[1997] UGHC 14

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA CIVIL SUIT 738/95

REAMATON LIMITED ............ ......................................

#### - VERSUS -

UGANDA CORPORATION CREAMERIES LTD.... 1ST DEFENDANT HENRY KAWALYA ................................... $\mathbf{I}$

### BEFORE THE HONOURABLE MR. JUSTICE J. P. BERKO

### JUDGEMENT:

Reamaton Ltd is a foreign company incorporated in England. The 1st Defendant is a limited liability company incorporated in Uganda. The 2nd Defendant, Henry Kawalya, is the Executive Director of the 1st Defendant Company. Reamaton Ltd has instituted this action against the defendants, claiming as per amended plaints, the sum of US Dollars 365,000 or its equivalent in the local currency; on order for Account, interest and costs of the suit.

The facts constituting the cause of action arose, in the following circumstances: Reamaton I'd is engaged in the import/export, foreign trade and finance business. Its head office is in England. The defendants

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are engaged in bulk purchase and export of coffee from Uganda. The Managing Director of Reamaton Ltd Mr Maku Pankhania, has had some Business dealings with Mr. Henry Kawalya. Sometical in January 1994 Mr. Henry Kawalya contacted Mr. Maku Pankhania to find out if Reamaton Ltd could arrange a pre-finance in foreign currency for coffee export. Reamton Ltd contacted their financiers, Messis F. H. Bertling, who agreed to lend to Reamaton Ltd 360,000 USDollars. The loan was to be paid within three months. This was communicated to Mr. Henry Kawalya who agreed to the pro-finances as arranged by Reamaton Ltd on behalf of the 1st defendant. It is alleged that Mr. Henry Kawalya guaranteed the re-payment of the pre-finance granted to the 1st defendant. It was also alleged that the defendants agreed to give Reamaton Ltd 30% of the Profit of the coffee business. This was based on oral agreement.

Pursuant to the above agreement Reamaton Ltd transferred to the 1st defendant through Henry Kawalya a total of 365,000 US Dollars. These transfers were made between 1st June, 1994 and 14th November, 1994.

It is the case of Reamanton Ltd that the defenuants have failed to repay the pre-finance loan. The defendants have also failed to go into Account with Reamaton Ltd in order to establish Reamaton Ltd's share of the profit.

In the original written statement of defence filed on behalf of the 1st defendant and Henry Kawalya, it was contended, in paragraph 3, that transaction offended the Exchange Control Act (Cap 158) and therefore it was illegal and unenforceable. This was abandoned at the trial.

Alternatively it was contended, in paragraph (4) of the written statement of defence, that the relationship between the Reamaton Ltd and the 1st defendant was that of Partnership and that the proper recourse for the plaintiff is under the Partnership Act and not by suit. This averment was denied by Reamaton Ltd. This is one of the issues for trial.

Alternatively, it was pleaded, in paragraph $(5)$ that:

"(a) Only US Dollar 315 was received from the plaintiff.

The sum of US Dollar 92,000 was lost due to slump in coffee prices. $(b)$

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- The 1st defendant has paid US Dollar 103,800 to the plaintiff. $(c)$ - The reimbursement to the plaintiff was only interrupted when the $(d)$ plaintiff denied that the US Dollar 103,800 was in settlement of the *coffee pre-finance debt.*

#### The plaintiffs share of the profits from the transaction was never $(e)$ guaranteed the 1st defendant debt's or agreed upon."

The above written statement of defence was amended as per the Amended written statement of defence of 24th September 1996. In the said amendment it was pleaded in paragraph $5(6)$ that the loss due to slump in coffee prices was US Dollar 134,000 and not US Dollar 92,000.

Paragraph $5(c)$ was replaced by the following: "The plaintiffs share of the profit was never guaranteed by the 1st defendant nor were the 1st defendant's debts guaranteed by the 2nd defendant." In paragraph 5(f) the 2nd defendant claimed by way of set-off against Reamaton Ltd the sum of US Dollar 58,748. The amount was said to re-present commissions earned by 2nd defendant from tenders he obtained for Reamaton Ltd.

The defence was amended again as per the Amended written statement of defence of 7th October, 1996. The only change introduced by the amendment was in $5(c)$ where it was alleged that the amount paid to Reamaton Ltd by 1st defendant was US\$130.818 and not US\$103,800.

In reply the plaintiff denied the existence of Partnership relationship The plaintiff maintained that it had no between it and 1st defendant. knowledge of any slump in coffee prices that resulted in loss and that any such slump had no bearing on the defendants liability to plaintiff. In reply to paragraph $5(c)$ it was averred that the money paid by the defendants to the plaintiff was to discharge other debts and liabilities that were separate and distinct from the coffee pre-finance loan. In reply to 5(c) it was contended that the plaintiff's share of profit was agreed upon and that the 2nd defendant guaranteed the 1st defendant's indebtedness to the plaintiff. Finally the set-off was denied. The claim for set-off was abandoned by Mr. Henry Kawalya's Advocate during the final submission.

