[2025] UGCommC 170

# 5 **THE REPUBLIC OF UGANDA**

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

### **[COMMERCIAL DIVISION]**

### **MISCELLANEOUS CAUSE NO. 54 OF 2024**

| 10 | 1.<br>WORLDEMICHEAL SISAY BEKURE | ] | APPLICANTS | |----|------------------------------------------|--------|-------------| | | 2.<br>AYALEW TIGIST MELKAMU | ] | | | | | VERSUS | | | 15 | 1.<br>KALPANA ABE | ] | | | | 2.<br>DEBRA MARIE HAYAMA | ] | RESPONDENTS | | | 3.<br>MUGARURA OTAFIIRE FIDEL | ] | | | | 4.<br>EPHRATA INVESTMENTS GROUP LIMITED] | | |

20 **Before: Hon. Justice Thomas Ocaya O. R**

### **RULING**

### **Introduction**

- 25 The Applicants brought this application by way of Chamber Summons under Section 6(1) and 9 of the Arbitration and Conciliation Act ["ACA"], Rule 13 of the Arbitration Rules and Section 98 of the Civil Procedure Act. The Application seeks the following orders: - (a) An interim measure of protection by way of a temporary injunction pending arbitration doth issue against the Respondents, their agents, servants, employees, 30 assignees or anyone else claiming or deriving authority from them, restraining them from removing the Applicants as directors and shareholders of the 4th Respondent until the adjudication and conclusion of arbitration proceedings and all proceedings therefrom are heard and disposed of (sic). - (b) An interim measure of protection by way of temporary injunction pending arbitration 35 doth issue against the Respondents, their agents, servants, employees, assignees or anyone else claiming or deriving authority from them, restraining them from


- 5 transacting company business on any accounts other than those to which the Applicants are signatories until adjudication and conclusion of arbitral proceedings and all proceedings therefrom are heard and disposed of. - (c) An interim measure of protection by way of temporary injunction pending arbitration doth issue against the Respondents, their agents, servants, employees, assignees or 10 anyone else claiming or deriving authority from them, restraining them from doing business and trading under "Black zones recreation club" and directing and compelling the Respondents to instead trade under the maiden and well established brand name of "Hideout Bar and Lounge" until adjudication and conclusion of arbitration proceedings and all proceedings therefrom are heard and disposed of. - 15 (d) An interim measure of protection by way of a temporary injunction pending arbitration doth issue against the 3rd Respondent, restraining him from acting as Company Secretary or as an Officer of the 4th Respondent or in any other capacity until adjudication and conclusion of arbitration proceedings and all proceedings therefrom are heard and disposed of. - 20 (e) Costs of this application be provided for.

# Background

According to the Applicants, the facts leading to the present application are as below. The 4th Respondent [hereinafter "EIGL"] was incorporated by the Applicants as the initial 25 subscribers and directors on 24 June 2013 with the primary objective of carrying on business in the hospitality and entertainment industry. Following its registration, the Applicants commenced a business trading under the brand name "Hideout Bar and Lounge". Under the Applicants' capable leadership, the business grew into one of the most successful and trending entertainment ventures in the Kampala metropolitan area and over the years, the

30 business garnered tremendous goodwill and reputation among its patrons, with over 1,200 positive reviews online.

EIGL's business was affected by the COVID-19 pandemic forcing the Applicants to innovate around the restrictions in order to revive the business. It was then that the 1st Applicant

35 conceived the idea of expanding EIGL's service offerings to include a bowling and gaming

- 5 recreational centre and a fully-fledged bowling alley. The 1st Applicant formulated an investment proposal as the above changes required an infusion of capital and as a result shared the proposal with various prospective investors including the 1st and 2nd Respondent. The 1st and 2nd Respondent purchased a 50% stake in EIGL and were appointed directors with the intention of jointly managing EIGL's business. - 10

To the Applicant's shock, the 1st and 2nd Respondents in cahoots with the 3rd Respondent, who was recently appointed company secretary without the Applicant's knowledge and consent, the 1st and 2nd Respondents in breach of trust, orchestrated a hostile takeover of the company and effectively alienated the Applicants from the activities and operations of the 15 business.

In particular, the Applicants allege that the 1st-3rd Respondents have:

- (a) Executed a hostile takeover of the 4th Respondent and locked the Applicants out of any EIGL meetings. - 20 (b) Diverted the business income of EIGL to unknown accounts only accessible to the 1st and 2nd Respondents with no accountability whatsoever to the Applicants. - (c) Changed the business name of the 3rd Respondent from Hideout Bar and Lounge to Blackzone Recreation Club - (d) Failed to remit rent to the Landlord with the result that the business has been served 25 an eviction notice and closed down. - (e) Refused to allow the Applicants to be represented by their duly appointed proxies in EIGL meetings. - (f) Appointed the 3rd Respondent as Company Secretary without the Applicants' knowledge and consent. - 30 (g) Called for meetings to remove the Applicants as directors of EIGL in order to completely alienate them from EIGL's business.

# Respondents' Case

The Respondents contended that the arbitration clause relied on by the Applicants is 35 inoperative and accordingly that this application should be dismissed with costs.

