[1999] UGHC 53

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA

### CIVIL SUIT NO. 192 OF 1998

NATIONAL SOCIAL SECURITY FUND PLAINTIFF

## VERSUS 5

DEFENDANT BEFORE THE HONOURABLE LADY AG. JUSTICE C. A. OKELLO BANK OF BARODA (U) LIMITED

#### JUDGEMENT

*in*

The plaintiff, National Social Security Fund [NSSF], brought this action against the defendant, Bank of Baroda [Uganda] Limited, lo claiming from the 60,000,000=; as well as general damages and/or the amount of interest that should have been recovered by the plaintiff on the loan and/or earned deposit. The plaintiff also claimed for costs of the suit. The plaintiff pleaded in paragraph ³ of the plaint that with the National Organisation 'of Trade Unions [NOTU] the said,loan was to be used by NOTU';S subsidiary, the National Development in a tailoring business in Jinja; and that the to manage the loan on behalf of the plaintiff on terms The plaintiff further pleaded chat instead of terms spelt out by the plaintiff for administration/management of the loan, the defendant proposed its own terms for managing the loan which were subsequently accepted by without negligence. Uy the plaintiff iwith some qualifications, namely that management the defendant had to be done in the best professional manner defendant was spelt out by the \* plaintiff . Enterprises Ltd,. The plaint 'averred that the defendant was approval of the'Minister of Labour and Social Services [as it then was] , the plaintiff granted a loan of shs. 60 million to the on the Bank shs.

Particulars of the negligence and authorised by the appropriate organ of NOTU, and thereafter executed by authorised persons. Particulars of negligence and/or lack of diligence were set out as lump sum instead of tranches; failure to enforce repayment of the loan within the agreed or reasonable time and filing an incompetent and misconceived suit [HCCS No. 918/96] for the recovery of the loan. \0 un professionalism pleaded were security documents were negligent and/or unprofessional in the management of the loan. failure by the defendant to ensure that the loan and related disbursement of the loan in' one

In the defendant's Written Statement of Defence, the defendant admitted having agreed to manage the loan to NOT'D on terms spelt by itself because the terms spelt out by the plaintiff did not afford protection to the defendant in the event of NOTU failing to repay the loan.

The defendant denied negligence in drawing up the security documents*,* pleading that the documents were already drawn by a firm of Advocates on the instructions of the plaintiff-. It was pleaded responsibility of the legal capacity to borrow and *3-0* further that, verifying that by authorised persons. Negligence or lack of diligence in the Instead the defendant a suit to civil laintiff granted the loan illegally to persons who lacked the P authority to borrow. Finally the defendant pleaded that it is shs . entitled administration of the loan was denied. co keep the verifying whether NOTU had execution of documents were pleaded that it monitored the loan diligently and instituted which had tobe withdrawn on discovery that the 60 million in accordance with the further that the defendant had no

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understanding between the parties that the defendant was to keep the money in the evenf of default to repay NOTU.

At the commencement of the hearing. framed for determination: the following issues were

- 1] Whether it\* is the plaintiff or the defendant that made ^a S loan to NOTU. - 2] Whether it was the plaintiff or responsible for the documentation such as taking and registration of mortgage and other securities for the loan. the defendant who was - 3] Whether it was expressed or implied term that the defendant \0 best professional manner and without negligence. would manage the loan on behalf of the plaintiff in the - 4] Whether the documentation for the loan which the defendant promised the plaintiff was in advanced stages, was seriously flawed, unprofessional or negligent, - Whether of contract the defendant failed to 5] administer the loan diligently or administered the loan negligently. in breach - 6] Whether the plaintiff is estopped from claiming ^a refund of ^t shs. 60,000,000= from the defendant.

7] What are the reliefs.

i

The facts of this case which are not seriously disputed by either are mostly contained in correspondences exchanged between one or the other of the parties with third persons. them out in chronological order. The facts are the following behalf of its subsidiary company Development Enterprises NOTU, on loan from the plaintiff evidenced by a party che parties to the suit, as well as other correspondences between ^I shall set Co. Ltd negotiated for a

letter from NOTU' s, Secretary General to their plaintiff's Managing Director dated 15.11.1991 [DE2] . At Board meeting of NOTU's subsidiary company aforementioned [Development Enterprises Co. Ltd] apparently held on the 23.10.1992, it was resolved that NOTU borrows from the defendant the said sum of shs. 60 million against securities to be created by the NOTU in favour of the defendant [DEG]. The securities to be created were set out in the resolution and assets uncalled for capital good wj.ll, etc . It was further resolved that the NOTU the meeting. Continuing Security, Debenture, Mortgage and Supplemental Debenture were1sealed. Some officials were appointed to execute necessary documents with the defendant. Following conclusion of these preliminaries, the plaintiff's Corporation Secretary in a letter dated 23.11.1992 addressed to the Minister of Labour and Social Services, [DEI] appraised the Minister about the proposed loan and asked'for his statutory approval. The Minister gave his statutory approval in a letter reference ML/C/39 vol. 11 dated 2-0 25.11-1992 addressed to the plaintiff's Corporation Secretary [DEI]. The Secretary in turn communicated the Minister's ^approval to NOTU's Secretary General by ^a letter dated 1.12.1992 [PE2] . A copy of the said letter was sent to M/S Kadaga & Co. Advocates, who according to DEI were acting for NOTU in the loan transaction. The letter [PE2] set out the amount of the loan and terms which would govern the loan. The loan amount was stated 60 million. Some of the terms set out in the letter some documents then before were to be the creation of a floating cargo to be shs. of NOTU including book debts, board of the Co. approves and seals The documents: Demand Promissory Note, Letter of on all the

are reproduced herein below.

