[2023] UGCommC 234

#### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION]

#### **CIVIL SUIT NO. 289 OF 2017**

## MUNIRU KAYANJA ::::::::::::::::::::::::::::::::::: **VERSUS**

### 1. EQUITY BANK (U) LTD

## <table> 2. TONNY ODORA::::::::::::::::::::::::::::::::::: **BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI JUDGMENT**

The Plaintiff filed this suit against the Defendants by way of ordinary plaint seeking for recovery of the Isuzu bus registration No. UAK 802X or its equivalent, a permanent injunction restraining the 1^st Defendant from selling the same, damages, and costs.

The brief facts constituting the Plaintiff's case are that on the 9^th day of June 2016 he purchased the Isuzu bus registration No. UAK 802X from the 2^nd Defendant at UGX 60,000,000/ and made part payment. That he carried out a search at the motor vehicle registry and he established that it had no encumbrances, and he based on the same to conclude the sale agreement before he gained possession of the bus. It was their agreement that the balance was to be paid upon delivery of the logbook, which the $2^{nd}$ Defendant has refused to produce to date.

That while waiting for the logbook from the 2^nd Defendant, the bus was impounded from the Plaintiff on the 23^rd day of March 2017 by agents off the 1^st Defendant. The bus has been advertised for sale in the Daily Monitor newspaper of 6^th April

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2017. The Plaintiff used to earn a daily income of UGX 2,000,000/, the Plaintiff suffered from shock of discovering a third party with interest, hence this suit.

The 1^st Defendant in their amended Written Statement of Defence expressed their intent to raise a preliminary objection that the plaint does not disclose a cause of action. That sometime in 2015, the 1^st Defendant advanced a loan to Abela Construction Company Limited, and that the said motor vehicle was part of the securities lodged with the 1^st Defendant. That the borrower defaulted to pay the loan so the bus was impounded, and that the Plaintiff could not have lawfully acquired the bus as it had already been pledged as security. That the vehicle was lawfully impounded, and that the 1^st Defendant is not liable to the Plaintiff.

The 1^st Defendant filed a Counterclaim against the Plaintiff, Abela Construction Company Limited, the 2^nd Defendant and Lutaaya Phillip; for fraudulent acquisition and transfer of the logbook by the 1^st Counter Defendant/Plaintiff, a declaration that the counterclaimant is entitled to sell the bus to recover the outstanding loan, general damages and costs of the suit. The claim against the 2^nd, 3^rd and 4^th Counter defendants is for recovery of the outstanding loan of UGX 241,965,171.57/= which was guaranteed by the $3^{rd}$ and $4^{th}$ Counter defendants.

The 1^st Defendant avers that they advanced a loan to the 2^nd Counter Defendant, and the 3^rd Defendant mortgaged and handed over the log book to the Counterclaimant. That the 2^nd Counter Defendant defaulted on repayment then the Counterclaimant impounded the bus and advertised it. That the 1^st and 3^rd Counter Defendants were fraudulent in selling the bus yet they were aware of the outstanding loan, and the 1^st Counter Defendant acquired the vehicle in disregard of the Counterclaimant's interest; and went on to transfer the logbook into his names.

The 2nd Defendant in their written statement of Defence avers that he has been the registered proprietor of the said motor vehicle at all materials. That the plaintiff approached the 2nd Defendant with an offer ofbuying the vehicle, he accepted and sold it to him. That it was the plaintiff s duty to carry out due diligence to asceftain the viability of the vehicle. That the logbook was given to the plaintiff and it was successfully transferred to his name, and that his interest in the vehicle ceased when he sold it

In reply to the counterclaim, the plaintiff reiterated that the search reveared the vehicle was free from encumbrances. He admitted to stopping the sare of the bus as he had lawfully acquired it.

#### REPRESENTATION

The Plaintiff was represented by M/s MSM Advocates whereas tws Sekabanja & co. Advocates represented the I'r Defendant/counter-claimant, and M/s Nakagga & co. Advocates represented the 2nd Defendant/3'd counter Defendant.

#### JUDGMENT

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^Ihave carefully read the pleadings and listened to the evidence of the witnesses in this matter and have considered the submissions of counsel for the parties herein. The paties agreed to the folrowing Issues for determination by this court:

- ^l' whether the 2nd counter Defendant has ever obtained a roan facirity from the I't Defendant using the suit vehicle as security? - 2. whether the praintiff/l't Counter Defendant fraudurentry purchased and transferred Isuzu bus UAK g02X into his name or whether the r.r Defendant/countercraimant has ever acquired any interest in the suit vehicle?

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- 3. Whether the 1^st Defendant/Counterclaimant lawfully impounded Isuzu bus registration No. UAK 802X? - 4. Whether the Counterclaim is sustainable against the Counter defendants? - 5. What remedies are available to the parties?