On the basis of the above pleadings, the following issues were set

down for determination at the trial:-

Whether the relationship between the plaintiff and 1st $(i)$ defendant was that of debtor/creditor.

Whether the 1st defendant and plaintiff were partners. $(ii)$

- Whether the 2nd defendant guaranteed the 1st defendants $(iii)$ performance of the contract. - Whether the defendants are liable to the plaintiff and if so, $(iv)$ how much

Remedies, if any, due to the parties. $(v)$

At the trial, Reamaton Ltd relied on the oral evidence of its Managing Director Mr. Maku Pankhania and documentary evidence. In a nutshell the plaintiff's evidence is as follows. Reamaton Ltd is a foreign company incorporated in England and has its head office in Surry, England. Its business consisted of import and export, foreign trade and finance. Mr. Maku Pankhania got to know Mr. Henry Kawalya some 8 years ago in the course of business.

Sometime in January 1994 Mr. Henry Kawalya, in his capacity as Executive Director of the Uganda Corporation Crediteries Ltd, (1st defendant) contacted Mr. Maku Pankhania, also in his capacity as Managing Director of Reamaton Ltd, to find out if he could obtain foreign money to pre-finance coffee export from Uganda. As Reamaton Ltd did not have that amount of money, Mr. Maku Pankhania contacted their couldn't financiers Messrs F. H. Bertting Ltd who agreed to provide the necessary funds to pre-finance the Defendant's coffee export. The loan was to be repaid within three months. Reamaton Ltd was to borrow the money from Messrs F. H. Bertting Ltd and give to the 1st defendant. This good news was passed on to Mr. Henry Kawalya who informed Mr. Maku Pankhania that he would consider the offer and report back. Mr. Henry Kawalya later telephoned Mr. Maku Pankhania and informed him that the offer was $\n \mathcal{L}^{\text{max}}\n$ accepted.

$wc$ , $-l$ Following the acceptance of the offer, Reamaton Ltd transferred to $\n *J wa*\n$

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$E/L$ pa

$l$ hale

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$279$

When the defendants were not honouring the terms of the loan agreement, Mr. Maku Pankhania visited Kampala and discussed with Mr. Kawalya the issue governing the non-payment of the ioan. Mr. Kawalya promised to pay the amount by instalments. This discussion was confined by a letter from the 1st defendant, signed by Mr. Henry Kawalya. The letter is Exh P2.

Following Exh P2, the defendant issued instructions to the Bank of Baroda, Kampala Road to remit to Reamaton Ltd A/c Bank. Baroda, London, U. K. A/c 381694 the sum of US\$200,000 on receipt of any clear funds in our account. The instructions were said to be irrevocable unless cancelled by the beneficiary. It was signed by Mr. Henry Kawalya.

The US\$200,000 was not remitted by Bank of Baroda to Reamton Ltd. Instead Reamaton Ltd received a letter from Bank of Baroda dated 17/10/95 informing them that they were unable to remit the money to This was apparently due to a letter dated 19th October Reamaton Ltd. 1995 written by the 1st defendant to Bank of Baroda, Exh P4, cancelling the instructions in Exh P3. That letter was signed by Henry Kawalya as Executive Director of the 1st defendant company.

According to Mr. Maku Pankhania, Reamaton Ltd has not received the whole or part of the coffee pre-finance loans. He admits, however that Reamaton Ltd has received from the defendants through Mr. Henry Kawalya a total of US\$130,818. These transfers are reflected in Exh $P6¹$ - $6^{12}$ . (Annextures D¹ - D¹²). These payments were in respect of what he said were "other loans and transfers" made to the defendants. These were in the form of financial assistance, personal loans, and expenses like medical expenses made on behalf of Mr. Henry Kawalya and purchases made on behalf of Mr. Henry Kawalya. It also included costs of Feasibility Study of Uganda Discount House which AIB International

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Consultants, Dublin, did on behalf of the defendants. The total, according to Mr. Maku Pankhania, came to US\$143,772.25. In all a total of 37 such transfers were made by Reamaton Ltd to the defendants through the foreign account of Mr. Henry Kawalya. Evidence concerning some of such transfers are contained in Exh P7, to P22.

According to the evidence of Mr. Maku Pankhania, the defendants have not paid all the loans and expenses mentioned above. These loans and expenses were separate from the coffee pre-finance loans.

In cross-examination, Mr. Maku Pankhania, admitted that the 2nd defendant and some staff at the Central Medical Stores assisted Reamaton Ltd to get indents in respect of which Reamaton Ltd agreed to pay them commission on business actually concluded on the indents and that Reamaton Ltd had paid all the commission due to the 2nd defendant and the staff at the Central Medical Stores. He admitted that some of the transfers to Henry Kawalya were in respect of commission due to him, but he could not specify which were loans and refund of expenses. He denied that Reamton Ltd was in partnership with the 1st defendant.

Henry Kawalya testified on behalf of himself and the 1st defendant. His evidence was that he got to know Reamaton Ltd about 8 years ago. He and 1st defendant were appointed agents of Reamaton Ltd. personally got tenders for Reamaton Ltd. He was entitled to a commission on each tender.

