Case law on business association, Papers of Law

Download Case law on business association and more Papers Law in PDF only on Docsity! THE REPUBLIC OF UGANDA, IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) MISCELLANEOUS APPLICATION NO 651 OF 2013 ANDREW KIBIRIGE LUTWAMA}.....ccssssssssssesssnssescsscscsassescesesceesseeceeees APPLICANT HARUNA KATO}... cccccssssssesseessnessenseeessnesssnssescesesceasseecenescensecscesescees RESPONDENT BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA RULING The Applicants application is an application under order 36 rule 3 and 4 of the Civil Procedure Rules and section 98 of the Civil Procedure Act for unconditional leave to defend the summary suit and for costs of the application or such further or other orders as the Applicants Counsel may seek and which the court may be pleased to grant as it deems fit. The grounds of the application are that the Applicant has a good and tenable defence to the Plaintiffs claim in the summary suit. Secondly that the Respondent/Plaintiff is still a shareholder in Liquifire Uganda limited. Thirdly there are bona fide triable issues of law and fact in the suit. Fourthly that the Applicant does not owe the Respondent/Plaintiff Uganda shillings 153,000,000/=. Lastly that it is just and equitable that the Applicant/Defendant is granted unconditional leave to defend the suit. The application is supported by the affidavit of the Applicant who deposes that on the Sth of May 2008 he entered into an agreement of sale of shares with the Respondent/Plaintiff at a consideration of Uganda shillings 250,000,000/=. The Respondent/Plaintiff made a part payment of Uganda shillings 150,000,000/= and the balance of Uganda shillings 100,000,000/= has never been paid. In spite of having made part payment on the 13" of May 2008, shares amounting to 180 were allotted to the Respondent/Plaintiff according to the returns in company form 8. By a resolution dated 25 September 2009, the Respondent/Plaintiff ceased to be a director and a company form, form number 8 was duly filed at the company registry. The Respondent/Plaintiff ceasing to be a director and subsequent to his selling back the 180 shares, the company never proved this transaction and the shareholding can be discerned from the transfer of shares filed at the company registry on the 5th of May 2008. The Respondent/Plaintiff ceased to be a director in the company and continued to get payments in the form of allowances and advances from the company as a shareholder. On the 10th of May 2010, he received Uganda shillings 5,000,000/=. On 10 June 2010, he received another shillings 5,000,000/=. On 12 July 2010, he received Uganda shillings 5,000,000/=. On 8 September 2010, he received Uganda shillings 1,500,000/=. On 7 October 2010, he received Uganda shillings 3,000,000/=. On 2 November 2010, he received Uganda shillings 3,000,000/=. The Respondent received the monies from the director Mrs Lutwama and acknowledgement receipts were issued and attached to the affidavit. The Respondent/Plaintiff is still a shareholder in the company except that he is or has been inactive. The Applicant/Defendant does not owe any money to the Respondent/Plaintiff at all. In reply the Respondent deposes that he bought 300 shares from the Applicant himself and with the payment for 180 shares which were transferred to him upon payment of Uganda shillings 160,000,000/=. The remaining 120 shares were to be transferred to him upon payment of the balance of Uganda shillings 90,000,000/=. The Respondent deposes that subsequently in 2010, he agreed with the Applicant to get out of this company whereupon the Applicant paid him Uganda shillings 7,000,000/= and for the balance of Uganda shillings 153,000,000/= the parties entered into an agreement to rescind the previous agreement where the Respondent had purchased the shares by selling the shares back to the Applicant under the terms of the agreement. The balance of Uganda shillings 153,000,000/= is due and outstanding and the Applicant does not deny that amount neither does he deny the agreement. The sale and transfer of the shares was approved by the company by way of a company resolution, which the resolution is admitted by the Applicant and annexed to the Applicant’s affidavit. Upon the sale and transfer back of the shares to the Applicant, the Respondent ceased to be a director in the company and by virtue of the resolution is not a shareholder in the company. Consequently the Respondent’s rights are related to the outstanding sums owed to him by the Applicant. Payments which the Respondent listed in the affidavit in support of the application are monies signed by the Respondent which the Applicant owed to him on a friendly loan basis. They are not part of Miscellaneous Application Number 267 of 2008 between George William Semvule versus Barclays Bank of Uganda Ltd. The Applicants Counsel submits that the Applicant has demonstrated in paragraphs 8 and 9 to the affidavit in support of the application that the Respondent is still a shareholder and paragraph 9 states that the Applicant does not owe any money to the Respondent. The Applicants Counsel contends that paragraphs 8 raises a point of law whereas paragraph 9 raises a question of fact. Counsel submitted that triable issues of law which this honourable court cannot overlook are raised in the affidavit of Harriet Grace Magala paragraphs 5, 6, 7, 8, 10, 11, 13, 14, 15 and 16 of her affidavit in rejoinder. The averments in paragraph 5, 6 and 7 are