- The Respondents contend that the Applicants approached the 1st 5 and 2nd Respondent in early 2023 to partner and provide financing for a new business venture which would comprise a modern bowling, gaming and recreation Centre. The Applicants intimated to them that they would be able to utilize the premises comprised on Plot 3A Lugogo Bypass Road for the new venture as it previously housed their bar and restaurant business named "Hideout Bar and - 10 Lounge".

The Applicants' business proposal seemed feasible and on that basis, the 1st and 2nd Respondents invested over USD 200,000 in the 4th Respondent by way of shareholder loans to cater for the costs of purchase of the equipment for the proposed business, payment of 15 rent on the lease for the business premises, salary expenses, taxes and other antecedent business costs. In exchange for the capital investment, the 1st and 2nd Respondents obtained a 50% stake in EIGL and were appointed directors on 24 April 2023.

Later, the 2nd Respondent discovered a number of issues which were not disclosed in the pre-investment negotiations before the 1st 20 and 2nd Respondents were on boarded including that the 4th Respondent had significant debts with its landlord, former employees and contractors, it had reputational issues, unpaid taxes and penalties there on and undisclosed court cases.

- 25 Additionally, the 4th Respondent company had no records and the 2nd Applicant, as company secretary was unconcerned about proper record keeping, proper governance procedures for the board of directors and accountability to the directors and shareholders, which prompted several proposals from the 1st and 2nd Respondents aimed at streamlining the operations of the 4th Respondent. - 30

The Board of directors of the 4th Respondent distributed various roles to the different directors to ensure the smooth running of the company. The 2nd Applicant as placed in charge of the finances as she was a signatory to the company's Equity Bank Account ["Equity"] and the 1st Applicant was placed in charge of operations for which he was tasked with travelling

35 to China to procure the games for the company and various other items which the company would need in its operations. Additionally, the 1st Applicant negotiated the lease with the


5 landlord for the premises and received the rent for the first three years of the lease from the 4th Respondent for onward transmission to the landlord of the premises.

At the time the 1st and 2nd Respondents were appointed directors, the company operated a bank account with Equity in respect of which the Applicants were signatories but the

- 10 Applicants were not transparent with the company's finances and deliberately refused to provide accountability in the following ways; - (1) Refusal by the 1st Applicant to provide receipts for the items that had been purchased from China for the business. - (2) False declarations of the cost of the merchandise purchased from China to other 15 directors. - (3) Unauthorized transfer by the 2nd Applicant of money from the Company's Equity account to the personal account of the 1st Applicant. - (4) Refusal to share account statements for the 4th Applicant's Equity account - (5) The 1st Applicant failure to remit the rent for 3 years to the landlord subsequently - 20 causing the company's eviction from the premises on 20 May 2024.

Additionally, the 1st Applicant also started removing items such as the generator, oven and other business items from the 4th Respondent's premises for use in his other business, Circuit Bar and Lounge and accordingly, the Applicants' claim that the Respondents have been 25 abusive towards them is based on the Respondents reprimanding them for effectively stealing company property.

To streamline the business and provide greater accountability of the said funds, the 1st and 2nd Respondents proposed during a board meeting held on 10 October 2023 that the 30 company opens a new bank account with Stanbic Bank ["Stanbic"] with the 1st Applicant and 1st Respondent as signatories to the account. The said board meeting was attended by both Applicants and signed by the 1st Applicant and 1st Respondent. It is therefore untrue that the Respondents are operating any bank accounts that are unknown to the Applicants as the 1st Applicant is a signatory to the Stanbic account.

- 5 Regarding the change of name, the Respondents contended that the Applicants had for many years operated a bar and restaurant under the name "Hideout Bar and Lounge" but the same was closed in 2022 by the National Environment Management Authority ["NEMA"] because it had become a nuisance to the residents of the surrounding areas and had failed to adhere to the noise emission standards set by NEMA. "Hideout Bar and Lounge" had no good will or - 10 positive reputation in the community as the same was associated with loud noise, nuisance, drinking, immoral activities and it did not reflect the family values that the new business wanted to represent and thus the decision to change the business name was made by the directors in the best interests of the business to present the new venture as a family friendly Entertainment Centre. The decision to change the said business name was taken during the - 15 board meeting of 10 November 2023 which the Applicants deliberately refused to attend yet they were notified of the same. The Respondents contended that an order directing reversion to the old business name would not be in the best interests of the company and would destroy the good will that was previously generated under the name Blackzone Recreation Hub. - 20

The Respondents contend that the order sought to restrain the removal of the Applicants as shareholders is misleading as the Applicants cannot have the same removed except by order of court. Even though removed as directors, the Applicants retain all powers and rights in the company as shareholders and shall be free to participate in its affairs as they so wish. 25 Additionally, the Applicants as directors in the company have a duty to attend board meetings and have not attended several board meetings since December 2023 despite being invited. It is contended that the Applicants further neglected to provide accountability for any of the funds disbursed to the company's Equity account and the other shareholders of the 4th Respondent therefore requisitioned for a meeting to give the Applicants an 30 opportunity to explain their actions before they were removed as directors.

