THE REPUBLIC OF UGANDA,
IN THE HIGH COURT OF UGANDA AT KAMPALA
CIVIL SUIT NO 252 OF 2011
SEMAKULA AND CO ADVOCATES} ..................................PLAINTIFF
UGANDA REVENUE AUTHORITY} .....................................DEFENDANT
BEFORE HON JUSTICE CHRISTOPHER MADRAMA
This ruling arises from a preliminary objection to the suit raised by learned Counsel for Uganda Revenue Authority. The points raised are preliminary issues for trial, agreed upon by learned Counsels for both parties in the joint scheduling memorandum at page 5 thereof. These preliminary issues for trial are:
Whether the Plaintiff is competent to institute the suit.
Whether the suit discloses a cause of action against the Defendant.
The background of these issues are that the Plaintiff instituted a suit against the Defendant for refund of Uganda shillings 2,322,079,803/= unlawfully/wrongfully removed from the Plaintiffs clients account in City Branch Stanbic Bank on the 25th of May, 2009 plus general damages, interests and costs. The facts averred in the suit are that the Plaintiff successfully prosecuted civil suits in the High Court namely High Court civil suit number is 614 of 2003, 808 of 2003, 814 of 2003 and 883 of 2004 and consent judgments were entered into with respect to the same. Consent judgment Annexure “A” with respect to High Court civil suit number 614 of 2003 between Morris Ogwal and Otai Samuel vs. Diary Corporation Limited. The suit had been filed on behalf of the Plaintiffs and 127 others listed in Annexure “A” of the plaint. The consent judgment reads that the Plaintiffs would be paid Uganda shillings 1,381,000,000/= being balance of their full benefits in accordance with clause 54 of the Defendants are standing orders. It was also agreed that payment of the above sums shall be paid to the Defendants Counsel for onward transmission to the Plaintiff’s Counsel. Paragraphs 3 of the consent judgment provided that the costs of the suit shall be 8 per cent of the total sum payable under the judgment. The consent judgment is dated 28th of July, 2006 and issued by the court on the 17th day of August 2006.
In Annexure A2 to the plaint there is another consent judgment in which the parties described as Otai Samuel and Agono Charles as Plaintiffs and Diary Corporation Limited as Defendants. This was in High Court civil suit number 800 of 2003. Paragraph 1 of the consent judgment reads that the Plaintiffs and 104 others listed in Annexure A 1 and A 2 of the plaint were to be paid their arrears of milk allowance amounting to Uganda shillings 948,461,660/=. Secondly the Plaintiffs and 104 others listed in Annexure J to the Plaintiff be paid their unpaid terminal benefits relating to milk allowances amounting to Uganda shillings 106,193,919/=. Paragraph 5 thereof provides that costs of the suit shall be at 8% of the total sum payable under the judgment. This consent was signed by Counsels for both parties on the 28th of July, 2006 and issued by court on the 17th of August, 2006.
The third consent is Annexure “A 3” and in High Court civil suit number 814 of 2003 between Agono Charles and Ayena George as Plaintiffs and the Diary Corporation Ltd as Defendant. It shows that the Plaintiffs and 127 others listed in Annexure A be paid the balance of their full benefits in accordance with clause 54 of the Defendants standing orders amounting to Uganda shillings 981,000,000/=. It also provides that costs of the suit shall be at 8% of the total sum payable under the judgment. The consent judgment was executed by learned Counsels for both parties on the 28th of July, 2006 and issued by the court on the second 10th of August 2006.
The fourth consent judgment arises from High Court civil suit number 883 of 2004 between Behangana Richard and Mugisha Fred as Plaintiffs and Diary Corporation Limited as Defendants. It provides that the Plaintiffs and 15 others listed in Annexure A of the plaint are to be paid their full payment terminal benefits calculated at the old salary in accordance with clause 54 of the Defendants standing orders amounting to Uganda shillings 157,745,491/=. It also provides that the Plaintiffs and others listed in the plaint as indicated above be paid their arrears of terminal benefits arising out of non calculation of their terminal benefits using the new salary, amounting to Uganda shillings 260,981,459/=. It also provides that the costs of the suit shall be at 8% of the total sum payable under the judgment. It was likewise executed by the parties on the 28th of July, 2006 and issued by the court on the 17th of August, 2006.
It is averred in paragraph 6 of the plaint that on the 24th of March 2009 the Government of Uganda paid Uganda shillings 10,215,319,803/=
It is alleged that the Plaintiff started the process of payment to the beneficiaries of the said suits but in the middle of the process of payment, the Defendant wrongfully issued an agency notice to the managing director of the Plaintiffs bank and a total of Uganda shillings 2,332,079,803/= was removed from the Plaintiffs client account and given to the Defendant and the Plaintiff prays for the return of the above amount to the Plaintiff.
