Court name
Court of Appeal of Uganda
Case number
Civil Appeal 71 of 2000
Judgment date
18 September 2001

John Verjee and Anor v Simon Kalenzi and Ors (Civil Appeal 71 of 2000) [2001] UGCA 2 (18 September 2001);

Cite this case
[2001] UGCA 2

JOHN VERJEE & ANOR

v

SIMON KALENZI &
ORS

COURT OF APPEAL OF UGANDA AT KAMPALA

COURT OF APPEAL CIVIL
APPEAL NO. 71 OF 2000
(ON APPEAL FROM HIGH COURT MISC. APPLICATION NO. 897 OF
2000)

BEFORE:

HON. LADY JUSTICE L.E.M. MUKASA-KIKONYOGO,
DCJ

HON. MR. JUSTICE A. TWINOMUJUNI, JA.
HON. LADY JUSTICE
C.N.B. KITUMBA, JA.

September 18, 2001

JUDGMENT


KITUMBA, JA.: This is an appeal against the ruling of the High
Court , (Byamugisha J., dated November 1, 2000.) whereby the respondents were
successful
in objector proceedings in Miscellaneous Application No. 897 of 2000.
The High Court made an order releasing the movable and immovable
property of the
judgment debtor, M/S Clovergen Foods Ltd, from attachment.

The facts
leading to this appeal are briefly as follows:
The appellants were the
successful plaintiffs in High Court Civil Suit No. 376 of 1998 against the
judgment debtor. Judgment was given in their favour on June 8, 1998. A
warrant of attachment and sale of the judgment debtor’s immovable property
comprised in LRV 2144 Folio 16 Plot M 101 Entebbe Municipality Mpigi District
was issued on June 21, 2000. A second warrant was
issued to the appellants on
June 30, 2000 for the sale of the judgment debtor’s movable property. On
July 5, 2000 court bailiffs
moved in to attach Plot M.101 Entebbe. The
respondents who were in possession of the said plot by virtue of their having
been appointed
by the East African Development Bank as receivers filed objector
proceedings on the grounds that:

1. The said properties were not liable to attachment as they were in the hands
of the respondents as receivers and managers of the
judgment debtor company for
the benefit of East African Development Bank as debenture holders.

2. East African Development Bank had a fixed charge on the said
properties.


These grounds were supported by the affidavit of
Simon Kalenzi. It was opposed by two affidavits in reply of John Verjee, one of
the
judgment creditors.

At the hearing of the application the appellants
challenged the claimed possession by the respondents on the grounds as stated
below.
Firstly, that the legal mortgage which the East African Development Bank
had over the immovable property lapsed when the lease on
LRV 2144 Folio 16 Plot
M 101 Entebbe expired on May 31, 1998. The equitable mortgage which the East
African Development Bank claimed,
by registration of the caveat in the Land
Office on December 21, 1999, was also void because it was not registered under
the Companies
Act. Secondly, that the debenture under which the receivers were
appointed was also void for lack of registration under the Companies
Act. The
learned trial judge found for the respondents and made an order releasing all
the movable and immovable properties of the
judgment debtor from being attached
on the ground that the respondents were in possession as receiver
managers.

Dissatisfied with the above ruling, the appellants have
appealed on six grounds.

Since there is overlapping in some of the
grounds, I propose to deal with them in the following order. I will consider
grounds 1,3
and 5 together and grounds 2,4 and 6 also jointly.

Grounds
1,3 and 5 read as fol1ows:

“1. The Learned Judge erred in law and in fact in finding and holding that
the Respondents were the proper applicants and had
the Locus Standi to bring the
application the subject of this Appeal and in the manner which they did, in
their own names.



3. The Learned Judge erred in law and in fact when she ordered for the release
of the attached property only on account that they
were attached whilst in the
possession of the Receivers as Agents of the East African Development Bank Ltd.
as the alleged Legal
Mortgagees.



5. The Learned Judge erred in law in finding that the Respondents had an
interest or any interest at all in the attached property”


The appellants were represented by two counsel
namely:
Mr. Harit Seith who argued grounds 1, 2 and 5 and Mr. Peter
Nkuruziza, who argued grounds 3, 4 and 6. Mr. Walubiri represented the
respondents. On grounds 1,3 and 5 the arguments of counsel for the appellants
centered on two issues. Firstly, that the respondents
did not have the legal
capacity to bring objector proceedings. Secondly, that the respondents had
neither legal title nor interest
of any kind in the property to enable them to
institute objector proceedings against the appellants.

