THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
IN THE MATTER OF TRANSAFRICA ASSUR2NCE COMPANY LIMITED
COMPANIES CAUSE NO. 19 OF 1999
CIMBRIA EAST AFRICA LIMITED ………………........................................PETITIONER
TRANSAFRICA ASSURANCE COMPANY LIMITED ………………… RESPONDENT
BEFORE: THE HONOURABLE LADY JUSTICE C.K. BYAMUGISHA
The Petitioner Cimbria East Africa Ltd filed this petition under the provisions of section 222 (e) of the Companies Act seeking the winding up of the Respondent on the ground that it is insolvent and unable to pay its debts. The facts are not in dispute. On the 24th July, 1997 the Respondent executed a Performance Bond in favour of the Petitioner in which it bound itself to pay the sum of Danish Kroners Three million one hundred and Eighty Three Thousand and Two hundred and twenty five (3,183,225) to the petitioner in the event of the failure by Mytrade Uganda Ltd to pay the above sum.
The Bond was based on an agreement of sale entered into by the Petitioner and Mytrade Uganda Ltd dated the 12th February, 1997. The payment terms of the Agreement was that the buyer (Mytrade Uganda Ltd) had to make a down payment of Danish Kroner 686,295.00 and was to provide an irrevocable letter of Credit for the balance or a Performance Bond of Danish Kroner 2,913,705.0.
It was in fulfillment of the latter clause that the Performance Bond was executed. On the strength of this Bond the Petitioner supplied and installed a Coffee drying and Processing Plant to Mytrade Uganda Ltd at its business premises in Kawempe. The buyer Mytrade (U) Ltd
made sum payments and a balance of Dkr. 2,493,095.65 has remained unpaid to date.
It is the Petitioners case that since the 30th June, 1998 the date on which the balance became payable it made applications to the Respondent pursuant to the Bond through letters dated 1st July 1998; 18th February 1999 and 12 April 1999 for the payment of the sum of Danish Kroners Two million four hundred and ninety-three thousand and ninety-seven cents sixty five (2,493,097.65). The Respondent apparently neglected to pay or to satisfy the same - hence this petition.
The Respondent filed two affidavits dated 23rd December, 1999 and 30th August, 2000 respectively opposing the petition. Other affidavits were sworn to oppose the petition by Vohora the Managing Director of Mytrade (U) Ltd and Nsereko Male an accountant with an Audit firm. In Sharma’s affidavit of 23rd December, he stated that the Performance Bond was to be executed by two Directors or a Director of the company and company Secretary according to Articles of Association. He also stated in paragraph three thereof that the Respondent has no knowledge of the contract of 12th February but was presented with a contract between the Petitioner and Mytrade Ltd P.O. Box 57821 Nairobi. For the above two reasons, the Respondent contended that the Petitioner is not entitled to the reliefs being sought.
In the supplementary affidavit of Mr. Sharma he stated in paragraph three thereof that when the Respondent received instructions from both the Petitioner and M/S Mytrade Ltd Nairobi
- Kenya to prepare a Performance Bond they were never presented with the contract executed on 19/02/97 but were only presented with the contract of 12/02/97 on which basis a Performance Bond was issued in good faith albeit mistakenly.
The affidavit of Volora the Managing Director of Mytrade (U) Ltd on its part denied the existence of the debt maintaining that the contract of 12/02/97 was displaced by the one of 19/02/97 between the Petitioner and M/S Mytrade Ltd of P.O. Box 57821 Nairobi Kenya. He averred that the Performance Bond was prepared on the basis of the wrong contract and therefore there is no debt owing based o the Bond.
A Director of the Petitioner one Nielsen deponed another affidavit in rejoinder. He first all denied that the petitioner gave instructions to the Respondent to prepare a Performance Bond. Instead he averred that the Bond was presented to the Petitioner by Mytrade (U) Ltd in pursuance of the contract dated 12th February, 1997, for purposes of approving the warding. He also denied that the contract of 12th February, 1997 was displaced with the contract of 19th February, 1997 between the Petitioner and Mytrade Ltd of Nairobi-Kenya. He also referred to a number of invoices presented to Mytrade (U) Ltd in pursuance of the contract, the Proforma Invoice No. 1006 and a number of cheques drawn on Crane Bank Ltd forwarded to the Petitioner by Mytrade Uganda Ltd. Finally the deponent referred to the letter of 4th February 1999 written by Mytrade Uganda Ltd informing the Petitioner that it was fully committed to meet its obligation and pleaded not to take any adverse steps.
The following were the issues for Court’s determination:
Whether the Performance Bond was executed by the Respondent.
2. Whether the Respondent has knowledge of the contract of 12/02/97 between the Petitioner and Mytrade (U) Ltd.
3. Whether the Respondent is liable on the Bond.
4. Whether the Petitioner is entitled to the reliefs sought.
On the first issue, counsel for the Petitioner submitted that the bond was signed by an officer of the Respondent who had been authorised by power of Attorney No. 3237. He pointed out that under clause 120 of the Respondent’s articles and memorandum of Association, the Respondent is empowered to appoint any person by power of Attorney to execute any functions on its behalf except the function of borrowing money. He further submitted that under section 34 (1) (a) of the Companies Act, a contract which is required to be in writing may be made on behalf of the company and signed by any person acting under its authority express or implied. He invited Court to hold that the bond was properly executed.
Counsel for the respondent made no submission on this issue, I therefore take it that the Respondent no longer contests the due execution of the bond. Nonetheless, it had been averred by Mr. Sharma in his affidavit of 23rd December, 1999 that the bond was supposed to be executed by two Directors or a Director and a company Secretary as required by the articles and memorandum of Association. I have looked at the performance bond dated the 24th July, 1997. It was signed by a Principal Officer who claimed to have been authorised by Power of Attorney No. 3237. It is not being contested that no such power was given. Moreover, Article 120 of the memorandum and Articles of Association give the directors of the company power to appoint any person for such purposes and with such powers other than the power to borrow money. The bond was not a document for borrowing money. It is therefore my finding that the bond was properly executed.
On the second issue of whether the Respondent had knowledge of the contract of 12/02/97. Both counsel made submissions on this issue relying on the affidavits of Mr. Sharma and Mr. Vohora the Managing Director of Mytrade (Uganda) Ltd. Mr. Sharma’s affidavit of 23rd December, 1999 states in paragraph 3 thereof:
“That in reply to paragraph 7 of the petition the respondent has no knowledge of the said contract but was presented with a contract between the Petitioner and Mytrade Limited P.O. Box 57821 Nairobi.”
In the supplementary affidavit dated 30th August, 2000 in paragraph he averred as follows:-
“That when we received instructions from both the Petitioners and M/S Mytrade
Limited of Nairobi - Kenya to prepare a performance bond we were never presented with the contract executed by the two parties dated 19/2/1997 annexed to Mr. Rajesh