The plaint avers that as a result of removing the money from the Plaintiffs clients account the Plaintiff suffered loss and damages. In the sense that the cheques issued by the Plaintiffs to the beneficiaries were dishonoured by reason of the agency notice resulting in the Plaintiffs managing partner Augustine SEMAKULA being reported to Jinja road police station and other police stations for issuing bounced cheques.
It is averred that the Plaintiffs managing partner was also charged in the Law Council with failure to pay some of the beneficiaries of the above suits and issuing bouncing cheques. The Plaintiff therefore seeks general damages for suffering and damage.
The Defendant’s written statement of defence in paragraphs 1 and 2 thereof is that the plaint discloses no cause of action against the Defendant. In paragraph 2 that the suit is not maintainable against the Defendant in so far as the Plaintiff has no legal capacity to sue. Secondly that the Plaintiff has no authority to sue on behalf of the employees of the defunct Diary Corporation limited whose monies were subject to income tax by the Defendant.
In the joint scheduling notes of the parties filed in court on the 13th of March, 2012 the existence of the consent judgments was not in dispute. It is a agreed that consent judgments were entered in all the suits which are described in the plaint and on the 17th of February, 2009 the government of Uganda agreed to settle the suits for Uganda shillings 10,250,185,303/= for the claims in the plaint in terms of terminal benefits, interest, costs and bailiffs costs. On the 24th of March, 2009 the government of Uganda paid the said monies into the Plaintiffs account with Stanbic Bank City Branch.
It is also agreed that the Defendant issued an agency notice to the Plaintiffs bank and later removed a total of Uganda shillings 2,322,079,803/= from the Plaintiffs clients account.
Most of the documents were agreed to in the joint scheduling memorandum. The Plaintiffs documents were as follows: The consent judgments were exhibited as exhibits P1 – P4. An agreement between the Uganda government and the Plaintiff is exhibited as exhibit P5. The authority to pay the Plaintiff is exhibit P6. The agency notice complained about is exhibit P7. The Stanbic Bank statement is exhibit P8. The charge sheet is exhibit P9. Complaint to Law Council is exhibited as exhibit P10.
The agreed documents of the Defendants are: Letter of withdrawal of instructions exhibit D1. Letter by former workers of Diary Corporation to the Defendant dated 12th of November, 2009 exhibit D2. List of former employees of the Diary Corporation Limited represented by the Plaintiff in four High Court civil suits exhibit D2. Letter from KIMI Associates and company claiming tax refund on behalf of former workers of Diary Corporation Ltd dated 12 November, 2010 exhibit D3. Letter from the Defendant to KIMI Associates and company dated 18th of November, 2010 exhibit D4. Letter from KIMI Associates and company to the Defendant dated 26th of November, 2010 dated 26th of November, 2010 exhibit D5. The Defendant’s summary of taxes recovered by the Defendant exhibit D6.
At the hearing the Plaintiff was represented by Rashid Babu while the Defendant was represented by George Okello legal officer for Uganda Revenue Authority.
Learned Counsel for the Defendant George Okello submitted that the Plaintiff is incompetent to institute the suit. He contended that the suit is to recover Uganda shillings 2,322,079,803/= being sums taken from the Plaintiff by the Defendant from the Plaintiffs client account. This was part of the money from the government of Uganda for onward transmission to his clients that he represented in four suits in the High Court. The amounts sought were deducted from that money by the Defendant. From this averment learned Counsel for the Defendant submits that the Plaintiff has no locus standi to institute a suit of this nature to recover the sums deducted by the Defendant because the money belonged to his former clients. The client account is defined in the Advocates Account rules first schedule to the Advocates Act and means an account in a bank in the title of client kept in accordance with the rules. He contended that it is the clients to sue for those terms. Counsel contended that the money on the clients account is for the benefit of the client and when it is taken away it is that client who is aggrieved.
As to the management of a clients account, learned Counsel George Okello conceded that the advocate manages this account for the benefit of the client. The client is the principal and under the law of agency, the principal is liable for acts done by the agent in the course of business. He submitted that the rules distinguish between trustee and agency relationships. In this particular case it is a case of agency and not trusteeship. The two situations are different in law and the rules clearly stipulate that. Learned Counsel submitted that in situations of this nature the clients are the ones competent to maintain an action. Learned Counsel referred to Black’s Law Dictionary and Osborne’s law dictionary. An agent is a person employed to act on behalf of another. The current Plaintiff maintains the account as a general agent of the clients.
