20110725 TZCA Dar es Salaam

.. -., •;,} '. ,. ~ I . . ·-~~ft.,,· t~:1~~- ( I. I v I N THE COURT OF 'APPEAL OF TANZANIA AT DAR ES SALAAM {CORAM: MUNUO, J.A. NSE:KELA, J.A., And MANDIA, J.A.) ·. l . . . . CIVIL APPEAL! NO. 67 OF 2007 . SADOC'K DOTTO MAG AI ....................... 3•........................................................................... APPELLANT . ·r . . VE~SUS I' 1. WAMBURA EVARIST j 2-. MARY MATEREGO I .3. J. NYANZA t/ a NATH~NIEl SERVICES . . ~ . . 4. MWEMA- NYITUGA . . [; ....................... RESPONDENTS s. JOHN MAWAZO & ZULU NYAHENGEI 6. REGINA MASENYI • f 7. MICHAAEL NYEKUMBARA . . j· 8. FISHPARK (T) LIMITED (under liqui'.clation :- 1: ,, (Appeal from the Judgement and decree of the High Cou~ oG~~mzania, Commer-eial-Oivision, at Dar es Salaam) (Mas~ati, J.) I Dated the 3q th April, 2007 m,, Commercial Case No. 70 of 2005 I 'I JUDGEMENT OF THE COURT 1: 16 th July; & l' t August, 2011 .MUNUO, J.A: The Appellant, Sadock Dotto Magai, 1 as the 2nd ·defendant in Commercial 11 J· . Case No. 70 of 2005 in· the Com,171~-rcial Division of the High Court· of . I . -.;,, . . . i . . th Tanzania at Dar es Salam. In the s$id suit, the 8 Respondent a'nd the . .,L .l appellant were defendants No. 1 and i2. respectively. Respondents 1- to 7 . . I I I ------ were the plaintiffs. They sued the co- defendants for Tsh 84,249,394/= th the purchase price of raw fish they had supplied· to the 8 Respondent whose Receiver Manager was the appellant at the material time. The High Court entered judgement against the appellant personally in the quantum of Tsh 32,526, 140/ = plus interest on the ground that he had fraudulently conducted the purchase of fish from the 1st to 7th Respondents. In the plaint, the claimants alleged that after being appointed a th Receiver Manager of the 3 Respondent which was in financial doldrums, the appellant failed to inform the public of his appointment immediately. Instead, the appellant allegedly conducted business as usual thereby luring the claimants to continue selling raw fish to the 8th Respondent, not knowing that the Company was facing a serious financial crisis. In that regard, the claimants sold raw fish on credit and to date their debts. have not been paid. Hence, the 1st to ih Respondents instituted the suit against th the appellant and the 3 Respondent, his principal. The appellant lost the case in the High Court. Subsequently, he lodged this appeal against the eight respondents. 2 ' ' • t ,ni, ', ., 1 .,, C st Mr. Kamugisha, learned advdcate, represented the appellant. The 1 I I th to 7 respondents were represented by Mr. Buberwa and Muganyizi, I learned advocates. The· 8th Respondent was represented by Mr. Massawe, I learned advocate. The parties file~ written submissions and also orally argued the appeal at the hearing. I The appellant filed 4 grounds of appeal. He abandoned the 4th ground during the hearing. The thre~ remaining grounds of appeal are: I 1. That the learned Jud!Je erred in law and in fact in 'r 'i holding that the reteivership business was not I I I . conducted in good faYth by the appellant so he is ' personally liable for fr~udulent trading even though I the alleged fraud was, not proved at the required standard in law or at all. I I 2. The learned Judge erred in law and in fact in holding the appellant personal(y liable for the 1st to 1'7 I Respondents claims a'rvd not the Company (ff! I I Respondent) on the basis that the Appellant decided I to manage the Efli Respondent as a going concern I 3 I I llllr I 1 after appellant was satisfie{l on the strength of the financial due diligence conducted by the appellant that the Company was in a sound business condition/ a fact which is not true/ and without taking into account of the Efh Respondents self . commitment in the Debenture document that the latter would alone be liable for all the appellants acts and defaults. 3. The learned Judge erred in law and in fact when he made the findings that the Appellant must have known that the lfh Respondent was insolvent yet allowed it to enter into further credit transactions and that the appellants failure to show in the l ·business documents that the Efh Respondent was under receivership and furthermore that his failure to file an abstract with the Registrar .of Companies ·all reflected fraud and fraudulent intentions on the part of the appellant · Submitting on grounds 1 and 2 of the appeal, counsel for appellant faulted the learned judge for finding that:- 4 ., ,· 'I,·• The appellant ought to have kno_wn that the d11 Respondent was insolvent and yet he continued to purchase raw fish : from PW1, PW2, and· PWJ on credit. · 11 . . ' !' '' (ii) The appellant did nbt disclose or publish that the gh · Respondent was un~er receivership. ,, (iii) The appellant never. filed any abstract with the I RegistrarofCompa1ie£ i, 1' .. I Counsel for the appellants also c'riticised the. trial Court for ha5tily concluding that the appellant had fra~dulently induced' the fish mongers to . I . . i ' th . sell fish to the 8 Respondent. Fra.