Afro Print Limited v Lwanga (Civil Suit 471 of 1997) [1999] UGHC 36 (22 September 1999)

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

CIVIL SUIT NO.471/1997

AFRO PRINT LIMITED :::::::::::::::::::::::: PLAINTIFF VERSUS

:::::::::::::::::::::::: DEFENDANT SULAIMAN LWANGA

BEFORE: THE HON. LADY JUSTICE M. S. ARACH - AMOKO

JUDGEMENT:

The Plaintiff is a limited liability company, brought this action against the Defendant, Sulaiman Lwanga, a businessman, for the recovery of Shs 31,700,000/= (shillings thirty one million and seven hundred thousand only). The Plaintiff purchaser seeks to recover general damages for non - use of the money, plus interest thereon, and the cost of the suit.

In his Written Statement of Defence, the Defendant denied the claim, and averred instead that he received the money in question $setlerint$ as a statement of a debt owned to him by the Plaintiff. He thereof prayed the court to dismiss the Plaintiffs suit with costs.

At the hearing of the suit, Mr. Brian Othieno represented the Plaintiff, while Mr. Francis Buwule appeared for the Defendant. Three issues were framed and agreed on, namely: -

- the to indebted $(1)$ plaintiff was the Whether the sum claimed; Defendant in - the Whether the Defendant, as a Director of $(2)$ breached his fiduciary duty to the plaintiff plaintiff; - are available to the remedies $(3)$ If so, what plaintiff.

In an attempt to prove the Plaintiff's case, the Plaintiff adduced the testimony of Stephen Senyonga, its Managing Director. His testimony was that he used to get short term loans from the In November, 1995, he got a loan of Shs 12 million Defendant. for processing calendars for various companies including Uganda Posts & Telecommunications Corporation (herein after called The Defendant lent him this money on condition that he $UP&TC$ . (the Defendant) is appointed a Director of the Plaintiff company and also made a mandatory signatory to the Plaintiff's accounts the witness also gave the Defendant a post dated cheque for Shs 12 million plus the log book for his vehicle as security. They signed an agreement dated 30/11/95 (Exhibit "P1"). When they started printing the calendars, the Defendant advised the witness that they should open an Account in Greenland Bank.

They did so, the Defendant kept the cheque book. He convinced the witness to sign 3 blank cheque leafs. When UPT&C paid Shs 31,700,000 for their calendars, the witness took the cheque to the Defendant's lawyer, Mr. Buwule so that they could share out the proceeds. Mr. Buwule instead gave the cheque to the Defendant who promptly deposited the cheque on the Greenland Bank Account and transferred the whole money on to his (Defendant's) account there and then. The cheque was in the Plaintiff's name

(Exhibit " $P2$ "). The witness was puzzled by the Defendant's action since the Plaintiff did not owe the Defendant any money. He also testified that he is personally indebted to the Defendant in the sum of Shs.15 million.

In cross examination, the witness disclosed that the shareholders of the Plaintiff are:-

- $(1)$ <pre>Stephen Senvonga (himself)</pre> - $(2)$ Susan Senyonga his wife - $(3)$ Kenneth Senyonga his 11 year old son. - $(4)$ Miriam Namirimu Senyong 8 year old daughter.

The Directors are:-

Stephen Senyonga (himself) $(1)$

$(2)$ John Senyonga

The testified further that he appointed the Defendant as Director $\mathcal{I}$ of the Plaintiff with the agreement of the other shareholders and they passed a resolution to that effect (Exhibit "D1"). That the money was used to do the work of the company. That on the $3/4/1997$ the Defendant forced him to sign an agreement in the presence of C. I. D Officers to the effect that he did not own any money. 20

The Defendant has since transferred the witness's vehicle into That the Plaintiff company has been greatly prejudiced names.

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as ^a result of the Defendants action. It has failed to pay its debtors.

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wThe Defendant was the sole witness in his defence. He testified that both the Plaintiff company and it's owner'*,*

*£* Mr Senyonga (PW1) are well known to him. He used to extend loans to Senyonga and he would give him post dated cheques as security. In 1994 he lent Senyonga a total of shs 11 million to clear his car and to sponsor a show by Brenda Fessie, a musician from South Africa. Mr.senyonga gave his car Registered No. UBC-229 as security for that loan. He did not pay the loan. Then in 1995, Senyonga got an order for the supply of calendars to various companies. Senyonga asked that Defendant to lend him Shs.13 million to enable him to process the calendars. He lent for transport, insurance and clearance of the calendars. He again lent him the money and they signed the agreement dated 30.11.95 (Exhibit Pl). "D2"). this money; and they signed an agreement dated 8.11.1995 (Exhibit Thereafter, Senyonga came back for another Shs.12 million

They opened an account in Greenland Bank on which they agreed to deposit the proceeds from the calendars. Contrary to this agreement Senyonga deposited the proceeds account in UCB. him. a balance of Shs.3.6 million. posted-dated cheque for amount using the blank cheques which Senyonga had earlier given He paid himself the money and there was still So when Senyonga brought him the UP&TC Cheque, he banked it on the Greenland Bank Account and withdrew the whole Senyonga gave him a on the Plaintiff's

this amount which bounced. He then transported Senyonga's vehicle to his names.

