[2025] UGCommC 156

# 5 **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) MISCELLANEOUS APPLICATION NO. 2408 OF 2024 (ARISING OUT OF CIVIL SUIT NO. 1287 OF 2024)**

#### 10 **1. BENAS UGANDA LIMITED**

# **2. YONAS ASMELASH ::::::::::::::::::::::::::::::::::::::::::::::: APPLICANTS VERSUS**

**ORIGINADDIS INVESTMENTS LIMITED :::::::::::::::::::::::: RESPONDENT**

# **BEFORE: HON. LADY JUSTICE PATIENCE T. E. RUBAGUMYA** 15 **RULING**

Introduction

This application was brought by way of Notice of Motion under **Section 98 of the Civil Procedure Act, Cap. 282**, **Order 36 rules 3 and 4** and **Order 52 rules 1 and 3 of the Civil Procedure Rules SI 71-1**, seeking orders 20 that:

- 1. The Applicants be granted unconditional leave to appear and defend *Civil Suit No. 1287 of 2024***.** - 2. Costs of this application be in the cause.

#### Background

- 25 The background of the application is detailed in the affidavit in support deponed by **Mr. Yonas Asmelash**, the 2nd Applicant and the director of the 1st Applicant, and is summarized below: - 1. That the 1st Applicant and Respondent executed a tenancy agreement wherein the Respondent would use part of the 1st

- 5 Applicant's premises as a warehouse in consideration for rent of UGX 1,131,000/= per month. - 2. That the 1st Applicant and Respondent also agreed and constituted a distributorship relationship to enable the 1st Applicant supply part of the Respondent's merchandise and remit the money for the 10 merchandise supplied to the Respondent's proposed account. That the Respondent supplied goods worth UGX 179,598,900/= to the 1st Applicant, for distribution. - 3. That the parties agreed that the 1st Applicant would make payments on behalf of the Respondent and the same would be deducted from 15 the decretal consideration for the goods supplied. - 4. That the 1st Applicant made payments of UGX 5,216,000/=, UGX 5,285,000/=, UGX 931,700/= and UGX 3,850,000/= on 21st June, 14th July, 17th October and 14th October, 2022 respectively, to Kazi Food Logistics Limited on behalf of the Respondent. - 5. That on 23rd September, 2022 and 1st November, 2023, the 1st 20 Applicant made payments of UGX 43,000,000/= and UGX 5,320,000/= respectively, to the Respondent. - 6. That on 31st October, 2022 and 20th December, 2023, the 1st Applicant made payments of UGX 4,060,000/= and UGX 25 3,770,000/= to Cross World Logistics Ltd and Mariana Agencies respectively, on behalf of the Respondent. - 7. That while the 1st Applicant supplied the said goods, some of the third parties have not remitted the money due to the Respondent. - 8. That the 1st Applicant is required to keep UGX 8,307,716/= as 30 withholding tax for the goods that it supplied on behalf of the Respondent.

5 9. That the 2nd Applicant did not deal with the Respondent in his personal capacity but as a director of the 1st Applicant.

In reply, **Mr. Yared Tefere,** a director of the Respondent, opposed the application, contending that:

- 1. The Applicants have no good defence to *Civil Suit No. 1287 of 2024* - 10 as they breached the contract of distributorship by non-remittance and nonpayment of money due to the Respondent despite several reminders and various undertakings to clear the outstanding amounts of UGX 136,598,900/=. - 2. The Respondent was approached by the 2nd Applicant as an agent and representative of the 1st Applicant and it was agreed that the 1st 15 Applicant would distribute the Respondent's merchandise and be entitled to the difference on the fixed purchase price of the goods. - 3. The Respondent acknowledges the Applicants' payment of only **UGX** 43,390,000/= made to it. That the Applicants are still indebted to 20 the Respondent to the tune of UGX 136,598,900/=. - 4. The Applicants' allegations regarding the expired goods are afterthoughts and sheer falsehoods brought forward with a view of reducing the money owed to the Respondent because the same issue has never been brought to the attention of the Respondent. - 25 5. It is not true that third parties have not remitted the money due to the Respondent for the goods supplied between 2022 and 2023 since the Applicants have never informed the Respondent about the delayed payments or of any efforts made so far, to recover the said payments.

- 5 6. The Respondent is tax compliant and that the Applicants have not adduced any certificate or proof of payment of UGX 8,307,716/= as withholding tax. - 7. The parties have never executed any tenancy agreement.