Learned counsel
for the appellants, contended that respondent had no locus standi to bring
objector proceedings in their names. In
law a receiver can bring an action in
the company's name. In the instant appeal it is the East African Development
Bank which should
have instituted the suit. He relied on Lochab Brothers v
Kenya Furtal Co. Ltd. and 2 others
1982-88 1 KAB 335. In that
case the appellant obtained a judgment against respondent for 8hs. 1,186,554/60
and applied for execution by attachment and
,sale of the property. The
Development Finance Company of Kenya acting under powers contained in two
debentures, appointed the second
the third respondents as receiver managers of
the first respondent. The receivers objected to the sale by the court brokers.
The
High Court allowed the objection but on appeal it was held that the
receivers did not have any interest, legal or equitable in the
property seized.
The debentures under which they were appointed did not confer upon them the
power to bring proceedings in their
names. The proceedings were a nullity and
should not have been allowed to proceed.

Counsel submitted further that
the respondents had to prove that they had an interest in the property.
According to the affidavits
of both Ka1enzi and Onen it is the East African
Development Bank which has interest in the property and not the respondents. He
cited
Kasozi Damba v Male Construction Services Co. HCCS No. 51/1997
(Unreported).

He urged that the learned trial judge was wrong to find
that the respondents were in possession as legal mortgagees and therefore
had an
interest. This was contrary to all available evidence on record. The notice of
appointment annextures C and D to the affidavit
of Kalenzi showed that the
respondents were appointed as receivers and not as legal mortgagees.

In
reply, Mr. Walubiri, learned counsel for the respondents, conceded that
technically the receiver has no title but has possessory
rights. When there are
conflicting rights between the rights of the judgment creditor and the receiver,
those of the latter prevail.
Ordinarily the receiver does not sue in his own
name but can institute an action if his possessory rights are interfered with.
He
relied on Exp. Sacker (1888) 22,QBD, 179 and Huse London
Electricity Supply Corp
. [1902] 1 Ch 411 Counsel contended that the learned
Justices of the Court of Appeal of Kenya dealt with the general ru1e but did
not
consider the exceptions, He urged that the objector has to prove possession of
the property but not ownership. He contended that
in Kasozi Ddamba v Male
Construction Services
Company (supra) the learned judge did not
address himself to the law and that the case should be disregarded. He conceded
that the legal
mortgage had expired. However, by clause 3A of the debenture, a
fixed charge was created on all the judgment debtors' properties.
When the lease
expired and was renewed, the legal Mortgage was automatically revived.


Mr. Walubiri reasoned that according to Section 18 of the Mortgage
Decree a debenture is a mortgage. In support of his arguments he
relied on
A.K. Detergents v East African Development Bank Court of Appeal Civil
Appeal No.17/98 (unreported). In that case a receiver had been appointed
by the bank under a debenture. The receiver sold land and the sale was
challenged
on the ground that the debenture had not been registered under the
Registration of Titles Act. Manyindo, DCJ, as he then was, held
that there was a
legal mortgage created by the debenture.

The law is that objector
proceedings are proceedings of a special nature. Order 19 Rule 56 provides:

“The claimant or objector shall adduce evidence to show that at the date
of attachment he had some interest in the property
attached”


It is appreciated that the receiver in law
acquires no right of action by virtue of his appointment. Lochab Brothers v
Kenya Furtal Co. Ltd
.(supra) and Kasozi Ddamba v Male Construction
service Co.
(supra) are distinguishable from the instant appeal. In both
authorities the receiver manager were appointed after attachment of
the
properties. However, in the instant appeal the issue before court was whether
the respondents had a right to bring the action
They instituted the objector
proceedings on the ground that they were in possession and had an interest as
receiver managers for
East African Development Bank. I am therefore inclined to
hold that the respondents had the locus standi as they had possessory interest
in the property Grounds 1,3 and 5, fail.

I now turn to grounds 2, 4 and
6 which read as follows:

"2. The learned Judge erred in failing to find
that the Debenture under which the Respondents had been appointed as Receivers
of the
Judgment debtor company as well as any mortgage (either legal or
equitable) over the judgment-debtor company’s land were both
invalid and
void as against the attachment creditor due to non registration under the
Company’s Act and further that the Respondents
or the East African
Development Bank had no interest in the attached property.

4. The
Learned Judge erred in law and in fact by failing to find that the Legal
Mortgage of East African Development Bank Ltd. was
void and of no effect the
same having lapsed and further holding that “the question of whether the
mortgage had lapsed is not
within the scope of the investigations.