Owing to the negligence fraud, and deceit of the Applicants, the landlord issued a demand for rent outstanding of USD 140,000 which has been in arrears since 2020 when the Applicants were still operating Hideout Bar and Lounge and the same was never revealed to the 1st and

35 2nd Respondent at the time of becoming directors. Additionally, the landlord denied the


- 5 second lease agreement signed by the 1st Applicant on behalf of the 4th Respondent and stated that it was a forgery. The landlord proceeded to terminate the lease with the 4th Respondent and denied the Respondents access to the premises on the basis of the outstanding rent. The 4th Respondent wrote to the Applicants to substantiate the claim for rental arrears from the landlord but have declined to do so at the detriment of the 4th - 10 Respondent whose operations have stalled due to the closure by the landlord.

The Respondents contend that the case for arbitration has no chance of success as the Applicants have brought it in bad faith to restrain the board meeting from happening which is intended to seek accountability from the Applicants for their actions and wrongs to the 4th

- 15 Respondent. It is further contended that the Applicants have been uninterested and uninvolved in the running of the company for the last seven months despite several invitations to them to participate in its affairs and in board meetings. They therefore chose to alienate themselves from the company and would suffer no harm if the status quo is maintained. - 20

The 1st, 3rd and 4th Respondents contend that the status quo has not changed for the last nine months and there will be no prejudice occasioned to the Applicants if the application is allowed. Accordingly, the balance of convenience lies in favour of the Respondents as changing the business name, halting the operations of the board, altering the company's bank 25 accounts and suddenly changing the company secretary will adversely affect the operations

of the 4th Respondent and destroy its business.

The 3rd Respondent opposed the present cause. He contended that he was appointed as the acting company secretary of the 4th Respondent on 2 October 2024 and immediately started

30 participating in board meetings of the 4th Respondent and providing legal assistance to the 4th Respondent. That the previous company secretary, the 2nd Applicant did not perform any of the roles of a company secretary and this created management challenges as there were no proper records, accounts or requisite procedures and processes to allow the proper running of the company.

- 5 The 3rd Applicant contends that he was later on appointed substantively as company secretary at a meeting held on 10 October 2023 which was attended by all the board members. The decision to appoint the 3rd Respondent was unanimous. On the same day, the 1st Applicant signed a resolution to open the company Stanbic account and accordingly, it is untrue that the Applicants had no knowledge of the 3rd Respondent's appointment or that it - 10 was without their consent.

Following the 3rd Respondent's appointment, filing of the resolution and Company Form 20 was delayed as the Applicants willfully refused to hand over the password to the company OBRS account. The Applicants have been asked by the 1st and 2nd Respondents on several 15 occasions to provide receipts and accountability for the items purchased in China and for the money transferred to them on the company's Equity account. Ever since the 1st and 2nd Respondents started requesting for accountability, the Applicants have declined to attend any board meetings and resorted to sending proxies to disrupt the progress of the meetings.

Additionally, the Applicants have also put the business and operations of the 4th Respondent 20 in jeopardy through the undisclosed debts and non-participation in the affairs of the company thereby forcing the shareholders to requisition for a meeting and demand accountability.

The 3rd Respondent contends that the risk posed by him continuing to act as a company 25 secretary (there appears to be a mistaken reference to director and not secretary in the pleadings) is not irreparable harm and any harm suffered by the Applicants cannot be atoned for in damages, and additionally, the balance of convenience favours the 3rd Respondent staying on as company secretary since the same role cannot be left vacant.

# 30 **Representation**

The Applicants were represented by M/s TARA Advocates. The Respondents were represented by M/s MMAKS Advocates.

# 5 **Evidence and Submissions**

The Applicants led evidence by way of an affidavit in support deponed by the 2nd Applicant. The Respondents led evidence by way of affidavits in reply deponed by the 1st and 2nd Respondent. The 3rd Respondent led evidence by way of an affidavit in reply deponed by himself.

All parties made submissions, including submissions in rejoinder made by the Applicants. For purposes of brevity, this court does not find it necessary to reiterate here the contents of the parties' submission, suffice to say that this court considered the same before arriving at the decision below.

### 15

# **Decision**

# **Section 6** of the ACA provides thus:

"6. Interim measures by the court

(1) A party to an arbitration agreement may apply to the court, before or during 20 arbitral proceedings, for an interim measure of protection, and the court may grant that measure.

(2) Where a party applies to the court for an injunction or other interim order and the arbitral tribunal has already ruled on any matter relevant to the application, the court shall treat the ruling or any finding of fact made in the course of the ruling as 25 conclusive for the purposes of the application."

# See **Vantange Mezzanine Fund II Partnership & Ors v Commissioner Land Registration HCMA 2484/2023**

The jurisdiction exercised by the court under section 6 of *The Arbitration and Conciliation* 30 *Act* is ancillary to the process of arbitration. While the subject matter jurisdiction rests with the chosen arbitrator, that of this court is invoked only in aid of, or supplementary to, the process of arbitration for the purpose of: (i) procuring or preserving evidence; (ii) facilitating the proceedings as the justice of the case might require; (iii) restraining the assertion of doubtful rights; (iii) providing for the safety of property either pending 35 arbitration or when it is in the hands of accounting parties or limited owners; (iv) where the 5 efficacy or integrity of the arbitral proceedings is in jeopardy; (v) enforcing awards obtained, and so on.