The 2nd Applicant, **Mr. Yonas Asmelash,** on his own behalf and on behalf 10 of the 1st Applicant, deponed an affidavit in rejoinder reiterating his previous averments and further stating that:

- 1. The Respondent repeatedly refused to accept or receive payments from the 1st Applicant, acting irrationally and disregarding the relationship that had been built between the 1st Applicant and the 15 Respondent. - 2. The Respondent exaggerated the money owed to the 1st Applicant leaving no opportunity for the 1st Applicant to remit the actual monies owed. - 3. Wassihun Nega negotiated with the Respondent to establish a distributorship relationship with the 1st Applicant and it is the 1st 20 Applicant who made all the payments. - 4. The parties agreed that the cost and /or price of the warehouse expiries before distribution and returns from supermarkets would be subtracted. - 25 5. Every person making specified payments with a source in Uganda must withhold tax at the applicable rates and remit the tax withheld to Uganda Revenue Authority.

### Representation

The Applicants were represented by **M/s Barungi Baingana & Co.** 30 **Advocates**, while the Respondent was represented by **M/s Falcon Associated Advocates**.

#### 5 Issues for Determination

Following **Order 15 rule 5(1) of the Civil Procedure Rules** and the case of *Oriental Insurance Brokers Ltd Vs Transocean (U) Limited SCCA No. 55 of 1995*, this Court has rephrased the issues to read as follows:

1. Whether the Applicants have raised sufficient grounds to warrant 10 the grant of unconditional leave to appear and defend *Civil Suit No.*

#### *1287 of 2024?*

2. What remedies are available to the parties?

The parties were directed to file their written submissions which they did and the same have been considered by the Court.

15 Issue No. 1: Whether the Applicants have raised sufficient grounds to warrant the grant of unconditional leave to appear and defend *Civil Suit No. 1287 of 2024*?

#### Applicants' submissions

Counsel for the Applicants first relied on the cases of *Mako Warehouse*

20 *Co. Ltd Vs Total Uganda Ltd HCMA No. 1031 of 2021* and *Zzimwe Hardware & Construction Enterprises Ltd Vs Barclays Bank (U) Ltd HCMA No. 114 of 2008* for the principles that govern applications for leave to appear and defend. Counsel then asserted that the 1st Applicant made various payments to the Respondent on the decretal sum claimed 25 under the specially endorsed plaint, with some payments to the Respondent and others to third parties but on behalf of the Respondent and that there are receipts to that effect. That while dealing with the Respondent, the 2nd Applicant never acted in his personal capacity but as a director of the 1st Applicant.

- 5 Counsel further contended that it was agreed between the parties that the cost and/or price of the expired goods would be deducted which left an implication of warehouse expiries before distribution amounting to UGX 5,988,080/= and the returns from supermarkets amounting to UGX 7,752,444/= as per the Respondent's account statement. Also, that the 1st - 10 Applicant seeks to recover the outstanding rent of UGX 26,013,000/= from the Respondent.

In conclusion, Counsel submitted that the application raises triable issues regarding whether the amounts presented would be affected as asserted by the Respondent in the main suit and whether the main suit raises a 15 cause of action against the Applicants. That additionally, the Court needs to consider the issue of withholding tax and cost of expired goods as well as the Applicants' draft written statement of defence and counterclaim which has an impact on the sums being claimed in the main suit.

#### Respondent's submissions

20 Counsel for the Respondent relied on **Order 36 rules 3 and 4 of the Civil Procedure Rules** and the case of *Children of Africa Vs Sarick Construction Ltd HCMA No. 134 of 2016*. Counsel then submitted that the Applicants admit that the Respondent supplied them with goods amounting to UGX 179,598,900/=. That the Applicants only paid UGX 25 43,390,000/= and therefore, are still indebted to the amount of UGX 136,598,900/=. That the 2nd Applicant, on several occasions, acted, communicated and engaged in his individual capacity in respect of the business and transactions between the 1st Applicant and the Respondent. Further, that the Respondent has never entered into any kind of tenancy 30 agreement with the Applicants whatsoever.

- 5 Regarding the receipts that were adduced by the Applicants; Counsel submitted that the said receipts are not proof of payments for the goods supplied but rather payment by the Respondent for purposes of storage of the goods, and transport services and that no single receipt was adduced showing the Respondent's acknowledgment/receipt of the alleged - 10 payments.

Further, that whereas the Applicants averred that the 1st Applicant is obliged to withhold UGX 8,307,716/= as tax, the Respondent is tax compliant and willing to pay withholding tax.

Further, that it is not true that third parties have not remitted the money

15 due to the Respondent because the Applicants neither mentioned the third parties nor the quantity and value of the goods supplied.

