crdb bank plc vs kitunda engineering co ltd 2 others 2011 tzhccomd 2078 29 september 2011

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION)

AT ARUSHA COMMERCIAL CASE NO.7 OF 2010 CRDB BANK PLC............................................................................... PLAINTIFF

VERSUS 1. KITUNDA ENGINEERING COMPANY LTD............................. 1st DEFENDANT 2. JAMES ELINEEMA KAN GAL..................................................2nd DEFENDANT 3. ELINEEMA JAMES KANGALU................................................ 3r d DEFENDANT Date o f last order. 01/12/2010 Date o f final submissions-. 08/02/2011 Date o f ruling-. 29/09/2011

RULING MAKARAMBA, J.: This is a ruling on a point of preliminary objection the Defendants, through their joint written statement of defence, lodged in this Court on the 4th day of November 2010, that the Plaintiff has no cause of action against the Defendants either jointly or severally. The point of preliminary objection was, by consent of the learned Counsel for the parties, disposed of by way of written submissions, Duncan Joel Oola & Co. Advocates for the Defendants and Lawuo Advocates for the Plaintiff. As the vagaries of advocacy would have it, the Defendants' Counsel flagged off his submission by revisiting BLACK'S LAW DICTIONARY 8th edition at page 235, and the case of JOHN M. BYOMBALIRWA VS AGENCY MARITIME INTERNATIONALE (TANZANIA) U MIIED [1983] T.L.R. 1 {Byombalirwa case) all of which attempt to provide a working definition of what a cause of action means, which definition as per the Byombalirwa case, is not available in the Civil Procedure Code. The two cited authorities define the term cause of action essentially as meaning the "operative or essential facts necessary for the Plaintiff to prove before succeeding in a suit or to obtain a remedy in court." This definition provided legal ammunition to the Defendants' counsel to nd forcefully submit that the Plaintiff has no cause of action against the 2 and 3rd Defendants and thus the suit could have only been brought

against the 1st Defendant alone, and further that even if the suit could have been preferred against the 1st Defendant alone still the Plaintiff could n o t h a v e been said to have any cause of action known in the law agains t the 1st Defendant. The first limb of the argument by the Defendant's Counsel that the Plaintiff has no cause of action against the 2nd and 3 rd Defendants is premised on the fact that the 2nd and 3rd Defendants are just officers of the Company, the 1st Defendant, a fact which prompted the Defendant's Counsel to pose the following issue, namely, whether the 2n d a n d Defendants legally undertook to be liable on a ll endorsement o f cheques drawn and p a id to them as stated in the Plaint, while the account, 2 No.0131033490100, which they were operating was a company account for the 1st Defendant. Premising his arguments on the principle of corporate personality established in the now classicus case of SOLOMON VS SOLOMON & CO. LTD [1987] A.C 22 reasoned logically that since a registered company is a legal person separate from its members it can be held liable for breaches of contract, torts, crimes etc. in its capacity as a juristic person, and that for obvious reason it can only act through human agents or employees. The Defendant's Counsel surmised that the 2nd and 3rd Defendants who are Directors and signatories of the 1st Defendant's account with the

Plaintiff, cannot be said to be privy to the contract which existed between the Plaintiff and the 1st Defendant who in real sense (as juristic person) did acknowledge liability in relation to its business with the Plaintiff subject to annexure CRDB-2 in the Plaint. Since a registered company is an artificial person and must act though human agents, the directors and other officers empowered by articles to act on behalf of the company, and by so acting for the benefit of the company they cannot therefore be personally held responsible for transactions that they undertook on behalf of the company even if they have majority of shareholding. In buttressing this particular point the Defendants' Counsel relied on the holding in MACAURA VS NORTHERN ASSURANCE CO- LTD [1925 A.C 619 that "the largest shareholder had no insurable interest in the property of the company." The Defendant's Counsel however, is salutary to the principle of alter ego doctrine, that in certain circumstances the "acts and mind o f the governing body of the company are the acts and mind of the company, and has cited the decision 3 of Viscount Haldane L.C. in LENARDS CARRYING CO. VS. ASIATIC PETROLEUM [1915] A.C. 705 (HL) that, " if a director (Mr. Leonard) was the directing mind o f the Company, then his action must, unless the corporation is not to be liable at all, have been an action which was the action o f

