[1994] UGSC 37

# HOAL, PAGE J. S. C. IN THE SUPREME COURT OF UGANDA

### AT MENGO

CORAM: ODOKI, J. S. C., ODER, J. S. C., & PLATT, J. S. C.

## CIVIL APPEAL NO. 29 OF 1993.

**BETWEEN**

#### BANAX LIMITED :::::::::::::::::::::::::::::::::::: APPELLANT

AND

# GOLD TRUST BANK LTD ::::::::::::::::::::::::::: RESPONDENT

(Appeal from a judgment and decree of the High Court of Uganda at Kampala (Lady Justice C. K. Byamugisha) dated 28th April 1993).

IN

## HIGH COURT CIVIL SUIT NO. 1268/87

## JUDGMENT OF PLATT, J. S. C.

This appeal raises the interesting and somewhat rare instance of a bank freezing its customer's account. The bank did so, being either dissatisfied with, or uncertain of, a re-organisation in the Company, its customer. Since a director had been required to relinguish his post, the Bank required agreement with him to be reached before the Company's account could be used. The learned Judge concluded that the Bank had acted properly, and dismissed the customer's claim. Hence this appeal.

It follows that the main question to be decided is whether the bank did act correctly in the circumstances of the case, and if the Bank was wrong to freeze the account, the second main question arises, whether substantial damages are appropriate. The other remedies claimed were of a doubtful nature.

The facts found were that at the end of 1985, or beginning of 1986, the Company Banax Ltd., opened a current account with Gold Trust Bank Ltd. The Company operated the account apparently to the satisfaction of the Bank: at any rate no complaint was put in evidence, and the account stood at Shs. 148,000/= to the Company's credit. The signatories

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of this account were "r. Magumba (P. W.1) the Managing Director of the company, and a certatin Mr. Mulika, who did not give evidence. Some sort of problem arose in the running of the Company, as a result of which, Mr. Magumba asked Mr. Mulika to call a company meeting. This not having been done a meeting was held in the office of the Registrar of Companies on 17th September, 1987, and Mr. Mulik, ceased to be director. A new director Mrs Magumba was elected, and it was proposed that she should be a new signatory. When the Bank was informed of this change, the Manager Mr. Konde, refused to accept the appointment of the new Director, or indeed as a new signatory of the Company's account. Mr. Konde stated that the Company must Obtain Mr. Mulika's approval of the changes first, before the Bank would accept the mandate of the new organisation in the Company. Consequently the Company could not operate its account.

The Company consulted Messrs Owiny-Dollo, Tibaijuka & Co. and Mr. Tibaijuka returned with Mr. Magumba on 1st October 1987 to reason with Mr. Konde. But the latter was adamant that Mr. that Mr. Mulika must be consulted. Mr. Konde apparently would not accept the resolution filed with the Registrar, nor the notice of change of directors. Mr. Magumba could not obtain the normal specimen card from the Bank, and made one himself, complete with photograph of the new director and providing specimon signatures. These steps were rejected.

The Company's lawyers protested in writing and on 15th October, Katende Sempebwa & Co. Advocates answered on behalf of the Bank, confidence the Bank's stand, and threatening to sue the Company. But no suit has ever materialised. The letter of 15th October was never actually produced as an exhibit.

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Consequently, on 16th November, 1987, the Company Banax Ltd, sued the Gold Trust Bank Ltd for breach of contract, because the Bank maintained the Company's account but refused to allow it to be operated. The Company complained in its plaint that it has suffered the inconvenience of not having funds at its disposal in addition to loss of business. It therefore claimed general damages for breach of contract and loss of bussiness; specific performance directing the Bank fo operate the accuount; a permanent injunction to restrain the Bank from similar future breaches of contract; interest and costs.

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The Bank replied that the re-organisation of the Company on 17th September, 1987 was surrounded with irregularity. Moreover, is asserted that wherever there is a controversy surrounding a customer's instructions, it is prudent banking practice to suspend the operation of the account until such contraversy is removed. It contended that when the controversy was resolved, it was:-

"ready and willing to obey and serve the Plaintiff's wish."

Furthermore, if a specimen card had been refused, which was denied, that was also done with due prudence and caution in an attempt to avoid any future liability to the Bank arising out of the disputed re-organisation of the Company, and in the best interests of the Company. In the end if there had been any loss, damage, or inconvenience, Mr. Maguma and the -Registrar were to blame.