µd was not proved at the required I' . 1 standard, counsel for the appellant m:aintained. He cited section 17 of the I . Contract Act; Cap. 345 P.E. 2002 wh)ch defines fraud as meaning any of ii ,: following acts . committed by a party : tdI a contract.. . (a) The suggestion, as to:, fact of that which is not I true by one who does: not believe it to be true. (b) The active concealment of a fact by one Ii . having knowledge or qe{ief of the fact (c) A promise made wfthout any intention of performing it; 'i I 11 II' 'I (d) Any other act fitted to\ci.eceive 5 (e) Any such act or omission as the law specifically declares to be fraudulent Citing the cases of R.G. Patel versus Lalji Makanii (1957) E.A 314 at page 317 and Oman Yusuf versus Rahma · Ahmed Abdulkadr . . (1987) TLR 196, counsel for the appellant observed that the trial Judge was aware that allegations of fraud must be strictly proved. In Omar Yusuf's case cited supra, it was held:. "when• the questions. whether someone has committed a crime is raised in civil proceedings that allegation needs to be- established on a higher degree of probability than that which is required in ordinary civil case~ the logic and rationality of the rule being that the stigma that attaches to an affirmative finding of fraud Justifies the imposition of a strict standard of proof." It was the contention of the appellant's · counsel that the intention to defraud and deceive the fish mongers was not proved by the evidence adduced at the trial so the learned trial judge should have dismissed the suit with costs. On this, counsel for the appellant referred to the case of 6 . ' . I . Lelievre and Dennis versus Gould (1893) IQB 491 at page 498 wherein Lord Esh er held: ' .A charge of fraud is uch a terrible thing against . I . . a man, that it cannotlbe maintained in any Court unless it is shown thJ he had a wicked mind..... · what is a wicked mild? If a man tells a .wilful falsehoo~ with· the intention that it shall be acted upon by the petrson to whom he tells it his mind is plainly wicke(/4 and acting fraudulently. 11 In the absence of proof of a g □ iHy i tent or inducement or deception, what ever omissions the appellant Re!iver Manager might have made in the course of his duties, such breachel did not amount to fraud, couns~I f for the appellant urged. The.re was herefore, no justification for the learned Judge to order the appellant to be personally liable for the losses the 1'' to 7"' Respondents suffered whln they supplied raw fish to the s"' Respondent on credit which debts have remained unpaid to date. 7 \ . With regard to ground 2 of the appeal, Mr. Kamugisha contended that the appellant Receiver Manager exercised due diligence in the performance of his duties after financial due diligence. The evidence of DW2, the appellant, to. this effect was uncontroverted, counsel for the ·<~ appellant observed. He further contended that since the receiver manager was on agent of Fishpak (T) Ltd, the principal, the latter was liable for st th paying the fish _ the 1 to 7 Respondents supplied to the company for export and sale locally. Emphasizing that the appellant was on agent of the 8th Respond-ent, that there was no fraud employed to purchase fish from the 1st to 7th Respondent fishmongers, and more importantly, no supply of fish by the said fishmonger·s coritinued after the financial due diligence report which could otherwise hold the ·appeliant personally liable. In the absence of personal liability to the appellant who is no longer receiver manager, the 8th Respondent should pay the claimants, counsel for the appellant asserted. The appellant prayed that the appeal be allowed with costs and that the 8th Respondent be ordered to pay the claims of 1st to ih Respondents. 8 I h ' ... Mr. Erasmus Buberwa, and Mr. dodwill Muganyizi, learned advocates,· appeared fbr the 1 st 1;? 