In 1991 he got a tender from the Uganda Army Shop for the supply of cooking oil by Reamaton Ltd to the Army. The oil was supplied by Reamaton Ltd after Letters of Credit were opened in its favour.

Exh D5, D3, and D7 are tenders in respect of Human Drugs he worn for Reamaton Ltd and Mill Bank Resources Ltd from the Central Medical Stores. He was entitled to commissions on all of them. He was entitled to a commission of US\$100,000 in respect of the business on Exh D1. The Central Medical Stores staff were entitled to a commission of US\$100,000. Reamaton Ltd has paid US\$50,000 out of that amount. The This amount is on $(365,000)$ balance is still outstanding.

He denied that Reamaton Ltd transferred a total of US\$143,772.25

to him as loans. According to him the amount represents part payment of commission due to him on tenders he procured for Reamaton Ltd. The amount of commission remaining unpaid stands at US\$58,748. This is the subject matter of the set-off.

$275$

With regard to the coffee business, the evidence of Henry Kawalya was that Mr. Maku Pankhania approached him and begged him to allow the 1st defendant enter into partnership with Reamaton Ltd and go into coffee business. The agreement was that Reamaton Ltd was to get back its capital contribution into the partnership business and 30% share of profit after one year.

The reasons why Reamaton was given only 30% of the profit was that its capital was small as compared to over 900 million shillings which 1st defendant had put into the business. The second reason was that Reamaton Ltd was a sleeping partner. Reamaton Ltd was liable to pay $30\%$ of the losses, if any.

The capital contribution of Reamaton Ltd towards the partnership business was US\$315,000. He knew that Reamaton Ltd had borrowed the funds from F. H. Betling.

On receipt of the additional funding from Reamaton Ltd, they started business in earnest. They did business between June 1994 and May 1995. Owing to the slump of world coffee prices, they made loss totalling US\$446,686. Reamaton Ltd's share of that loss is US\$134,000. That was said to represent 30% of the loss.

According to him, the remittances evidenced by Exh $P6^1$ - $6^{12}$ are not for repayment of " either loans and expenses". Some were part of Reamaton Ltd's capital contribution into the partnership business given back to Reamaton Ltd as temporary loan to finance some of its businesses Reamaton Ltd was expected to refund the in Zambia and Ghana. temporary loan to them. The rest of the transfers were actual repayment of Reamaton Ltd's capital contribution. At the time the original defence was filed the total transfers was US\$103,800. Additional payments were made since the suit was filed. The present total is US\$130.818.

He denied that Reamaton Ltd made expenses on his behalf. He also

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denied that the amount received from Reamaton Ltd was US\$365,000. He also denied that he guaranteed the loan granted to the 1st defendant by Reamaton Ltd. He said that Reamaton trusted him and that was the reasons why they transferred the coffee pre-finance loans to 1st defendant through his personal account.

From the evidence on record and the submissions of Learned Counsel for the parties, the real issues in contention are:

- Whether the 1st defendant and Rematon Ltd were partners in $(i)$ the coffee business. - Whether the Henry Kawalya guaranteed the Debt due from 1st $(ii)$ defendant to Reamaton Ltd. - Whether the defendants are liable to the plaintiff and if so, $(iii)$ how much.

$(iv)$ Remedies, if any.

It has been contended by the defence that Reamaton Ltd and 1st defendant were partners in the coffee business. The evidence relied upon were the testimony of DW1. He said that Reamaton Ltd approached the 1st defendant and begged them to be included in the coffee export business. He also said that when Reamaton Ltd made the approach, the 1st defendant had already obtained an overdraft facility of nearly one billion shillings for the coffee venture. Reamaton Ltd was given 30% That was proportionate to the contribution of share of the profit. Reamaton Ltd the in capital. It was submitted that the above were enough to prove the existence of partnership. Reliance was also placed on Exh D9 and D10 as indicating the existence of Partnership.

In alternative it was contended that if the sum of $US$315$ , which the defendants admits they received, is considered as a loan, then Reamaton Ltd is made a partner with the 1st defender by virtue of S34(3)(d) of the Partnership Act since the loan agreement was not in writing. Learned Counsel for plaintiff has argued to the contrary.

The Starting point in our inquiry requires a consideration of the

provisions of S4 of the Partnership Act (Cap 86) which lays down certain rules for determining whether or not a partnership in fact exists. The sub-section relevant for our purpose is $S4(3)$ which stipulates:

"The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of a such a share, or of a payment contingent on or varying with profits of a business, does not of itself make him a partner in the business."

Now, that is exactly what took place here. Reamaton Ltd was to receive 30% from the profit of the business. We have a statement in the Act which says that the receipt of a share of profit of a business is prima facie evidence of partnership, but that the receipt of such share does not of itself make the receiver a partner in the business. The provisions of the Act appear to be conflicting.