As a matter of fact, arbitration proceedings witness diverse applications that mainly seek conservatory and protective orders in respect of the subject matter of arbitration. 10 Essentially, these applications address the needs of the parties for immediate and temporary protection of rights and property pending a decision on the merits by the arbitration tribunal. Invariably, the orders seek to protect and/or conserve the subject matter of the arbitration from dissipation. In other instances, for instance in an application for orders of security of costs, the aim is ensuring the rights granted at conclusion of the arbitration via

- 15 the arbitral award are not nugatory, i.e., unenforceable. The application for such interim reliefs may be before the arbitral tribunal or the court where the tribunal is yet to convene or be constituted. See **Great Lakes Company NV v MSS Xsabo Power Limited & Ors HCMC 17/2021** - 20 An Interim Measure of Protection is an order granted by a court or arbitral tribunal, before commencement of, or during the course of, proceedings, against a party to the proceedings, or against a third party, requiring it to do, or refrain from doing, something, usually on a temporary basis. It is any temporary measure, whether in the form of a ruling, order or in another form, by which, at any time prior to the issuance of the award by which the dispute - 25 is finally decided, the arbitral tribunal orders a party to: (a) maintain or restore the *status quo* pending determination of the dispute; (b) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to any party or to the arbitral process itself; (c) provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) preserve evidence that may be relevant and 30 material to the resolution of the dispute.

See **Capt**. **Joseph Roy v D & D International Limited HCMA 283/2018, Guangdong Hao He Engineering & Construction Company v Britam Insurance Co. Ltd & Anor HCMC 37/2020**

- 5 They are procedural mechanisms used by courts and arbitral tribunals to address urgent matters generally at an early stage of the proceedings, but also at later stages, mainly with a view to protecting the subject matter of the dispute. Conservative and protective measures preserve and enhance the likelihood of future fruitful enforcement, pending a decision on the merits. Measures of provisional regulation ensure the continued safeguarding of rights - 10 during the proceedings, while anticipatory measures help to reduce the often too lengthy a gap between timely performance and coercive enforcement of an executory decision. Evidence measures often prove crucial to securing one party's chances of success on the merits. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant any of the said interim measures. - 15

The availability of effective interim relief proceedings is vital to the arbitral process. Interim relief in arbitration is thus one of the main interfaces between state courts and arbitral tribunals. Sections 6 (1) and 17 (1) and (3) of *The Arbitration and Conciliation Act* create concurrent jurisdiction between the Court and an arbitral tribunal with regard to interim

- 20 measure of protection. Under those provision, a party to an arbitration agreement may apply to the court, before or during arbitral proceedings, for an Interim Measure of Protection, and the court may grant that measure. This shared power is an exception to the general rule that where there is a valid arbitration agreement, the arbitrators have exclusive jurisdiction to hear the parties' disputes and award relief. This exception to the exclusive jurisdiction of the - 25 arbitrators is justified by the fact that, as a practical matter, arbitrators in some cases will not be able to issue effective interim measures of relief, for example, where the parties require relief before the tribunal is constituted. Parties to an arbitration agreement in need of immediate protection are free to seek interim relief either from the arbitral tribunal or from a competent court. - 30

In determining applications of this nature, the court considers whether (1) there is a serious question to be arbitrated in which the applicant has a good chance of success, (2) whether there is an imminent risk of irreparable harm and (3) if the balance of convenience favours grant of the reliefs sought. See **Vantange Mezzanine Fund II Partnership & Ors v**

# 5 **Commissioner Land Registration HCMA 2484/2023, Tomas Welditinase v Magdalene Bekunda & Anor HCMC 9/2024**

The Applicant seek various injunctive orders pending the determination of arbitration proceedings.

An Injunction is an equitable remedy in the form of a court order whereby a party is required to refrain from doing such acts as the court will direct. See **Garuga Musinguzi v Dr Chris Baryomunsi & Anor HCMA 817/2016**

15 There is no right to an injunction. An injunction is a judicial discretion which the court will grant or decline on the justice of a case. See Section **35 Judicature Act, Order 41 CPR, Alley Route v UDB HCMA 634/2006**

Ordinarily, in determining whether to grant an injunction, the court will consider the 20 following factors;

- 1) A prima facie case with a probability of success - 2) That if the order is not granted they will suffer irreparable harm - 3) If court is in doubt, the applicant must show that the balance of convenience is with them.

### See **Giella v Gasman Brown 1973 EA 358.**

Considering that this is an application for Interim Protective Orders under Section 6 of the ACA, the court is cognizant that the above considerations must be read side by side with the provision of Section 6 which provide, inter alia, for relief before commencement of arbitration proceedings.

A temporary mandatory injunction is not a remedy that is easily granted. It is an order that is ordinarily passed in circumstances which are clear and the prima facie materials clearly justify a finding that the status quo has been altered by one of the parties to the litigation and the interests of justice demand that the status quo ante be restored by way of a temporary

35 mandatory injunction. In circumstances of that nature, the essential condition is that the party claiming it must be shown to have been in possession on the date of the order directing

- 5 the parties to maintain the status quo and it must be further to shown that the party was dispossessed when the order was impending or after such an order was passed. It may also be granted where the respondent attempts to forestall an interim or temporary injunction, such as where, on receipt of notice that an interim or temporary injunction is about to be applied for, the Respondent hurries on the work in respect of which complaint is made so - 10 that when he or she receives notice of an interim or temporary injunction it is completed. Court should be careful though not to grant an injunction that will have the effect of virtually deciding the suit without a trial see **Cayne v. Global Natural Resources PLC [1984] I All ER 225, American Cyanamid Co v. Ethicon Ltd [1975] AC 396 at page 408, Rashidi Abdul Hanali & Anor v Suleiman Adrisi HCMA 11/2017** - 15

In cases such as this where a mandatory injunction is prayed, it must be recalled that grant of an interlocutory mandatory injunction is in the discretion of the Court, taking into consideration the facts and circumstances of a particular case and more specifically the extent of injury or inconvenience caused to the applicant by the conduct of the respondent 20 and the extent of injury or hardship that will be caused to the respondent by the grant. It is always open to the Court to grant an alternative remedy such as security for costs or damages instead of a mandatory interlocutory injunction. The question for consideration is, whether it also applies to cases of this nature, whether on principle or of any authority.