supported by the Memorandum and Articles of Association of the company particularly articles 5 and 24 thereof which deals with questions of fact. Paragraphs 8, 10, 11, 12, 13, 14, and 15 as supported by law founded under table "A" being regulations for the management of companies limited by shares under sections 22, 24 and 49 respectively. The sections are also adopted in the Memorandum and Articles of Association of Liquifire (U) Ltd. The submission of the Applicants Counsel is further that the affidavit in rejoinder of Schofield Lutwama (Mrs) and paragraph 6, 7, 8 and 9 raises issues of fact which this honourable court needs to address. Counsel submits without prejudice to the fact that the Respondent is not opposing the application for the grant of unconditional leave to appear and defend under paragraphs 3, 4, 5, 8 and 9 of the affidavit in reply raises issues of fact which the court needs to investigate. Under paragraphs 10, 11 and 12 of the affidavit in reply of the Respondents affidavits, issues of law arise which the court needs to address as well. Consequently the Applicants Counsel submits that the Respondent in the affidavit in reply does not oppose the application for unconditional leave to appear and defend. Without prejudice the Applicant’s application and supporting affidavits and rejoinder clearly raises issues of law and fact which the honourable court needs to examine and address according to the case of Maluku Interglobal trade agencies Ltd (supra). The Applicant/Defendant has shown that there are triable issues of law and fact and therefore the court be pleased to grant unconditional leave for the Applicant to appear and defend the summary suit. Respondent's submissions in reply The Respondents case is that the parties entered into a share sale agreement for 300 shares of Uganda shillings 250,000,000/= whereupon the Respondent paid the Applicant Uganda shillings 160,000,000/= for 180 shares that were transferred to the Respondent. Subsequently the parties executed an agreement dated 9" of September 2009 rescinding the earlier share purchase agreement of the 5th of May 2008 wherein the Respondent sold back 180 shares to the Applicant. In the agreement it was agreed that the entire purchase price would be paid back, but Uganda shillings 7,000,000/= was paid back leaving Uganda shillings 153,000,000/= as the balance due to the Respondent. The Applicant breached this agreement and out rightly refused to pay the balance due in the agreement dated 9th of September 2009. Clause 7 of the agreement dated 9th of September 2009 stipulates that the Respondent had a right to institute legal proceedings for recovery of any amount due on a contract in the event that the Applicant has failed to pay by 31 March 2013. Summary proceedings were commenced pursuant to that clause. In the affidavit in support, the Applicant admits that on the 5th of May 2008 an agreement for share purchase was entered between him and the Respondent. Furthermore he does not specifically deny the agreement dated 9" of September 2009 and attaches a company resolution which approves sale of shares to the Applicant as contained in the agreement of the 9th September 2009. Counsel relied on the case of Moluku Interglobal Trade Agency versus Bank of Uganda [1985] HCB 65. He emphasised that the Applicant/Defendant must show by affidavit or otherwise that there are bona fide triable issues of fact or law. Referring to the further case of Kensington Africa limited versus Pankajkumarhemraj Shah and another in High Court miscellaneous application number 687 of 2012, the issues raised in the application should be real and not sham and the court must be certain that if the fact alleged by the Applicant were established, there would be a plausible defence. The Respondents Counsel submitted that there are no triable issues raised by the Applicant. The Applicant neither denies selling of shares in his company to the Respondent nor does he deny the latter agreement rescinding the original share sale agreement. In paragraph 5 of the affidavit in support, the Applicant has attached a company resolution approving the sale of shares to him and particularly approving the agreement of 9 September 2009. Furthermore the Applicant does not deny the amounts due to the Respondent. Paragraph 6 of the affidavit in support of the notice of motion, the Applicant admits that the Respondent sold back to him 180 shares and ceased to be a director in the company. The Applicant has no explanation for the board resolution approving the sale and transfer of 180 shares to the Applicant from the Respondent. Consequently Counsel prayed that the court sees through the elaborate smokescreen, sham or stratagem calculated to roll the cloak over the proverbial eye of justice. He contended that it was inconceivable for a person who is not a director whose sale of shares were approved by the company to continue receiving payments from the company. Secondly payment is supposed to come from the Applicant and not the company. Consequently the averment in the affidavit amounts to falsehood. The Respondent in paragraph 8 of the affidavit deposed that the payments made were instalment loan payments advanced to the Applicant by the Respondent on a personal basis. The Applicant has not indicated that these payments arose from the agreement dated 9 September 2009. The Respondent in paragraph 8 of his affidavit deposed that the payments were instalment loan payments of the loan advanced to the Applicant by the Respondent