There has however been attempts made to explain the provisions of the section. The first case is Bodeley v Consolidated Bank (1888) 38 Ch D.238. This case was decided by the English Court of Appeal before the English Partnership Act of 1890, which provisions are similar to our Partnership Act, was passed, but The Act seems to me to give effect to what was there laid down. Cotton after reviewing the earlier authorities on the subject said at page $249$ ;

"so that the Master of the Polls, Lord Justice Lindley and Lord Beackbury, all agree that what you must look at is whether the relation of principal and agent existed, a participation of profit not necessarily constituting a partnership, but being a matter which is to be considered, and which may be conclusive if there is nothing else to prevent there being partnership".

n Davis v Davis (1894) 1ch.393 North J. expressed the view that if the nly evidence is that of sharing of profit, then the Court must act on it in rder to declare a partnership. However, if there are other circumstances be considered, the sharing of profit is merely a factor in the decision, eing one among equals. In Badeley v Consolidated Bank (Supra) Lindley .. J said at page 259 that in order to ascertain the intention of the parties s to the significance of sharing of profits, it is necessary to examine all

the facts of the case "the whole of the documents and the whole of the evidence and drawing such inferences as he thought right from the whole".

$282$

These cases have established that the receipt by a person of share of the profits of a business is strong evidence that he is a partner, but whether or not that relationship exists depends on the real intention, and agreement of the parties and not upon the mere fact of participation in profit. The court should not treat the receipt of a share of the profit alone as prima facie evidence if there are other circumstances to be considered side by side with it. In this case there are circumstances which indicate that no partnership existed.

In the first place, the 1st defendant borrowed nearly one billion shillings (see ExhD8) from its Banks and injected it into the coffee business. The 1st defendant and the plaintiffs are not juintly liable to pay the amount borrowed to the Bank. The 1st defendant is solely liable to pay the Bank debt. If the plaintiff and 1st defendant were partners they would have been jointly liable to pay the Bank loan that was put into the business. I think that is an indication of some weight that no partnership $\frac{1}{2}$ existed between plaintiff and 1st defendant. This can be contrasted with $\frac{1}{2}$ the situation in <u>Davis v Davis</u> (Supra) where the joint borrowing of the money put into the business by the two brothers was considered an indication of some weight of the existence of partnership. There is also the case of Pooley v Driver(1876) 5 Ch. D;.471 where two people entered into a partnership for 14 years. In order to raise capital they transferred shares to a third party whose contributions were to be considered as loans. It was held that the true relationship between the two partners and the third was that of an active and dormant partners, respectively, rather than that of borrowers and lenders. The court, in reaching its decision, considered a number of features which were evident from documents tendered before it. First, were the unusual rights given to the "lenders' such as the right to share in the capital to be employed in the business for the duration of the partnership and to be paid preferentially at its conclusion. Second, was the right to share in the profits and surplus on final settlement of accounts. Third, was the right to insist that the partnership should conduct the business to the best of ability, which right was enforceable by action for damages. Four, was the right to have differences or misunderstanding between the partners and the third party ("Lenders") arbitrated. Finally, if the third parties became bankrupt, the partners had to pay them off.

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There is also another thing which ought not be ignored, although I do not wish to attach too much weight to it. Before the suit came up for hearing, the defendants took out a Chamber Summons under Ord 23 r 1 and 3 of the C. P. R. for the Court to order the Reamaton Ltd to furnish security for the payment of all the costs of the defendants. The grounds of the application were that Reamaton Ltd is a company incorporated in the United Kingdom with no affiliate in Uganda, and that in the event of the defendants obtaining judgement in their favour against Reamaton Ltd; the former will have no means of realising its costs. Partners carry on business both as principals and as agents for each other within the scope of the partnership business. If Reamaton Ltd was in partnership with the defendants the defendants would have been their affiliates in Uganda. In my opinion the conduct of the defendants in asking Reamaton Ltd to furnish security of costs, shows that they never regarded Reamaton Ltd as partners.

Again Reliance was placed on S3(a) of the Partnership Act which provides:

"the advance of money by way of a loan to a person engaged, or about to engage, in any business on a contract with that person that the lender shall receive a rate of interest varying with profits, or shall receive a share of profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such provided that the contract is in writing, and signed by or on behalf of all the parties thereto".

Did the draftsman of the Partnership Act intend by the proviso "Provided that the contract is in writing, and signed by or on behalf of all the parties thereto", to enact or imply that where there is no written and signed contract, a lender who lends on the terms of receiving a rate of interest varying with profits or of receiving a share of the profits, is prima facie to be deemed a partner?

Smith L. J. in <u>ReFort</u>, Ex parte Schofield (1897) 2 of 495 seemed to assume that that was the result S2(3) of the English Partnership Act (which is the same as S3(d) in our Cap 86) saying that "if the benefit of the section is desired by the lender, then, under the provision, the contract

## must be in writing".

That observation, however, was only a dictum because the court was there considering the meaning of section S3 which deals with the right of lender where the borrower has been adjudged bankrupt, and therefore the absence of written contract was irrelevant. In fact Lord Esher M. R. said that it was not necessary to determine whether Schofied, the lender, was, or was not, a partner.