the Company itself." ♦ The second limb of the arguments by the Defendant's Counsel is that even if the suit could have been brought against the 1st Defendant alone still the Plaintiff could have been said to have no cause of action known in the law against the 1st Defendant, and has cited the principle established in SKYRING VS. GREENWOOD (1825) 4b&c.281, [1824-34] All E.R Rep. 104 that "where an incorrect entry is made which is detrimental to the banker, the banker is entitled to reopen the entry and recover the money but cannot recover any part o f the money which the customer has spent in good faith, relying upon the accuracy o f the entry, if it would be inequitable to require the customer to repay the money. "The Defendant's Counsel armed with this legal shield argues further that relying on the accuracy of the entry and with "utmost good faith!' the 1st Defendant was induced to spend money from his account as stated in paragraph 7 of written statement of defence. The Defendants' Counsel insisted on the duty of the bank to keep the customer correctly informed regarding her/his account and not to make excess credit entries on her/his bank statements and not to authorize or induce her/him by the representations contained in her/his bank statement to draw from her/his account money to which she/he was not entitled, as was stated in LLYODS BANK VS BROOKS 4 (1950) Six Legal

Decisions Affecting Banker, 161. The Defendant's Counsel buttressed further his point by citing the principle stated in the authoritative text on banking law, SELDON AND FIDLER'S PRACTICE AND LAW OF BANKING, 11th Edition at page 50, that "a customer is under no implied obligation to examine the entries in his bank statement or pass book (though a prudent customer will obviously do so) and even if the customer does discover an incorrect entry, he is apparently under no obligation to report it to the banker within a reasonable time." The Defendants' Counsel rather confidently concluded that since the 1st Defendant would not have acted the way he did to his detriment, if was it not for the incorrect entry in his bank statement that induced him to act, then the 1st Defendant is protected by the legal principle pronounced in BRITISH AND NORTH EUROPEAN BANK VS ZALSTEIN [1927] 2 K.B. 92, which protects customers against bankers in matters that concern wrongful entries which induce the customer to act to his detriment in good faith. The Defendants' Counsel prayed that on the strength of his submissions the Plaintiff suit be struck out for want of cause of action against the Defendants. In reply the Plaintiff's Counsel took difference from the submissions by the Defendants' Counsel and submitted that the Plaint discloses a cause of action and further that the submission of the

Defendants' Counsel is based on factual issue which this Court will have opportunity to hear the parties at the main suit before making its final decision in this suit. The Plaintiff's Counsel does not take issue or contest the meaning of the term 5 cause of action as laid down in JOHN M. BYOMBALIRWA VS AGENCY MARITIME INTERNATIONALE (TANZANIA) LIMITED [1983] T.L.R. 1 the Defendants' Counsel cited in his submissions. The Plaintiff's Counsel however in his submissions goes further and cites the case of DHARSI MANJI & SONS VS AMRI SAID (1972) H.C.D. 234 which is to the effect that the question " whether a plaint discloses a cause o f action is determined from the plaint alone together with anything attached and forming part o f it, on the assumption that any facts alleged or implied are true." Amplifying further on the meaning of the term "facts" in the case of JOHN M. BYOMBALIRWA VS AGENCY MARITIME INTERNATIONALE (TANZANIA) LIMITED [1983] T.L.R. 1, which refers to Order VII Rulkel(e) of the Civil Procedure Code which states that "the Plaint shall contain the facts constituting the cause of action and when it arose" the Plaintiff's Counsel submits further that "facts" in relation to cause of action as defined in BARCLAYS BANK (U) LTD VS GLOBAL SUPPLIES LTD & 3 OTHERS [1009] Uganda Commercial Court 24 means "material facts that entitle the claimant to succeed in his/her claim and

