[1993] UGSC 41

IN THE SUPREME COURT OF UGANDA

AT MENGO

(CORAM: MANYINDO, D. C. J,, ODER, J. S. C. AND PLATT, J. S. C.)

CIVIL APPEAL NO. 24/92

## B E T 7/ E S'N

1. APPELLANTS THERESA OKOTH-OFUMBI) 2. : JOVAN KULANY )

"a n d

HAJI HAMEDALI AHMED KARIM RESPONDENT

(Appeal from the Ruling and Order of the High Court of Uganda at Kampala (Mr. Justice W. K. M. Kityo) dated 13th November 1990)

## I N

## HIGH COURT CIVIL SUIT NO, 9^6/87

## JUDGMENT OF THE COURT:

This appeal raises interesting questions upon the liability of a Director of a Company and an advocate advising the Company, in the event of the Company breaking a contract to sell land to one person and then selling to another.

The Plaintiff and now Respondent to this appeal sued four persons, Waneh Ltd, the Company involved in this matter, Theresa Okoth Ofumbi, Director of the Company; Jovan Kulany t/a Kulany & Company Advocates, and Haruna Sondit Munya. The < purpose of the appeal is to test the proposition of the learned Trail Judge that Mrs. Okoth-Ofumbi and Mr. Kulany were allegedly suit property, that their names should not be struck out from so 'intimately¹ connected with the sale transaction of the

*2* /these

these proceedings. It was observed that Mrs. Okoth-Ofumbi and Mr... JKulany.. were.-thus\* connected in their: different'capacities. But the latter have appealed contending--taat- their names should be struck out.

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It will.easily be appreciated that the issues, on this. appeal are as set out in the grounds enumerated as follows:

- 1. The learned Judge erred in law and in fact holding thgt "alleged intimate connection" of the appellants with the transaction of sale of the suit property was sufficient ground for joining them in the suit. - 2. The learned Judge erred in law and in fact by holding that in effect that alleged breach of duty on the part' of the 2nd' Appellant was ah''issue in the suit and that it was properly joined with the cause of action of 1st Defendant in the suit) (sic). alleged breach of contract by another party (i.e.

in his plaint. The Plaintiff had given details of the following case

The 1st Defendant is a private Company Limited by shares. The- 2nd Defendant is a Director and widow of the late J. M. Okoth-Ofumbi, the Company Managing Director. The shsrd w&s an Advocate. first purchaser being the Plaintiff. The ^rth Defendant was the second purchaser, the

Sometime in January 1975, the Plaintiff purchased

3 //Plot

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plot No. Nkambo Lane, Mbale, for shillings 100,000/-. The a letter on 6th January 1975 to Mr. Kulany met the plaintiff at his office and the Plaintiff paid shillings 100,000/=. The Plaintiff and the Defendant Company then entered into an agreement for sale, which was executed by Mr. Okoth-Ofumbi for the Company and the plaintiff. Mr. Kulany undertook to Mr. Kulany the transfer of the suit property into the name of the Plaintiff. complete the conveyance on behalf of the Plaintiff. received specific instructions to complete the conveyance and Managing Director Mr. Okoth-Ofumbi (sadly now deceased) wrote

After pyment of the price Mr. and Mrs. Okoth-Ofumbi took the Plaintiff to the suit premises and introduced him to one Hassani Matani then a tenant of the Company, whereupon from that time, the Plaintiff started charging and receiving rent from Hassan Mgtani as his tenant until 1977-

the plaintiff kept 'enquiring from ' Mr. Kulany about-the progress of the conveyance and received various assurances from Mr. Kulany, that everything possible Later in 1977, the plaintiff moved into the • suit premises. He then fled due to the war, in April 1979• While the Plaintiff was in exile the Company and Mrs. Okoth-Ofumbi (Defendant 2) took over the property, and put in another tenant who paid rent to the Company (Defendant 1). This was despite the fact that the Company and its Director knew of the occupancy of the Plaintiff between 1977 arid 1979. It was also well-known to Mr. Kulany and the second purchaser 'From January 1979, was being done.

