THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT NAKAWA
CIVIL SUIT NO. 144 OF 2004
MUGERWA COMMERCIAL AGENCY LTD::::::: PLAINTIFF
THE MANAGEMENT COMMITTEE
ST. SAVIO JUNIOR SCHOOL, KISUBI ::::::::DEFENDANT
BEFORE: HON. JUSTICE GIDEON TINYINONDI
(c). The 897 T/Shirts were supplied and delivered to the Defendant on the 12th April 2000. Copies of Invoice and delivery note are marked “A” and “B” respectively.
(d). The second consignment was supplied and delivered on the 15th April, 2000. Copy of the Invoice is marked “C”.
PARTICULARS OF SPECIAL DAMAGES
Shs. 5,348,000/= being the outstanding unpaid balance.
IN THE ALTERNATIVE
PW1, Paul Mugerwa, testified as hereafter. Through the Plaintiff Company he supplied scholastic materials to schools. Around May, 1995 he supplied the Defendants with stationery at the oral request of Father Kisitu, the headmaster of the Defendant. The oral request was subsequently reduced into writing. PW1 did not have that document.
PW1 further testified that on 23/05/1997, he and the Defendants signed a contract to supply to the Defendants goods of small value.
PW1, further testified that on 12/04/2000 his Company supplied 800 sports shirts to the Defendant at a cost of Shs. 5,382,000/=. A proforma invoice and delivery note were signed (exhibits “P2” and “P3”). The Defendants part paid with Shs. 34,000/= (Shillings thirty four thousand only) by cash.
On 15/04/2000 the Company and Defendants entered another contract. The Plaintiff would supply:
a). 12 teachers” T/Shirts.
b). 18 parents T/Shirts.
A proforma invoice was signed. The cost of Shs. 216,000/= (Shillings two hundred and sixteen thousand only) was paid by Defendants and received by PW1.
Referred to paragraph 4 (b) of the plaint, PW1 stated that the specifications of the goods were at the front and back of each T/Shirt.
PW1 was now claiming Shs. 5,430,000/= (Shillings Five millions, four hundred and thirty thousand only) general damages for breach of contract, interest at 25% p.a. from the date of delivery 12/04/2000 till payment, and costs of the suit.
In cross-examination PW1 testified as follows. He had been the Managing Director of the Plaintiff since its incorporation in 18/05/1988. By 23/05/1997 when he executed exhibit “P1”, he was supplying school uniforms and stationery to the Defendants as an individual but not through his company. He did not have any contract documents governing the deals between him and Defendants. When he wrote exhibits “D1” dated 16/9/2002 and “D2” dated 12/5/2004, he was acting as the Managing Director of the Company which position he had assumed since 2000. He had stopped dealing with the Defendants in October, 2001.
With this evidence, the proceedings terminated.
Both Counsel filed written submissions.
After due consideration of the pleadings, the evidence and both Counsel’s submission I now revert to the issues.
With regard to the first issue I find and hold as follows:
a). the Plaintiff Company was incorporated on 18/05/1988.
b). Paulo Mugerwa was one of the three subscribers.
d). Under Article 3 (c) of the Memorandum of Association the Company was:
“(c) To carry on by wholesale or retail or be interested in the business of distribution and importation of all types of textile materials…………….”
(e). On 23/05/1997 exhibit “P1” was executed. I reproduce it ex tenso:
ST. SAVIO JUNIOR SCHOOL, KISUBI
Your Ref: ………………..
Our Ref: ………………….
AS FROM 23/5/97 MR. PAUL MUGERWA WILL RECEIVE MONEY FOR UNIFORMS DIRECTLY FROM THE SOLD UNIFORMS TO THE PUPILS. WE SHALL ONLY KEEP THEM FOR HIM FOR SALE. WE NO LONGER CAN AFFORD PURCHASING THEM.
HEADMASTER ………………………………………… (Signed)
MR. MUGERWA PAUL ………………………………. (Signed)
It is my holding that it was before, at, or immediately after executing exhibit “P1” that PW1 ought to have complied with Section 200 of the Company’s Act, No. 110/2000. It reads:
Disclosure by directors of interests in contracts.
2). In the case of a proposed contract the declaration required by this section to be made by a director shall be made at the meeting of the directors at which the question of entering into the contract is first into consideration or if the director was not at the date of that meeting interested in the proposed contract, at the next meeting of the directors held after he or she became so interested, and in a case where the director becomes interested in a contract after it is made, the declaration shall be made at the first meeting of the directors held after the director becomes so interested.
3). For the purposes of this section, a general notice given to the directors of a company by a director to the effect that he or she is a member of a specified company or firm or acts for the company in a specified capacity and is to be regarded as interested in any contract which may, after the date of the notice, be made with that company or firm or with himself or herself in such specified capacity shall be deemed to be a sufficient declaration of interest in relation to any contract so made; but no such notice shall be of effect unless either it is given at a meeting of the directors or the director takes reasonable steps to secure that it is brought up and read at the next meeting of the directors after it is given.
4). Any director who fails to comply with this section is liable to a fine not exceeding two thousand shilling.
5). Nothing in this section shall be taken to prejudice the operation of any rule of law restricting directors of a company from having any interest in contracts with the company.
The basis of this requirement is to be found, inter alia, in “Company Law” by K. M. Gosh & Dr. K. R Chandratres, (13th Ed.) p. 3876. There it is stated: -
1. Director’s duty to disclose interest or concern
“Object and Scope
As noted earlier, the provisions enacted in section 299 (and also of sections 297 and 300) are founded on the principle that a director is precluded from dealing on behalf of the company with himself and from entering into engagements in which he has a personal interest conflicting, or which possibly may conflict, with the interest of those whom he is bound by fiduciary duty to protect.
Section 299 casts upon directors of companies an onerous obligation. It is a statutory obligation violation of which results in serious consequences. Contravention of this section compels the director to vacate his office of directorship apart from making him liable for penal consequences. This provision is enacted in order to ensure that directors act fairly and reasonably when there is a conflict between their interests and their duty towards the company. On contravention of the section the director has to vacate his office ipso facto on the happening of that event. The section applies to all companies.
As noted before, a director owes fiduciary duty to the company. Disclosure of interest should be to the shareholders. However, that is impracticable and inconvenient in relation to the day-to-day running of a business of a company. It has, therefore, been provided that the disclosure should be made to the Board of Directors. Gower comments on this point thus:
In marked contrast with the basic equitable principle the disclosure required is not to the general meeting but to the Board. It hardly seems over-cynical to suggest that disclosure to one’s cronies is a less effective restraint of self-seeking than disclosure to those for whom one is fiduciary.
“A director is in a fiduciary position. A person in a fiduciary position is not permitted to obtain profit from his position except with the consent of his beneficiaries or other persons to whom he owes the duty. In the case of a director, the consent required is that of the members in general meeting. That is inconvenient in relation to the day-to-day running of a business. It has, therefore, become the practice to relax the general rule by special provisions in the articles.”
(j). With regard to the third issue, I hereby dismiss the Plaintiff’s suit with costs to the Defendants.
Mr. Luboyera Joseph for the Defendant.
Mr. Ochen, Court Clerk.
The judgment is read.