Learned Counsel for the Defendant submitted that in the written statement of the defence, and there is evidence that the former clients of the Plaintiffs indicated that the Plaintiff has no instruction with regard to their terminal benefits and the said sums. This is part of the trial bundle. The communication agreed is the document D3 and is a letter dated 1 November, 2009 at page four of the trial bundle. Paragraphs 2 and 3 of the letter are to the effect that the Plaintiffs had withdrawn instructions to handle their terminal benefits from Mr. Semakula, including the tax computation. Counsel pointed out that the letter is signed by three representatives of the former clients. The representatives were part of the Plaintiff’s former client. Therefore the principal has indicated that their agent cannot act on their behalf in matters of terminal benefits. Consequently the suit is not maintainable on grounds of locus standi. A suit without lack of instruction is incompetent and learned Counsel referred to the case of Buikwe Coffee LTD (1962) EA 327. Consequently learned Counsel submitted that the Plaintiff cannot be aggrieved by that taxation of the amount on the clients account since every person with chargeable income is chargeable under section 15 of the Income Tax Act which defines chargeable income to include employment income. Learned Counsel further referred to the provisions of section 40 of the Advocates Act for the contention that the clients account belongs to the client and not the advocate. He also referred to rule 8 (4) of the Advocates Account Rules and rule 9 (2) and contended that no advocate shall act without instructions. Last but not least, an advocate has a duty to account for his client’s money under rules 8 and 29 of the Advocates Account Rules.
The second issue is whether there is a cause of action disclosed against the Defendant. Learned Counsel relied on the case of Priamit Enterprises Ltd vs. Attorney General Supreme Court civil appeal number payment of 2001 reported in  one EA 236. In that case it was held that the provision that the plaint shall “be rejected” appears to be mandatory. In the absence of allegations of the necessary facts in the plaint, if there is no pleading of the cause of action; where there is a point of law advantage ought to be taken of the opportunity afforded by the rules to have the case disposed of at the close of pleadings or very shortly thereafter. The three ingredients which are necessary for the plaint to disclose a cause of action are stated in the case of Auto Garage vs. Motokov  EA 514 are that the Plaintiff enjoyed a right; that the right of the Plaintiff has been violated and that the Defendant is liable. Learned Counsel submitted that the plaint does not show that the money taken by the Defendant belonged to the Plaintiff. The money was taken by the Defendant and the Defendant could be liable to the former client of the Plaintiff if they brought a suit to account for the same. This is not the case or the issue. He contended that in this plaint there is no disclosure of a right of the Plaintiffs. The admission that the money belonged to the former clients is sufficient for the court to find that the plaint does not disclose a cause of action in so far as the money sought to be recovered does not belong to the Plaintiff. Learned Counsel prayed that the objection is allowed with costs.
In reply learned Counsel Rashid submitted that this court should look at the set of facts on which the cause of action is premised. Learned Counsel submitted that when one examines the consent judgments, they disclose the former clients. These are the clients who instructed the Plaintiff. The persons who purported to withdraw instructions were never vested with authority to act on behalf of the other Plaintiffs. He submitted that the suit was filed as a representative action. The persons who purported to withdraw instructions were not the representatives. Learned Counsel submitted that they did not attach documents of the representative action. Secondly he submitted that the definition of locus standi refers to a relationship between the Plaintiffs and the cause of action. At page 4 of the trial bundle there is reference to the remuneration agreements. The amounts included terminal benefits, costs and advocates fees. At page 89 to 96 these agreements were properly registered with the Law Council. The amounts sought to be recovered include advocates fees. Learned Counsel submitted that the Plaintiff has a duty to account under rule 8 of the Advocates Account Rules. Moreover the Plaintiff had been sued before the Law Council; police etc. for this money so that he can pay it out. Learned Counsel contended that the Plaintiff had a right to some of this money and that even if it belonged to his client he would still have locus standi.
He submitted that the Plaintiff must account to clients who have not yet been paid their own monies and yet he was also entitled to his own monies which had been attached by the Defendant. He contended that if the Defendant can return the money paid, then the Plaintiff would pay the clients who have not yet been paid and the matter in the Law Council fails.
On a question put by court as to whether the matter before court should be stayed pending a decision of the Law Council learned Counsel for the Plaintiff submitted that if the advocate is found guilty of professional misconduct he cannot recover the money. Moreover if the Law Council finds out that part of the money belongs to his client, he would still have to sue for the money. He further submitted that proceedings in the High Court would not prejudice the Law Council from proceeding with the disciplinary proceedings.