### Applicants' submissions in rejoinder

In rejoinder, Counsel for the Applicants reiterated his previous submissions and emphasized that there exists an oral agreement between

20 the 1st Applicant and Respondent whereby it was agreed that the Respondent pays UGX 1,131,000/= per month for renting a portion of the 1st Applicant's warehouse for the storage of its goods and merchandise.

Regarding the preliminary objection on the liability of the 2nd Applicant who according to the Applicants did not deal with the Respondent in his

25 personal capacity but as a director of the 1st Applicant; Counsel submitted that **Section 20 of the Companies Act, (now Section 18 of Cap. 106)** empowers the High Court to lift the corporate veil where the company or its directors are involved in fraud and that the Respondent did not raise any grounds of fraud in its pleadings.

## 5 Analysis and Determination

I have taken into consideration the pleadings and affidavit evidence of the parties together with the submissions and authorities therein.

**Order 36 rule 3(1) of the Civil Procedure Rules,** provides that a Defendant served with summons, issued upon the filing of a specially 10 endorsed plaint and an affidavit under **rule 2** of this Order, shall not appear and defend the suit except upon applying for, and obtaining leave from the Court.

For leave to appear and defend a summary suit to be granted, the Applicant must show by affidavit or otherwise that there is a bona fide 15 triable issue of fact or law. (See: *Maluku Interglobal Trade Agency Ltd*

## *Vs Bank of Uganda [1985] HCB 65)*.

A triable issue is defined in the case of *Jamil Ssenyonjo Vs Jonathan Bunjo HCCS No. 180 of 2012,* as one that only arises when a material proposition of law or fact is affirmed by one party and denied by the other. 20 Hence, it is capable of being resolved through a legal trial, which is a matter that is subject or liable to judicial examination in the Court. The defence raised by the Applicants should not be averred in a manner that appears to be needlessly bald, vague or sketchy. A triable issue must be differentiated from mere denial. Therefore, the defence raised must not be 25 a sham intended to delay the Plaintiff from recovery of his/her money. If the defence is based upon facts, in the sense that material facts alleged by the Plaintiff in the plaint are disputed or new facts are alleged constituting a defence, the Court does not attempt to decide these issues or to determine whether or not there is a balance of probabilities in favour of 30 one party or the other. In essence, the Plaintiff is barred from obtaining summary judgment where the Applicant raises a good defence.

5 Turning to the case at hand, the Applicants dispute being indebted to the Respondent in the sum of UGX 136,598,900/=.

The above assertion is premised on the facts that the Respondent supplied the 1st Applicant with goods worth UGX 179,598,900/= to distribute to retailers, wholesalers, supermarkets and other traders and thereafter 10 remit the money due to the Respondent on an agreed account. That the Applicants remitted the money through payments evidenced by the receipts so adduced and therefore, the outstanding balance of UGX 136,598,900/= is exaggerated since the Respondent should have deducted all payments made to it and those made to third parties on its behalf as 15 well as the withholding tax due and the cost/price of the expired/returned goods. On the other hand, the Respondent acknowledged that the Applicants effected only one payment of UGX 43,390,000/= out of the sum of UGX 179,598,900/= as per annexure **"F"** thus leaving a balance of UGX 136,598,900/=.

20 Premised on the distributorship agreement where the Respondent supplied to the 1st Applicant goods worth UGX 179,598,900/=, it is mutually acknowledged that the Respondent requested the 1st Applicant to make payments on its behalf and that the 1st Applicant only paid UGX 43,390,000/= as per annexure **"F"**, an Equity bank funds transfer form 25 dated 23rd September, 2022.

I have examined the receipts so adduced as annexures **"B", "C", "D", "E", "G", "H"** and **"I**" attached to the affidavit in support; in proof that the 1st Applicant made payments to the Respondent and even effected payments on its behalf. Annexure **"B"** is a receipt of UGX 5,216,000/= and annexure 30 **"C"** is dated 14th July, 2022 showing that USD 1,400 was received from

5 the Respondent for storage of two containers for the months of June and July, 2022.

Annexure **"D"** dated 17th October, 2022 shows that UGX 931,700/= was paid by the Respondent in respect of storage charges for 17 days in October and September, 2022. Annexure **"E"** dated 14th October, 2022,

10 shows that the Respondent also paid USD 1,000 for storage charges. Annexure **"G"** dated 31st October, 2022 is a receipt issued by Maina Freight ICD Ltd for payment of UGX 4,060,000/= by the Respondent. Annexure **"H"** dated 1st November, 2023 is a bank receipt showing that USD 1,400 was deposited on the account of Mariana Agencies and the 15 narration is "CSD YARED" while annexure **"I"** shows that USD 1,000/UGX 3,770,000/= was transferred to Mariana Agencies by the 1st

Applicant and the debit reference reads "Yared Warehouse Rent".