on a personal basis. The Applicant has not said that these were payments pursuant to the agreement between the parties. In the affidavit in rejoinder by Schofield Lutwama, she avers that the sums were paid to the Respondent in his capacity as a director. The payments were made between the 10th of May 2010 and November 2 2010. The Respondent ceased to be a director on 9 September 2009. How then could Schofield make payments to the Respondent when he was not a director, payments which were purported to be advances and not from the company? Counsel contended that the averments were falsehoods because they advanced the position that the Respondent received monies as a director after he had ceased to be a director. Secondly the payments indicated that they are from the Applicant. The Respondent affirms this in his affidavit that it was the loan repayment by the Applicant to him and not the subject matter of the suit. There is no evidence attached to the Applicant’s affidavit to the effect that the Respondent continued to receive benefits as a shareholder, after the share transfer was approved according to the resolution attached in the circumstances and the Respondent’s entitlement is only in the money the subject matter of the agreement between him and the Applicant. In the three affidavits in support of the Applicant’s application, the Applicant himself is shy of alleged facts disposed to by his Counsel. If the facts were true, it ought to have been the evidence of Harriet Grace Magala in the affidavit in rejoinder. Instead her evidence was on the points of law related to the Memorandum and Articles of Association and the Companies Act. Ruling I have carefully considered the Applicants application, the affidavit evidence the submissions of Counsel and authorities relied upon. Both Counsels are in agreement on the basic principles to be applied in considering this application. The first basic principle is that the Applicant should demonstrate that he has bona fide triable issues which merit judicial consideration through a trial on the merits. The second principle is that the defence should not be a sham but a plausible defence. Thirdly in considering whether there is a plausible defence, the court should not determine the arguable issues if any raised. The Plaintiff/Respondent filed a summary suit under order 36 rule 2 of the Civil Procedure Rules for recovery of Uganda shillings 153,000,000/= pursuant to an agreement dated 9th of September 2009. It is not in dispute that the origin of facts leading to the suit is an agreement dated 5th of May 2008 in which the Applicant agreed to sell to the Respondent 300 shares in Messieurs Liquifire (U) Ltd for a consideration of Uganda shillings 250,000,000/=. Subsequently the Respondent paid for only 180 shares which is Uganda shillings 160,000,000/=. The Respondent avers that subsequent to the agreement for the sale of shares, the parties entered into a subsequent agreement rescinding the earlier agreement. The subsequent agreement is dated 9th of September 2009. In the affidavit in support of the application, the Applicant avers in paragraph 2 that on the 5" of May 2008, he entered into an agreement of sale of shares with the Respondent/Plaintiff at a consideration of Uganda shillings 250,000,000/=. The averment narrows substantially the area of controversy. Secondly the Applicant avers in the affidavit in support that the Respondent/Plaintiff made a part payment of Uganda shillings 150,000,000/= leaving a balance of Uganda shillings 100,000,000/=. The area of controversy arises from paragraph 4 of the affidavit in support of the application to the effect that on the 13th of May 2008, 180 shares were allotted to the Respondent/Plaintiff following a resolution of the company. Secondly by resolution dated 25 September 2009 the Respondent ceased to be a director of the company. Then in paragraph 6 of the affidavit in support of the application the Applicant avers as follows: "That the Respondent/Plaintiff ceased to be a director and subsequent to his selling back the 180 shares, the company never approved the transaction, and indeed the Respondent/Plaintiff continued to be a shareholder, and his 180 shares have never been allotted to another person or company to date as can be discerned from the transfer of shares filed in the company registry on the 5" of May 2008." There is therefore a common position and agreement between the parties that the Respondent sold back 180 shares. The narrower controversy is that the company never approved the transaction and the Respondent continued to be a shareholder. The question before the court is whether the Applicant's application raises bona fide triable issues of fact or law. Firstly the Applicant contends that the Respondent does not oppose the application. Paragraph 2 of the affidavit in reply deposes that the Respondent has understood the contents of the application and affidavits in reply and makes the affidavit in reply thereto. Paragraph 13 and 14 specifically indicate that there are no triable issues raised by the Applicant for the Applicant to be granted leave to defend the suit (paragraph 13). In paragraph 14 the Applicant deposes that it is just and fair that the Applicants application for leave to defend the suit is dismissed and judgement entered in his favour for the outstanding sum of Uganda shillings 153,000,000/=. The Respondent in the affidavit in reply clearly seeks to have the Applicants application dismissed and judgement entered in his favour. He