/Mr. Kunya.

\*

**©**

-J

**t**

Mr. Kunya.

Mbale to Kisumu to see \$he Plaintiff bringing him the documents of transfer of Plot No.13 Nkambo Lane. The Plaintiff signed them and paid the equivalent of Uganda shillings 80,000/= in Kenya currency, being the necessary transfer fees and other expenses• Sometime in 1980, one Musamle (now deceased) came from

Then in 1981 the 4th Defendant Mr. Munya came to the Plaintiff and told him that the Company and Mrs. Okoth-Ofumbi had sold the suit premises to Mr. Munya. Despite the plaintiff's protest, Mr. Munya agreed to buy the property because Mrs. Okoth-Ofumbi had persuaded Mr. Munya that as there was no registration of the plaintiff's title, it was open to Mr. Munya to purchase the property. However, Mr. Munya promised to repay the moneys paid by the plaintiff.

The Plaintiff contended that Mrs. Okoth-Ofumbi, Mr. Kulany and Mr. Munya were guilty of fraud for selling the land to Mr. Munya and the latter could not be bona fide purchaser for value, because he knew that the plaintiff had an interest in this plot.

The plaintiff detailed the fraud.

Mrs. Okoth-Ofumbi acted fraudulently because she purported to sell the premises to Mr. Munya when she knew of the Director of the Company. sale as a

Mr. Kulany acted fraudulently because he had

*(*

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instructions from the Plaintiff to complete the transfer of the land into the Plaintiff's name and when he then acted for the Company, Mrs. Okoth-Ofumbi and Mr. Munya, Mr. Kulany knew that the Plaintiff had an equitable interest in the land.

These frauds the Plaintiff alleged were discovered when the Plaintiff returned from exile in early 1986. At that time he approached Mr. Kulany to get the transfer effected. Mr. Kulany dodged and misinformed him of the true state of affairs.

Therefore, the Plaintiff prayed for a declaration that he was fraudulently deprived of his property; an order to cancel the registration of the land in Mr. Munya's name and his own registered instead; damages and mesne profits for fraudulent deprivation.

Mr. Mulenga (S. C.) set out the situation and submitted that it was the Company which had sold the property. The Director of the Company was merely an agent. Accordingly, the Company at was / fault if there was deprivation suffered by the Plaintiff. In criminal law, the Director may be charged, but that analysis $\mathcal{L} = \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal{L} \mathcal$ did not apply in civil cases. Fraud was not a suitable basis for suing a Director.

In the case of Mr. Kulany, he acted for both parties. The act of an Advocate did not make him personally liable. A fraudulent conspiracy could not be pleaded. There was no question of aiding or abetting. The advocate carried out instructions; he drew up documents. It was said that he did not transfer the

$6$ ..... /property,

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property, but then such knowledge that he was alleged to have had, did not make him liable in an action in this case.

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ConsequentJ-y, there was of these two Defendants in this case. (See Order ¹ Rule 5 Civil Procedure Rules), no possible case for a joinder

Mr. Ringwegi, learned Counsel for the Respondent thought that that could not possibly be the case. In his submission here was a group of dishonest people, one helping the other, all of them knowing that what they were doing was to the detriment of plaintiff's rights. The latter had entered into an agreement for sale, he had executed the transfer. It was for Mr. Kulany to complete the transfer by registration. But that deceased husband in managing the Company apparently, and she having been present when possession of the premises was given to that the sitting tenant paid the Plaintiff rent instead of the Company, she wrongly took over the property again after April 1979, after the Plaintiff went into exile. She procured the sale of the property to Mr. Munya. What did Mr. Kulany do? Did he stop the sale or decline to act for the Company and Mrs. Okoth-Ofumbi, when to complete the sale to Mr. Munya was contrary to his instructions from the Plaintiff? According to the Plaintiff he did not. In Mr. Ringwegif^s submission, the collusion between Mrs. Okoth-Ofumbi and Mr. Kulany is one series of transactions which cannot be separated and all the Plaintiff in 1975, so was not in Mrs. Okoth-Ofumbi*'s* interests. . She had succeeded her