every fact which the defendant will have the right to traverse." The Plaintiff's Counsel submits further that the issue whether the 2nd and 3 d Defendants are liable for the transactions in the account o f the 1st Defendant is a question o f law and facts and therefore it is premature to include it in a preliminary objection on point of law since there are factual issues which need to be considered by the Court. The Plaintiff's Counsel submits further that for the court to appreciate the existence of factual point the evidence should be adduced and not to argue 6 these points at the preliminary point under the veil of incorporation which Defendant's Counsel referred to in his submissions when explaining the relationship between the company as a distinct legal person and its directors or shareholders. The Plaintiff's Counsel submits further that the principle established in SOLOMON VS SOLOMON & CO. LTD [1987] A.C 22 that a company is a legal person separate from its members was not for purpose of removing joint liability of the company and its directors, and further that the court in that case held that "t/re company is not in law the agent o f the subscribers or trustees for them and nor are they liable in any shape or form except to the extent and in the manner provided b y the act. "The Plaintiff's Counsel cites the provisions of section 182 of the Companies Act, 2002, which

requires a director of a company, when exercising powers or performing duties to act honestly and in good faith and in what director believes to be the best interest of the Company. The Plaintiff's Counsel submits further that this is because a director is an agent o f a company for transactions they enter on behalf o f the company and therefore their liability arises because o f their positions as agents o f the company and the statutory duty to act in good faith. The Plaintiff's Counsel surmised that section 182 and 185 of the Companies Act on director's duty of care meant to create obligation to directors of a company which in law if not observed result into liability and therefore the 2nd and 3rd Defendants powers as Directors of the 1st Defendant affairs of the account depended on their good faith and care, which if exercised unwisely will attract legal liability against them all jointly and severally. 7 In his rejoinder submissions the Defendants' Counsel seems to have engaged himself into what for lack of a better expression I may refer to as "legal gymnastics!' by trying to juggle on the difference between what he calls the confusion by Plaintiff's Counsel of two things namely, between "tAe Plaint does not disclose the cause of action!' and "the Plaintiff has no cause of action against the Defendant." In the opinion of the Defendants' Counsel, the Plaintiff's Counsel

opted and submitted on the former and not the latter, which was not the crux of the submission by the Defendant's Counsel. Unfortunately, the Defendant's Counsel in his rejoinder submissions did not go far to quench my thirsty as to supposedly apparent differences between the two phrases mentioned above. In my considered opinion, the in order to establish whether the Plaintiff has a cause of action one has to look at the Plaintiff's Plaint which in terms of Order VII Rule 1(e) of the Civil Procedure Code as the Defendants" Counsel would appreciate "contain the facts constituting the cause of action and when it arose." In order to be able to establish whether the Plaintiff has no cause of action one need not go further than looking at the Plaint, a legal document which the Plaintiff lodges in court to initiate a suit against the Defendant. In that regard therefore the attempt by the Defendants' Counsel to point at difference between "the Plaint does not disclose the cause of action!' and "the Plaintiff has no cause of action against the Defendant' is rather unfortunate and uncalled for as it does make any useful appreciable contribution to the development of our jurisprudence. 8 In his rejoinder the Defendants' Counsel reiterated that looking at the Plaint, liability was solely vested to the Company and not its directors or shareholders, but still the Plaintiff's Counsel

contends that corporate veil should be lifted so as the 2nd and 3rd Defendants can be sued since they did not act in good faith as required by law. The Defendants' Counsel submits further in rejoinder that circumstances of lifting the corporate veil do not exist in the present case particularly considering paragraph 7 of the Plaint where the Plaintiff states that the claim of refund of TZS 60,000,000 against the Defendants jointly and severally was paid to the Defendants under their instructions while the Plaintiff was under mistaken fact that it is money belonging to the Defendants while in fact it is not. The Defendants' Counsel further distinguished the cited case of GILFORD MOTOR CO. LTD VS. HORNE [1933] All E.R. Rep 109 (CA) cited by the Plaintiff's Counsel in his reply with the present suit and submitted that in that case, which dealt with the issue of an ex-employee soliciting his employer's customers after termination contrary to what had been covenanted by forming his own company of which two directors and shareholders were his wife and one other person sending out circulars to customers of his former employer, the court granted injunction against the ex-employee and the company after managing to lift the corporate veil. I have gone through the vey able and forceful submissions of Counsel in support and rival. I am at one with the Plaintiff's Counsel that the issues