25 In **Nottingham Building Society v. Eurodynamics Systems plc, [1993] FSR 46**8, Chadwick J laid down tests for the granting of mandatory interlocutory injunctions, thus;

"In my view the principles to be applied are these. First, this being an interlocutory matter, the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be 'wrong'........ Secondly, in 30 considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo. Thirdly, it is legitimate, where a mandatory injunction 35 is sought, to consider whether the court does feel a high degree of assurance that


5 the plaintiff will be able to establish his right at a trial. That is because the greater the degree of assurance the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted. But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a 10 mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if this injunction is refused sufficiently outweigh the risk of injustice if it is granted."

The other factor that is relevant is the extent to which the determination of the application 15 at an interlocutory stage will amount to a final determination of the rights and obligations of the parties. That point was addressed in **NWL Limited v. Woods [1979] WLR 1294**. Lord Diplock said there that cases where the grant or refusal of an injunction at the interlocutory stage would, in effect, dispose of the action finally in favour of whichever party was successful in the application, were exceptional "but when they do occur they bring into the 20 balance of convenience an important additional element." He concluded:

- "Where, however, the grant or refusal of the interlocutory injunction will have the practical effect of putting an end to the action because the harm which will have been already caused to the losing party by its grant or its refusal is complete and of a kind for which money cannot constitute any worthwhile recompense, 25 the degree of likelihood that the plaintiff would have succeeded in establishing his right to an injunction if the action had gone to trial, is a factor to be brought into the balance by the judge in weighing the risks that injustice may result from his deciding the application one way rather than the other." - 30 Court is also required to demand a heightened level of proof. In **Morris v. Redland Bricks Ltd, [1970] AC 652, [1969] 2 WLR 1437, [1969] 2 All ER 576**, Lord Upjohn held that the requirement of proof is greater for a party seeking a quia timet injunction than otherwise. He said: "A mandatory injunction can only be granted where the plaintiff shows a very strong probability upon the facts that grave danger will accrue to him in the future." As Lord - 35 Dunedin said in 1919 it is not sufficient to say "timeo" See Attorney-General for the Dominion


5 of **Canada v. Ritchie Contracting and Supply Co Ltd [1919] AC 999**). "It is a jurisdiction to be exercised sparingly and with caution but in the proper case unhesitatingly" and that "[T]he court must be careful to see that the defendant knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact, so that in carrying out an order he can give his contractors the proper instructions." The applicant must therefore not

10 only aver but must also prove that what is going on is calculated to infringe his or her rights.

Bearing those principles in mind, it is necessary to determine whether in the case at hand, the court is justified in granting this remedy. Mandatory injunctions are ordinarily remedies in finality. The question before this court is whether in strictness a mandatory injunction can 15 properly be made on interlocutory applications. In our case, under Order 41 of The Civil Procedure Rules, it will be observed that the issue of injunctions upon interlocutory applications is confined to temporary injunctions of a restrictive character. At the same time, I take cognizance of what the accepted practice of the Courts and principles are, according to the reported cases. It would appear that if a mandatory injunction is granted at all on an 20 interlocutory application, it is granted only to restore the status quo and not granted to establish a new state of things, differing from the state which existed at the date when the

suit was instituted. See **Rashidi Abdul Hanali & Anor v Suleiman Adrisi HCMA 11/2017**

Nevertheless, injunctions are a form of equitable relief and they have to be adjusted in aid of 25 equity and justice to suit the facts of each particular case. Although the Civil Procedure Rules are silent on this type of temporary injunctions, and the court practice has tended to restrict them only to situations requiring restoration of the status quo but not to establish a new state of things, the rules generated by practice are neither exhaustive, complete nor absolute, and there may be exceptional circumstances needing action. No Court therefore ought to lay

30 down absolute propositions that temporary injunctions can only assume a restrictive character when such is not necessary and thereby forge fetters for itself. Where appropriate, the Court may resort to its inherent jurisdiction to grant an interlocutory mandatory injunction. However, because of the potential for practically prejudging the suit, and there may be other practical inconveniences of a lesser degree, it is clear that the discretion to

# 5 grant it must be exercised with great caution. See **Rashidi Abdul Hanali & Anor v Suleiman Adrisi HCMA 11/2017**

The grant of temporary mandatory injunctions is at the discretion of the Court and taking into account the facts and circumstances of a particular case, more specifically any delay or