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four Defendants are necessary to prove the fraud against the • plaintiff, in order that fraud can be the basis.of the removal of the registration of the Plaintiff in lieu. .. It would appear . to be an action aimed at Section 184(c) of the Registration of Titles Act. The fraud alleged was reasonably covered hy the alleged to.have been involved, because he was purchasing over the head of the plaintiff, who had clearly contracted to buy the **o** plot in question to Mr. Munya's knowledge. The latter had offered to reimburse the Plaintiff. pleadings, and of course, it must be said that Mr. Munya is

/

Now it must be said very clearly that Mr. Ringwegi's submissions on the plaint, do.not represent the final, conclusions of fact upon the hearing of this dispute. What has occurred here Appellants, purpose of the application. The Plaintiff must decide whom to sue. open to the trial Court all questions for trial. For that purpose the facts, as alleged by the Plaintiff are taken as facts for the Secondly, this Court must decide the issue of joiner, -but must leave on this appeal. is. an application, for striking out the two Defendants, the

The first consideration as Mr. Mulenga submitted is to ¹ Rule That rule prescribes that: ascertain what joinder of Devendants is allowed by Order 3 of the Civil Prosedure Rules.

> HA11 persons may be joined as Defendants against whom any right to relief in respect of or arising out of this same act or transaction or series of^J acts or transactions is alleged to exist, whether jointly, or severally, or in the alternative such persons, any common question of law or fact would arise".

> > 8 ..•••• /The

declaration that the Plaintiff had been fraudulently deprived of his property thus leading to the cancellation of Mr. Munya's registration of title and so to the substitution of the plaintiff's the holder of the registered title; and secondly, damages and mesne profits for the fraudulent deprivation of title. name as The plaint discloses two\*general reliefs; firstly, a

The previous owner of the property namely, the Company, and Mr. Munya would be implicated in the declaration and re-registration of the title. They have not appealed.

Who would be liable for damages? Presumably the Company would be liable in damages for breach of its contract for the sale of land.

The Appellant Kulany would also be liable for breach of his contract with the Plaintiff, as the plaintiff gave him specific instructions to complete the transfer and registration, in the Plaintiff's name, of the property bought by the Plaintiff.

Who would be liable for mesne profits? It is not a usual claim, but it has not as yet been ruled as a definitely impossible claim. Mr. Munya would be liable for that claim, if it is sound in law.

Mrs. Okoth-Ofumbi's case is subtle. It would probably be agreed that in. so far as a Director of a Company is an agent of the Company, and the Company was the ostensible and active principal in each sale both to the Plaintiff and to Mr. Munya, the principal should be sued and not the agent. Laws of . England 4th Sd. Vol. ¹ para.. 821 et sec). There are, (See Halsbury's

9 /however,

Such circumstances have not been detailed in the plaint. however, some circumstances in which an agent can also be sued.

As fraud is relied upon that would suggest perhaps the fiduciary nature of the Director's duties to the Company. It is clear that in some aspects of his work the Director must act as an agent in-a fidiciary capacity. He must act with the utmost good faith. Unfortunately this duty lies to the Company alone. (See perciral vs. Wright (1902) 2CH. 421, Gower "The Principles of Modern Company Law", p 517). This principle would allow an action by the Company, but not the plaintiff.

A Director may be sued for a tort committed by the Company for which he ordered or procured. Hence as the Notes to Order 18 Rule 19 of the 1988 Rules of the Supreme Court in England show, a Director will not necessarily be struck out - See Evans & Sons Ltd. Reports 26? (C. A.) not available in Uganda, but quoted there. ¹ Supposing that to be the Lawlln Uganda, a possible tort would be that Mrs. Okoth-Ofumbi interfered with the contract between the Plaintiff and the Company. But that seems to be an unfruitful approach as Winfield & Jolowiez explain in their book on TORT 12th ED. P.512 and 513. They conclude vs. Spritebrq-nd Ltd. (1985) Flest Street

> "If my servant, acting bona fide within the scope of his authority, procures or causes •\* me to break a contract which I have made with you, you cannot sue the servant for interference with the contract; for he is my alter ego here, and I,cannot be sued for inducing:myself to break a contract, although I may be liable for breaking the contract".