- $"(4)$ The loan will be repaid in a period of twenty four months with an initial grace period of two months. - $(5)$ The loan will be secured by:- - a mortgage on all the properties of NOTU, $(a)$ - personal quarantee of all or selected NOTU officials $(b)$ as our Bankers may determine. - $(6)$ The loan will be managed on our behalf by M/S Bank of Baroda, Kampala."

The letter then concludes;

"In Bank $\verb|of|$ Baroda have strict this connection, instructions to supervise this loan and your application of the monies that will be disbursed in such sums and at such times as the Bank may be satisfied that it is save to do so.

By copy of this letter the Bankers are accordingly Similarly, your Advocates M/S Kadaga & Co. are informed. by copy of this letter informed --------".

On the 5.1.1993 M/S Kadaga & Co. Advocates wrote to the Chief Manager of the defendant Bank a letter [DE5] under cover of which 20 she sent to the manager three documents concerning the loan. The documents were the following:

- (i) Loan agreement between the defendant and NOTU [PE9] executed by NOTU and the defendant on the 30.12.1992, - (ii) Debenture in favour of the defendant $\{PE8\}$ , executed by NOTU on the 30.12.1992. - (iii) What the advocates called as mortgage in favour of the defendant guarantee [PE 10], which however appears to be the personal guarantee of the loan 30 by three officials of NOTU [dated 31.12.1992]

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M/S Kadaga and Company's letter asked the defendant to execute its portion of the documents and to inform the plaintiff of the terms and conditions of the loan. On receipt of the letter, the defendant's chief Manager wrote to Mr. Y. Kagumire of M/S Hunter and Greig on the 6.1.1993 [PE 15] seeking legal advice on the adequacy of the documents received from M/S Kadaga and Company Advocates for purposes of the loan. The last two paragraphs of the letter is reproduced here under.

"The necessary documents are now drafted by M/S Kadaga and Co. Advocates, who are acting on behalf of N. S. S. F. and 10 NOTU.

We request you to kindly peruse these documents and advise whether the same are in order. Please advise whether any other documents are to be obtained by us from N. S. S. F. or NOTU to protect Bank's interest."

The letter was copied to the plaintiff. $M/S$ Hunter and Greig responded promptly on the same date 6.1.1993 [PE 16] approving the documents drawn by M/S Kadaga & Co. should proceed to register the mortgage and Debenture with the Register of Titles. A paragraph in the letter reads:

> "Since N. S. S. F. has deposited the money with your Bank this is enough security for the loan should NOTU fail to service the loan."

On the 8.1.1993, the defendant then wrote to the plaintiff [PE 3] which was in reply to the plaintiff's earlier letter of 25 1.12.1992[i.e PE 2]. In this letter the defendant outlined the proceed intended to with the it $\verb+of+$ how plan management/administration of the loan. I shall again reproduce substantial portions of the letter.

11111111111111111111111111111111111111 30 procedure adopted by us for administering this loan will be as follows:-

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- $(i)$ You [NSSF] will place a deposit of shs. 60 million with our Bank bearing NIL interest. - $(2)$ Against the deposit the Bank shall make a loan to NOTU against the execution of the usual security documents including mortgage of property of NOTU. - NSSF should furnish us with an undertaking that in case of default of payment by NOTU our Bank may $(3)$ appropriate the deposit to liquidate the loan. - $(4)$

$\overline{0}$ We further advise you that the documentation, registration of mortgage and stamping in respect of the above loan are in advanced stages.

In view of the above, we request you to send us your cheque for shs. 60 million which will be deposited on a separate account of the Bank so that disbursement may be effected."

On the 14.1.1993 NOTU executed a mortgage in favour of the defendant to secure the loan of shs. 60 million. By the terms of the mortgage NOTU mortgaged to the defendant all its interest in the property registered in Leasehold Register Volume 1800 Folio 7 plot No.2 Butanga Road Njeru, Mukono as security for the loan plus interest [PE 7]. On the 15.1.1993 the plaintiff's Managing Director wrote to the defendant's chief Manager a letter reference FA/CONF/27 [PE 4] accepting with qualifications, terms proposed by the defendant [in PE 3] for administering the NOTU ১১ The letter reads in part:loan.

"We are agreeable to the terms set out in the letter save that while we give you our undertaking as requested in para 3, we trust that you will manage the loan diligently and professionally.

ვი In this connection we undertake that in case of default of payment by NOTU, your Bank may appropriate the deposit to liquidate the loan PROVIDED that such default shall not occasion from failure on the part of the Bank to act diligently.

This undertaking does not cover a default arising purely 35 out of negligence on the part of the Bank".