- 10 laches on the part of the applicant, the extent of injury or inconvenience caused or posed to the applicant by the conduct of the respondent and the extent of injury or hardship that will be caused to the respondent by the grant, it is always open to the Court to grant the interlocutory mandatory injunction or alternative relief instead. The purpose of such an injunction is to improve the chances of the court being able to do justice after a - 15 determination of the merits at the trial. At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result at the end of the trial. If there is a serious issue to be tried and the applicant could be prejudiced by the acts or omissions of the respondent pending trial and the crossundertaking in damages would provide the respondent with an adequate remedy if it turns - 20 out that his or her freedom of action should not have been restrained, then an injunction should ordinarily be granted see **National Commercial Bank Jamaica Ltd v. Olint Corp Ltd (Jamaica) [2009] 1 WLR 1405,**

In **AMEC Group Ltd v. Universal Steels (Scotland) Ltd, [2009] EWHC 560 (TCC); BLR 357**

- 25 **(TCC); 124 Con LR 102, [2009] All ER (D) 305**, the claimant sought an interlocutory mandatory injunction requiring the respondent to deliver up quality assurance documentation, as there was a serious issue to be tried as to whether there was a binding agreement between the parties with regard to conditions to be fulfilled before the documents were released. The Respondent objected to the prayer arguing that if the 30 documentation was handed over to the applicant, the court would have decided the case. Among other factors, the court considered the serious financial loss likely to be caused to the applicant in consequence of delay in delivery the quality assurance documentation, as well as the fact that the respondent was an extremely modest company without any significant assets such that it would be wholly unable to meet any sort of significant judgment ordered - 35 against it yet damages would be an adequate remedy for the respondent if the temporary


5 mandatory injunction order was granted and it subsequently transpired that it should not have been granted. The court thereby overruled the respondent's objections and granted the interlocutory mandatory injunction.

The basic principle is that the court should take whichever course seems likely to cause the 10 least irremediable prejudice to one party or the other. This is an assessment in which, as **Lord Diplock said in American Cyanamid Co v. Ethicon Ltd [1975] AC 396 at page 408**.

Having reviewed the principles/rules applicable to applications of this nature, the court must now consider each of the elements to be made out before the reliefs sought can be 15 granted.

#### Whether there is a serious question to be arbitrated

Counsel for the Respondents contended that the said agreement was inoperative because whereas the same was contained in the articles of the company, the present dispute relates 20 to a dispute arising from the actions of the parties as directors and is therefore foreign to the arbitration clause contained in the articles, which is in essence a contract between shareholders and not directors.

**Article 51** of the articles of association of the 4th Respondent reads as below:

25 "If and whenever any difficulty shall arise between the company and any of the members or their respective representatives touching the construction of any of the articles herein contained or any act or thing made or done or to be made or done, or omitted or in regard to the rights and liabilities arising hereunder, or arising out the relation existing between the parties by reason of these present (sic) or of the act such 30 differences shall forthwith be referred to two arbitrators appointed by each party in difference or any umpire to be chosen by the arbitrators."

Because arbitration is a contractual mode of dispute resolution, the dispute must be within the scope of the arbitration clause for it to be arbitrable. Save for references to arbitration

35 by court, a court cannot compel parties to arbitrate over a dispute which they did not


# 5 contractually agree to do so. See **Francis Byaruhanga v Sari Consulting Limited HCMA 740/2023**

I note that clauses 39-46 of the articles provide for the appointment of directors and secretaries. I also note that, in accordance with clause 1 of the said articles, the provisions

10 regarding the duties and obligations of directors are not excluded and are therefore deemed included in the said memarts.

It follows, in my view, that allegations regarding mismanagement of company resources and breach of director obligations would be arbitrable per se on the reading of Clause 51 of the 15 articles of the company.

An interesting question would then arise; would the directors, not being members be bound by the provisions of the articles. First, the question is moot in this case since the 1st and 2nd Applicants are members and are therefore bound by the articles contractually since on

20 incorporation, a statutory contract is created. See **Section 21 of the Companies Act, Noble Builders Uganda Limited v Balwinder Kaur Sandhu CACA 7/2009**

However, since the appointment of directors is premised on and effected under the articles of association, it would follow that as part of their contract of service, the said arbitration 25 clause would be included, or at the very least be an implied term. Accordingly, it would have been immaterial if the said directors were not members and therefore signatories of the articles of association.

In **Fiona Trust v Privalov [2015] EWHC 527 (Comm**) the court held that arbitration 30 clauses should be construed liberally and presumptively to cover all disputes arising out of the commercial relationship between the parties, unless there is clear language to exclude certain matters. See also **Francis Byaruhanga v Sari Consulting Limited HCMA 740/2023, Attorney General v Networth Consults Limited HCMA 1830/2022, Nile Breweries Limited v Lugogo Events and Entertainment Ltd HCMA 1497/2022**

5 I have not found anything that suggests that the parties intended to confine only shareholder disputes to arbitration, such that all other disputes would be excluded from arbitration and pursued by other means of dispute resolution.

I therefore find that the arbitration clause is valid and enforceable.

# *Is there a serious question to be arbitrated?*

In my considered view, a serious question to be arbitrated arises when an allegation raised by a party, prima facie warrants adjudication. I note that no notice of arbitration or request of arbitration is attached. The parties have also not filed any statements of

15 claim/memoranda in respect of any proceedings.