# Issue 1: Whether the 2^nd Counter Defendant obtained a loan facility from the 1^st Defendant using the suit vehicle as security?

Counsel for the Plaintiff submitted that the issue does not affect the Plaintiff's interest as he is a bonafide purchaser for value without notice, and that the 1^st Defendant if at all they had any interests in the suit bus, never took any steps to make it known to the innocent third parties like the Plaintiff who purchased the bus from the 2^nd Defendant, in whose names it was registered at the time of purchase. Therefore, that the Plaintiff cannot be blamed for negligent conduct. In addition, that the bus was not pledged as security of the loan in DE 38, and that no certified copy of the Chattels Mortgage (DE 37) was produced in Court. That the date of execution was also altered and that these should be considered in determining the issue.

Counsel for the 1^st Defendant/ Counterclaimant dealt with this issue together with whether the 1^st Defendant acquired any interest in the bus and whether the impounding was lawful. He submitted that Abela obtained a loan from the Counterclaimant and that the suit bus was one of the pledged securities for the various loans taken. That by 2014, the bank had secured a valuation report and that on 24^th June 2015 by a letter (DE 39) the 1^st Defendant wrote to URA requesting that a caveat be endorsed on the logbook. That DE 43 and DE 44 prove that DE 37 and DE 38 were signed by Abela, Odora and Lutaaya.

He added that Odora admitted in his amended WSD that the bank advanced a loan to Abela and that he can only he held liable to documents he signed in respect of the loan. Counsel concluded that the bank acquired interest in form ofthe Chattel Mortgage when they took the logbook as security. That its interest was even endorsed on the logbook (DE 40). Therefore, that when Abela defaulted on repayment, the bus was impounded.

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I have perused the submissions and looked at the evidence on record in relation to the 1't Defendant's facility granted to the 2nd Counter Defendant. It is also pertinent to note that the 2nd and 4th Counter Defendants did not file written statements of defence and neither did they produce witnesses in Court in their defence. That notwithstanding, in the Offer letter of the facility (DE 25) dated 15th June 2015, the suit motor vehicle was listed under Clause 4 as one of the securities for the facility on page 96 ofthe 1't Defendant's reconsolidated trial bundle. Subsequently, the 2nd Counter Defendant made a special resolution accepting to take up the facility and thereafter a Chattels Mortgage was executed and the suit motor vehicle was listed in Schedule I on page 145 ofthe trial bundle.

DE 39 shows that the lst Defendant took steps to have their interest registered on the logbook and it was surely done in DE 40. However, as Counsel for the Plaintiff pointed out, DE 27 and DE 40, which are purportedly the logbook for the suit bus as at 23'd January 201 5 and 2nd December 201 5 respectively, have discrepancies in the year of manufacture and the seating capacity.

From PE6 and PWl's cross examination, it is apparent that the suit vehicle was previously owned by Barclays Bank (Now ABSA) and it was transferred into the names of the 2'd Defendant on23'd January 2015. However, looking at the logbook in DE 27 as at 231011201 5, and DE 40, it points to some inegularity as there is no

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reflection of the previous ownership of Barclays bank too. That notwithstanding, the evidence points to the fact that the 2nd counter Defendant obtained a loan facitity from the 1'1 Defendant with the bus, Reg. No. UAK g02X as security, although the evidence of registration of the interest is unsatisfactory.

This issue is resolved in the affirmative.

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### Issue Two: whether the Plaintiff/I't counter Defendant fraudulently purchased and transferred Isuzu bus UAK 802X into his name or whether the l't Defendant/counterclaimant has ever acquired any interest in the suit vehicle?

As to whether the Plaintiff/lst Counter Defendant fraudulently purchased and transferred Isuzu bus UAK 802x into his name and whether the 1st Defendant/counterclaimant has ever acquired any interest in the suit vehicle, it was submitted for the Plaintiff that pE 2, pE 3 and pE 4 together with the Plaintifls evidence in chief show that at the time of purchase, there was no encumbrance on the said motor vehicle except that of Genas Finance Limited which was settled. That the Plaintiff therefore lawfully acquired the vehicle.

He added that from the testimony of PW I , a collector with URA, as at 23'd March 2017,PE 6 which is the vehicle profile of the bus showed that no encumbrance was endorsed on the logbook, it was still in the names of the 2nd Defendant. He added that on 5th May 2017, a third party endorsement for Genas Finance which had been initiated on l3th october 2015 was entered but was later cancelled and later endorsed by Genas Finance in PE 13. counsel further disputed that the lsr Defendant's claims that the pending caveat reflecting on pE 7 was theirs, because that caveat was initiated on l3th october 2015 yet DW2 said the I'r Defendant registered their caveat with URA on 24th June 2015; which is supported by DE ³⁹

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written on that day. He added that the l't Defendant did not produce a vehicle O profile to confirm registration of the caveat. He submitted that DE 39 does not bear ^areceiving stamp from URA to confirm that it was received by them.