Learned Counsel further submitted that there are two different things. Firstly the Plaintiff is saying that the agency notice was unlawful. Secondly, in the Law Council the allegation is that there was professional misconduct. As far as rule 8 of the accounting rules imposes a duty to account, therefore the Plaintiff has a right to sue for return of the money so as to remit it to his former clients and to recover his fees. Lastly learned Counsel submitted that the parties, who purported to withdraw instructions, have not proved authority to act on behalf of all the former clients of the Plaintiff.
As far as a cause of action is concerned, Counsel referred to the case ofKapeka Coffee and another vs. NPART Court of Appeal civil appeal number 3 of 2000. Where it was held that the court must look at the plaint and Annexure to the plaint to determine whether there is a cause of action. Consequently by looking at the plaint, consent judgments, remuneration agreements, all the documents show that the Plaintiff is entitled to a remedy because his monies including legal fees were taken by the Defendant.
Counsel also submitted that the Plaintiff is alleging an unlawful act. That the court should investigate if that act was lawful under section 106 of the Income Tax Act. At the time of the agency notice, the Plaintiff’s rights to some of the money were violated. The facts alleged in the plaint and the Annexure would entitle the Plaintiff to judgment and consequently there is a cause of action. He prayed that the objections be overturned.
In rejoinder learned Counsel George Okello contended that the three persons who represented the former workers had been instructed by the former workers. They themselves were part of the former workers. He referred court to pages 80 – 81 of the trial bundle which shows that upon writing to the Defendant that the firm of certified accountants had taken over instructions at page 81 of the letter is copied to representatives of the several persons. The subsequent communications where copied to them. Even at page 82 it is indicated. They even show that the said money was taken by Uganda revenue authority and the receipt numbers. The accountants indicate that they would provide a list of former workers. Learned Counsel submitted that these documents were agreed during the scheduling and were binding on the Plaintiffs.
As far as the consent judgments were concerned, learned Counsel submitted that one thing sounds for all these consent judgments in that there were entered by those several Plaintiffs but on behalf of other parties who are listed. Therefore there was no representative action. Learned Counsel submitted that on the basis of the documents on record, when the Defendant taxed eternal benefits of the various Plaintiffs, they chose three of them to review their taxation. The rightful tax payers subsequently engaged the Defendant to review their taxes and concessions were reached. So for the Plaintiff to challenge those taxes is without any legal standing. Counsel further contended that the assertion that some monies belonged to the Plaintiff is not pleaded. In the plaint it is asserted that the money was for onward transmission to the former clients. He contended that the advocates account rules places a duty upon an advocate to keep proper books of accounts of all transactions involving the client. However the Plaintiffs should show evidence of how much of the two billion belongs to the Plaintiff.
On the question by court as to the effect of proceedings in the Law Council, learned Counsel submitted that the Disciplinary Committee may order the advocate to restore any property belonging to the person. Proceedings of this nature would require the Law Council to investigate whether the advocate was entitled to any money, and whether he accounted for the same. Learned Counsel submitted that in the event that Law Council were to find that the Plaintiff was not entitled, he would be made to pay and the proceedings in this court would have a bearing on the Law Council. He contended that the issues of locus were not relevant to the issues before the Law Council. There were only relevant on the merits of the case. The court can still pronounce itself on the preliminary objections. As far as appeals from decisions of the Disciplinary Committee of the Law Council are concerned, section 22 of the Advocates Act provides that an advocate can appeal to the High Court against the decision of the Law Council. He prayed that the court upholds the objections to the suit.
I have had the benefit of listening to the oral submissions of learned Counsels for the Defendant and the Plaintiff. I have also had the benefit of perusing the pleadings and the trial bundle agreed upon between the parties. This trial bundle contains the agreed documents between the parties and the agreed facts. The principles for determining whether a plaint discloses a cause of action are not in dispute. What is material for consideration however, is whether the court can consider the documents which have been agreed upon in resolving the preliminary points of law.
The question of locus standi has been argued as a point of law not dependant on the pleadings of the Plaintiff only. Order 6 rules 28 of the Civil Procedure Rules provides that points of law may be raised by pleading. It reads as follows:
“Any party may be entitled to raise by his or her pleading any point of law, and any point of law so raised shall be disposed of by the court at or after the hearing; except that by consent of the parties, or by order of the court on the application of either party, a point of law may be set down for hearing and disposed off at any time before the hearing.”