The judgement has been criticised by all the Learned authors on Partnership law that I have come across. For example, Underhills Principle of the Law of Partnership by Charles Drake 3rd Ed. it was said that "the better view would appear to be that the absence of a duly signed memorandum is a formal deficiency which cannot be seized on to the exclusion of the true intention of the parties as it appears from the interpretation of the agreement as a whole".

I am prepared to accept that view. To hold otherwise would follow that a person, who was not a partner, but only a creditor, and with regard to whom the only scintila of evidence of a partnership is participation in profits, is, in the absence of a written and signed contract. to be deemed a partner notwithstanding the express words in $S4(3)$ that the receipt of profits is not itself sufficient. That cannot be the correct interpretation.

I have been unable to find any thing on record which indicate that the true intention of the parties was to enter into partnership.

Finally reliance was placed on Exh D9 and 10 as indicating the existence of Partnership. Exh 9 was a Fax message from Reamaton Ltd into the defendant informing them that their financier was demanding immediate payment of the loan and threatening Reamaton Ltd that they might not receive future assistance from either of the financiers in London or Germany and requesting the defendants to pay up part of the loan. That letter cannot by any stretch of imagination be construed as evidence of. partnership.

Exh D10 was a Fax message from F. H. Bertting-to Reamaton Ltd complaining bitterly about the non-refund of the Loan granted to Reamaton Ltd. This fax was passed on to Henry Kawalya to enable him realise the

predicament in which the defendants have placed Reamaton Ltd who stood to loose the business relationship Reamaton Ltd has established with F. H. Bertling. In the fax reference was made to "you and your partner". That was a loose expression by a third party.

There is nothing in the document on which the existence of Partnership can be inferred.

In the result I find and hold that the existence of Partnership between 1st defendant and Reamaton Ltd has not been established either under the Act or under any circumstances.

It has been contended on behalf of the plaintiff that the 2nd defendant promised to be answerable for the debt of the 1st defendant. The plaintiffs admits that there was no written contract of guarantee, but contends, first, that the funds were transferred to 1st defendant through the personal account of the 2nd defendant. Second, reliance was also placed on Exh. P1, P2, P3 and P4 Mr. Tibeijuka has submitted that the above exhibits constitute "some memorandum or note" in writing within S4(1) of the Contract Act (Cap 45).

The answer to the claim upon guarantee is that there is no "memorandum or note" in writing, signed by the party to be charged, sufficient to satisfy the provisions of S4 of the Contract Act.

The constitute a contract of guarantee there must be "a promise to answer for the dcbt of another": Vaugham Williams L. J. in Davis v Bustwell (1913) 2 KB 47 CCA at page 54 defines guarantee as follows:

"As I understand it, in any case-where, in substance and in fact, an obligation has been undertaken by a person to the creditor to pay debt due from another person, for which that other person remains responsible, in the event of his making default, prima facie, that is a guarantee".

The question I have to decide is whether there was "a promise to" answer for the debt of another". If there was such a promise, then S4 of the Contract Act applies.

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It is conceded by the plaintiff that there was no written contract of guarantee. They, however, contended that exhibits P1, P2, P3 and P4 constitute sufficient "memorandum or note" within S4 of the Act. It is therefore necessary to examine them.

The first is Exh P1. These documents are Transfer Advice of Monies transferred by Reamaton Ltd to the personal account of Henry Kawalya. None of the documents was signed by Henry Kawalya. They do not contain any statement of "a promise to answer for the debt of another". The second is Exh P2. It was written by the 1st defendant. Henry Kawalya signed it, not as a party to be charged, but as the Executive Director of Uganda Corporation Creamerics Ltd. The content is as follows:

> "Further to our discussion, this is to confirm that I will be able to pay you Two hundred thousand (200,000) dollars within two months or so.

> We are requesting you kindly to accommodate us. The balance will follow within a short time which will be communicated to you".

Here it was the 1st defendant that was telling the keamaton Ltd that it would be able to make part-payment of US\$200,000 within two months. The document does not, within its four corners, refer to any promise by Henry Kawalya to answer for the debt of the 1st defendant. The third is Exh P3. This was instruction from the 1st defendant to their Bankers to remit to Reamaton Ltd the sum of US\$200,000 apparently in fulfilment of the promise in Exh P2. It was signed by Henry Kawalya. Again not as a party to be charged, but in his capacity as Executive Director of Uganda Corporation Creameries Ltd. It did not refer to any promise by Henry Kawalya to answer for the debt of another. The last one Exh P4. It was a letter written by Uganda Corporation Creamerics Ltd to their Bankers, the Bank of Baroda (U) Ltd, cancelling the instructions to remit US\$200,000 to Rematon Ltd. It was signed by henry Kawalya in his capacity as the Executive Director of the Uganda Corporation Creameries Ltd. It was not signed by him as a person to be charged. It also did not contain any promise by Mr. Henry Kawalya to answer for the debt of another. It seems to me therefore that the documents relied upon did not constitute a promise to answer for the debt of another.