raised by the Defendant's Counsel in his submissions on the preliminary point are rather premature. As submitted by the Plaintiff's 9 Counsel in his reply submission and rightly so in my view, the Defendants' Counsel has proceeded to submit on the defence, before this Court has had the opportunity to hear the evidence of both sides. It seems to me and clearly so in my view, that even in his rejoinder submissions the Defendants' Counsel is still belabouring under the illusion that this Court has had the benefit of hearing both parties as regard the fact of the Plaintiff paying the money to the Defendants upon the instructions of the Defendants and under mistake of fact and the fact that the money does not belong to the Defendants. Clearly, as could be gathered from the pleadings, central to the controversy before this Court in this suit is the claim by the Plaintiff in paragraph 7 of the Plaint that the amount of TZS 60,000,000.00, which the Plaintiff is now claiming from the Defendants jointly and severally, was alleged to have been credited into the 1st Defendant's account by mistake and at paragraph 8 of the Plaint, that the loan account at the Plaintiff's branch at Pugu Road was allegedly improperly and without authority debited TZS 178,605,000.00, which the Plaintiff claim that it was performed using unauthorized commands at the computer network of the Plaintiff's branch at

Pugu Road, which effected books including the Arusha Branch, which debiting the Plaintiff claim was neither authorized by the Bank management nor the customer account holder nor did he have any kind of relationship with the Defendants and therefore it was reversed. The Defendants' Counsel stated that the money was withdrawn by the Defendants. The Plaintiff's Counsel claims that the Defendants withdrew the money while they knew that it does not belong to them. The Defendants' Counsel claim that the Defendants acted in good io faith and blamed the Bank. The Defendant's Counsel seems to suggest that the 1st Defendant would not have acted the way it did (that is, withdrawing the whole sum wrongly accredited to its account by the Plaintiff as the Plaintiff's Counsel claims) had it not been for the incorrect entry in its bank statement that induced it to act, but the Defendants' Counsel as the Plaintiff's Counsel rightly submitted, is trying shield the 1st Defendant under the legal principle protecting a bank customer against wrongful entries inducing the customer to act to its detriment. In my view and as rightly submitted by the Plaintiff's Counsel, all of the facts as stated in the Plaintiff's Plaint and as traversed in the defence need to be established by evidence at the hearing of the main suit. This cannot be done at the preliminary stage through a preliminary objection which

as per the MUKISA BISCUIT'S case, deals with a pure point of law raised on the assumption that all facts as pleaded are correct and that it has the effect of conclusively determining the matter in controversy. As the Plaintiff's Counsel rightly submitted the issues in this suit are a mixed bag of legal and factual issues which require evidence to establish. In my considered view, the main suit should be proceeded with so as to avail this Court with the opportunity to appreciate the facts before rendering its decision in this matter. The submissions of both Counsels, with due respect, are in the nature of final submissions which although themselves not being part of the evidence are made by parties at the conclusion of hearing the evidence, are marshalled to assist the presiding judge in his deliberation on the issues involved in the suit. n In the upshot and for the foregoing reasons, the preliminary objection on point of law Defendants' raised against the Plaintiff fails. It is hereby dismissed with costs, which costs shall be in the cause. Order accordingly. R.V. MAKARAMBA

JUDGE 29/09/2011 12 Ruling delivered this 29th day of September, 2011 in the presence of Mr. Lawuo for the Plaintiff and Mr. Moses Mahuna for the Defendants R.V. MAKARAMBA

JUDGE 29/09/2011 Date: 29/9/2011 Coram: Hon. R.V. Makaramba, J. For the Plaintiff: Mr. Lauwo, Advocate For the Defendants : Mr. Moses Maunga, Advocate CC: Ngonyani COURT: Ruling delivered in the presence of Mr. Lauwo, Advocate for the Plaintiff and Mr Moses Mahuna, Advocate for the defendants. R.V. MAKARAMBA

JUDGE 29/09/2011 13