After that, they signed an agreement dated 4.4.1997 stating that Senyonga does not owe the Defendant any more money.

In cross examination, the Defendant stated that he dealt with Senyonga as a Director of the Plaintiff, but he later dealt with the Plaintiff directly. That both agreements dated 8.11.95 (Exhibit "D2") more respect of the same transaction. That the Plaintiff owed him a total of Shs.36 million made up of the Shs.11 million for clearing Senyonga's car and for sponsoring the Brenda Fessie show, plus the Shs.13 million and Shs.12 million he advanced to Senyonga for the calendar deal. That after taking the Shs 31,700,000, plus Senyonga's vehicle the

debt has now been settled.

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Both counsel made submission on the issues framed. I intend to deal with the issues in order in which they were agreed upon.

On the first issue, Mr. Othieno submitted that the Plaintiff was not indebted to the Defendant in the sum claimed at all. That it was instead the Plaintiff's Managing Director,

Mr Senyonga who was personally indebted to the Defendant in sum of Shs.15 million. He relied on the evidence Senyonga (PW1) himself for this submission. Mr. Buwule on the hand insisted that the Plaintiff was indeed indebted to the in the sum of Shs.36 million and that the Defendant has rightly now recovered this money from the Plaintiff. He also relied on the evidence of the Defendant (DW1).

In order I resolve this issue, it is instructive to consider the evidence as a whole. Three sets of agreements were tendered in this court as exhibits. Exhibit P1 is dated 30.11.1995. It is entitled "An agreement to pay a Debt". It is between Sulaiman Lwanga as the "Creditor" and Stephen Senyonga as the "Debtor". By this agreement, the Debtor acknowledge being indebted to the creditor in the sum of

Shs.12 million, and under took to pay the debt before 30.12.1995. As security for this undertaking, Debtor furnished:-

- A post dated Gold Trust Bank Cheque No.265717 $(a)$ dated 30.12.95 for shs 12 million. - Motor vehicle Golf. $(b)$

The second agreement is entitled "A Friendly loan Agreement". It is dated 8.11.95. It is between Sulaiman Lwanga ("The lender") and Afro Print ("The Borrower"). By this agreement, the lender lent the borrower the sum of Shs.13 million for processing calendars for the following consideration:-

- $(1)$ That the Borrower allows the lender to "participate in the profits" accruing from the supply of the calendars. - As security for the undertaking, the Borrower has $(2)$ appointed the lender as a Director on its Board for the per ward $\quad\texttt{of}\quad$ supply of the calendars. - $(i)$ The lender was to be a mandatory signatory to the Borrowers Account with UCB Main Branch. a post-dated (ii) The Borrower was to issue cheque for Shs 13 million.

\* The 3rd document is actually a memorandum of undertaking dated 3.4.1997, It is between Sulaiman Lwanga and Stephen Senyonga. It is an acknowledge that Mr. Senyonga had settled the Defendant's debts of Shs.3.6 which arose under an agreement dated 13.5.1996 by surrendering his vehicle registration No.229 UBC and that the post dated cheque which he had issued as security has been destroyed, so neither partly owes the other any obligation on the basis of the three agreements, ^I find that the Plaintiff 8.11.1999 (Exhibit DI) and not Shs.36 million as alleged by the Defendant. This is the only grounds that the agreement was not stamped by the lawyers who prepared it and that the signature of the Plaintiffs Managing Director was doubtful. ^I do not agree with this submission. The stamp by the lawyers who prepared the agreement is not ^a mandatory requirement under the law. In any case, Mr. Senyonga did not categorically deny this agreement. He actually admitted that the signature on the agreement resembles his signature. Mr Senyonga also refers to this agreement in his evidence when he stated that the Defendant lent him money in November 1995 on condition that:- Mr. Othieno invited this court to ignore this agreement on the document to which the Plaintiff was a party, out of the three. owed the Defendant the sum of Shs. 13 million only, by vacua of the ''Friendly loan Agreement"

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(1) Sulaiman Lwanga had to be appointed as a Director of the Plaintiff Company.

He had to be a "mandatory signatory to the $\alpha$ $(2)$ account".

This evidence shows clearly that Senyonga signed this agreement on behalf of the Plaintiff company, and he was only making a poor attempt at lying when he said that he did not remember signing the agreement.

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I find that the Plaintiff company was not a party to the two The agreement dated 30.11.1995 is between other agreements. Sulaiman Lwanga and Senyonga personally.