On receipt of PE4 the defendant's chief Manager answered through

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letter addressed to the plaintiff's Managing Director on 18.1.1993 [PE5] insisting that the defendant wanted unconditional 60 million deposited defendant to liquidate the loan- to NOTU in case of ^a default in payment by 5 NOTU. The defendant insisted that the procedures adopted by it the administration of the loan. The plaintiff's Managing Director wrote back on the 1.2.1993 [PE6] purporting to give to the defendant unequivocal and unconditional undertaking that the plaintiff's deposit could be utilised to liquidate the \O loan. The letter however, warned that the plaintiff expected the in the best professional manner possible and that the defendant would be held liable in the event of negligence. NOTU executed a Demand Promissory Note in favour of the defendant on the 27.1.1993 thereafter the money (loan) was disbursed to NOTU in one lump sum payment on the 29.1.1993. 10.6.1993 the Secretary General of NOTU the first letter on repayment [DE 9]. The letter reminded NOTU to start the repayment by sending the April and May instalments in the sum of shs. 2.5 million per month. NOTU was also warned to observe the terms for repayment of future instalments. was to ease On the defendant to manage the loan the defendant's chief Manager wrote to undertaking by the plaintiff that the shs. by the plaintiff could be appropriated by the

On the 23.8.1993 the plaintiff's Managing Director wrote to the defendant'^s letter [PE 12] *,* expressing some not displaying the degree of professionalism expected of it in the management of the. loan. Incidents of lack of professionalism specified were: chief Manager a disquiet that the defendant was

disbursement of the loan to NOTU in one lump sum instead of a)

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tranches suggested by the plaintiff evidence of such action being the statement of account the defendant had sent the plaintiff*,*

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b) loan repayment instalments being sent instead of manager, evidently. for G lack of clear provisions or understanding on the manner of repayment of the loan; to the plaintiff the ' defendant as the

c) some loan repayment instalments being in arrears possibly for lack of agreement between defendant on a mortization schedule. \0 NOTU and

The letter stated that the plaintiff had endorsed in favour of the defendant, a cheque in the sum of shs. ⁵ million drawn in the The letter ended by re-stating that the defendant was to manage the loan diligently and should be free to take appropriate legal action towards, that end. A copy of the letter was sent to NOTU. The defendant's Chief Manager then wrote to the plaintiff on the 23.8.1993 [DE 10] the defendant's Chief Manager advised the plaintiff's Managing Director on the status of the loan account. He stated that because of the manner in 9-o which NOTU paid into the Bank, was able to afterwards withdraw the two instalments. The letter further advised of the principal instalments and interests in arrears. defendant was encountering in administering the loan account. being the time at which recovery of loan instalments were made. and on the 29.9.1993, tow repayment instalments, NOTU plaintiff's favour by NOTU in part payment of the loan. By copy of the letter NOTU was advised to ensure that it had sufficient funds on its account at the end of every month, that The plaintiff was informed of the difficulties the

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NOTU was asked in the same copy of the letter to let the defendant know of any deposits made during the month towards repayment of the loan to enable the defendant transfer it to the loan account.

5 On the 22.10.1993 in a letter addressed to M/S Kadaga and Co. Advocates [DE 11] the defendant's chief Manager raised for the first time, a problem with one of NOTU's securities. This was the land at Njeru Mukono. The defendant said the following with regard to that land:

$\mathbf{H}^{\mathbf{c}}$ ----------- NOTU was to provide security by way of $10$ mortgage of their property. Unfortunately the property they provided had not been transferred in their names and we felt that a mortgage executed by NOTU while the title stands in the names of Mawoto Dealers Ltd; would not hold.

i5 We therefore, convinced our Advocates M/S Hunter and Greig that disbursement could be made on the strength of a debenture which was executed by the Union and that you would ensure the title is transferred in the names of NOTU and our mortgage registered as soon as possible. Upon ລ ວ receipt of such advise from our Advocates we disbursed the funds $------$ .

We strongly feel that you owe us a duty to have the Title transferred into the names of NOTU and thereafter our mortgage registered and have the same delivered to us."

The letter was copied to NOTU and the defendant's advocates $M/S$ 25 Hunter and Greig. The Advocates were asked to take up the issue land title and registration therein of mortgage with M/S Kadaga and Co. Advocates. The defendant updated the plaintiff on the loan account letter dated 9.11.1993 from the through $\mathsf{a}$ defendant's chief Manager to the plaintiff's Managing Director 30 [DE 14]. It advised the plaintiff that after disbursement of the $[DE 14]$ . loan, only two repayment instalments (of both principal and been received, with the interest) had result that four instalments of principal and interest were then in arrears. The

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ţ defendant expressed the problems it had encountered with NOTU, being NOTU's attitude that may be soft loans are not repayable according to agreed schedules. The letter was optimistic that NOTU would soon mend its ways and start repayment. The plaintiff was displeased, its Managing Director wrote to the defendant [DE 7] on the 22.11.1993 expressing dissatisfaction with the manner in which the defendant was going about its duties of administrator of the loan; and recommending a more decisive and tougher action towards recovery of the loan. The defendant was reminded of its duty to be diligent and professional in the administration of the loan or be liable for any loss which might arise. The defendant's reply dated 25.11.1993 [DE8] pointed out the plaintiff had only spelt out in very broad terms the provisions to govern disbursement of the loan and that the defendant had the discretion, which it had exercised, to impose more detailed terms. The defendant resented being blamed (continuously) for NOTU's failure to repay the loan. The defendant stated:-