Whereas it is good practice to attach these pre-action documents, at least in draft form, to an application such as the present one to enable the court assess if there are serious questions to be tried, failure to attach the same is not fatal. In the present circumstances, court has been

- 20 able to identify the contentions/disputes between the parties from the pleadings and evidence herein and these include; - (a) Allegations of a forced takeover of the 4th Respondent by the 1st and 2nd Applicants. - (b) Allegations of exclusion of the Applicants from the business of the 4th Respondent. - (c) Allegations of unauthorized decision making by the 1st to 3rd Applicants including (a) - 25 change of the business name of the 4th Respondent, change of company accounts of the 4th Respondent and so on.

In my view, the above warrant adjudication and accordingly, I find that there is a serious question to be tried.

## Is there imminent risk of irreparable loss?

In the case of **Proline Soccer Academy v Commissioner Land Registration HCMA 494 of 2018**, the court defined irreparable damage in the following way;

"By irreparable injury it does not mean that there must not be physical possibility of 35 repairing the injury, but it means that the injury or damage must be substantial or material one, that is one that cannot be adequately atoned for by way of damages."

- The Applicants impugn four actions namely (a) the change of the business name of the 4th 5 Respondent, (b) the change of the company secretary of the 4th Respondent, (c) the change of the company account of the 4th Respondent and (d) the intended removal of the Applicants as directors of the 4th Respondent. - 10 Regarding the change of company account of the 4th Respondent from the Equity account to the Stanbic account, the Respondents led uncontested evidence by way of a resolution (Annexure 'D') to the affidavits of the 1st Respondent and 2nd Respondent that the change of the said account was at a board meeting on 10 October 2023 attended by the Applicants and the 1st and 2nd Respondents and the same was a board decision which resulted into a board - 15 resolution signed the 1st Applicant and the 1st Respondent and registered with the Registrar Of Companies on 22 October 2023. I cannot then see how the Applicants can be possibly irreparably harmed by a decision of the board which they attended and contributed to, and in respect of which, a resolution has been passed, signed by the 1st Applicant, registered and put in force. Additionally, I cannot see the prejudice caused by a company using one account - 20 and not the other, especially where the Applicants know of the account (having attended the meeting where it creation and use was approved) and where the 1st Applicant is a signatory thereto.

Regarding the change of business name, uncontested evidence was led that the decision was 25 taken at a board meeting on 10 November 2023 where the Applicants were invited but did not attend. It follows that, since at least 10 November 2023, the 4th Respondent's business has been known as "Blackzone Recreation Club". Uncontested evidence was led by the 4th Respondents that the previous business name "Hideout Bar and Lounge" had lost good will and that the business name "Blackzone Recreation Club" has developed goodwill. Without

- 30 determining the lawfulness or appropriateness of this change, which will be for the arbitral panel to determine, the evidence that was present, prima facie, shows that it would not be in the interests of justice to order the reversion to the old business name of the 4th Respondent since, (a) the said business name has always been in over well over a year now, (b) has developed good will and (c) the previous business name sought to be regarded had lost good - 35 will.

- 5 It must be recalled that good will in a business name is an item of intangible property of the company and orders which destroy or otherwise undermine such good will have the effect of destroying the proprietary value in such a name and should be issued in the most exceptional of circumstances. In the present case, I do not see a basis for the grant of an order requiring the 4th Respondent to revert back to its old business name. - 10

Regarding the appointment of the 3rd Respondent, the Applicants contend that the 3rd Respondent was appointed by the 1st and 2nd Respondents without their knowledge, consent and participation. Reference is made to annexure "F" of the affidavit in support which is a search report on the 4th Respondent from URSB that shows that the 3rd Respondent is the 15 Company Secretary of the 4th Respondent. Additionally, reference is made to Annexure "G" which is a resolution of the board meeting held on 10 October 2023 wherein the 2nd Applicant was replaced by the 3rd Respondent as company secretary and a new Company Form 20 filed on the same date (Annexure G).

- I note that there is another resolution, Annexure D to the affidavits of the 1st 20 and 2nd Respondent referencing a board meeting on the same date, 10 October 2023 whereat authorization was given to open a company account with Stanbic. I note that in that resolution, which is signed by the 1st Applicant, the 3rd Respondent is nominated as an alternate signatory to the intended account(s) and described as company secretary. 25 Therefore, on the face of the pleadings and evidence herein, and without determining the question as to the lawfulness or otherwise of the appointment of the 3rd Respondent which shall be for the arbitral panel, the court notes that, prima facie, the 3rd Respondent was appointed with the knowledge and participation of the Applicants and therefore I cannot see how the Applicants can claim they will be irreparably harmed by his service as company - 30 secretary. Further, the 3rd Respondent led unchallenged evidence that he was initially appointed as company secretary on the 2 October 2023 (the reference to 2024 appears mistaken) without any protestations by the Applicants. Additionally, I cannot see how, without more, the service of a person as company secretary can constitute irreparable harm.