The Applicants averred that since the Respondent requested the 1st Applicant to make payments on its behalf, all the above amounts incurred

20 by the 1st Applicant on its behalf, should also be deducted from the sum being sought to be recovered in the main suit.

I have observed that much as the Respondent disputes the deposits alleged to have been made to it or on its behalf to Mariana Agencies or Cross World Logistics Ltd; under paragraph 7 of its affidavit in reply, it does not dispute

- 25 the payments made on its behalf to Kazi Food Logistics Limited. Nonetheless, in light of annexures **"G"**, **"H"** and **"I"**, this Court has to investigate further so as to ascertain whether the disputed payments made in the Respondent's name by the 1st Applicant were for the benefit of the Respondent thus raising a triable issue of fact. - 30 I have perused annexure **"J"** attached to the affidavit in support, the account statement of Originaddis Investment Limited, and it shows that

- 5 as of 20th December, 2023, the returns to the warehouse were worth UGX 5,988,080/= and the returns from supermarkets were worth UGX 7,752,444/=. The Applicants aver that it was agreed that the amounts for the expired goods would be subtracted however, the Respondent disputes the above averment and further contends that this is an afterthought since 10 the issue of the expired goods was never brought to its attention. Considering that there is no written agreement for Court to ascertain the actual terms of the distributorship relationship; then further evidence such as testimonies of the witnesses has to be adduced to ascertain the nature and terms of the relationship between the parties and this can only - 15 be done through a full trial.

The 2nd Applicant also disputes his liability in the claim as pleaded in the Applicants' intended written statement of defence and counterclaim, marked as annexure **"A"**. The 2nd Applicant deponed that he is not liable since he only transacted with the Respondent, in his capacity as the 1st 20 Applicant's director. In its affidavit in reply, the Respondent insisted that the 2nd Applicant was acting in his individual capacity and in the submissions, Counsel for the Respondent contends that the corporate veil should be lifted. This in my view, also raises a triable issue of law and fact.

Further, in their written statement of defence and counterclaim, annexure 25 **"A"**; the 1st Applicant raises issues of breach of a tenancy agreement and seeks to recover the outstanding sum for rent of UGX 26,013,000/=. In the affidavit in reply, the Respondent averred that there has never existed any tenancy relationship between the parties. This therefore, also raises a triable issue. The parties also have disputes regarding withholding tax and 30 this would also require additional evidence and Court's investigation.

- 5 As espoused in the authorities discussed above and as laid out in the case of *Twentsche Overseas Trading Co. Ltd Vs Bombay Garage [1958] EA 741*, summary procedure is resorted to in clear and straightforward cases where the demand is liquidated and there are no issues for determination by the Court except for the grant of the claim. - 10 In the instant case, the amount being claimed in *Civil Suit No. 1287 of 2024* is in dispute, the Applicant has also raised triable issues of law and fact regarding; whether the Respondent has a cause of action against the 2nd Applicant, whether there was a tenancy agreement between the parties, the terms governing the distributorship relationship, the contention 15 regarding withholding tax, whether the 1st Applicant made payments on behalf of the Respondent and whether the Respondent is indebted to the 1st Applicant for rent, hence placing the plaint outside the ambit of **Order 36 of the Civil Procedure Rules**.

Therefore, issue No. 1 is answered in the affirmative.

20 Issue No.2: What remedies are available to the parties?

According to the case of *Churanjila & Co. Vs A. H Adam (1) [1950] 17 EACA 92*, the East African Court of Appeal held that a Defendant who has a stateable and arguable defence must be allowed to state it and argue it before the Court. That all the Defendant has to show is that there is a 25 definite triable issue of fact or law.

In the premises, I find the Applicants to have raised triable issues of fact and law that merit the grant of this application. Accordingly, this application is granted with the following orders:

1. The Applicants are hereby granted unconditional leave to appear and 30 defend *Civil Suit No. 1287 of 2024.*

- 5 2. The Applicants are ordered to file and serve their Written Statement of Defence within fourteen (14) days from the date of this Ruling. - 3. Costs of this application shall be in the cause.

I so order.

Dated, signed and delivered electronically via ECCMIS this **13th** day of

10 **March, 2025**.

Patience T. E. Rubagumya

**JUDGE**

13/03/2025

15 7:05am