"The issue of default by NOTU is nothing new to you, it was even mentioned by you at the time this loan was being ຊ ວ processed that you do not very much trust repayment by NOTU that is why you wanted to involve the Bank, --------

The defendant then stated that a borrower has to be reminded of outstanding indebtedness before the creditor moves to realise the security for the loan. The defendant claimed that money then $25$ recovered had been the result of letters from the defendant. On the 13.5 1994 the defendant through a letter of that date [DE called upon NOTU's Secretary General to pay over due $12$ principal and interests or face legal action. The possibility of legal action was also the subject of a letter from the $30$

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defendants lawyers, M/S Kareera and Kagumire Advocates wrote to the defendant on the 26.3.1996 [DE 17] seeking further instruction on a copy letter NOTU sent to the advocates [DE 16], in answer to advocates' letter dated 23.1.1996. In DE 16 NOTU informed the Advocates that the issue of the loan had been $\zeta$ a subject of discussion between NOTU and NSSF and the same had been referred to the Minister of Labour and Social Affairs for inquiry. That the Minister had appointed a commission to look into the matter and had halted the negotiations between NSSF and NOTU on payment of the loan. The letter promised to keep the NO Advocates informed of subsequent developments. On receipt of DE 17 and DE 16 the defendant's chief Manager wrote to the plaintiff on the 2nd April 1996 [DE 18], stating among other things that NOTU had NOTU had not made any further payments towards the loan. The defendant also sent a copy of DE 16 and $\sqrt{5}$ opined that the matter was apparently being handled by the Ministry, the letter asked whether legal action to recover the loan was still necessary. In a letter dated the 3rd April, 1996 [DE 19], from the plaintiff's General Manager to the defendant's chief Manager, the plaintiff denied knowledge of any negotiations reported in DE 16 and informed the defendant of a leadership wrangle within NOTU. The letter also denied that the plaintiff ever lent NOTU any money and claimed that the plaintiff had merely guaranteed the loan. The plaintiff begged to be excused from its guarantee obligations for the reason that the defendant $\downarrow\leq$ had not taken serious steps to recover the loan. A summary suit under order 33 of the Civil Procedure Rules [H. C. C. S. No. 918 of 1996], was instituted by the defendant

against NOTU on or about the 21st October, 1996 for the recovery of shs. 9,351,842= being principal loan and interest accrued up to February 1996.

/ /

> In paragraph 5 of the defendant 60,000,000= about the 1st <5 1992, and in paragraph ⁴ it was averred that the . . . in pursuance of an accruing from .time to time. Paragraph ⁶ averred that the shs. 60*,* 000*,* 000 sued for. The defendant in that suit, NOTU, or about the 10th May,1997 raising in the said Written Statement First, in paragraph ³ of the Written Statement of Defence NOTU pleaded that the loan transaction between it and the Bank was illegal and ultra vires the Trade of Defence that the loan transaction was illegal and or void and or transaction had no authority to enter the transaction. of Defence three defences. agreement with the defendant NOTU agreed to promptly pay loan amounts extended to it together with interest Secondly it was pleaded in paragraph ⁴ of the Written Statement unenforceable because the NOTU officials who concluded the on or filed a pleaded that it lent NOTU shgj. of December, Written Statement of Defence in the said suit on Union Decree 1976 [No. 20/76] as well the constitution of NOTU. the plaint in the said suit, risen to shs. 93,518,421 loan granted in December,1992 had by February, 199-

Paragraph 5 pleaded in the alternative that the Bank had no cause of action against NOTU because it had not lent any money to NOTU but had merely acted as Manager of the loan,

and further that the Bank could not have lent money in December, contract dated 14.1.1997. 1992 on a

Lastly M/S Kateera and Kagumire Advocates wrote to M/S Byamugisha and Rwaheru Advocates on the 7.1.1998 [PE 14] stating:

was loan of shs . 60 million 'to NOTU on terms contained in ^P ^E ² dated 1.12.1992. as defendant for any loan. That the defendant disbursed the loan to NOTU Manager of the loan^Dut that NOTU never applied to the the plaintiff that granted a That it

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- 2] the plaintiff that instructed M/S Kadaga and that when the- defendant received, the documents in January 1993 *,* they had already been executed by NOTU and witnessed ! • by M/S Kadaga & Co. \o That it was Company Advocates to draw up some of the loan documents; - 3] That from the fore going, the plaintiff undertook the duty' of verifying proper authorization of loan by NOTU organs before it sanctioned it as well authorization .and execution of documents. as ensuring NOTU's proper - 4] merit but only Misc. Application No. 22/97 arising from the determined. That it of the Misc. Application that the became aware of irregularities in the loan transaction*,* irregularities in authorization of the loan, preparation of loan documents and execution of documents. 5] That the defendant had done its best to manage the loan; ⁱ monitoring the loan account and pressing for payment of It was denied that HCCS No. 918/96 was ever determined on said Civil Suit was so process 'of disposal defendant was in the

instalments due.

