THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
(EXECUTION AND BAILIFFS DIVISION)
MISCELLANEOUS APPLICATION NO. 1365 OF 2017
(ARISING FROM EMA 2437 OF 2016)
(ARISING OUT OF CIVIL SUIT NO. 81 OF 2016)
NAKUMATT UGANDA LTD ----------------- APPLICANT/OBJECTOR
- ASA (U) LIMITED ------ JUDGMENT CREDITOR/RESPONDENT
- BREAD AND WINE INVESTMENTS ---------------------------------------------------------- JUDGMENT DEBOTR/RESPONDENT
BEFORE LADY JUSTICE FLAVIA SENOGA ANGLIN
This application was made under S.33 & 38 (1) of the Judicature Act, S.64 and 98 of the Civil Procedure Act, 0.22 rr 55 (1), 56 and 57 and 0.52 rr 1 and 3 Civil Procedure Rules.
The Applicant seeks orders that the moveable assets pledged to the First Respondent / Judgment Creditor list in the application be immediately released from attachment unconditionally.
An order staying execution and attachment be made against the Respondent and the Judgment debtor individually and severally.
Costs of the application be provided for.
The grounds of the application are set out in the affidavit of Sameer Shah, the Operations Manager of the Objector Company.
They are interalia that:-
The Objector paid Ug. Shs. 50,000,000/- to Uganda Revenue Authority (URA) in a third party capacity on behalf of the Second Respondent.
As a result of the payment of the said tax liability, owed by the Second Respondent to URA and in consideration for the same, the Objector took over ownership of the movable assets of the Second Respondent commensurate to the amount paid to URA.
When the Second Respondent was sued by the First Respondent to recover Shs. 9,758,300/- the Objector was not party to the suit.
However, when judgment was entered against the Second Respondent and execution proceedings commenced, a warrant to attach the movable property in possession of the Objector was issued.
That the Second Respondent has no interest or ownership of the said property.
If the attachment and sale of the property is not halted, the Applicant/Objector will suffer irreparable loss of its equipment.
Since the application was commenced without inordinate delay, it is only fair and equitable that the property be released from attachment to protect the Objector’s interest.
There is an affidavit in reply by Akshay Agarwaal were it is stated among other things that, the Applicant’s/Objector’s payment of the Shs. 50,000,000/- to URA following the third party Agency Notice, does not entitle the Applicant to ownership of the Second Respondent’s assets, and neither does it become a debt or a lien over the assets.
The Objector only proposed to take ownership of the machinery of the Second Respondent and the proposal was never negotiated and concluded upon.
That a mere proposal to buy or sale cannot be regarded as an actual sale or purchase and therefore ownership still belongs to the Second Respondent.
Further that the Second Respondent did not follow the procedures necessary to sell or create a charge or lien on its property in favor of a third party.
Only a few items mentioned in paragraph 13 of the deponents affidavit were attached and the Applicant shall be put to proof of the other items.
The application should not be granted as the Objector has not provided any evidence of ownership of the attached property or provided evidence of a lien or charge over the said property.
There is an affidavit in rejoinder by Sameer Shah, where it is contended among other things that the arrangement between the Objector and the Second Respondent to pay Shs. 50,000,000/- and the Objector to retain the Second Respondent’s equipment as part payment of their debt liabilities was mutual.
The Objector retained possession of the equipment and acquired interest in the same. The equipment was picked from the Objector’s premises.
On 21.06.17, before hearing took off, Counsel for the Applicant/ Objector applied to make amendment to the motion in respect of the properties attached by the First Respondent. To wit a mixer, bread slicer, fifty(50) bread pans and two(2) bread shelves. He pointed out that the rest of the equipment mentioned in the motion is still with Nakumatt.
Counsel for the First Respondent did not object to the proposed amendment together with the amendment in the supporting affidavit to indicate that it was deponed by Sameer Shah. The amendments were accordingly allowed.
Counsel for the Objector went through the provisions of the law under which the application was made, referred to the supporting affidavits and the affidavit in rejoinder and the grounds of the application.
It was emphasized that, the Objector and Second Respondent had a discussion with Uganda Revenue Authority (URA) in respect of the third party notice and it was agreed that Shs. 50,000,000/- from the sales be paid to URA. And that Objector would continue holding on to the equipment of the Second Respondent in satisfaction of the debt. - Refer to Annexture A1 and B.
It was also agreed that the machinery and equipment remain in possession of the Applicant/Objector – Annexture D and G.
Counsel submitted that, the arrangement had the effect of creating an equitable interest/lien over the property.