6. The
learned Judge failed in holding that the burden of proof was on the Respondent
herein to establish that the Debenture as well
as any mortgage (legal or
equitable) pursuant to which they claimed a lawful interest in the attached
property was duly registered
as required under the mandatory provisions of S.96
of the Companies Act and that the Respondents had failed to discharge the same"


The gist of counsel’s complaint in grounds 2,4 and 6 relate to
failure to register the debenture and the Mortgage under section
96 of the
Companies Act. Counsel contended that the debenture under which the respondents
were appointed was not registered under
Section 96 of the Companies Act.
According to the averments contained in the affidavit of Steven Onen a legal
officer of the East
African. Development Bank, the judgment debtor executed a
legal mortgage on LRV 2144 Folio 15, Plot M 101 Entebbe as security for
money
advanced. The lease expired on 31st May 1998 but was extended for a further term
of 44 years. The East African Developn1ent
Bank lodged caveat on the land. The
title deeds were deposited with Norwegian Agency for Development Co-operation on
behalf of the
lenders. Counsel conceded that an equitable mortgage was created
but was invalid by virtue of non registration under the Companies
Act. He relied
on English authority of In Re Molton Finance Ltd. 1968 l Ch.325 where it
was held that the deposit of deeds and documents was merely ancillary to the
equitable charge created and
the contractual right to their retention was lost
when the charge was voided for non registration under the Companies Act. Counsel
for the appellants, contended that the respondents had the legal burden to prove
that the debenture and the mortgage under which
they claimed were valid. Counsel
argued that it \vas raised in the affidavit of John Verjee that the equitable
mortgage and the debenture
under which the respondents claimed were void. The
burden of proof that they were legal shifted to the respondents but they did not
discharge it. He cited Trans Africa Assurance Company Ltd. v National Social
Security Fund
Supreme Court Civil Appeal 1 of 1999 (unreported) for the
proposition that the objector should prove that he is in possession. Counsel
further complained that the judge was wrong to hold that the question whether or
not the mortgage had lapsed was not within the scope
of investigation"


Walubiri, learned counsel for the respondents, submitted to the
contrary. He contended that the legal or equitable interest created
in the land
for the respondents could not be taken away by non registration under the
Companies Act. The Mortgage Decree (Decree
17/75) and the Registration of Titles
Act (Cap 205) were supreme. Counsel urged further that the contention that the
debenture and
the mortgage were null and void due to non registration in
accordance with the Companies Act were never specifically pleaded. The
respondent’s could not reply to generalities. The trial court could not
make a finding on the matter when there was no evidence
before it. The
respondents had to prove possession only and they did so. I disagree with Mr.
Walubiri’s submission with regard
to the appellants’ pleadings. In
the additional affidavit of John Verjee it is averred as follows:

"5. That I am informed by my lawyers M/S Kasirye, Byaruhanga & Co. Advocates
of Postal Address Box Number 10946 Kampala, Uganda
whose advice I verily believe
to be truthful that the mortgage debenture dated October 20, 1994 and annexed to
the applicants' affidavit
is null and void and of no legal effect as it offends
the provisions of the Companies Act Cap. 85. .



6. That the legal mortgage exhibited as F in the affidavit of Simon Kalenzi
lapsed when the lease on LRV 2144 Folio 16 Plot M 101
expired on May 31,
1998.

7. That I am informed by my lawyers named herein before and whose advice I
verily believe to be truthful that the interest of East
Africa Development Bank
as an equitable mortgagee by virtue of a caveat registered on December 21, 1999
is void for want of registration
under the Companies Act Cap
85.


The deponent clearly pleaded that the equitable mortgage
and the debenture were void because they offended the provisions of the
Companies Act. However, in my view, it was immaterial to the decision of the
case whether the averments were controverted or not.


In her judgment the
learned trial judge did not consider the issue of the registration of
the debenture or the mortgage, and rightly so in my view. She held
that what was required in objector proceedings was to prove that the
objector is in possession. She quoted the provisions of order 19 Rule 57
and stated:

"The guiding principles in cases of this nature were set out in
the case of Herilal & Co. v Buganda Industries Ltd. [1960]
EA 318 where the Court said:

"The question to be investigated is whether at the date of the
attachment the Judgment debtor or the objector was in possession, or
where the
Court is satisfied that the property was in the possession of the objector, it
must be found whether he held it on his
own account or in trust for the Judgment
debtor. The sole question to be investigated is thus one of possession.
Questions of legal
right and title are not relevant, except so far as they may
affect the decision as to account of or in trust for the Judgment debtor,
or
some other person. To that extent the title may be part of the investigation.
But ultimate questions of the trust or complicated
questions of trust or
complicated questions like the benani nature of a transaction are not
within the scope of the inquiry and are not intended to be gone into."