In this case, the scheduling memorandum of the parties has set down the agreed points of law for determination of the court as preliminary points. This is found at page 5 of the trial bundle under the heading “Preliminary Issues for Trial”. These preliminary issues are:
Whether the Plaintiff is competent to institute the suit.
Whether the suit discloses a cause of action against the Defendant.
In the wording of order 6 rule 28 of the Civil Procedure Rules, it may be said that these points of law have been raised by consent of the parties during the scheduling conference inter partes. The question of whether the preliminary point of law requires additional evidence depends on the circumstances and agreed facts in each case.
At the hearing of the preliminary points of law, another issue arose as to whether the proceedings in this matter may prejudice proceedings before the Law Council. The Plaintiff is alleging that the issuance of a third party notice and removal of monies from his clients account in Stanbic Bank was unlawful. His contention is that part of the money was meant to pay his clients some of whom have filed a complaint before the Disciplinary Committee of the Law Council against him. The statement of offence before the Disciplinary Committee of the Law Council can be found at pages 61 to 65 of the trial bundle and is an agreed document. The charge sheet is exhibit P9. It is entitled complaint number 60, 83 and 99 of 2009 and it is between the former workers of Diary Corporation Limited and Semakula Augustine of care of Semakula & Company Advocates. It is pertinent at this point to read out the particulars of offence in Count 1 which reads:
“Advocates Semakula Augustine care of Semakula & Company advocates, you received shillings 10,250,105,303/= for and on behalf of the complainants, and you only paid some of them part of their entitlements and this conduct is improper of you as an advocate.”
He was also charged inter alia with failure to account for client’s money contrary to regulation 8 (2) of the Advocates (Professional Conduct) Regulations, acting fraudulently or improperly in the discharge of professional duty contrary to section 74 (1) (k) of the Advocates Act chapter 267 and conduct unbecoming of an advocate. The complaint before the Disciplinary Committee of the Law Council was filed in the year 2009. The Plaintiff on the other hand filed this suit in the commercial court division on the 18th of July, 2011.
As far as the question of locus standi of the Plaintiff is concerned, this question is inextricably tied up with the question of the right of the Plaintiff to the money attached by the Defendant under the agency notice. It is also tied up with pending disciplinary proceedings against the Plaintiff. This is because the Plaintiff contends in the plaint that the money was wrongfully or unlawfully removed from the Plaintiffs clients account in the City Branch Stanbic Bank on the 25th of May 2009. Paragraph 7 of the plaint avers that the Plaintiff received the money under the consent judgments referred to above and had started paying the beneficiaries thereof when the Defendant issued an agency notice attached as annexure "C" to the plaint. The bank statement of the Plaintiff is also attached and marked annexure "D". The agency notice is issued under section 106 of the Income Tax Act cap 340. It is addressed to the Managing Director Stanbic Bank Ltd corporate branch and is dated May 15th 2009. The Plaintiff alleges that as a result of removing the money from the Plaintiffs clients’ account, the Plaintiff suffered losses and damages. That the cheques issued by the Plaintiffs to the beneficiaries were dishonoured by reason of the agency notice. The Plaintiff who is the managing partner of Semakula and company advocates was taken to several police stations on account of bounced cheques. He was also charged before the Law Council with failure to pay beneficiaries and issuing bouncing cheques.
The agency notice was copied to Semakula and company advocates on account of terminal benefits of the former employees of Dairy Corporation Ltd. It also shows that section 106 of the Income Tax Act cap 340 was produced overleaf. A critical perusal of section 106 shows that the taxpayer is entitled to notice of the agency notice. Section 106 (3) provides:
"At the same time the notice is served under subsection (1), the Commissioner shall also serve a copy of the notice on the taxpayer.”
In other words, under the law and pursuant to annexure "C" being the agency notice in contention, the taxpayer had been notified through the Plaintiff in May 2009. The Defendant therefore properly assumed that the taxpayers were duly notified under section 106 of the Income Tax Act by service of the notice on the Plaintiffs. As far as questions relating to the agency notice are concerned, the Defendant cannot in the circumstances raise the question of locus standi against the Plaintiff on the basis of the agency notice only. More ground need to be established.