Finally/ the defendant denied negligence on lack of diligence in its management of the loan and instead blamed the plaintiff for negligence in that the plaintiff failed to ensure that the proper officers of NOTU had authorised the loan and document therein

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signed by authorised officials before sanctioning the loan. The defendant stated that it intended appropriating the security deposit of shs. 60 million towards the loan repayment. $\mathbf{A}$ without prejudice offer to settle the matter was also made. As stated earlier in the judgement, the evidence in this matter is basically documentary. The witnesses for both parties did not say much more beyond the contents of the documents they tendered in evidence other than explaining the meaning attached to some of the documents by the officials of the parties. On the evidence above counsel for each party made written submissions. $\mathsf{T}$ intend referring to their submissions in the course of determining the issues which I shall now proceed to do. The first issue is whether it is the plaintiff or the defendant that made a loan to NOTU.

The plaintiff's submissions on this issue are that it was the defendant that lent NOTU the money although the original plan was for the plaintiff to lend and the defendant to manage or administer the loan. The learned counsel relied upon PE $3 - a$ letter from the defendant to the plaintiff dated 8.1.1993 in paragraphs 1,2,3 and 4 thereof for his submissions. Other evidence relied upon are PE 4, PE 5 and PE 6.

For the defence, it was submitted that it was the plaintiff that granted the loan, not merely approved it. Evidence relied upon is PE 2 $\div$ a letter from the plaintiff's corporation Secretary dated 1.12.1992 copied among others to the defendant as well as DE 13, DE 14 and the plaintiff's pleading in paragraph 3 thereof.

On the facts on record, I find that in the early stages of the

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loan transaction, the plaintiff was supposed to grant the loan, but for the borrower to obtain optimum benefit there from, the loan was to be managed by a professional money person. The defendant was the professional chosen to manage the loan. This finding is clearly borne $\clubsuit$ out by DE 1, a letter from the plaintiff's corporation Secretary to the then Minister of Labour and Social Services. The letter is a kind of write-up meant to brief the Minister and to seek his statutory approval for the loan in lieu of Board's approval. PE 2, the letter of 1.12.1992 from the plaintiff's Corporation Secretary to NOTU's Secretary General is equally clear that the plaintiff was meant to be the lender. The defendant understood this to be the situation and so informed the defendant's counsel in a letter PE 15 dated 6.1.1993 wherein the defendant's Chief Manager wrote in paragraph one:

"We inform you that NSSF have approved a loan of shs. 60,000,000= to NOTU, and the loan is to be administered by Bank of Baroda."

But I think the defendant changed the plan through the letter from the defendant's Chief Manager to the plaintiff dated 8.1.1993 [PE B] wherein the plaintiff was asked to deposit with the defendant shs. 60 million not for the purpose of on-lending to NOTU but apparently as security for a loan to NOTU by the defendant. In paragraph numbered (3), the defendant stated that the plaintiff's deposit of shs. 60 million would be appropriated by the defendant to liquidate the NOTU loan in case of default of payment by NOTU. This countered the contents of PE 2 dated It was a fresh offer. 1.12.1993. The terms of PE 3 were accepted by the plaintiff in PE save for paragraph $\boldsymbol{4}$ $\overline{3}$

paraphrased above. Instead of the said paragraph, the plaintiff imposed a term to go hand in hand with the appropriation provision. The plaintiff's term was that its deposit of shs. 60 million should only be appropriated towards liquidating the loan if non-payment by NOTU was not the result of failure of the $\preceq$ defendant to act diligently, professionally and carefully. There was an unsuccessful attempt by the defendant to get unequivocal or unqualified undertaking from the plaintiff that the deposit could be used by the defendant to liquidate the loan [see PE 5] and $PE$ 6]. Acceptance of the defendant's terms $\quad\quad\texttt{in}\quad\quad$ $\mathsf{PE} = \mathsf{3}$ $10$ considered together with PE 4, PE 5 and PE 6 constituted the defendant the lender; and turned the plaintiff into a quarantor of the loan. The changed status of the parties was recognisable as early as 6.1.1993 by the defendant's advocates. On that date the advocates wrote to the defendant [PE 16] stating in the 15 second paragraph:

"Since NSSF has deposited the money with your Bank this is enough security for the loan should NOTU fail to service the loan."

The plaintiff's letter dated 23.8.1993 [PE 12] equally recognised its own new status in the transaction. In the letter the plaintiff's Managing Director wrote (in paragraph 1):

"we refer to this loan. You will recall that our role in the whole matter was to guarantee the loan by placing with your shs. 60,000,000= at nil interest to enable you advance a loan to $M/S$ NOTU."

Another ex post factor recognition of the defendant as lender and plaintiff as guarantor is the content of PE 14, a letter dated 7.1.1998 from M/S Kateera and Kagumire to M/S Byamugisha and

Rwaheru. On page 2 [last but one paragraph] M/S Kateera and Kagumire wrote:

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"Our client therefore is not in a position to release to your client shs. 60,000,000= which was deposited with our client as security for the said loan."