When the trial commenced, Mr. Magumba testified as to the essential. facts concerning the breach of contract alleged. But as we shall wee presently, the damage done by the breach was inadequately explained. On the other hand, for the defence neither Mr. Konde nor Mr. Mulika appeared. The situation seems to have been that Mr. Konde had resigned from his posto The succeeding Manager Mr. Gwawashingham did his best on such notes as had been left behind on the files in the Bank. His conclusions were that in

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the case of two signatories to an account (called "operators" of the account) falling into a dispute, the normal banking practice is to suspend the account pending a settlement of the dispute. An attempt was made to explain the Bank's position on the ground that only one director had signed the resolution. But then at the end of the Crossexamination the witnesses confessed as follows:-

> "The resolution was certified by the Registrar<br>of Companies. The Bank was not satisfied with<br>it. The matter about irregularities were internal<br>to the Company. As a bank we would not have been<br>affected by these irregulariti that the bank was given wrong advise.

................... The bank was trying we protect itself. The bank was acting on instinct. Since 1987 the Company has<br>never had access to its account."

The learned Judge construed this evidence in an unusual way. Having advised herself on the leading authorities, Royal British Bank vs Turguard (12.3) 6 E & B 327; and MAHONY vs EAST HOLYFORD MINING CO. (1875) L. R. 7 H. L. 869; as against HOWARD va PATENT IVORY MANUFACTURING CO. 1888) 38 CH. 156, and HOUGHTON & CO vs NOTHARD LOWE & WILLS LTD (1927) IKB 246, the learned Judge noted that Mr. Mulika and his advocates claimed that the re-organisation was irregular. It was unfortunate that the learned Judge set out the Advocato's letter of 15th October, 1987, because it was not produced in evidence by those who wrote it. However the learned Judge realised that this initiative came to nothing. She then truned her attention to the conflict between Mr. Magumba and Mr. Mulika. She observed that there was a conflict between the operators of the account which $h_{\otimes}d$ to be resolved one way or the other before the Company could operate its account. She concluded.

"It would be quite correct to say that the bank was supposed to operate the account verything was apparently regular, but everything was not regular here since there was a conflict which had been brought to its notice. No prudent banker would have ignored it in my view."

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The Company has of course appealed, and in ground one has taken the point that on the evidencethere was not such a conflict, which could lead the Judge to conclude that the Bank was justified in stopping the operations of the Company's account. The correct position had been stated by Mr. Gwawasingham. The matter of the irregularities if any was an internal matter as far as the Company was concerned. As a Bank, the Respondent/Defendant Bank, could not have been affected by the irregularities.

That position was partly confirmed by Mr. Mutaawe (counsel for the Bank) on this appeal. He stated that the Bank had no fault to find with the resolution of 17th September, 1987. As it was registered by the Registrar of Companies, I would hold that the Bank could accept that position without fear, since that was the official position, and no further enquiries were needed. If this were not the situation, no reorganisation could ever be undertaken without difficulty from the Bank, since parties indisagreement will rarely give their blessing to a move against them. Indeed, Mr. Mulika has manufactured a great mischief to the Company, without any pain to himself, through Mr. Konde's action. Mr. Mulika has skillfully avoided a suit, which might have been problematic and certainly expensive, and caused the Company to be jeopardised, at the Bank's expense. For a minority shareholder, one who could not pay for his shares fully in cash, that is a remarkable achievement.

But to answer the exact point, there was certainly some sort of disagreement between Mr. Magumba and Mr. Mulika. Whether or not it would be judged as favourable to Mr. Magumba or Mr. Mulika one cannot tell. There was no evidence from either side what the nature of the dispute was Katende & Sempebwa's letter was not evidence, and what exactly Hr. Konde knew by the time he had confirmed his decision on 1st October, 1987 (before the letter of 15th October 1987 had arrived) is not in evidence. On the evidence on record, therefore the learned Judge could not have judged what the nature of the dispute was, and what risk there was to the Bank.

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It was an internal problem, solved by the Company according to its articles and the change was registered by the Registrar of Companies.

The Bank should heave accepted this resolution on the basis of Turquand's case. Merely because there is a change of management, one director being excluded for no known reason without anything more in evidence, cannot put the Bank on notice of something irregular. If of course, it were true that Mr. Kondoe, 'as stated in the plaint but not proved in evidence) was shielding Mr. Mulika, then Mr. Konde was wrong and endangering his Bank, perhaps, in what has been called his "instinctive" decision. He might have treated the Directors as partners.

Mr. Mutaawe pleaded that there were special circumstances surrounding the Company's re-organisation. The original and later share hodings of the disputants is not relevant. Whether there were originally two familie es and one family merely lost out, is irrelevant. Whether a suit based on minority rights would be successful is irrelevant in this case. There were no apparent irregularities, and the dispute relied on was a purely internal matter of management. No fraud or malafides has been suggested.