As far as the challenge to the agency notice being unlawful is concerned, the person served on behalf of the taxpayer is the Plaintiff. It is further clearly indicated in the agency notice that the account concerned was a client account with regard to the terminal benefits that is the subject of the consent judgments attached to the plaint. For the same reasons as the objection of the Defendant, it may be asserted that it is the beneficiaries of the terminal benefits who are entitled to raise the question of locus standi against the plaintiff and not the Defendant who is the adversary. It is the Plaintiff who was the representative of the taxpayers who were paid terminal benefits. It was the Plaintiffs who had authority to operate the account. Even if the account was held on the behalf of the beneficiaries/taxpayers against whom the agency notice ultimately was issued, it was the Plaintiff who was in charge of the account. The Advocates Accounts Rules found in the first schedule of the Advocates Act and rule 1 (c) defines a client as a person on whose accounts an advocate holds or receivers clients money. "Client account" means the current or deposit account at the bank in the name of the advocate in the title of which the word "client" appears. The account is in the name of the advocate. Whereas there is distinction between "client's money" and "trust money" this distinction is based on the law of trusts in so far as the applicable law is concerned. For instance money held as trustee may be held as administrator of an estate, executor or trustee appointed under a deed. Clearly the law applicable to such trust money is the succession law, a written testamentary will or the deed of trust. The distinction is further made clear by the fact that the Advocates Act second schedule thereof has a separate set of rules to deal with trust accounts. These are the Advocates Trust Account Rules.
The separation of trust accounts from client’s accounts does not do away with the obligations arising in each type of account. In each case, the advocate has specific duties to the client, whether the client is a beneficiary to a trust account or a client who gives instructions to the advocate on the disbursement of his or her monies. Clients money is clearly defined as money received by an advocate on account of the person for whom he or she is acting in the relation to the holding or receipt of the money either as advocate or, in connection with his or her practice as an advocate, as agent, bailee, stakeholder or in any other capacity. But the expression "client's money" under rule 1 (e) does not mean the money held or received on account of the trustees of the trust of which the advocate is advocate – trustee or money to which the only person entitled is the advocate himself or herself or, in the case of a firm of advocates, one or more of the partners in the firm. This is contrasted with "trust money" which means money held or received by an advocate which is not client’s money and which is subject to a trust of which the advocate is a trustee whether or not he or she is advocate – trustee of the trust.
The rules specify how the clients account is to be managed. Under rule 9 an advocate is obliged at all times to keep proper books of accounts so as to show the clients money received or paid by him or her and any other money dealt with by him or her through the clients account. An advocate is supposed to distinguish such money paid, received or paid by him or her on account of each separate client and to distinguish such money from other money paid, received or paid by him or her or on any other account. Such distinctions are meant to apply the separate and special kind of rules applicable to each kind of account. They do not however take away the fiduciary or trust relationships that may exist between the advocate and the beneficiary of the account. Moreover a trust may be inferred or implied by law for purposes of imposing obligations on the advocate and for purposes of management of the account. By necessary implication that would mean that the advocate is a trustee subject of course to the rules for the operation of the accounts which may be classified as the terms of the trust. Any money held on behalf of another is held in trust. Therefore the distinction between the clients account and a trust account is meant to apply different sets of rules and laws and not to do away with the statutory or common law trust relationships. Section 1 (r) of the Trustees Act cap 164 defines a trust to extend to implied and constructive trusts. It provides as follows:
“(r) “trust” does not include the duties incident to an estate conveyed by way of mortgage, but with this exception, “trust” and “trustee” extend to implied and constructive trusts, and to cases where the trustee has a beneficial interest in the trust property, and to the duties incident to the office of a personal representative, and “trustee” where the context admits, includes a personal representative, and “new trustee” includes an additional trustee;”
An implied or constructive trust arises from the relationship. Wherever a person holds property for the benefit of another person, there is an implied trust which arises. The client in this case becomes the beneficiary while the advocate becomes the trustee. The duties imposed on the advocate are the duties imposed on a trustee. This is made clear by Annexure “C”, the agency notice issued by the Defendant. The agency notice was copied to the Plaintiff for the benefit of the clients. The agency notice affected the clients account. The clients were not notified directly. In the premises, the arguments of learned Counsel for the Defendant can only be founded on other provisions of law.
The big question is whether the Plaintiff can sue on behalf of the beneficiaries of the clients account in the circumstances of this case.
