[1995] UGSC 32

## **THE REPUBLIC OF UGANDA**

### **IN THE SUPREME COURT OF UGANDA AT MENGO**

#### **COR: (WAMBUZI, C. J., ODOKI, AG. D. C. J., AND TSEKOOKO, J. S. C.)**

## **CIVIL APPEAL 10/1994**

#### **NAVICHANDRA KAKUBHAI RADIA ................ ... APPELLANT**

#### **- VERSUS -**

#### **KAKUBHAI KALIDAS AND CO. LTD. ............ ... RESPONDENT**

(Appeal from the Ruling and order of the High Court at Kampala (Rajisingham, J.) dated 21st April 1994 in Civil Suit No. 91/93)

#### **REASONS FOR JUDGMENT OF THE COURT**

This is an appeal against the ruling of the High Court whereby appellant's preliminary objection that the respondent's counsel had no authority from the respondent to file the suit, was dismissed. We heard the appeal and dismissed it with costs, with a direction that the case be remitted back to the High Court to proceed with the hearing. We reserved reasons for those orders, which we now give.

The Respondent which is a limited liability company incorporated in Uganda and carrying on business in Uganda brought an action against the appellant claiming special and general damages for tortuous conversion of property. The cause of action was pleaded in paragraph 3 of the plaint as follows:

"On diverse dates between 1st November 1991 and 2nd November, the defendant held himself out as the Managing Director of the Plaintiff company and did receive from the Government of the Republic of Uganda monies being compensation for a building situated on plot No. 10, Army Avenue, Kampala, together with rent arrears due to and

belonging to the plaintiff totalling U. Shs.111,935,750/= (Uganda shillings one hundred and eleven million and nine hundred thirty five thousand and seven hundred and fifty only) which he tortuously converted to his own use By reason whereof the plaintiff has suffered loss and general special loss."

The respondent also claimed for a permanent injunction restraining the appellant from holding out as the Managing Director of the respondent.

In his written statement of defence the appellant denied the allegations in paragraph 3 of the plaint and claimed that he had been a director of the respondent company from 14th July 1972, and that sometime in July 1982, the Managing Director of the Respondent, J. K. Radio, now deceased, had instructed him as an advocate to represent the respondent company to repossess its properties and generally deal with its property comprised in plot NO. 10, Army Avenue, Kampala with a promise to meet the attendant expenses. He pleaded a set off and counter-claim for the expenses incurred.

Paragraph 8 of the written statement of defence specifically raised the issue of lack of authority to file the suit as follows:

> "8. Further or in the alternative the Defendant contends that the Plaintiff suit is misconceived in that the same has been filed without authority of the Board of Directors and as such the same should be dismissed with costs."

The respondent filed a reply to the counter-claim in which it alleged, **inter alia**, that the appellant had held himself falsely as chairman, Director and advocate of the respondent and listed instances when this had taken place. In reply to paragraph 8 of the written statement of defence, the respondent pleaded in paragraph 4 in these terms:

"4. The advocates for the plaintiff have authority to act in these proceedings by virtue of the instructions dated 25th May 1992, contained in a list of documents attached hereto and prepared under 0.7 r. 14(2) of the Civil Procedure Rules."

When the suit came up for hearing Mr. Ringwegi, then counsel for the appellant, raised a preliminary objection that the advocates for the respondent namely Messrs Ayume Jogo Tabu and Co. had no authority from the respondent to file the suit. He

argued that the respondent's advocates had not produced any resolution of the company or its Board of Directors to support their claim that they had been properly instructed.

On the other hand, counsel for the respondent submitted that whether his firm had authority to commence the suit was a matter of oral evidence because the respondent's records were missing at the Registry of Companies. He argued further that at the relevant date the respondent company was acting through a sole Director and that the Director had authorised the commencement of the suit.

The learned judge dismissed the objection on the ground that he had no documentary or oral evidence to decide whether the Articles of Association left the decision to authorise commencement of proceedings to its Board of Directors or any of its Directors.