The duty of a banker is to act in accordance with the lawful requests of his customer in the normal operation of the customer's account. The Defendant Bank refused to carry out a lawful request and wrongly suspended the account from 1st October, 1987, until the High Court gave judgment. It was in breach of its contfact with the Company for all this time.

In these circumstances it is not necessary to deal with ground 2 which deals with aspects of the Companies Act, and I pass on to ground 3. It is there complained that the learned Judge held that there was no evidence to show actual damage suffered by the Appellant thereby coming to the wrong conclusion that she would only have awarded nominal damages of Shs. $1000,000/$ =...

$1111117$ Two things can be said at once. The learned Judge was right to state that there was little or no evidence upon which to base general damages for breach of contract or less of business. On the other hand Shs. 100,000/= is hardly nominal damages.

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Mr. Magumba's evidence is very poor on this aspect of the case. which is surprising in view of the plaint, where it was asserted that the Company had suffered inconvenience in addition to loss of business.

Mr. Magumba testified that the business of the Company was "to buy food and supply food to Makerere." Payment was twice a month, after two weeks, allowing a payment to provide funds to buy the next consignment. The net profit would normally work out at 10% - 15% of the sale price. But Mr. Magumba did not have the books of account with him to show the performance of the Company neither before nor after the breach of contract. Nor did he show how the closure of the account had actually affected the business, or caused inconvenience. No loss of business was actually referen ed to.

Mr. Tibanjuka relied on Gibbons vs West Minister Bank (1939) 2KB 882; considered in Waiguru vs Bank of Kenya (1974) E. A 339 with approval. but some doubt, as it was only a first instance decision. These cases depended on breach of contract by a Bank concerning a wrongly dishonoured cheque. The view taken was that damage must be proved, unless the account was that of a trader, in which case damages would be assessed on the assumption of loss of prestige by the trader. That was not the situation here, as Mr. Mutaawe pointed out.

The breach of the contract in this case led to the Company being unable to utilise its assets. It did not by itself involve a third party as would be the case of a dishoncured cheque. The natural consequence of this breach would be that if the Company needed to draw or deposit money,

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it could not. That would also mean that the money in the account would be tied up. If the Company were unable to use its money, it may not have been able to purchase goods or debts in the normal pattern of its trade, with the result that its trade may have been adversely affected. This might be called inconvenience. Secondly, the money tied up in current account might not gain interest and might lose in value.

Mr. Tibaijuka seems to have sought to get round the lack of evidence on these matters by mathematical abstractions. He calculated that given the money on the account, the total monthly turned over would be. Shs.384,000,800/=. At 15% net progit, the profit would be Shs.57,720/= per month or $Shs.692,640/$ = per annum. By the time of the trial five years had passed. Hence at the end of that time the loss would be rounded out to Shs. $4,000,000/=$ . What is unfortunate about this a: straction is that the cash in the bank was not proved to relate to the monthly turn over figure. Nothing appears in the short bank statment (Exh P6) to suggest any possible support for such a result. Mr. Magumba did not bring his account to support such a profitable adventure either. There was no possibility of the abstraction being accepted without evidence to support it.

Looking at the description of the trading pattern for a moment, it does not necessarily follow that this bank account was in daily use. So long as Makerere paid for the food and goods supplied, the money so ement funded the purchase of the goods for the ensuing delivery. It may be that out of the profit earned, some outgoings could have been funded. On the other hand, it is not known whether payment was always timeous, or indeed whether the contract for the supply of goods was maintained.

Even so, the loss of the use of an account must have caused inconvenience. What cannot be said for sure, is how much.

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There are two further results from the loss of the use of the account. As a natural consequence of the cash in hand being frozen, it could not generate interest in a current account nor would it necessarily maintain its value. There was no evidence, that the sum frozen earned interest, or what a relatively small sum such as this would earn in deposit, even at the Post Office. On the other hand, it is generally agreed that the Uganda Shilling has lost value. What I would not be able to do is to take judicial notice of how much it had lost since 1987. Mr. Tibaijuka says that it is clear, and that the loss is about Shs.2,886,--4/=. I am unable to say that thatsum can be ascertained or is relevant by noticing the Uganda shilling - US Dollar rate. For one thing, the Company was not trading in US Dollars but in Uganda Shillings. The depreciation should therefore be judged between what the Uganda Shilling purchased in 1987 and what it purchases today. There is no evidence on that point. Once again there was a probable loss.