7' 11 Respondef ts. During the hearing and in their written submission, counsel for the 1st to 7th Respondents fully supported the decision of the High (ourt that:- (i) The appellant ought to have · informed the 1st to· 7th 1th Respondent that the 8 Respondent, Fishpak (T) Ltd. was insolvent. (ii) • The appellant was aware the 8th Respondent' was insolvent but fraudulently omitted to disclose the same to the 1st to · · th 7 the Respondents. (iii) The appellant made nj attempt to publish the receivership I status on the Companies documents. . . (iv) The appellant never filt an abstract with the Registrar of Companies asrequired lby Law. In view of these omissions, counsf I for the 1st. to ih· Respondents~ urged~ the appellant ·fraudulently lurkd their clients to sell fish on credit•. . - I . . . so the learned judge rightly held him· liable to personally pay for the fish. 9 The learned advocate for the 1st to ih Respondents further contended that the fishmongers discharged the onus of proving their case on the balance of probabilities. They cited the case of P.M. Jonathan versus_ Athuman Khalfan (1981) TLR 175 at page .182 wherein it was held that; !'The case may be proved by a preponderance of probability but there may be degrees of probability within that standard. The decree depends on the subject matter. A civil court, · when considering a .charge of fraud, will naturally require a higher degree of probability than that which it would require in considering whether negligence· were established. It does not adopt so high a degree as in a criminal court even when considering a charge of· criminal nature, but still it does require a degree of probability which is commensurate to the occasion. " st th Learned counsel for the 1 to the 7 Respondents also cited the case of Hornal versus Neuberger Products (1956) 3 All E.R970 at Page 977 in which Hudson, L.J. stated, and we quote: ''.Just as in civil cases the balance of probability may be more readily tilted in one case than in . anothe0 so in criminal cases - proof beyond 10 ., reasonable doubt may be more readily obtained .,, - - 11 in some cases than-in -others. The 1st to 7th Respondents' counsel asserted that the appellant fraudulently continued to purchase fish on credit from his clients although he was fully aware that the 8th Respondent was insolvent and under receivership so he should personally be ordered to pay the amount claimed by the· seven fish mongers. In those circumstances fra·ud was established beyond reasonable doubt, the advocate of th~ 1st to _7 th Respondents maintained. · With regard to _ground 2 of the appeal, counsel for the 1st to 7th Respondents referred us· to the text book titled, "Tolley's Insolvency Law": issue No. 19 at page 4333 wherein it is stated that:- 11/f he causes the company to incur greater liabilities under post appointment contracts than there· are assets available for their discharge/ he could risk personal liability for fraudulent trading · though perhaps not for wrongful .trading. " 11 It is the contention of the claimants that the appellant was appointed on th . the 18th May, 2000 to be the receiver manager of the 8 Respondent so · the knew that the 8th Respondent was insolvent. That knowledge notwithstanding, the appellant continued to buy fish from the claimants so he should be held personally liable to pay for the ·fish the 8th Respondent Company purchased on credit. Mr. Thomas Massawe, learned advocate, . represented the 8th Respondent, Fishpak (T) Ltd which is under liquidation. Adopting his th written submission,. counsel for the 8 Respondent stated th·at initially the suit was between the 15t to ih · Respondents versus the Appellant, Mr. Sadock Dotto Magai. The Liquidator of the 8th Respondent, Fishpak (T) Ltd was joined after being appointed vide an order of the Commercial Division rd of the High Court of Tanzania on the 23 December, 2003 in Miscellaneous Commercial Case No. 5 of 2003 between Savings and Finance Ltd. Versus Fishpak (T) ltd. At that time, the appellant was the receiver manager of the 8th Respondent. Counsel for the 8th Respondent further th stated that despite the intervention of the 8 Respondent's liquidator, there was no achievement gained. The liquidator .visited the premises of_ the 12 company from the 26 th April, 2004 to the 04/05/2004 but found the factory had been closed down. th On the liability of the appellant, counsel for the 8 Respondent contended that the trial. court properly held the appellant personally liable for the claims lodged against him because he negligently transacted . business. Had he faithfully discharged his duties he would have informed the 1st to the ih Respondents that the 8th Respondent was insolvent. Had. the appellant fully involved himself in the operations of Fishpak (T) Ltd, the loss the 1st to ih Respondents suffered would have been avoided. Supporting the decision of the learned judge, counsel for the 8th Respondent faulted the