First of all, the Plaintiff was obliged under the rules we have examined above to distinguish each separate account of each client in his accounting. The nature of the transaction however was that money was paid to a specific bank account for all the Plaintiffs. The Plaintiff’s duty was to keep the separateness of this money in the books of account. The clients account in the bank was not segregated because it was kept as an account for the terminal benefits of former employees of the Diary Corporation Limited. The liability of each taxpayer could not be specified by the Defendant in one bank account. It cannot be assumed that all the money involved was their terminal benefits. In fact the Plaintiff avers in the plaint that some clients had already been paid. So the question is on whose behalf was the Plaintiffs holding the clients account as far as the remainder of the money is concerned? Secondly is the obvious provision of section 106 of the Income Tax Act which provides that the taxed involved in an agency notice is a tax which is not in dispute. In the scenario before the court it cannot be said that this was ascertained and undisputed tax. The tax liability of each taxpayer was yet to be ascertained. In the premises, each unpaid client could theoretically become aggrieved by the agency notice issued by the Defendant. Under section 106, the tax the subject matter of the agency notice is deemed to be definite tax which has been ascertained and is not in dispute. What emerges is a complex situation where the money paid on the clients account included the other monies other than terminal benefits. Moreover under section 106 (Supra) it is the bank which has a right to object under the provisions dealing with objection to taxation. The provision is silent about the actual taxpayer whose money is being collected through the agency of the bank. It assumes that the tax has been assessed and perhaps notified to the taxpayer.
With regard to employment income, provisions relating to pay as you earn have to be examined. Secondly, can an action of this nature be brought about two years after the agency notice was issued? Learned Counsel for the Defendant submitted that the money involved in the third party notice were terminal benefits. He further contended that it was employment income as defined by section 19 of the Income Tax Act. Under section 63 of the Income Tax Act, the chargeable income of each taxpayer who is an individual is determined separately. Secondly, as far as employment income is concerned, every employer shall withhold tax from a payment of employment income to an employee as prescribed by regulations made under section 164. This is provided for by section 116 of the Income Tax Act. The regulations are the Income Tax (Withholding Tax) Regulations, 2000. Additionally, section 19 of the Income Tax Act in its definition of employment income includes terminal benefits or compensation arising from termination of a contract of employment.
Consequently the action of the Plaintiffs constitutes and brings about a very complex situation. Secondly the objection of the defendant cannot be determined without considering several aspects of the matter with regard to the rights of the parties. The third-party notice further complicates the matter. In order to achieve complete justice the situation has to be critically examined and an appropriate remedy provided so that justice is done to all the parties involved in this saga.
The first situation to be examined is the fact that there are disciplinary proceedings before the Law Council against the Plaintiffs. The disciplinary proceedings relate to the income the subject matter of the third party notice and other monies which may have been disbursed or spent by the Plaintiff. In the disciplinary proceedings, the Plaintiff may be held accountable to the beneficiaries depending on the outcome of the proceedings. The matter before the Disciplinary Committee of the Law Council is still pending. Section 20 (7) of the Advocates Act gives the Disciplinary Committee powers to order any advocate against whom a case of professional misconduct has been made out to restore any property in his or her possession or under his or her control to the person appearing to the Committee to be entitled to the property. In other words, the property in possession of the Plaintiffs included an account held on behalf of the clients who have brought disciplinary proceedings before the Law Council Disciplinary Committee. Secondly, section 20 (8) further provides that any order made by the Disciplinary Committee under the previous section referred to above relating to payment of compensation, costs or expenses, or to the restoration of property, shall be drawn up by the committee and shall thereupon be executable as if it were a Decree of the High Court. Under section 20 (9) of the Advocates Act where there is a subsequent suit to the disciplinary proceedings, the court shall take into account any sum recovered pursuant to an order made by the Disciplinary Committee. Thirdly, an appeal shall lie to the High Court against the decision of the Disciplinary Committee by an advocate who is aggrieved. Last but not least on this point, the High Court is supposed to be constituted by three judges on an appeal from a decision from the disciplinary proceeding. It is yet to be ascertained by the Disciplinary Committee whether the advocate has misappropriated the funds of his client’s. The entitlement of the advocate if any to any amounts under the consent judgment has to be ascertained by the Disciplinary Committee in assessing whether there was any disciplinary offence as charged. It cannot be determined by simply saying that the advocate is supposed not to mix his money with that of the client. The question of locus standi further would not have resolved the question of whether the advocate is entitled to reimbursement from the client account in terms of regulations 6 of the Advocates Accounts Rules. Such entitlement if any is directly affected by the proceedings that are going on before the Disciplinary Committee of the Law Council.
For emphasis the disciplinary proceedings were commenced in November 2009. The complaint therein seems to have been made in November 2009. The third party notice however was issued in May 2009. The third party notice is dated 15th of May, 2009. Money amounting to Uganda shillings 10,250,185,303/= shillings was transferred from the Bank of Uganda to the Plaintiff client account. This was by a letter written on the 6th of March, 2009 from the Ministry of Finance.
