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Allied Bank International Uganda Limited v Sadru Kara and Others (Civil Appeal 62 of 2002)

Court of Appeal · [2004] UGCA 30 · 2004 Appeal Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court (Commercial Division) ruling overruling a preliminary objection to the competence of a counterclaim
Decision
Appeal dismissed; matter remitted to the High Court to continue with the hearing of the suit on the merits

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Holding

The Court of Appeal dismissed the appeal, upholding the trial judge's ruling that the shareholders properly brought a derivative action on behalf of the companies. Where a wrongdoer (here, the receiver who controlled the companies and allegedly expropriated their property) is in effective control and will not authorise suit, a shareholder may institute proceedings in his own name for the company's benefit, joining the company as a nominal defendant. Joining the companies as nominal plaintiffs rather than defendants was a misjoinder, but under Order 1 rule 9 of the Civil Procedure Rules and article 126(2)(e) of the Constitution it was a technicality that did not defeat the suit.

Facts

The appellant bank granted financial facilities to Musicraft Hire Purchase Limited, which the first and second respondents, as directors, secured by executing guarantees for UGX 800,000,000 and US$ 250,000 each. When the company failed to repay the debt, the bank recalled the facility and appointed a receiver and manager under a debenture to recover the debt. After recoveries, a balance of about UGX 692,550,155 remained, and the bank demanded payment from the respondents as guarantors and sued them when they refused. The respondents denied liability, contending no receiver was lawfully appointed over Musicraft Manufacturing (U) Ltd, and brought a counterclaim by way of a derivative action against the bank and the receiver, Clive Mutiso, to recover alleged losses exceeding three billion shillings caused to the two companies. They joined both companies as third and fourth plaintiffs to the counterclaim. The bank raised a preliminary objection to the competence of the counterclaim, which the trial judge overruled, prompting this appeal.

Issues

  1. Whether a derivative action was properly brought by the respondents (shareholders) against the appellant and the receiver for the benefit of the companies.
  2. Whether two companies that were not defendants to the head suit could be joined as plaintiffs to the counterclaim.
  3. Whether there was a fatal misjoinder of parties.

Orders

  • Appeal dismissed with costs.
  • File remitted to the High Court to continue hearing the suit on merit.
  • Costs in the High Court to abide the result of the main suit.

Key headnotes

Company Law — Derivative Actions — Standing of Shareholder Where Wrongdoer in Control
Where a wrong is done to a company and the wrongdoer is in effective control of the company such that its organs cannot authorise suit, a shareholder may institute a derivative action in his own name for the benefit of the company to redress the wrong, joining the company as a nominal defendant.
Company Law — Derivative Actions — Receiver as Wrongdoer in Control
A receiver who, by definition, is in control of a company and is at the same time the alleged wrongdoer refusing to sue, stands in no different position from a controlling shareholder or director who refuses to sue, so that a derivative action by shareholders may properly be brought.
Company Law — Derivative Actions — Proof of Control Aliunde
It is unnecessary to allege that the directors were formally asked to institute proceedings or that a general meeting was convened where the wrongdoers themselves are the proposed defendants, provided the court can be satisfied from other evidence that the wrongdoers are in effective control of the company.
Civil Procedure — Misjoinder of Parties — Effect Under Order 1 Rule 9
Misjoinder or non-joinder of parties is a minor technicality that cannot ground the defeat of a suit; under Order 1 rule 9 of the Civil Procedure Rules and article 126(2)(e) of the Constitution the court may proceed to deal with the matter in controversy notwithstanding such misjoinder.
Civil Procedure — Derivative Actions — Designation of Company as Nominal Defendant
In a derivative action the company is the true plaintiff and the shareholder the nominal plaintiff; since the company's organs cannot authorise suit in its name, the company must be joined as a nominal defendant, and joining it instead as a nominal plaintiff is a misjoinder.

Legislation cited (3)

  • Civil Procedure Rules O.8 r.2
  • Civil Procedure Rules O.1 r.9
  • Constitution of Uganda 1995 article 126(2)(e)

Cases cited (3)

  • Salim Jamal and 2 Others v Uganda Oxygen Ltd and 2 Others (Civil Appeal No. 64 of 1995)
  • Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] 2 All ER 896
  • Atwool v Merryweather (1867) LR 5 Eq 464n
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.