Appellant/Receiver Manager for failing to cooperate th with the liquidator of the 8 Respondent and for continuing to buy fish. on credit from the claimants although he knew that the principal was insolvent. Instead of working· with the· liquidator, counsel for the 8th Respondent observed, the appellant appointed a new management namely Karim Lalani and Jahangil Group to conduct the fish business and report to him. The appellant was also the signatory of the company, counsel for the · 8th Respondent further observed,. which was why. the learned judge rightiy held him personally liable for paying for the fish the com·pany bought on 13 . . credit from the claimants. Arguing that the appeal is lacking in merit, th learned counsel for the 8 Respondent prayed that the appeal be dismissed with costs. The issue before us is whether the appellant fraudulently purchased st th fish on credit from the 1 to 7 Respondents. We are mindful of the appointment of the appellant as Receiver Manager under the Debenture, Exhibit D7 which spells out his duties. The sc:1id Debenture also provides for the collection and the distribution of the- funds collected as· well as the maintenance of an account. The appellant . was, under the said Debenture, accountable to the authority which appointed him. The Debenture, Exhibit D7 clearly states that it was made under Clause 66 of the Company's Memorandum and Articles of As?ociation pursuant to a Resolution of the Directors of the Company dated the 21 st October, 1996. 14 "t~. ,, ~ r'\"~• " .~ . I Clauses 10, ·11 and 12 of the Debenture provide for the appointment ]I • • • . .. . . ! . and pqwers of·· a rece·iver mana·ger. The National Bank of Commerce appointed the appellant the Receiver MJnager of Fishpark (T) Ltd, the 8th . l . . .,I Respondent as stipulated under clause. 10 of the Debenture which states, . i, Ii verbatim: . ,. :1 1: 1 ~ At any time after t{!e principai mo(Jeys 11 I . hereby secured become bayable either as a ' result .. of lawful demand :'being I made by the . . I . Bank or under the provisions of Clause 9 hereof ., ' . [ . . the Bank or any_ office{ of the Bank duly .. ;1. authorized in that regard may appoint in writing . .. t ' ! . . . any person or persons whether an officer or officers of the Bank or pot to be a receiver 1, !I manager or Joint receivers and managers of the . .l . property and assets hereby charged or anypart. . " thereof upon such-.... " 1, 11 I, Having been appointed the receifer manager of Fishpak (T) Ltd by· . ~ . . . the Bank, the appellant. acquired and ;exercised the powers listed under Clause 11 which reads in part: i II i 15 "11. Every receiver and manager so appointed . ... a 11 (hereinafter called a Receiver'' shall be the. agent of the Company and the Company shall alone be liable for his acts, ·defaults and remuneration and he shall have authority and be entitled to general powers hereinafter set forth in addition to and without limiting any general powers conferred on him by law; (a). ...... to ..... (i)." In view of clause 11, the appellant was, in our considered opinion, fully mandated by the Debenture to buy fish from the 1st to the i!J Respondents as stipulated under Clause 11 (d); (g) and (i). Clause 11 allowed the appellant, then the agent of the NBC, to transact fish business for the 8th Respondent and as stated in clause II. 11 ••• and the Company shall alone be liable for his acts or defaults and remuneration. " Under Clause 12 the receiver had to keep and maintain an account for paying debts the Company owed the Bank and other claimants. · In the light pf the clear terms of clauses 10, 11 and 12, we find no justification for holding the appellant personally liable for the claims against 16 ,',j ,. ......... .:tr .; ·. ~ ·1 f the Company. He transacted business for his principal, the Bank in "' accordance · with the terms of the Debenture, Exh, D7. The appellant . .. . . . I . . . committed no fraud in those circumstances. For that· reason, we reverse · I . . the decision of the learned judge an~ order the 8th Respondent, Fishpak .· (T) Ltd to pay the claims of the 1st to 7 . i th . . Respondents. -We accordingly ' . . allow the appeal with costs to be paid •. y the 8th Respondent. j. th DATED at DAR ES SALAAM this 25 day of July, 2011. • . • . .. -· . Ii • . . E.N .. MWNUO I .. . . -,~~~ ' . JUSTICE OA APPEAL . .• ..... , ~ ~ A. : \ ~r:r\ ' .. . I H. R. N$EKELA I . . \, . . JUSTICE OF .APPEAL J /1','.'i. / I -, I . .,.i '' • W.S. NANDIA • L • __ JUSTICE OF APPEAL I certify that this is a true copy of the 0riginal. ~······· DEPUTY REGISTRAR ·COURT 017 APPEAL 17 l I , a· !'