The First Respondent attached the equipment from the Objector’s premises. And that since ownership is not in contention as it was obtained prior to the execution process, the equipment should be released from attachment.
The case of Sebi vs. Top Finance Co. Ltd MA 1702 of 2015 was cited in support for the holding that, “the question to be decided is whether on the date of attachment the Judgment Debtor or the Objector was in possession. Where court is satisfied that the property was in possession of the Objector, the court has to determine whether it was held on the Objector’s own account or in trust for the Judgment debtor”.
“Questions of legal right and title are not relevant except in so far as they may affect the decision as to whether possession is on his own account or in trust for the Judgment Debtor or some other person”.
Counsel then argued that the Applicant in the present case held the equipment as a lien to clear part of the outstanding liability from the Second Respondent. That the equipment was not held in trust for the Second Respondent.
And that, since the Applicant has an equitable interest in the said equipment, the First Respondent has no right over the equipment. It was prayed that the property be released from attachment and returned to the Applicant.
In reply, Counsel for the First Respondent stated that, looking at the facts of the present case, court should look at the question of possession differently.
The nature of the arrangement between the Applicant and the Second Respondent is very peculiar, Counsel argued. It necessitated the Second Respondent to bring its equipment to the premises of the Applicant and operate a bakery therein.
Therefore that, though possession was with the Applicant, it was on account of the Second Respondent, because it is the Second Respondent who was operating the Bakery and getting the bread and offering staff to the Applicant.
The Applicant would take commission from the sales of the Second Respondent. - He referred to paragraph 6 of the affidavit in rejoinder of the Applicant, where it is stated that, the proposal of the Second Respondent was accepted and equipment left in possession of the Applicant.
And paragraph 6 of the affidavit in support where it says that, the Applicant in third party capacity took over ownership of moveable property.
It was pointed out that the attached emails C and D- “C” seem to come from a personal email address and the Applicant relies upon it as if it was sent by the Second Respondent – a limited liability Company.
Counsel argued that the email was personal and was only expressing an intention to settle the dispute between the Applicant and Second Respondent. It did not go further than that.
Also that, the email was only a proposal and a personal one at that. And that the Applicant has not adduced any evidence that the proposal was accepted and reduced into writing and thereafter property taken over.
Such an arrangement involving over Shs. 300,000,000/- could not have been concluded in a personal email with a mere proposal that was never accepted. The case of Kaggwa vs. Kolin Insaat Turizu & 2 Others HCT C.S 0318/2012 P.4 was relied upon. In that case, Counsel stated, “court went through email address to determine whether there was a contract or not”
It was the further argument of Counsel that, since the arrangement between the Applicant and the Second Respondent concerning over Shs. 300,000,000/- and which renders all property of the Second Respondent to the Applicant must have been in writing; in absence of such written agreement, the property still belongs to the Second Respondent and was rightfully attached by the First Respondent.
Court was also urged to look at paragraph 3 of the affidavit in support. He contended that the Applicant paid the Shs. 50,000,000/- it held on behalf of the Second Respondent to URA in honor of the third party notice. The payment did not create any lien or entitlement to the property of the Second Respondent by the Applicant. The lien could only have been created if the money was paid out of the money or profits of the Applicant to URA.
Therefore that, the question of possession on account of the Second Respondent should be resolved in favor of the First Respondent.
Further that, the Applicant’s evidence is not convincing. There is no evidence to show that Bakery is currently run by the Applicant. If it was so, it would properly change the way court looks at the issue.
Commenting about the alleged equitable interest of the Applicant in the property, Counsel submitted that the First Respondent has since taken over legal interest in the property. And that the legal interest supersedes the equitable interest.
It was prayed that the application be dismissed with costs to the First Respondent.
In rejoinder, Counsel for the Applicant submitted that the case of Kaggwa vs. Kolin (Supra) that requires contracts to be in writing is distinguishable from the facts of the present case. The case relates to a claim of a Commission of $500,000. There was therefore need to prove existence of a legally binding contract.
But that the present case concerns claim of an interest in equipment that belonged to the Second Respondent.
The business relationship between the Applicant and the Second Respondent is not disputed and the Second Respondent indebtedness to the Applicant is also not disputed.
The email proposing that the equipment be held in satisfaction of the debt has been presented. The Applicant’s being in possession of the equipment is sufficient to create interest of the Applicant in the equipment either legal or equitable.
As to the operation of the Bakery, the submission of Counsel was that the Second Respondent is no longer trading in the business. The Applicant cannot stop operating the Bakery just because the Second Respondent is part of the business.