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The result then is that there must have been inconvenience, and there was no doubt some loss in the value of the Shs. 148,000/=. The full amount of the damage was not proved. I would leave the learned Judge's estimate at Shs. 100,000/= as damages for breach of contract, on what can be ascertaine

On the claim for loss of business, as I have mentioned above, there was no evidence whether or not the Makerere contract continued or was cancelled, or whether any other contract was concelled. It is not clear whether, even if the Makerere contract continued, the work decewased in value. On the other hand, there is the difficulty whether or not any such damage, if proved, would be too remote. (Hadley vs Baxendale (1854) 9 Exch 341). Unless the Bank knew the trading pattern of the Company and that the loss of the account would jeopardise a contrat with a third party, such damage would be too remote. No claim can be made out on this kind of damage.

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Consequently, it remains to deal shortly with the other reliefs claimed.

No decree of specific performance is necessary since the Bank has stated that it is ready and willing to obey the Company's instruction, once the issue surrounding the account is resolved. That has now been resolved by finding that the Bank was wrong to meddle in the Company's affairs, and in particular, in the dispute between Mr. Magumba and Mr. Mulika. The Bank should forthwith unblock the account which was wrongfully suspended.

The Company sought a permanent injunction to restrain the Bank from committing similar breaches of contract. That relief cannot be granted. The Court cannot order the Bank to continue to serve the Company, in any event. The can order that the amount frozen be put at the disposal of the Company, either with a view to operating the account in accordance with the Company's mandate, or with a view to closing the account. As the Bank has offered to continue the account, so be it.

I would allow the appeal, set aside the judgment and decree of the High Court, and substitute therefore, judgment for the Plaintiff Company Banax Ltd, in the sum of Shs. 100,000/= with interest at court rates, and the costs of the suit. I would award the costs of the appeal to the Appellant.

I would like to appeal to the Bar once more to undertake trials in a more straight forward manner, especially with regard to damages to avoid controversy arising with clients. A clear lead was given in KIBIMBA RICE CO. LTD vs UMAR SALIM (Civil Appeal No. 7 of 1988).

April. 1994. 14th $\dots$ day of $\dots$ Delivered at Mengo this .... (signed) I CERTIFY THAT THIS IS A TRUE H. G. Platt. COPY OF THE ORIGINAL, JUSTICE OF THE SUFREME COURT. A. L. KYEYUNE, for REGISTRAR SUPREME COURT. $10 / 11 / 1994.$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$

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IN THE SUPREME COURT OF UGANDA

AT MENGO

(CORAM: ODOKI J. S. C., ODER, J. S. C., & PLATT, J. S. C.)

## CIVIL APPEAL NO.29 OF 1993

### BETWEEN

BANAX LIMITED ::::::::::::::::::::::::::::::::: APPELLANT

## A N D

GOLD TRUST BANK LTD :::::::::::::::::::::::::::::::: REPOSNENT

(Appeal from the judgment and decree of the High Court of Uganda at Kampala (Byamugisha J.) dated 28th April, 1993.).

## I N

#### CIVIL SUIT NO. 1268 OF 1987

JUDGMENT OF ODOKI J. S. C.

I have had the opportunity of reading in draft the judgment prepared by Platt J. S. C. and I agree with it that this appeal must be allowed with costs to the Appellant here and in the Court below. As Oder J. S. C. also agrees with the judgment and orders proposed by Platt J. S. C., it is ordered

in terms proposed by Platt J. S. C.

Dated at Mengo this ....................................

(signed) B. J ODOKI

JUSTICE OF THE SUPREME COURT

I CERTIFY THAT THIS IS A TRUE COPY OF THE ORIGINAL.

A. L Kyey AG. ASST. REGISTRAR.

10th November, 1994.

IN THE SUPREME COURT OF UGANDA

AT MENGO

(GORAM: ODOK, J. S. C., ODER, J. S. C., AND PLATT, J. S. C)

# CIVIL APPEAL NO. $29/1993$

# BETWEEN

# BANAX LIMITED ::::::::::::::::::::::::::::::::: APPELLANT

A N D

GOLD TRUST BANK LTD. ::::::::::::::::::::::::::::::: RESPONDENT

(Appeal from a judgment and decree of the High Court of Uganda at Kampala (ByamugishaJ.)

#### I N

### HIGH COURT CIVIL SUIT NO. 1268/87

JUDGMENT OF ODER, J. S. C.

I have had the nenefit of reading in draft the Judgment of Platt, J. S. C. and I agree with him that the appeal should be allowed with costs.

Dated at Mengo this 14th day of April, 1994.

(signed) A. H. O. ODER.

# JUSTICE OF THE SUPREME COURT

I CERTIFY THAT THIS IS $\scriptstyle\rm A$ TRUE COPY OF THE ORIGINAL.

A. L. KYEYUNE AG. ASST. REGISTRAR.

10th November, 1994.


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