In reply, Counsel for the I't Defendant submitted that the Plaintiff is not a buyer and that it was a scheme intended to frustrate the bank from selling the bus as there was never any sale. That it must have been done after the bank had sold bus Reg. No. UAK 798X. He added that there is discrepancy as to the date of purchase, which is 09/06/2016 in the pleadings and 09/05/2016 according to PE 2. That it would imply that the search was conducted after the purchase yet in his reply to the WSD, he said he conducted the search before purchase. He added that the plaintiff had not mentioned about the caveat entered by Genas Finance, therefore it must have been an afterthought. That no loan agreement between Genas Finance and Odora was produced.

He added that from the Plainr, the plaintiffhad not yet received the logbook by the time the bus was impounded on 23/312017 and by the time of filing of rhe suit on 13/412017. PE 9 issued on 0910512017 shows the logbook had been transferred into the Plaintiff s name. PE, 12 which is an acknowledgement of receipt of money from the Plaintiff to pay off the 2nd Defendant's loan is dated 17/03/2017, and ^a letter written by the 2nd Defendant requesting Genas Finance to forward the logbook to the Plaintiff was written on 17/04/2017.

Specifically, as to whether the plaintiff fraudulently purchased the suit vehicle, one needs to consider the meaning of fraud. rn l{ainihi saw Miiling co. Ltd v ll'ainone Timber co. Ltd (1926) AC I0I, fraud was defined to mean some act of dishonesty. It was better explained in the case of Grace Asaba v Grace Kagaiga

N-^\ supreme court civil Appeal No. 14 of 2014 which was cited by counsel for the l't Defendant, it was held:

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,,Kerr on the Low of Fraud and Mistake, th Edition page I states that fraud includes 'all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust or confidence, iustly reposed and are iniurious to another, or by which an undue or unconscientious advantage is taken of another. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat anyone. "

Although the Plaintiff claims to have purchased the vehicle upon carrying out ^a search that did not reveal any third party interests, I find that the evidence on record suggests otherwise. It shows that he (the Plaintiff) only conducted the search on 23'd March 2017 as portrayed by vehicle profile PE 6, that being the same day the bus was impounded from him, and yet the sales agreement was made on 9th May 2016 according to PE 2, and money was paid before the search was done. Therefore, the evidence of settling Genas Finance before transferring the vehicle into his names does not count at the time of purchase as this was done after the vehicle was impounded.

Therefore, according to the definition of fraud in the Supreme Court case of Grace Asaba (supra), the Plaintiff committed an act of fraud through omission of his duty to carry out a search before purchase, which has ended up injurious to the I't Defendant who also has interest in the same vehicle.

Secondly, as to whether the I't Defendant has ever acquired any interest in the suit vehicle, Section 17 of the Chattels Security Act No. 7 of 2014 provides that ^a security interest is perfected where it is attached and where all steps required for perfection under the Act are completed and Section 18 of the same Act provides for perfection by registration. In this case, the l" Defendant produced a copy ofthe

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logbook (DE 40) which shows that their interest was endorsed on 0211212015. The l.t Defendant did not produce a vehicle profile reflecting the endorsement and yet they claim that the third party interest in PE 6 is theirs. However, the interest reflecting on PE 6 was initiated on 13/10/2015 and was pending until 05/05/2017 when it was approved and cancelled'

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Therefore, despite the fact that there is sufficient evidence that the 1't Defendant gave out a loan and that the suit vehicle was pledged as security, evidence on registration is marred with contradictions and therefore, is unsatisfactory. However, if it is true that the logbooks were printed by the 2nd Defendant, this means that the 1.t Defendant cannot be blamed for the discrepancies in DE 40 and DE 27. Since the facility advanced to Abela is not denied, and the Chattel Mortgage unchallenged, I find that the I't Defendant acquired an equitable interest in the suit vehicle.

## Issue Three: Whether the I't Defendant/counterclaimant lawfully impounded Isuzu bus registration No. UAK 802X?

As to whether the I't DefendanVCounterclaimant lawfully impounded the motor vehicle, Counsel for the Plaintiff submitted that at the time of purchase, the vehicle was in the name of the 2nd Defendant, and that the l" Defendant's failure to notiff third parties of their alleged interest in the suit bus by lodging a caveat with URA, the I't Defendant is precluded from denying the 2nd Defendant's authority to sell. That the innocent party acquired a good title, and that since the suit bus is in the possession of the Counterclaimant since it was impounded on 23'd March 2017, the Counterclaimant holds it illegally and must pay for all loss incurred to the Plaintiff.

ln reply, Counsel handled this issue together with their first issue and submitted that the I't Defendant having acquired a Chattel Mortgage after they took the

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logbook of the vehicle as security for the facility granted to Abela, its interest was endorsed on DE 40 and therefore, upon Abela's default in its obligations, the bank embarked on the recovery process. He concluded that the 1't Defendant had a right to impound, and therefore legally impounded the bus.