$14$

In my judgement, therefore it appears plainly that there was no promise by Henry Kawalya to make himself answerable for the debt of the 1st defendant. In other words, Henry Kawalya did not give any guarantee in the performance of an obligation under any antecedent contract. Therefore the claim against him on a contract of guarantee cannot be sustained and must be dismissed.

This leads me to the issue as to whether the defendants are liable to the plaintiffs and how much. The case of Reamaton Ltd is that for the coffee pre-finance, they transferred to the defendants the sum of US\$365,000. This is supported by Exh P1. The defendants, on the other hand, have contended that the disbursement received from Reamaton Ltd for the Coffee pre-finance was US\$315. Therefore the amount in contention between the parties is US\$50,000. Two transfers of US\$50,000 appear on $ExhP1$ . One was made on 14/10/94. The other was on the $14/11/94$ . The narratives on the transfers do not indicate the purpose for which the transfers were made. That is typical of all the transfers in Exh P1. PW1 said it was part of the coffee loan. I am prepared to accept that as true. DW1 said it was part of his commission. He did not indicate the services in respect of which he earned that commission. If that commission was earned on the Human Drugs to the Central Medical Stores, then that Commission was tainted with illegality. For Henry Awalya agreed to receive on behalf of public officers in the Central Medical Sores gratification as an inducement for obtaining the tender for This is an offence under S1 of the Prevention of Reamaton Ltd. Corruption Act 1970.

In my judgement I find and hold that the total of the Coffee Loan was US\$365.000.

It is the case of plaintiff that the sum of US\$365,000 remains unpaid by the defendant. The defence says that they have paid 130,818 to the plaintiff as part-payment. The plaintiff admits the receipt of the sum of 130,818, but says that it was paid in respect of "other loans and expenses" made on behalf of the defendants, amounting to US\$143,772.25. This amount, according to the plaintiff, was separated and distinct from the coffee-finance short term loan. It was said that the 2nd defendant used to make requests, mostly on telephone, to the plaintiffs for financial assistance or expenses to be made on behalf of the defendant and the

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plaintiff obliged. In all the plaintiff said they made 37 such transfers through the Account of 2nd defendant.

Since Reamaton Ltd is not claiming the "other loans and expenses" $\mathbf{I}$ in this proceedings, it is not necessary to determine the exact amount of such "loans and expenses". What I am concerned with is to find out if there is evidence showing that Reamaton Ltd transferred to the defendants sums of money over and above the coffee pre-finance short term loans.

I think there is sufficient evidence on record in support of such Exhibits 7, 8, 9, and 10 are telegraphic transfers from transfers. Reamataon Ltd to the account for Henry Kawalya. The total of sum was US\$20,500. These transfers were made between 6th January 1994 and 31st August 1994. In fact the first Three transfers in Exh 8, 9, and 10 were made before the first disbursement in the coffee pre-finance was made on $1/6/94$ . There is also exh P11 covering sets of transfers to Henry Kawalya from Reamaton Ltd amounting to US\$47,910.75. These transfers were made from January 1990 to 2nd September, 1993. These transfers were before the coffee business was considered. Again there is Exh P12 showing transfers from Reamaton Ltd to Henry Kawalya from 27th September 1993 to 17th December 1993. The total amount is US\$10,200. There is also an amount of £6500 that was transferred from Reamaton Ltd to the account of Henry Kawalya on 4/8/94. This is supported by Exh P13. Similar transfers are as follows:

| $(a)$ | Exh P14 | £830.00 | |-------|---------|------------| | (b) | Exh P15 | £9,202.50 | | $(c)$ | Exh P16 | £16,000.00 | | (d) | Exh P17 | £700.00 | | $(c)$ | Exh P18 | £3,200.00 | | $(f)$ | Exh P19 | £4,610.75 | | | | £34,543.25 |

It must be remarked at this stage that the purpose for which the transfers in Exh P7 to 19 were made were not disclosed in the supporting documents. Some of the expenditures have, however, been described. For example in Exh P20, there is evidence that it was the balance of the cost of commissioning AIB International Consultants to prepare feasibility studies for a Discount House the defendants wanted to establish in Uganda.

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Exh P21 was the cost of one Coffee Moisture Analyser which Reamaton Ltd bought and shipped to the 1st defendant. Exh P22 represented cash given to the sister of Henry Kawalya and his Medical expenses paid for by Reamaton Ltd at the request of Henry Kawalya.

If my arithmetic is correct, the total of the few items I have mentioned above ie. Exh P13 to P22 comes to £67,331. The total of P11 and P12 is $US$58,110.75$ .

It is therefore clear that over and above the coffee pre-finance, other transfers were made to the defendants by Reamton Ltd.]