Under that agreement Mr. Senyonga undertook to pay Shs.12 million $\overline{0}$ which he owed to the Defendant in his personal capacity at a debtor. The plaintiff is not mentioned anywhere. The same thing applies to the 3rd document, that is the Memorandum of Understanding dated 13.4.1997. ("Exhibit D4").

The law is that a company is a separate legal entity from its shareholders or members. See: Salmon - v - Salmon and Company Ltd (1997) AC 22 HL. In the words of lord Macnghtten:-

> "The company is at law a different person altogether from its subscribers......and although it may be that after incorporation the business is precisely the same as it was before, and the same persons are Managers, and the same hands received the profits, the company is not in law the agent of the subscribers or the trustees for them nor are the subscribers as members<br>liable in any shape or form, except to the extent and in the manner provided by the Act".

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On the basis of the above, indebted to the Defendant in the by the Defendant. That the Plaintiff was instead indebted to the Defendant in the sum of Shs.13 million only, for printing calendars. Any other debts were owed to the Defendant by *9* sum of Shs.36 million as alleged ^I hold that the Plaintiff was not

to institute proceedings for their recovery against Mr. Senyonga personally. Mr. Senyonga in his personal capacity, and the Defendant is free

The first issue is accordingly answered in the negative. On the second issue, that is, whether the Defendant breached his fiduciary to duty the Plaintiff as a Director; the answer to this issue is in the negative, for the simple reason that the Defendant was not legally appointed as the Plaintiff's Director.

As Mr. Othieno rightly pointed out, the resolution appointing the Defendant to the Board "Exhibit DI" was signed by the Defendant himself as Director, when he was not and by Mr. Senyonga. This resolution is of no legal effect since it was Director or shareholder of the company. Mr. Senyonga lied to this court when he stated that the resolution was passed with the agreement of the other shareholders, who were in case members of the family. only signed by one

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The Defendant did not owe any fiduciary duty to the Plaintiff, since he was not\_ ¹ allyappointed as a Director. This brings me to the third and last issue, namely the remedies available.

the Plaintiff only owed the Defendant Shs.13 million the first remedy available to the Plaintiff is the refund of Shs.19,700,000 being the difference between this money and the Shs.31,700,000 which the Defendant took from the *£* Plaintiff. Since I have held that

Secondly, the Plaintiff is also entitled to general damages for in which the Defendant conducted himself without consulting Plaintiff's management. the wanton and cellous manner himself when he withdrew the Plaintiff's money and paid to

*IV* The Director's figure of Shs.1 million will in my suffice under this head.

The Plaintiff is also entitled to interest on the Shs . ¹⁹ , ⁷⁰⁰*,*⁰⁰⁰ at bank rate from the date when the Defendant paid himself the money, that is 30.4.1996, till payment is full.

Lastly, the Plaintiff is also entitled to the costs of the suit.

In conclusion, Judgement is accordingly entered in favour of the Plaintiff against the Defendant as follows:

> (1) Shs.19,700,000 being the balance of the money and owed

(b) One million shillings X) as general damages,

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- Interest on (a) at 22% p.a. from 30.4.1996 till $(c)$ in full. payment - $(d)$ Costs of the suit.

M. S. Arach Amoko,

JUDGE.

22/9/1999.

Judgement delivered in the presence of:

- Mr. Kawenja for plaintiff $(1)$ - $(2)$ Okuni Court Clerk - Mr. Buwule Absent $(3)$ - Mr. Ronald Sekaggiye for Mr. Buwule. $(4)$

M. S. Arach Amoko,

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22/9/1999.


THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

CIVIL SUIT NO. 471 OF 1998-

AFROPRINT LTD

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PLAINTIFF $\begin{array}{l} \bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\bullet\$

VERSUS

SULAIMAN LWANGA

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DEFENDANT

DECREE.

THIS SUIT coming this day for Judgement before Her Lordship Justice ARACH AMOKO in the presence of L. KAWENJA Counsel for the Plaintiff and R. SEKAGGYA, for the Defendant, IT IS HEREBY DECREED that Judgement is entered for the Plaintiff as follows:

- Special damages shs. $19,700,000$ $(a)$ - General damages shs. $1,000,000$ $(b)$ - Interest on (a) above at Bank rate (22% per annum) with effect from $30^{\text{th}}$ April, $(c)$ 1996 until payment in full. - $(d)$ Costs of the suit.

DATED this $22^{nd}$ day of September, 1999.

GIVEN under my HAND and the SEAL of this Court on this. Qday of $\overbrace{1000000000000000000000000000000000000$

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DRAWN & FILED BY: MIS KAWENJA OTHIENO & CO. ADVOCATES PLOT 8 JOHNSTONE STREET P. O. BOX 2670 KAMPALA.