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I now embark on resolving this issue having looked at submissions by both sides and the evidence on record. Remedies available where debtor is in default are found in Section 7I of the Chonels Security Act No.7 of 2014, sub section (1) (a) and (b) specifically provide that:

"Where a debtor is in default under an agreement to create a security interest, a secured party may sue the debtor on the claim or realise the collateral in accordance with this Part. "

Therefore, since the 2nd Counter Defendant defaulted in repaying the loan, the 1't Defendant had a right to impound the bus in an attempt to realise the collateral pursuant to Section 71 (1) (b) above. According to the Plaintiff, the bus was impounded on 23'd March 2017, which was before the Plaintifls interest was registered on the logbook on 8th May 2017 according to PE 7, and confirmation by PW I in cross examination. Therefore, I find that the I 't Defendant lawfully impounded the bus.

## Issue four: Whether the Counterclaim is sustainable against the Counter defendants?

As to whether the counterclaim is sustainable against the counter defendants, Counsel for the l't Counter defendant/Plaintiff submitted that there was no way that the Plaintiff would have known of the Counterclaimant's interest in the suit bus if any, as the interest was never registered as a third party endorsement of the vehicle profile by lodging a caveat. In addition, the Plaintiff physically visited

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IIRA and only discovered the interest ofGenas Finance, which it settled before the purchase. That although the Plaintifftransferred the suit bus in his name after the suit had already been filed, title had already passed to him on 96 May 2016, therefore transfer was just the final stage to consolidate his title. That fraud against the Plaintiff was not proved, therefore that the Counterclaim was an afterthought, and should be dismissed.

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On the other hand, Counsel for the CounterclaimanV l't Defendant reiterated that the bank has demonstrated that she issued an advance payment guarantee for the benefrt of Abela on the security of the bus and other securities. That the bus was registered in the names of the 2nd Defendant who personally guaranteed repayment of the loan. That Abela defaulted and the bank sold one of the buses to recover their money, and that this bus was also impounded for sale intended for recovery. That the Plaintiff colluded with the 2nd Defendant to frustrate the bank's efforts to recover their money.

I have looked at the evidence on record and especially from the past issues. It is not in dispute that the Counterclaimant's interest is the first in time, before the one of the l'1 Counter defendant/Plaintiff. In addition, the Plaintifffraudulently purchased the motor vehicle without carrying out a search and then he went on to transfer ownership yet he was well aware that it was subject to this suit, filed by the Plaintiff himself.

This could only point to a sinister motive to defeat the Counterclaimant's claims. That notwithstanding, although there were discrepancies on the logbooks and the vehicle profiles, the 1't Defendant had and still has the right to impound, therefore the Counterclaim will succeed in part in relation to the right to sell the bus to recover the outstanding loan. Finding otherwise would prejudice the I't Defendant

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more and yet even the Plaintiff in his claim sought for the recovery of the bus or its equivalent, in this circumstance the latter is more realistic. Therefore, I find that the Counterclaim is mostly sustainable against the Counter defendant.

## Issue five: What remedies are available to the parties?

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The Plaintiff had asked for recovery of the bus or its equivalent, a permanent injunction restraining the 1'r Defendant from selling the bus, general damages and costs. It was submitted for the Plaintiff that after purchase of the bus, repairs were made and that with the inflation rates, the suit bus is now estimated at UGX 120,000,000/-. That the bus has been parked since 2017 and has continued to depreciate so they pray for that amount.

It was submitted for the l'1 Defendant that a declaration be made allowing the bank to sell the bus to recover their outstanding monies, and that they be compensated by the Counter defendants for the money spent on protecting the security.

Since both the suit and Counterclaim only succeed in part, in a bid to make the ends ofjustice meet pursuant to Section 98 of the Civil Procedure Act (Cap 7l), I make the following orders:

- 1. A declaration that the 1't Defendant/Counterclaimant rightfully impounded the suit bus, Isuzu bus registration No. UAK 802X. - 2. That Plaintiffs name be cancelled from the logbook and the l't Defendant be allowed to sell the bus to recover the outstanding monies. - 3. The 2nd Defendant is ordered to pay UGX 60,000,000/ to the Plaintiff as compensation for the value ofthe bus.

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- 4. The 2^nd Defendant to pay UGX 10,000,000/ to the Plaintiff as general damages. - 5. Each party bears their own costs.

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HON. LADY JUSTICE ANNA B. MUGENYI

DATED...................................