According to DW1, Mr. Henry Kawalya, himself and his company, Uganda Corporation Creameries were appointed agents by Reamaton Ltd. Though there is no written agency contract. I am prepared to accept that they represented Reamaton in Uganda and that they carried on business on behalf of Reamaton Ltd, for which they were paid commission. Henry Kawalya said that he personally got tenders for Reamaton Ltd in respect of which he was entitled to commission. In support of that he put in evidence five Letters of Credits, Exhs D1 to D5. Exh'D2 and D3 were Letters of Credits in favour of M/s Mill Bank Resources Ltd which is not a party in this suit. M/s Reamaton Ltd and M/s Mill Bank Resources Ltd Therefore Henry Kawalya cannot rely on his are separate entities. dealings with M/s Millsbank Resources Ltd in this procedings. Exh D4 and D5 were in favour of Reamton Ltd. They were letters of credits established in favour of Reamaton Ltd by the Uganda Ministry of Health for the supply of Human Drugs. Exh D4 was for US\$168,813.60, Exh D5 was US\$205,563. There is nothing on the face of the above exhibits showing the amount of commission receivable by Henry Kawalya and his company or how the commission could be calculated. Therefore the two exhibits (D4 and D5) cannot be relied upon to establish entitlement to a commission.

Reliance was placed on Exh D1 by Henry Kawalya to show that he was entitled to commission from Reamaton Ltd. In that exhibits the staff of Central Medical Stores were entitled to a commission of US\$100,000. Henry Kawalya was entitled to US\$100,000. The evidence of PW1 on the issue is that Reamaton Ltd received indents. They were having delays in getting the Letters of Credits established. So they asked Henry Kawalya

$17$

to assist them to get the Letters of Credits established. For that Reamaton Ltd agreed to pay Henry Kawalya commission of US\$100,000. Personnel of Medical Stores were also to receive US\$100,000. This was The to be paid to them through Henry Kawalya. These commissions were payable after the goods have been shipped and paid for.

$\frac{b_{u1}v_{r}}{f_{v}}$

Few comments are necessary. First, Exh D1 was not a contract for the payment of commission. It was only a proposal. This is clear from the concluding paragraph which states: "please let me have your comments". Assuming it was a contract for payment of commission, that -contract was, as I have indicated earlier on, illegal. Secondly, the payment of the alleged commission was dependent upon the business being conducted to the full. There is no evidence that the business were so conducted.

In the end what we have on record is just a bare assertion by the defendants that they were entitled to commissions and that the remittances to them were commission earned. There is no proof of the amount of commission they had carned. The burden was on the defendants to prove the commission they were entitled 'to. This they failed to $d\omega$ . The admission by PW1 that the defendants were entitled to commission and that some of the transfers were commission, does not relief the defendants the burden of proving the amount of commission they were entitled to.

I therefore find that apart from the coffee pre-finance, the plaintiff made other transfers to the defendants, either jointly or individually. These remittances are those referred as "other loans and expenses". I also find that the sum of US\$130,818 paid by the defendants was in respect of the "other loans and expenses". It was not paid towards the settlement of the coffee pre-finance loan.

The claim against the defendants is for money had and received from Reamaton Ltd. In the joint written statement of defence filed on behalf of Uganda Corporation Creameries Ltd 1st defendant and Henry Kawalya, the 2nd defendant, it was admitted that the sum of US\$315,000 was received from Reamton Ltd. I have found that the actual amount received was US\$365,000. Henry Kawalya and Uganda Corporation Creameries are consequently jointly and severally liable to pay that amount.

The defendants cannot get credit for the alleged loss due to slump in the coffee prices in the world market. Reamaton Ltd were not liable for the losses in the coffee business. Whatever loss that would be found after an account would only affect their profit. The Account is yet to be taken.

$\mathbf{1}$

$291$

In the result, judgement is entered in favour of Reamaton Ltd against Uganda Corporation Creameries Ltd and Henry Kawalya, jointly and severally, for the sum of US\$365,000 or its equivalent in local currency. Reamaton Ltd is entitled to an order for Account as prayed. I award interest at the rate of 25% on the decretal amount from date of filing the suit to date of judgement plus the costs of the suit. I make no award in respect of Henry Kawalya's claim for set-off as it was abandoned.

Before I take leave of the case, I would like to comment on some aspect of the case which, in my view, was not properly handled. $\mathbf{I}$ concerns the manner in which the claim concerning the guarantee was pleaded both in the plaint and in the written statement of defence.

It is trite law that the main function of pleadings is to ascertain with precision the matters on which the parties differ and the points on which they agree and thus to arrive at certain clear issues on which both parties desire a judicial decision. The proper use of pleadings shortens the hearing and reduces costs. Accordingly before the case comes for trial, it is highly desirable that the parties should know exactly what they are fighting about.

The fundamental rules of our system of pleading are these:

Order 6 r 1 "Every pleading shall contain, and contain only, a $(i)$ statement in concise form of the material facts on which the party pleading relies for this claim or defence, as the fare may be, but not the evidence by which they are to be proved........

Order 6 r 5 The defendant or the plaintiff, as the case may be, shall raise by his pleadings all matters which show that the action or $(ii)$ counter-claim not to be maintainable, or that the transaction is either void or voidable in point of law, and all such grounds of defence or reply, as the case may be, if not raised would be likely to take the opposite party by surprise, or would raise issues of fact not arising

# $292$

out of the preceding pleadings, as, for instance, fraud, limitation Act, release, payment, performance, or facts, showing illegality either by Statute or Common Law".