Against that decision, the appellant has appealed on four grounds but which can be summarised in one, namely, that the learned judge erred in law in not upholding the submission of counsel for the appellant that the Respondent's Advocates had no authority from the Respondent to file the suit. The written submissions of both counsel appear to centre on this main issue. The other grounds of appeal are mere reasons for rejecting the objection and will be dealt with in consideration of the submissions.

It was submitted by counsel for the appellant that since no resolution authorising the institution of the suit against the appellant had been produced by counsel for the respondent, counsel had, therefore, no authority from the respondent to institute the proceedings. Counsel for the appellant argued further that it was only the shareholders or the Board Directors who can, by resolution, authorise, the commencement of proceedings in the name of the company. It was also contended for the appellant that the trial judge should have tried the preliminary point of law first, and that the burden of proving that authority to institute the suit existed rested on the respondent. Counsel for the appellant relied on a number of authorities which included **Bugerere Coffee Growers Ltd V. Sebaduka and Another (1970) E. A. 147, Quin and Axten Ltd and others V. Salmon (1909) A. C. 442, John Shaw and Son Ltd V. Shaw (1935) 2**

# **K. B. 113 and United Assurance Co. Ltd V. Attorney General Civil Appeal NO. 1 of 1986 (unreported).**

As it was rightly conceded by learned counsel for the respondent, in order to bring an action in the name of a company, there must be authority to do so otherwise the suit will be a nullity. See **Danish Mercantile Co. Ltd and others V. Benmont and Another (1891) Ch. 686.** The issue in this case is whether that authority was given and how it was given.

We accept the submission of learned counsel for the respondent that the question whether or not an advocate has been duly instructed to institute a suit on behalf of his client is a matter of evidence. In case of a company, how such authority is given, whether by a resolution of the company or that of its Board of Directors, will depend on the constitution of the company.

In the present case, the appellant did not adduce any evidence in support of his allegation that the respondent advocates had no authority to file the suit. In our opinion, the burden of proof lay on the appellant to establish that the respondent's advocates had no such authority.

On the pleadings it is quite clear that whether or not the respondent's suit was filed with authority was an issue. The allegation of lack of authority was made by the appellant and it was denied by the respondent. Instead of framing issues at the trial, a preliminary objection was raised by counsel for the appellant that the suit was filed without authority. With respect, this was unfortunate.

Sub-rules (1) and (3) of rule 1 of Order 13 provides as follows:

"(1) Issues arise when a material proposition of law or fact is affirmed by the one party and denied by the other.

..........................................

(3) each material proposition affirmed by one party and denied by the other shall form the subject of a distinct issue.

..........................................

Then rule 2 of the same Order provides as follows:

"2. Where issues both of law and of fact arise in the same suit, and the court is of opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first, and for that purpose, if it thinks fit postpone the settlement of the issues of fact until after the issues of law have been determined."

As already stated, instead of proceeding under this rule, the preliminary objection was raised. Naturally the trial judge quite rightly in our view ruled in effect that evidence was necessary to enable the court to reach a decision on the matter and that the objection was premature.

The next point to consider is how a company gives authority to commence proceedings. Mr. Ayume for the respondent, submitted that the contention by the appellant that the only way a company can give instructions to institute proceedings is by way of a resolution of its general meeting or that of its Board of Directors is not supported by authorities.

It was his submission that the case of Bugerere Coffee Growers Ltd V. Sebaduka (Supra) was wrongly decided. He relied on the decision of this Court in **United Assurance Co. Ltd V. Attorney General (supra) and Buikwe Coffee Estates Ltd and others V. Lutabi and another (1962) E. A 328.**

In **Bugerere Coffee Growers Ltd V. Sebaduka** (supra) Youds J. held that for a company to authorise the commencement of proceedings it must do so either by a resolution of the company or that of its Board of Directors. But in **United Assurance Co. Ltd V. Attorney General** (supra), Wambuzi C. J. doubted the correctness of that statement when he observed,

> "every case must be decided on its own facts. Looking at the various authorities and the law, I would say that one way of providing a decision of board of directors is by its resolution in that behalf. But I would not go so far as to say as is suggested in the Bugerere Coffee Growers Ltd

V. Sebaduka (supra), unless, of course the law specifically requires a resolution, as appears to be the case in instances specifically provided in the Companies Act, and authority to bring action in the name of the company is not one of those instances, where a resolution is required."

