December, 2012.

The interest awarded above shall be at the rate of 19.5% per annum.

The Plaintiffs are entitled to costs as having succeeded in terms of the partial consent judgment of 20th July, 2012 and this judgment where interest only has been awarded. Costs are awarded to the Plaintiffs under the consent judgment and in this final judgment.

Judgment signed by me this 2nd of June 2017 for delivery by the Registrar the same day.

 

Christopher Madrama Izama

Judge

Judgment delivered in the presence of:

All the Plaintiffs absent and unrepresented

The Defend present in person

Mrs Wakooli: Court Clerk.

Judgment delivered on the request of Hon. Justice Madrama

 

THEDDEUS OPESEN

REGSITRAR

2ND JUNE 2017