- 5 It is a long-standing principle of law that the court will be reluctant to interfere in the affairs of the company or review/reverse a company's decisions except in clearly provided for situations, such as in derivative actions or actions for oppression. Additionally, courts will not second guess decisions of the company lawfully taken by appropriate institutions of the company, such as the board or members meeting. This is because companies are typically - 10 organized in such a manner that the parties with the most financial risk hold higher decision making power than others. Were court to interference in decision making without restraint, it could be used as a vehicle by minorities to direct the affairs of the company in a manner that they would not have otherwise had were the matters to be confined to decisions of the company's institutions. Additionally, and in the context of directorship decisions, the - 15 directors of a company will take decisions that take into account various factors for which the court is ill equipped to interfere. Therefore, in matters of a company, the memoranda and articles are supreme and the court will hesitate to interfere with any decision taken by a company in accordance with the same. See **Client Earth v Shell PLC & Ors [2023] EWHC 1137 (Ch), MacDougall v Gardiner (1875) 1 ChD 13 (CA) and Howard Smith Ltd v** 20 **Ampol Petroleum Ltd [1974] AC 821 (CA)**

Accordingly, I find that irreparable harm occasioned by the continued service of the 3rd Respondent has not been made out.

- 25 Regarding the intended removal of the Applicants as directors, I take note of Annexure H to the affidavit in support which appears to be an email from the 3rd Respondent to all directors and shareholders of the 3rd Respondent. The same is titled as a special notice of the intention to remove the 1st and 2nd Applicants as directors in accordance with Section 149 and 195(4) of the Companies Act. The Respondents did not assert that this notice was not issued or that - 30 no processes have been commenced to remove the Applicants as directors. Instead, the Respondents contended that inspite of the removal, the Applicants will still be in position to oversee the operations of the 4th Respondent as members and be entitled to dividends. I note that per Annexure "G", the Applicants have not yet been removed as directors.

- 5 In my view, the removal of the Applicants would irreparably harm them as it would prevent them from exercising management control and being involved in the day to day affairs of the 4th Respondent, a company which they incorporated and ran, and in respect of whose revamp they spearheaded under the so called "Project Red Sea" (See Annexure "E']. Whereas the Respondents contended that the Applicants would still be involved as members, there is - 10 a fundamental difference between the roles of members in a company and that of directors; members have largely three rights

Information rights: rights to obtain information and records regarding the operations of the company.

Participation rights: rights to participate in and vote at meetings of the company. Ownership rights: rights that ascribe to their status as shareholders including the right to dividends or other such payments.

- 20 This is fundamentally different from the role of directors who are charged with the duty of overseeing the day to day running of the company, regulatory and other compliance, and reporting to the members. Whereas the role of directors is to manage the business of the company, the role of shareholders is essentially to supervise the board and make decisions or give approvals reserved for them. The removal of the Applicants would have the effect of - 25 removing them from the day to day affairs of the Applicant and confine them to merely supervisors of the board, together with the 1st and 2nd Respondents in their capacity as shareholders. In my view, if the contentions made in the Applicant's pleadings are to be taken on their face, the Applicants are likely to be irreparable prejudiced if an injunction preventing their removal is not issued. - 30

## **Balance of Convenience**

As correctly noted by counsel for the Respondents, a majority of the impugned actions have already happened; the business name has already been changed, the company account has already been changed, and the 3rd Respondent has been serving for over a year as company 35 secretary.

5 Whereas, in a typical application for a prohibitory injunction, the above prayers would be moot, this is not the case in respect of an application for a mandatory injunction since the very purpose of the said injunction is to substitute one status quo for another. In that case, a party must show that, prima facie, the status quo pertaining was achieved illegally such as in the case where a party seeks return of an item which was stolen from them pending 10 determination of ownership of the same. See **Rashidi Abdul Hanali & Anor v Suleiman**

#### **Adrisi HCMA 11/2017**

Accordingly, for the above reasons and reasons given earlier in this ruling, the balance of convenience favours the Respondents in respect of the orders sought in respect of the above

15 three matters. However, in respect of the intended removal of Applicants as directors, in my considered view, the balance of convenience favours the retention of the Applicants in service as directors until the determination of the dispute intended to be brought by arbitration.

### 20 Other Considerations

I note that in the present case, arbitration proceedings have not commenced. In applications of this nature, the court should be cautious to grant reliefs to a party who may use them indefinitely without commencing the arbitration proceedings intended. Since the court may issue orders until the determination of the arbitration proceedings, parties may seek to

25 utilise the interim preservatory orders in perpetuity by not commencing or completing arbitration proceedings. It follows that sufficient safeguards should be put in place to avoid misuse of court's orders such as my providing for the review of the said orders by court as the arbitral proceedings continue.

### 30 **Conclusion**

In the premises, this court finds that only the reliefs regarding the intended removal of the Applicants as directors are merited in the circumstances of this case. This court therefore issues the following orders:

(a) An interim measure of protection by way of a temporary injunction pending 35 arbitration doth issue against the Respondents, their agents, servants, employees,


- 5 assignees or anyone else claiming or deriving authority from them, restraining them from removing the Applicants as directors and shareholders of the 4th Respondent until the adjudication and conclusion of arbitration proceedings and all proceedings therefrom are heard and disposed of (sic). - (b) The above order shall be in force for sixty (60) days from the date of this ruling which 10 may be extended by the court. The parties shall appear before this court within 10 days from the expiry of the above term and within 10 days from the expiry of any period of extension to show cause why the order in (a) above should be extended. - (c) Costs of this application shall abide the outcome of the intended arbitration proceedings between the parties. - 15

I so Order

**Dated** this\_\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_2025, delivered electronically and uploaded on **ECCMIS** 2nd May


25 **2nd May, 2025**

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