has further deposed facts in opposition to the application. There is therefore no basis for the submission of the Applicants Counsel that the Respondent does not oppose the Applicant's application. I will start with the attachments to the affidavit in support of the application. Annexure "A1" is a notification of change of directors or secretary or their particulars of Liquifire (U) Ltd signed on the 12th of May 2008. The annexure shows that the Applicant is a director. It shows that he was appointed director from the 5th of May 2008. Annexure "A" to the affidavit in support of the application disposed to by the Applicant is dated 5th of May 2008 and is a resolution filed with the registry of companies where it is represented that there was a company resolution approving the sale and transfer of 300 shares by the Applicant to the Respondent subject to adherence to the conditions of sale. In the same resolution the Applicant, the Respondent, and Mrs Schofield, were appointed joint signatories to the companies bank account. I must note that the company resolution was on the face of it is stated to be signed by the Applicant and the company secretary Mr Stephen Musisi. Annexure "B2" to the affidavit in support deposed by the Applicant is notification of changing particulars of directors and secretary or their particulars dated 9 September 2009. It indicates that the Respondents ceased to be a director of the company. Furthermore annexure "B1" is dated 25th of September 2009 and is a resolution signed by the Applicant and Stephen Musisi as company secretary. It provides that the company approves the sale and transfer of 180 shares to the Applicant from the Respondent. Secondly the Respondents ceased with immediate effect to be a director of the company. Furthermore the Respondents ceased to be a signatory to the company's account at DFCU bank Ltd. Annexure "C" is a transfer of shares or stock amounting to 180 ordinary shares to the Respondent. My understanding of the affidavit in support of the application is that it only raises one issue which is that the company did not approve the sale back of shares from the Respondent of 180 shares. The Respondent on the other hand relies on the sale agreement. The affidavit in reply of the Respondent annexure "B" is the resolution of the company registered with the company registry and signed by the Applicant, witnessed by Stephen Musisi dated 25 September 2009 showing a resolution of the company approving the sale and transfer of 180 shares to the Applicant from the Respondent. Annexure "A" on the other hand is a supplementary agreement of sale of shares in Messieurs Liquifire (U) Ltd and is dated 9th of September 2009 between the Applicant and the Respondent. This agreement is consistent with the documents produced by the Applicant in support of the application. In the agreement it was agreed that the original agreement dated 5" of May 2008 is terminated for a consideration of the refund of Uganda shillings 153,000,000/= whereby the Respondent agreed to relinquish 300 shares to the vendor. The vendor was the Applicant. Paragraph 2 of the agreement provided that the consideration should be paid in three instalments. The agreement provides that the Respondent shall upon full payment of the consideration execute share transfers in favour of the vendor or his nominee of 180 shares already transferred to him. Paragraph 4 provided that the Respondent would upon execution of the agreement cease to be a director of the company and also cease to be a signatory shares among themselves. Shareholders have priority in the sale of shares and when the trade amongst themselves, all it does is to change the voting power of the individual member who buys more shares. The provision should be used against strangers coming into a private company. For the moment the agreement for the transmission of shares is a regular. All that is required is for a party to give notice that he proposes to transfer shares. In this case it was proposed to transfer the shares to the Applicant and the Applicant had sufficient notice as a director. It is not the Applicant’s case that there was want of notice. The only issue raised is that the directors declined. He is a director and he did file a resolution approving the sale. The resolution is relied upon by the Applicant to demonstrate that the Respondents ceased to be a director. Last but not least under article 24 of the articles of Association, the Applicant’s Harriet Grace Magala raises questions of quorum without any supporting evidence. That the averment cannot be relied upon and is hereby disregarded. Anybody who wants to challenge a company resolution is required to do so in a meeting of the company or to file a company cause under order 38 rules 6 of the Civil Procedure Rules. For the moment the resolution filed with the company registry is the only acceptable evidence in the matter. In the circumstances, there is no plausible defence to the Respondent’s summary suit against the Applicant. The Applicant’s application is dismissed with costs. Judgement is entered for the Respondent/Plaintiff in the sum of Uganda shillings 153,000,000/= with costs against the Applicant/Defendant. Ruling delivered in open court on the 11" of October 2013 Christopher Madrama Izama Judge Ruling delivered in the presence of: Frederick Sentomero for the Respondent Mugogo Edward Holding brief for Kituuma Magala for the Applicant Charles Okuni: Court Clerk Christopher Madrama Izama Judge 11" October 2013