THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
MISCELLANEOUS APPLICATION NO. 268 OF 2002
(Arising out of Civil Suit No. 200 of 2002)
INTERNATIONAL CREDIT BANK LTD (IN LIQUIDATION) ……………… APPLICANT
CELTEL LTD …………………………………………………………………….RESPONDENT
BEFORE: THE HONOURABLE MR. JUSTICE JAMES OGOOLA
The Applicant (ICB) applied under 0.33, r.4 of the Civil Procedure Rules for leave to defend the underlying Civil Suit No. 200/2002. The two major grounds advanced for this application were:
(a) that ICB, as a company, was not at all indebted to the Plaintiff;
(b) that the contract giving rise to the claim was not validly executed, as it did not adhere to the requirements of the Company’s Memorandum and Articles of Association.
I will start with the second issue first. Article 112 of ICB’s Memorandum and Articles of Association requires the Company’s deeds to be sealed with the Company’s seal; and to be signed by a Director and counter-signed by the Company Secretary or by a second Director. The Applicant’s contention was that the above requirement was not fulfilled in the execution of the seven Service Agreements that are the subject of this instant suit/application. I agree to the insufficiency of execution. However, the requirement is contained in documents and instruments that are entirely internal to the Company itself. More importantly, the requirement prescribes an obligation whose observance can be performed only by officers of the Company (namely the Directors and Secretary of the Company). No other person external to the Company has the authority, power or responsibility to sign for the Company or to seal its deeds and other documents.
Secondly, persons transacting business with the Company are required to inform themselves about the internal rules of the Company, but only generally. They need not have a detailed knowledge of nor need they understand fully the varied ramifications of the internal workings and restrictions in the Company. In this regard, the case of Royal British Bank v. Turquand [1843-60] All ER 435 proclaims this obligation in the following [slightly paraphrased] terms:
Persons dealing with the Company are bound to make themselves acquainted with the Company’s statute [i.e. Memorandum and Articles of Association] and the deed. They are not bound to do more. A person on reading the deed would find, not a prohibition against the Company contracting [with outsiders], but a permission to contract on certain conditions and learning that the authority might be made complete by signature of the Director counter- signed by the Secretary or another Director, he would have a right to infer the fact of authority to do that which on the face of the document appeared to be legitimately done, and therefore the Company is liable whether or not such had been done.
This is what is generally called ostensible authority.
It is therefore not correct to assert, as the Applicant asserted in this instant case, that CELTEL should have ensured that the execution of the suit contract was done validly and in accordance with Article 112 of the Company’s Memorandum and Articles of Association.
The second ground advanced by the Applicant was that the Service Agreements were made with the individual Katto. I cannot agree with that contention. There were numerous indicia to show that all the seven Agreements were contracted with the company, ICB. Chief among these indicia are the following:
(a) The Agreements were signed by Thomas Katto as Executive Director of ICB, Patrick Katto as Managing Director of ICB and John Katto as Director of ICB.
(b) The standard form constituting the Agreement shows ICB as a commercial client (and not an individual client). In this regard, only the portion of the form reserved for commercial clients was filled in (with the name ICB). If the contract had been intended for the individual Kattos, the portion on the form reserved for “individuals only” would have been filled in showing the particular individual Katto concerned.
(c) Only three Kattos (John, Thomas & Patrick Katto) signed the Agreements. But there were 7 Agreements signed in all. If the Kattos had signed only as individuals, the most likely scenario would have been that they would have signed only 3 Agreements (not 7).
(d) Closely related to (c) above is the fact that while there were 7 Agreements signed, only one CUSTOMER NUMBER was used on all 7 Agreements (i.e. IN 002).
(e) The Statement of Account (see Annex B to the plaint) shows only ONE Account (not 3, let alone 7 Accounts).
In the premises, Court is not at all persuaded by Defendants’ contentions to the effect:
(1) that the Agreements were entered into between CELTEL and the individual Kattos;
(2) that the Defendant (ICB) was therefore not indebted to the Plaintiff (CELTEL);
(3) that the Plaintiff CELTEL had a duty to ensure that ICB adheres to its own internal rules for executing valid contracts with outsiders.
Accordingly, Court finds that the Defendant has raised neither a defence against the Plaintiff’s claim; nor has it raised any triable issue(s) — that would justify this Court to grant leave to defend. The application for leave to defend is denied. In the result, Plaintiff is entitled, under 0.33, r.3 of the Civil Procedure Rules to a decree, in the amount claimed in the plaint (namely, an amount of Uganda Shs equivalent to US $24,116.97). The costs of this application, and of the underlying suit (HCCS No. 200/2002), are hereby awarded to the Plaintiff.
DELIVERED IN OPEN COURT, BEFORE:
Moses Adriko, Esq. — Counsel for Applicant/Defendant
Peter Wandera, Esq. — Counsel for Respondent/Plaintiff
J.M. Egetu — Court Clerk