It is submitted for the respondent that where lack of authority to sue does not plainly appear at the commencement of the trial the suit ought not to be struck out but the court should proceed with the trial and determine the issue after evidence has been heard. Buike Estates Coffee Ltd V. Lutabi and Another (supra) was cited in support of this proposition.

In **Buike Estates case**, some shareholders of a company held a meeting at which they passed a resolution removing the directors of the company, including the 1st and 2nd plaintiffs, and elected four new directors, including the two Defendants. The main issue for determination was whether or not the resolution removing the former directors and electing new ones was valid. A preliminary point was raised by the defendant at the hearing that the plaintiff's advocate had acted without authority instituting the proceedings in the name of the company. Bennett, J. overruled the objection, holding that lack of authority did not plainly appear at that stage of the hearing. He said, at p.329,

"In the instant case the question as to whether or not the plaintiff's advocate had been duly authorised to sue will depend upon the courts finding as to who are the lawful directors. That is the matter which can only be determined after evidence has been heard. In my judgement, want of authority to sue does not plainly appear at the present stage of the suit, and the suit ought not to be struck out at this juncture. If it should therefore appear that the plaintiff's advocate has not been duly authorised by the lawful directors (whoever they may be) to institute proceedings on behalf of the company, the advocate can be ordered to pay the costs of the suit personally. See the judgment of Jenkins L., in **Danish Mercantile Co. Ltd V. Beaumont (1951) Ch. 680 at p. 682."**

This passage was quoted by this court with approval in **United Assurance Co. Ltd V. Attorney General (supra)** and we agree with the principle enunciated therein.

In the present case it is clear that the learned judge found that lack of authority to bring proceedings did not plainly appear at that stage of the suit because all he had was the assertion in the written statement of defence and the statement at the bar from the appellant's counsel that the suit had been commenced without the necessary authority. He had no evidence of the contents of Articles of Association of the appellant or of any act of the sole Director. He concluded,

> "I have no documentary or oral evidence to decide whether the Articles of Association left the decision to authorise commencement of the legal proceedings to its Directors and whether such authority was in fact given by the Directors whether by one or by a Board."

Counsel for the respondent submitted that had the trial proceeded, the respondent would have been able to adduce the necessary evidence to show that at the material time, the only surviving director of the respondent company was in law capable of giving such instructions and did in fact instruct the respondent's advocates to file this suit. He criticised the "frantic efforts" made on behalf of the appellant during this appeal to prove lack of authority by introduction of various documents as annextures to his written submissions contrary to the provisions of rule 29 (2) of the Rules of this court.

We think these submissions have merit. The learned judge was correct in overruling the objection for the reasons he gave. It was premature to decide on the question of lack of authority to institute proceedings. That issue could only be decided after hearing relevant evidence. It may well be that the respondent would adduce evidence to show that the authority existed. The attempt by the appellant to introduce fresh evidence to prove lack of authority on appeal was misconceived as no leave had been granted by this court to adduce additional evidence in accordance with r. 29 of the Rules of this court. As that was not done, that evidence is inadmissible and cannot be considered.

For these reasons we held that the preliminary objection was rightly rejected by the learned judge and dismissed the appeal with costs to the respondent. Dated at Mengo this.....16th..... day of ...... June..., 1995.

S. W. W. WAMBUZI,

# CHIEF JUSTICE.

B. J. ODOKI, AG. DEPUTY CHIEF JUSTICE.

J. W. N. TSEKOOKO, JUSTICE OF THE SUPREME COURT.

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

DEPUTY REGISTRAR, SUPREME COURT.