It is bad pleading to allege merely that a right or a duty or a liability exist; the facts must be set out which give rise to such a right, or create such a duty or liability.

In this case the 2nd defendant, Henry Kawalya, was sued on the grounds that he guaranteed the debt of the 1st defendant. The pleading look this form:

"The second defendant guaranteed that the 1st defendant shall at all times pay all such sums of money as shall be due to the plaintiff from time to time".

This is obviously a badly drafted claim. A "guarantee" is "a promise to answer for the debt of another". The word "Guarantee" is a legal label the law puts on the facts "a promise to answer for the debt of another". This pleading does not allege any promise by Henry Kawalya to answer for the debt of 1st defendant. All that it says is that Henry Kawalya will see that the 1st defendant pay all the moneys as and when they became due. The liability to pay rested on the 1st defendant. The 2nd defendant; never on the pleading, promised to be answerable for the debt of the 1st defendant.

A better way of pleading guarantee can take this form:-

| $\prime\prime$ (i) | On or about in 1994 the 2nd defendant agreed that<br>if the plaintiff would provide foreign money to the 1st<br>defendant by way of loans to pre-finance coffee he would<br>see that the plaintiff is paid therefor; | |--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | (ii) | On the faith of this guarantee, the plaintiff between 1st<br>January 1994 and 14th November 1994 provided a total<br>of: USDollars to the 1st defendant. | | (iii) | Neither the 1st defendant nor the 2nd defendant has paid<br>the same amount or any part thereof" $\frac{1}{2}$ | | | |

$20$

The defence was equally badly drafted. The answer to the claim upon the "Guarantee" is that there was no promise to answer for the debt of the 1st defendant. Alternatively there is no memorandum or note in writing signed by Henry Kawalya sufficient to satisfy the provision of S4 of the contract Act. This was the defence that was canvassed at the trial. That was not how the matter was pleaded in both the original and in the amended written statement of defence. In the original written statement of defence the matter was pleaded thus:

"5(e) the plaintiff's share of the profits from the transaction was. never guaranteed the 1st defendant's nor agreed upon".

Apart from the fact that the statutory defence relieu upon at the trial was not pleaded, the above defence is muddle, confused and meaningless.

The matter was not made better by the subsequent amendments. In the amended written statement of defence of 7/10/96 the defence took this form:

"5(e) the plaintiff's share of the profits were never guaranteed by 1st defendant nor were the 1st defendant, debts guaranteed by the 2nd defendant".

The first part is useless, because the 1st defendant cannot guarantee itself.

A proper defence upon the guarantee may take this form:

The 2nd defendant never-agreed as alleged. $"(i)$

There is no memorandum or note in writing of the alleged agreement sufficient to satisfy S4 of the Contract Act". . (ii)

IUDGE. 25.

n Byenky 9 21 det<br>nelfmn

$\mathbf{1}$

# 3=7^

#### THE REPUBLIC OF UGANDA

### IN THE HIGH COURT OF UGANDA AT KAMPALA

### CIVIL SUIT NO. 738 OF 1995

| REAMATON<br>LIMITED | ::<br>:: | PLAINTIFF | |---------------------|----------|-----------| | | | |

#### VERSUS

| 1. | UGANDA<br>CORP. CREAMERIES LTD | | | |----|--------------------------------|--|------------| | 2. | HENRY<br>KAWALYA | | DEFENDANTS |

#### decree

**THIS SUIT,** coming on this 29lh day ofJuly 1997 for Judgment in the presence of Ebert Byenkya, Esq., counsel for the Defendants:

#### **IT IS HEREBY ORDERED AND DECREED** that -

- (a) The First Defendant and the Plaintiff are not partners either under the *Partnership Act* (Cap. 86) or under any circumstances. - (b) The claim against the Second Defendant on a contract of guarantee cannot be sustained and is dismissed; but he is jointly and severally liable with the First Defendant for money transferred by the Plaintiffto both Defendants.

**IT IS FURTHER ORDERED AND DECREED** that judgment be and is hereby entered in favour ofthe Plaintiff against both Defendants, jointly and severally, for

- (a) US \$ 365,000 or its equivalent in local currency. - (b) An order for an Account ofthe Defendants' coffee export transactions from I^s June 1994 to establish the Plaintiff's share of 30% ofthe profits. - (c) Interest on the decretal sum judgment. at tire rate of 25% p.a. from the date of filing suit till the date of - (d) Costs oftire suit.

**GIVEN** under my hand and the Seal of Court this 29 day ofJuly 1997.

| | > | | |----------------------------|-------------------------------------------------|--| | | REGISTRAR<br>\<br>o' | | | | A/<br>RECEIVED<br>-3<br>W<br>2 7 MAR 1998<br>iA | | | rm<br>TVfi<br>V;<br>Leu-mi | r.<br>16tt' | |

WE APPROVE

COUNSEVFORTHE DEFENDANTS