Since the evidence in court shows only one deposit of shs. 60 million by the plaintiff, I find that on the evidence reviewed above, it was the defendant and not the plaintiff that made the loan to NOTU. There is nothing in the pleadings of the plaintiff inconsistent with this finding. Paragraph 3 of the plaint has $\lambda$ to be read together with paragraph 4 of the same plaint. Paragraph 2(b) of the Written Statement of Defence recognised the effect of this pleading.

The second issue is whether it was the plaintiff or the defendant that was responsible for the documentation such as taking and くら registration of mortgage and other security in respect of the loan.

The plaintiff submitted on this issue that the defendant was responsible for documentation. The defendant handled some of the documentation with M/S Kadaqa and Co. Advocates and with $\mathcal{L}$ o independent advice from the defendant's lawyers. For the defendant however, <pre>wit was argued that</pre> the plaintiff was responsible for documentation etc [PE 2].

The parties herein never expressly agreed between themselves on which of them would be responsible for the loan documentation. 25 PE 2 which initiated the relationship between the parties is silent on this matter [and was in any case not accepted in tot by the defendant]. But the silent understanding appears to have been that the defendant would take up that responsibility in

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accordance with the broad terms of PE2. Contrary to what is asserted in the defendant's submissions, PE 2 nowhere states that M/S Kadaga and Co. were instructed to act for the plaintiff let alone instructed to prepare the documents. DE 5 from M/S Kadaga to the defendant's Chief Manager dated 5.1.1993 claimed that the $\preceq$ documents sent under cover of that letter were drawn on the instructions of the plaintiff. But as pointed out by the learned counsel for the plaintiff, the instructions, if in existence, has not been adduced in evidence in court. DE5 was not copied to the plaintiff, on the contrary $D\overline{E}5$ informed the defendant in the last $\iota$ paragraph thereof to "-------- inform NSSF in writing, the terms and conditions of the loan." \*On receipt of the letter [DE5], the defendant did not refer the documents to the plaintiff but sought the advice of its lawyer Mr. Y. Kagumire through a letter dated 6.1.1993 $[PE15]$ . The last paragraph of the letter reads: $15$

"We request you to kindly peruse these documents, and advise whether the same are in order. Please also advise whether any other documents are to be obtained by us from NSSF or NOTU to protect the Bank's interest." [Emphasis $added$ .

This paragraph of the letter show that the defendant was. responsible or took up the responsibility for documentation. The defendant sought for advise on the documents, not from the plaintiff nor forwarded to the plaintiff but consulted its advocates. Some of the documents in the loan had not even been $1$ contemplated by the plaintiff including PE11 (Demand Promissory Note). Lastly, the plaintiff was never a signatory to any of the On the evidence no document was ever sent to it for loan. approval or otherwise. I therefore find that the defendant was responsible for documentation and registration of the loan $3a$

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documents.

The third issue whether it was an express or implied term that the defendant would manage the loan on behalf of the plaintiff in the best professional manner and without negligence. Counsel for the plaintiff submitted that, it was indeed the term of the transaction that the defendant, as agent of the plaintiff, would be diligent professional in the management of the loan. The defendant's submissions are to the effect that there were no terms holding the defendant to diligently, professionally manage the loan without negligence.

The defendant had all along wanted the plaintiff to undertake not to hold the defendant responsible for negligence or lack of diligence or un-professionalism in the administration of the This is evident from PE3, so that when the plaintiff loan. introduced conditions or reservations in its letter of the 15.1.1993 addressed to the defendant's Chief Manager [PE4], the defendant wrote back on the 18.1.1993 re-iterating its condition [PE5]. The tassel proceeded through to PE6 DATED 1.2.1993. In PE6, the plaintiff wrote that:

"We did not mean our undertaking to be conditional as you こっ state but rather to intimate to you that we expect you to<br>manage this loan on our behalf in the best professional manner possible and to put you on notice that should there be any apparent negligence on your part we intend holding you liable." うく

Indeed the plaintiff equivocated on the defendant's demand that should escape liability for negligence $\quad\text{and}\quad$ lack $\overline{f}$ it professionalism in its management of the loan as can be seen from the excerpt of PE6 above. The defendant was chosen because of its professional expertise in the area of financial management. Professionalism, diligence and exercise of skill and care was

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$\mathsf{S}$ expected from the defendant both expressly and by implication. The expressed expectations are contained in PE2 page 2; PE6 and PE12. The implied term is found in the reasons why the defendant and nobody else was chosen to manage the loan. The reasons, as already stated, were the among others, the expertise expected from the defendant as Bank which has lending as part of its operations I therefore $f_{\mu}$ ind that it was an express as well as implied term of the agreement that the defendant would manage the loan on behalf of the plaintiff in the best professional manner and without negligence. The defendant never managed to exclude that term from the contract with the plaintiff. The next issue, the fourth, is whether the documentation for the

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loan which the defendant promised the plaintiff was in advanced stages were seriously flawed or negligent.

Both parties agree that the documents in the transaction were flowed, they however do $\quad\texttt{not}\quad$ agree $\quad\text{on}\quad$ who should take responsibility $\quad\texttt{for}\quad$ the faults each party passing the responsibility to the other. The plaintiff maintains that it is the defendant, as signatory to some of the documents as one who processed the loan in reliance on the documents should have been the one to ensure that the securities for the loan were regular, That this was a duty case upon the legal and effective. defendant. On the other hand, the defendant's position is that M/S Kadaga and Co. Advocates drew the documents on the instructions of the plaintiff.