> > 10 /If

If-that is so. of a human person it must be a fortiori the case concerning an incorporeal person such as a Company.

The authors continue

"xf the servant does not act bone fide, presumably he is liable on the ground that he has oeased to be his employer's alter ego. It is true that even then he might still be acting in the course of his employment, but we must take it that this curious piece of metaphysics exempts the employer from vicarious liability for this particular tort".

In this case the aim is to sue both employer Company and Director. This tort has not been pleaded or convassed in argument. We have answered Mr. Rinzwegi on a tentative basis, leaving open a Director's liability in different kinds of tort. But it would not be fair at this stage to allow Mrs. Okoth-Ofumbi to face tnis action in tort until pleaded. On the face of it, therefore, Mrs. Okoth-Ofumbi has not been caught by these pleadings, on any ground raided by the Plaintiff.

We turn now to the position of Mr. Kulany. He did not carry out the Plaintiff's instructions and that is at least a breach of his instructions.

Assuming for the moment that that is all tnat can be claim come within the present pleadings? If the case against the Company alone proceeded to trial, would Mr. Kulany's part in the alleged fraud be part of the evidence? Clearly it would. The fraud is a combination of all the facts, and especially, particularly those committed by Mr. Kulany said, would such a

11 /acting

•ii.tie.-despite the documents signed by the Plaintiff and the Company; and accepting the money paid by the Plaintiff. Thus to Mr. Munya and see to it that the latter was registered before the Plaintiff. acting for the plaintiff: failing to register the plaintiff's by allowing the Plaintiff's registration to be delayed he allowed Mrs. Okoth-Ofumbi and the Company to sell the land

Under Order ¹ Pule 3 not every party need join in every **o** relief claimed. Mr. Kulany is clearly implicated in the plaint in one way. His instructions are set out in paragraph 7- He . was paid the necessary transfer fees after the plaintiff signed the trnsfer (para. 13).' He failed to carry out his instructions and instead transferred the premises to Mr. Munya, (paras. 16 to 19). The Plaintiff claimed damages. It is not the most artistic of pleadings. But it is all there. In our opinion Mr. Kulany's part in this affair would cover the same ground as proving the fraud against the Company. The mesne profits claimed would not be a part of the claim against Mr. Kulany. But damages are claimed for Mr. Kulanyi's part in this affair.

> We would agree »with Mr. Mulenga that there is no rule of respondeat inferior which can render a solicitor or advocato liable for the fraud or malice of his principal. But whereas the plaintiff has linked Mr. Kulany to the fraud of Mrs. Okoth-Ofumbi or the Company, for the instructions they gave him, it is not necessary to go that .far. The. real case against Mr. Kulany is that he failed to carry out his instructions to

> > 12 •••.• /the

the Plaintiff That is sufficient as the foundation of a case of Titles Act. necessary for the purposes ©f Section 184(c) of the Registration of '.amages, if proved. The rest is evidence of the fraud

We therefore, allow the appeal in the case of the Appellant Theresa Okoth-Ofumbi and dismiss the appeal of the Appellant Kulany. We set aside the Order of the High Court in relation to the Appellant Theresa Okot-Ofumbi and substitue therefore an order striking out her name from the pleadings. The Appellant Okoth-Ofumbi will have her costs of this appeal and of the proceedings before the High Court. The Appellant Kulany will pay the plaintiff/Respondent-the Respondentrs costs of this appeal in relation to him.

2nd . February Dated at Mengo this day of ⁱ 1993.

S. T. Manyindo DEPUTY CHIEF JUSTICE '\*■ v r. \*

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A. H. Oder JUSTICE OF THE SUPREME . COURT.

H. G. Platt JUSTICE OF THE SUPREME COURT.

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

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B. F. B. BABIGUMIRA REGISTRAR SUPREME COURT.