This decision was quoted with approval by WAMBUZI C.J in Transafrica
Assurance Co. Ltd v. National Social Security Fund
(supra).



Since there is no dispute about possession of Plot M 101 Entebbe by the
Receivers the question is whether they are in possession
in account of the
Judgment debtor or on behalf of someone else. –



Although I agree that receivers are in law the agents of the debtor company,
they hold the property to pay the debts of the company”


She held that respondents were in possession not on behalf
of the judgment debtor but for East African Development Bank.
I agree with
the statement of law as stated above by the learned trial judge. I find that she
correctly applied the law to the facts.
In objector proceedings it did not
matter whether the respondents held as legal mortgagees or as receivers. The
issue which had to
be investigated by the court and decided was that of
possession. To that extent the judge was right when she held that "the question
of whether the mortgage has lapsed is not within the scope of this
investigation" Grounds 2,4 and 6, too, fail.
Before I take leave of this
appeal I would like to mention that the court was informed by counsel for the
respondents during the hearing
of this appeal that the legality of the debenture
is being challenged by the appellants in a substantive suit in the High Court.
Counsel duly sent to the registry of this court the plaint and the Written
Statement of Defence in HCCS No. 1804 of 2000 John Verjee
and Another v Simon
Kalenzi & 6 others

I have perused the same and found that what
counsel stated from the bar is true. I am of the view that the issue of no
registrationof
the debenture or otherwise are not matters to be decided in
objector proceedings and the appellants are aware of that legal position.
That
is most probably the reason why they filed HCCS 1804 of 2000 in the High Court
in December, 2000. In the result I would dismiss
this appeal with costs to the
respondents here and in the court below.

TWINOMUJUNI,
J.A:
I have read, in draft, the judgment of my Lord, Hon. Lady
Justice C.N.B. Kitumba, JA. I agree with the conclusion that this appeal
should
fail. I will only add a few remarks for emphasis only.

The facts of the
case and the grounds of this appeal are ably reflected in her Lordships
judgment. In allowing the objector proceedings
in the High Court, the learned
trial judge stated what she believed to be the applicable law as follows:

“The guiding principles in cases of this nature were set out in the case
of Herilal & Co. v Buganda Industries Ltd. (1960) EA 318 where the
court said:

“The question to be investigated is whether at the date of the attachment
the Judgment debtor or the objector was in possession,
or where the Court is
satisfied that the proper(v was in the possession of the objector, it must be
found whether he held it on his
own account or in trust for the Judgment debtor.
The sole question to be investigated is th us one of possession. Questions of
legal
right and title are not relevant, except so far as they may effect the
decision as to account of or in trust for the Judgment debtor,
or some other
person. To that extent the title may be part of the investigation. But ultimate
questions of the trust or complicated
questions of trust or complicated
questions like the benani nature of a transaction are not within the scope of
the inquiry and are
not intended to be gone into.
'”

This decision was quoted with approval by WAMBUZI, C.J in Civil Appeal No. 1/99
Transafrica Assurance Co. Ltd v. National Social Security Fund
(unreported).



Since there is no dispute about possession of Plot M 101 Entebbe by the
Receivers the question is whether they are in possession
in account of the
Judgment debtor or on behalf of someone else.



Although I agree that receivers are in law the agents of the debtor company,
they hold the property to pay the debts of the company."


I
totally agree with this statement of the law, Whether the mortgage or the
debentures through which the Receivers obtained possession
are valid or not is
an issue of title which can only be investigated in proceedings in which the
judgment debtor is a party. It is
not within the scope of inquiry in objector
proceedings. Once a Receiver had taken possession of the property before
attachment,
that property cannot be attached by the other subsequent decree
holders against judgment debtor. By virtue of possession, the Receivers
also
acquire the right to commence action in court in their own right to protect
their right of possession, This is even acknowledged
in the case of Lochab
Brothers v. Kenya Furtal Co. Ltd. And 2 Others
1982-88 1 KAB 335on
which the appellants heavily relied.

MUKASA-KIKONYOGO, DCJ I have
had the benefit of reading in draft the judgment prepared by KITUMBA J.A. I
agree that for the reasons she gave this appeal
must fail. I have nothing useful
to add except to thank the learned counsel for both parties for the industry
they exhibited and
the extensive research carried out.

Since TWINOMUJUNI,
J.A. holds a similar view the appeal is dismissed with costs to the respondents
in this court and the High Court.