Apart from the consent judgments, there was an agreement entered into between the Plaintiff advocates and the office of the Attorney General on behalf of the Government of the Republic of Uganda on the 17th of February, 2009. Payment was made by the Government of Uganda through the Ministry of Finance Planning and Economic Development, the Privatisation Unit and the Office of the Attorney General for and on behalf of the “Defendant” Messrs Diary Corporation Limited. It was indicated in article II of the agreement that the payment was in full and final settlement of all claims of terminal benefits by workers of Diary Corporation Limited, interest, costs of any nature including bailiff’s costs. Money was paid to the Plaintiffs to hold the same on behalf of all the Plaintiffs. Some reference was made to termination benefits, milk allowances or any claim by former employees of Diary Corporation Limited in the suits which had been settled. No specifics were indicated in the payment. However the consent judgments relate to different kinds of claims including milk allowances. In such an imperfect payment by reason of missing the particulars, regard has to be made to the suit itself and the consent judgments referred to above. The point is that not all the amount of money paid to the Plaintiffs client account relate to terminal benefits. What is crucial is that whatever the money is all about, a complaint was lodged with the Disciplinary Committee of the Law Council. This was however lodged after the third party notice and no action had been taken to challenge the third party notice by the plaintiffs or the advocate who is the plaintiff in the suit.
The second aspect of the matter is that the agreement between the Attorney General or the Government and the Plaintiffs made no reference to any taxes. The payment does not show that taxes were deducted by the Ministry of Finance on behalf of the employer if at all it was to be deducted. That notwithstanding, the entire situation would require an audit of who is liable to what tax. In other words the controversy cannot be resolved perfectly without examining the liability of each taxpayer, the liability of the advocate, and the question of whether there was any professional misconduct, which taxpayer has been paid all the monies by the Plaintiff and who has not. In this imperfect situation, the suit before the High Court will only complicate the matter further. It is prudent in the circumstances for the Disciplinary Committee to complete its proceedings before any other proceeding is taken or executed affecting the rights of the parties. In any case, in case the Plaintiff is found liable to pay some money, the fact that the money has been transferred to the Defendant as taxes is a plausible defence. In other words, the Plaintiff has the information as to who has been paid or was not paid. His liability if any before the Disciplinary Committee cannot be ascertained without such information. It is also evident from the documents agreed upon that the amount of money removed from the client account managed by the Plaintiff is the subject of an audit by the Defendant and independent auditors to ascertain the liability of each taxpayer. This may not lead to complete justice if it does not take into account the alleged payments made by the Plaintiff to other taxpayers/clients/Plaintiffs or without involving the current plaintiffs in the inquiry/audit.
In the premises, it is my judgment that at this stage of the proceedings and taking into account the whole picture, the complaint before the Disciplinary Committee should first be finalised. The court should not take any further step in the matter which step may complicate the overall picture which is already complex enough. Secondly, the Defendant may assist the Disciplinary Committee by ensuring that no payments are made pursuant to the independent audit of the liability of any taxpayers/Plaintiffs without taking into account any alleged payments made by the Plaintiff. Unless the complete picture emerges as to what transpired after the transfer of over 10,000,000,000 Uganda shillings to the client account which became the subject of the third party notice challenged in this suit, it would be unjust to further hear this matter on the basis of the legality of the third party notice. Similarly, comments by the court may prejudice the proceedings before the Disciplinary Committee of the Law Council. Whether or not the issuance of the third party notice was prejudicial to the Plaintiff, involves findings that may affect the merits of the matters which are before the Disciplinary Committee.
Because the jurisdiction of the High Court comprises of three judges on appeal from the Disciplinary Committee, I do not agree that I should make any pronouncement in this suit even if it is on the question of whether there is a cause of action or locus standi. As far as possible, let the Disciplinary Committee of the Law Council first complete its proceedings and come up with a decision. Such a decision may end up on appeal to the High Court and affects the ultimate matter before the court including the substance of the third-party notice in terms of what transpired to the money and who is entitled to what from the point of view of the Legal Profession. In short it also affects what is taxable and what the taxable income in the circumstances of the case ought to be. Last but not least proceedings before the Disciplinary Committee are judicial proceedings with a right of appeal to the High Court under the special procedure in which the High Court is constituted by three judges.
In the circumstances, proceedings in this suit are stayed pending the outcome of the disciplinary proceedings. Costs shall remain in the cause.
Ruling read in open court this 18th day of May 2012
Hon. Mr. Justice Christopher Madrama
Ruling delivered in the presence of
George Okello for the defendant
No representative of defendant
Hon. Mr. Justice Christopher Madrama