I think that this issue is related to the second issue ie; who was responsible for the documentation in the transaction. The plaintiff entrusted the defendant with the details $\quad\text{ of }\quad$

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streamlining the processes prior to release of the loan to NOTU having itself become only a guarantor of the loan. This meant that the defendant would take decision on the types of documents and their adequacy for purposes of the loan. When in doubt, the defendant was free to consult the plaintiff. So when the $\zeta$ defendant received PE8, PE9 and PE10 [Debenture, Loan agreement, and personal guarantee respectively] under cover of a letter DE5 from M/S Kadaga and Co. Advocates, it ought to have scrutinized the documents as a professional Banker should. Certainly in PE2 which the defendant paid little heed to, the plaintiff had stated $10$ that the mortgage security should be on NOTU's property and not that of any other persons. The personal guarantees of NOTU officials was to be that of officers determined by the defendant. M/S Kadaga and Co. had not been introduced by the plaintiff as its counsel, but as that of NOTU. 15

Lastly, in PE3 paragraph numbered (2) the defendant informed the plaintiff that the loan would be granted to NOTU "against the execution of the usual security documents.

Further on in the said letter [PE3] the defendant advised the 20 plaintiff that documentation, registration of mortgage and stamping of documents were in advanced stages. The impression created by the above was that the defendant was in full control of the documentation processes, it cannot turn round now to claim that it assumed that somebody else was in control. As it turned out the defendant was only concerned with protecting itself in $25$ the transaction, not the plaintiff which claimed to be its principal. Having been assured by their advocates M/S Kateera and Kagumire, in their letter of 6.1.1993 [PE16] that the deposit

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of shs. 60 million was sufficient to protect the defendant, the defendant then actively participated, as it were, in promoting NOTU's flouting of some of the terms of the loan. DE11 dated 22.10.1993 addressed to M/S Kadaga and Co. Advocates reads in part:

"Re: Documentation of Boan Facility of NOTU:

--------------- Unfortunately the property which they provided had not been transferred in their names and we felt that a mortgage executed by NOTU while the title stands in the names of Mawoto Dealers Ltd, would not hold."

It is abundantly clear from the above that the defendant knew of the fault with the mortgage before the plaintiff ever discovered The same letter [DE11] continues in paragraph 2: it.

"You" (M/S Kadaga and Co.)" therefore, convinced our Advocates M/S Hunter and Greig that disbursement could be made on the strength of a debenture which was executed by and that you would ensure<br>in the names of NOTU and the title $\verb+union+$ is the and our mortgage transferred registered as soon as possible upon receipt of such advise from our Advocates we disbursed funds."

it turned out, NOTU mortgaged a non existent interest in property found in Lease Hold Register Vol. 1800 Folio 2 Plot 2, Butanga Road Njeru-Mukono district, a fact known to the defendant then, but not to the plaintiff. There are other flaws detectable in other documentation. The debenture [PE 8] made and executed by the recitation stated in paragraph one thereof that it was a debenture made subsequent to a loan granted under a mortgage [PE7] and a loan agreement dated 14.1.1993.

The problems with this debenture are:

that it refers to a loan agreement purportedly made on the $(i)$ $14.1.1993$ , when there is no such agreement, the only loan agreement between NOTU and the defendant being the one dated 30.12.1992; i.e $\mathfrak{\overline{t}}$ he same date as the debenture.

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(ii) the debenture purports to be a document made later than the mortgage when the only mortgage in the transaction is dated 14.1.1993 {PE7} a date subsequent to the date of the debenture [30.12.1992].

The guarantee [PE10] was to be the personal guarantee of selected $\,$ $\,$ $\,$ $\,$ $\,$ $\,$ $\,$ or all officials of NOTU. One would have expected that the guarantee would be in their personal names but PE10 purports to be the guarantee of the Secretary General and chairman of NOTU. Whoever they are as natural persons, is not born out by the guarantee. $\omega$

My answer to this issue must therefore be that the documentation for the loan were seriously flawed.

The next issue, number five, is whether in breach of contract the defendant failed to administer the loan diligently $\alpha$ r administered the loan negligently.

For the plaintiff, it has been submitted that the defendant was not diligent in the administration of the loan because it disbursed the loan in one lump sum; and further that it was not able to enforce repayment of the loan within the agreed 24 months and finally that it filed an incompetent suit to recover the The defendants counsel argued that the defendant had the loan. discretion to release the loan to NOTU at one go. It was argued that the defendant was diligent in monitoring the loan and in so doing, wrote many letters to NOTU when default occurred; and further that HCCS No. 918 of 1996 was filed but had to be abandoned when NOTU's lack of authority to borrow and other incapacities of NOTU were discovered.

The plaintiff had suggested at the early stages of the loan

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administered diligently as well as to show that there had been no proper agreement on when and how loan repayment instalments were to be paid by NOTU. There is also DE10 dated 23.8.1993 which is evidence that instead of following up NOTU's dishonoured cheque, the defendant sent the cheque to the plaintiff with a request that the plaintiff should notify NOTU of the dishonour-

"Please also let them know that whenever they are making any payment towards instalments, they should send the same directly to us as administrators of the loan."