SIMON KALENZI & OTHERS

v

JOHN VERJEE & ANOTHER

HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL
COURT)

HIGH COURT MISC. APPLICATION NO. 897 OF 2000
(Arising out of
H.C.C.S. No. 376 of 1998)

BEFORE: HON. LADY JUSTICE C.K.
BYAMUGISHA

November 1, 2000

RULING


BYAMUGISHA, J: This application by Notice of Motion was brought
under the provisions of Order 19 rules 55, 56, 57 and 89 of Civil Procedure
Rules
seeking orders that:

1. The movable and immovable properties of the Judgment/debtor particulars of
whereof are set out in the affidavit of Simon Kalenzi
be released from
attachment.

2. The costs of the application be provided for.


Two grounds
were cited as a basis for the application namely that:

1. The said properties are not liable for attachment as they are in the hands of
the Applicant as Receivers and Managers of the Judgment
Debtor Company for the
benefit of Messrs, East African Development Bank as Debenture holders. 2.

2. M/S East African Development Bank have a fixed charge on the said properties.
These grounds were supported by the affidavit of
Simon Kalenzi and were opposed
by two affidavits sworn by John Verjee one of the Judgment Creditors.

When the matter came before me, counsel on both sides made spirited
submissions regarding the matters raised in the application. In
order for the
applicant to succeed in this application he has to satisfy the requirements of
the law under which it was made. Rule
55 states that where any objection is made
on the ground that such property is not liable to attachment the Court will
proceed to
investigate the claim. The burden is on the objector to adduce
evidence to show that at the date of the attachment he had some interest
in the
property attached. Rule 57 provides that:

“Where upon the said investigation the Court is satisfied that for the
reason stated in the claim or objection such property
was not, when attached, in
the possession of the Judgment debtor or of some person in trust for him, in the
occupancy of a tenant
or other person paying rent to him or that being in the
possession of the Judgment debtor at such time, it was so in his possession
not
on his own account or as his own property but on account of some other person,
the Court shall make an order releasing the property,
wholly or to such an
extent as it thinks fit from attachment.”

In the matter
now before Court, it is the case for the objectors that they were appointed
receivers by the East African Development
Bank on the May 30, 2000 and upon
their appointment they took over possession and management of all the movable
and immovable properties
of Clovergen Fish and Foods Ltd. It is also being
contended that on 5th day of July, Court bailiffs and policemen occupied the
premises
at the site in execution of the orders of attachment and sale of the
movable and immovable properties of Clovergen Fish and Foods
Ltd.

On the otherhand, the Judgment/Creditor John Verjee deponed in his affidavits
that when the decree was taken for filing on the June
8, 2000 at the Registrar
of Companies Registry, there was no notification of the appointment of a
Receiver/Manager for the Judgment/debtor.
He also averred that the legal
mortgage lapsed when the lease on LRV 2144 Folio 16 Plot M 101 expired on May
31, 1998. The affidavit
is silent as to whether the Receivers are in possession
on behalf of East African Development Bank.

The guiding principles in cases of this nature were set out in the case of
Herilal & Co v Buganda Industries Ltd [1960J EA 318 where the Court
said:

“The question to be investigated is whether at the date of the attachment
the Judgment debtor or the objector was in possession,
or where the Court is
satisfied that the property was in the possession of the objector, it must be
found whether he held it on his
own account or in trust for the Judgment debtor.
The sole question to be investigated is thus one of possession. Questions of
legal
right and title are not relevant, except so far as they may affect the
decision as to account of or in trust for the Judgment debtor,
or some other
person. To that extent the title may be part of the investigation. But ultimate
questions of trust or complicated questions
like the benani nature of a
transaction are not within the scope of the inquiry and are not intended to be
gone into”

This decision was quoted with approval by
WAMBUZI C.J in Civil Appeal No. 1/99 - Transafrica Assurance Co Ltd v
National Social Security Fund
(unreported).

Since there is not dispute about possession of Plot M 101 Entebbe by the
Receivers the question is whether they are in possession
in account of the
Judgment debtor or on behalf of someone else. Although I agree that receivers
are in law the agents of the debtor
company, they hold the property to pay the
debts the company. In the instant case, the receivers are in possession
according to the
affidavit of Kalenzi after they were duly appointed by East
Africa Development Bank as legal mortgagees. The question of whether
the
mortgage lapsed is not within the scope of the investigations.

It was submitted by counsel for the respondents that receivers cannot bring
an action in their own names as they have no interest
in the attached property.
With respect I do not agree. Objector proceedings are by their very nature
brought by anyone in possession
objecting to the attachment.

I will therefore allow the application and order the release of the property
whose particulars were given in the annextures from attachment.

Application allowed.