And that the Applicant is operating the Bakery using equipment that now belongs to it.
As to the third party notice from URA- Counsel’s argument was that, it is not mandatory to pay URA if the Applicant had no money belonging to the Second Respondent.
However that, the Shs. 50,000,000/- was generated from sales from the Bakery. To avoid explanations to and inconveniences by URA, the parties agreed that the Applicant pays the money since it had possession of the equipment and remain with possession.
That annexture “G” paragraph 4 of the Affidavit in rejoinder shows that URA also wanted the equipment of the Second Respondent. But by then it had already been pledged to the Applicant.
As to the emails being from individuals and not the Company (Second Respondent), Counsel explained that, the authors thereof were the Directors of the Second Respondent and could therefore communicate on behalf of the Second Respondent. The Second Respondent could send emails through its officials.
Legal interest versus equitable interest: It was asserted by Counsel that, in objector proceedings, the question is whether the Objector has an interest in the property whether legal or equitable prior to the execution proceedings. And that it has been established that the Applicant indeed has an interest in the equipment.
Counsel accordingly insisted that, “where a party has an equitable interest prior to acquisition of a legal interest by another party, the legal interest is held subject to the equitable interest”.
And that the First Respondent has not yet attained legal interest in the attached equipment since it has not yet been sold or transferred into its names.
Earlier prayers were the reiterated.
Upon giving the submissions of both Counsel the best consideration, I can in the circumstances, taking into account the provisions of the law relied upon, and the cases for and against the application, I agree that the question to be determined is whether on the date of attachment, the Judgment Debtor or the Objector was in possession.
I am also aware that, and will bear in mind the principle established by decided cases that “where court is satisfied that the property was in the possession of the Objector, it has to determine whether it was held on account of the Objector or in trust for the Judgment Debtor”.
Court also wishes to remind itself of the principle that in cases of this nature, “questions of legal right and title are not relevant except in so far as they may affect the decision as to whether is on account of or in trust for the Judgment Debtor or some other person. To that extent the title may be part of the inquiry”. – Refer to Harilal & Co. vs. Buganda Industries Ltd  IEA 318 (HCU) and Habiba Ismail Ssebi vs. Top Finance Co. (u) Ltd & 3 Others (Supra).
In the present case, the Second Respondent was said to be indebted to the Applicant to the tune of Shs. 349,444,486/- and as part settlement of the debt liabilities, the Applicant retained the Second Respondent’s money amounting to Shs. 50,000,000/-.
When the third party notice was issued by URA, the Applicant entered into an understanding with the Second Respondent, where it was agreed that the Applicant pay the Shs. 50,000,000/- to URA and retain the Second Respondent’s equipment as part payment of the debt.
As a result of that arrangement, the equipment was left in possession of the Applicant as part payment of the debt liabilities.
Counsel for the First Respondent admits that possession was with the Applicant although he argues that it was on account of the Second Respondent who was operating the Bakery and the Applicant would get commission from the sales of the Respondent.
Many other issues concerning the emails exchanged by the Applicant and the Second Respondent are also raised. For example that, they were mere proposals made on a personal basis that could not conclude a contract without being accepted and in writing.
Further that, the Shs. 50,000,000/- paid by the Applicant to URA was money held by the Applicant on behalf of the Second Respondent and therefore could not create a lien on the property of the Second Respondent.
However, this court is more persuaded by the arguments of Counsel for the Applicant that the indebtedness of the Second Respondent to the Applicant is not disputed. And that the money paid out to URA for the Second Respondent was meant to among other things to stop URA from taking over the equipment and thus leaving the Applicant with no property to secure the sums owed to it by the Second Respondent.
This court therefore finds that, the Applicant was in possession not on account of the Second Respondent but on its own account. – Refer to Mineral Waters Ltd vs. Kampala Mineral Waters Ltd  KLR 466.
The Applicant has a lien over the property created /held long before the equipment was attached on account of the Second Respondent’s debt to the First Respondent.
The issue of actual ownership can be properly determined if the First Respondent or the Second Respondent file a suit against the Applicant. Otherwise, the First Respondent who is the Judgment Creditor has other remedies to recover the decretal sum from the Judgment Debtor (Second Respondent) other than attaching the property whose ownership is in dispute.
The submissions of Counsel for the First Respondent are rejected for all those reasons.
The application is allowed.
The attachment of the mixer, bread slicer, 50 bread pans and 2 bread shelves is hereby set aside. The equipment should be released to the Objector.
The costs of the application to be met by the First and Second Respondents.
FLAVIA SENOGA ANGLIN