Lastly on this issue, I wish to mention HCCS No. 918 of 1996. The failure to prosecute the suit was partly due to the flawed documents already mentioned above. | Despite the flaws however, the suit could have been better handled to counter defences contained in paragraphs 2 and 3 of the Written Statement of Defence if the right loan documents had formed the basis of the suit in the $first$ place. No attempt was made to amend the plaint after the Written Statement of Defence was filed by NOTU. For the reasons above, I find that the loan was not administered diligently by the defendant, I find also that the administration was negligently done.

The sixth issue is whether the plaintiff is estopped from claiming a refund of shs. 60 million from the defendant. There is some co-relation between this and the third issue. The issue presupposes that the defendant acted as the agent of the plaintiff on terms that as agent it would indemnified from losses occasioned by NOTU's non payment of the loan by appropriating the shs. 60 million deposited by the plaintiff. I however, found that the defendant lent NOTU the suit money, not as agent of the plaintiff but as principal by its own choice contrary to the

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original plan that it should be a manager of the loan.

The Engl. Court of Appeal case of Johnson v Kearley [1908] $2K. B$ 514 dealt with a situation somewhat similar to the one before me now. Briefly the facts of that case were the following.

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The defendants on various occasions instructed the plaintiff, a country broker, to effect for her purchases and sales of stocks and shares in the usual way through brokers on the London Stock Exchange. In one of such transactions the plaintiff gave an order tor the purchase shares to a firm of brokers on the London Stock of Exchange, between whom and himself there was an arrangement that in such cases they should deal at a "net" price for the shares, i.e a price arrived at by adding to the purchase price such sum as the London brokers might fix as. their renumeration for the transaction. The London brokers bought the shares from a jobber, and sent a bought note to the plaintiff charging "981/2 net" for the shares without disclosing the price the shares were bought for, from the jobber.

The plaintiff sent a bought note to the defendant, charging her 981/2 for the shares [without adding the word "net"] ᠫ᠐ plus commission of 7s. 6d for the stamp. It appeared that amount added by the London brokers for their the renumeration did not exceed the usual commission payable in respect of such a purchase. In an action by the plaintiff against the defendant for a balance alleged to be due in respect of the transactions.

Held: [by the majority of the court], that the contracts

effected by the plaintiff, being contracts, not $made$ through the London brokers as agents, but made with them as principals, were not in accordance with the authority given to the plaintiff by the defendant, and therefore he was not entitled to indemnity from the defendant in respect of $\zeta$ them: and consequently that the action not was maintainable.

The defendant breached the authority given by the plaintiff to lend to NOTU as agent of the plaintiff and manage the loan diligently, professionally without negligence. It cannot claim | o estoppel against the plaintiff to stop the latter claiming the deposit of shs. 60,000,000=. The plaintiff is therefore not estopped from claiming a refund of the money [shs. 60,000,000=] from the defendant.

The last issue is what are the reliefs. Since all the issues 15 have been determined in favour of the plaintiff, I see no reason to deny the plaintiff's prayers for an order for the refund to the plaintiff of shs. 60,000,000 $\approx$ which was deposited with the defendant on the 15th January, 1993 together with interest at 15% per annum from the date the deposit was made [i.e 15.1.1993] till $\mathfrak{F} \sigma$ : payment in full. There will therefore be judgement in terms prayed.

I also award the plaintiff the costs of the suit to be paid by the defendant.

A. OKELLO AG. JUDGE $21/10/1999$ . 28

Genecco

C. A. OKELLO<br>AG. JUDGE $21/10/1999.$

$21/10/1999$

2.35 p.m.

Dr. Byamugisha for plaintiff.

Mr. Adriko for the defendant.

Mr. Nkuubi - Court Clerk.

Court:

Judgement signed, dated and delivered in open court in the 10 presence of the above.

$14)$

Expecta C. A. OKELLO AG. JUDGE $21/10/1999.$

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## **THE REPULIC OF UGANDA**

## **IN THE HIGH COURT OF UGANDA AT KAMPALA**

## **CIVIL SUIT NO. 1992 OF 1998**

NATIONAL SOCIAL SECURITY FUND PLA1NITFF VERSUS

## HANK OF BARODA (UGANDA) LIMITED DEFENDANT DECREE

**THIS SUIT** coming on today for final disposal the before the Honourable Lady Ag. Justice C. A. Okello in the presence of Dr. J. Byamugisha, Advocate for the plaintiff and Mr. M. Adriko counsel for the defendant. **IT IS HEREBY ORDERED** that the defendant do refund to the plaintiff a payment. The defendant shall also pay the costs ofthe suit. GIVEN under my hand and the Seal of this Honourable Court this day of 2000. sum of Shs.60,000,000/= deposited with the defendant together with interest at the rate of 15% per annum from the 15lh day ofJanuary, 1993 till full

REGISTRAR

**•&. •**

**vii**

We approve:-

M/s. Byamugisha & Rwaheru, Advocates, **COUNSEL FOR THE PLAINTIFF**

Drawn & Filed by:- M/s. Kareeva & Kagumive, Advocates, P. O. Box 7026, KAMPALA.

*I*