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Crane Bank Ltd v Nipun Narottam Bhatia [2015] UGSC 16

Supreme Court · 2015 Appeal Partly Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Civil appeal and cross-appeal from the Court of Appeal (which had reversed the High Court)
Decision
Appeal and cross-appeal partly allowed; Court of Appeal judgment set aside; High Court judgment reinstated and varied — respondent to refund USD 37,500 with interest at 6% per annum, and Plot No. 1 Martin Road reverts to the respondent upon full refund.

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Holding

The Supreme Court partly allowed the appeal and cross-appeal. The Court of Appeal erred in holding the land-sale agreement illegal under s.18 of the Financial Institutions Act: illegality was neither pleaded nor canvassed below, was not sufficiently proved given the statutory exceptions and Central Bank proviso, and was decided without hearing the parties, contravening Rule 102(c) and Article 28(1) and rendering that decision void. However, the respondent could not perfect title (the trust deed was lost), so he validly invoked clause 2's refund-and-reversion remedy; third-party possession was no encumbrance and unjust enrichment did not apply. The Court set aside the Court of Appeal judgment, reinstated and varied the High Court judgment ordering refund of USD 37,500 with interest reduced to 6% per annum.

Facts

In April 1996, Narottam Dharamsy Bhatia agreed to sell Plot 1 Martin Road, Kampala, to Crane Bank for USD 75,000. He sold as beneficial owner under a trust executed by his deceased parents, the registered proprietors. The bank paid the first installment of USD 37,500 and took possession; the balance was payable on delivery of title registered in the bank's name. Clause 2 entitled the vendor to refund the deposit and recover the property if a title defect prevented the purchaser from acquiring legal title. Bhatia failed to transfer title, invoked clause 2, offered a refund and asked the bank to vacate; the bank declined. Title could not be perfected: the trust deed was lost, and as administrator of his father's estate Bhatia could not be registered where his father was only a beneficiary. A third party (the Nyanzi/Drago family) occupied the property. There was evidence the bank was buying for a client, Lt. Col. Nyanzi. Bhatia sued for possession; the bank counterclaimed for specific performance and damages. After Bhatia died, his son Nipun, as administrator, continued the suit.

Issues

  1. Whether the Court of Appeal could find the sale agreement illegal and unenforceable under the Financial Institutions Act when illegality was neither pleaded nor raised in the courts below.
  2. Whether the Court of Appeal denied the parties a fair hearing by deciding the appeal on illegality without affording them an opportunity to be heard, contrary to Rule 102(c) of the Court of Appeal Rules and Article 28(1) of the Constitution.
  3. Whether the respondent attempted to convey a greater ownership interest in the land than he held at the time of the agreement.
  4. Whether the title in the sale agreement could be perfected under the Registration of Titles Act.
  5. Whether third-party physical possession of the suit property constituted an encumbrance on the title.
  6. Whether the respondent was entitled to invoke clause 2 of the sale agreement (the refund-and-reversion clause).
  7. Whether the law of unjust enrichment applied and whether the appellate court was entitled to interfere with the trial judge's award of interest.

Orders

  • The judgment of the Court of Appeal is set aside.
  • The judgment of the High Court is reinstated and varied to the extent that the Respondent shall refund USD 37,500 to the Appellant with interest at 6% per annum from the date of this judgment till payment in full.
  • Plot No. 1 Martin Road shall revert to the Respondent as beneficial owner upon full refund of the money.
  • Each party shall bear his/its own costs in this Court and in the courts below.

Key headnotes

Civil Procedure — Illegality Raised on Appeal — Duty of Appellate Court to Establish Illegality by Further Inquiry
A court cannot condone an illegality once it is brought to its attention, but where the illegality is not clear or obvious from the evidence the court must conduct further inquiry; an appellate court must be especially cautious before concluding that an illegality not pleaded or raised below has been committed, and may only do so where it is satisfied the illegality is sufficiently proved and no satisfactory explanation could have been offered had the parties been heard.
Constitutional Law — Right to Fair Hearing — Article 28(1) and Rule 102(c) of the Court of Appeal Rules
An appellate court that decides an appeal on a ground of illegality neither set forth nor implicit in the memorandum of appeal, without affording the parties an opportunity to be heard on that ground, contravenes the mandatory requirement of Rule 102(c) of the Court of Appeal Rules and the right to a fair hearing under Article 28(1) of the Constitution, and the resulting decision is void for breach of natural justice.
Banking & Finance — Financial Institutions Act s.18 — Prohibition on Acquisition of Immovable Property Subject to Exceptions
The prohibition in s.18 of the Financial Institutions Act on a financial institution acquiring immovable property is qualified by the exceptions in s.18(1)(c) (property reasonably necessary for its business, staff housing or amenities, letting, or securing a debt) and by the Central Bank's power under s.18(2) to permit such undertakings; illegality under the section cannot be established without evidence excluding these exceptions and the proviso, and where the institution acquires for a third party rather than in its own right the question of illegality does not arise.
Land & Property — Perfection of Title — Vesting Order under s.166 RTA Requires Production of the Trust Deed
A beneficiary claiming land under a trust cannot obtain a vesting order under s.166 of the Registration of Titles Act without producing the trust deed, and an administrator under s.134 cannot be registered as proprietor where the deceased was merely a beneficiary; a vendor in that position cannot perfect or transfer title, and cannot convey what he does not possess.
Land & Property — Encumbrance — Third-Party Physical Possession Not an Encumbrance Absent a Caveat
Mere physical possession of land by a third party does not constitute an encumbrance on the title in the absence of a registered caveat, charge or mortgage; there being no lis pendens rule in Uganda, a purchaser protects its interest by lodging a caveat or obtaining an injunction.
Contract Law — Termination Clause — Vendor's Right to Invoke a Refund-and-Reversion Clause on Failure to Perfect Title
Where a sale agreement provides that, upon a defect preventing the purchaser from acquiring legal title, a full refund shall be effected and the property revert to the vendor, that clause operates as a termination clause and a remedy for breach; a vendor who is unable to perfect title may validly invoke it, and the court should give effect to the contracting parties' agreed solution.
Damages & Quantum — Mesne Profits as Special Damages — Requirement to Plead and Prove; Appellate Interference with Interest
Mesne profits are in the nature of loss of earnings and constitute special damages which must be specifically pleaded and strictly proved; a claim for mesne profits neither pleaded nor proved will be disallowed. An appellate court may interfere with an award of interest where it is so high as to amount to an erroneous estimate or the trial judge gave no reason for it.

Legislation cited (11)

  • Financial Institutions Act (Cap 54) s.18
  • Financial Institutions Act (Cap 54) s.18(1)(c)
  • Financial Institutions Act (Cap 54) s.18(2)
  • Registration of Titles Act s.166
  • Registration of Titles Act s.134
  • Registration of Titles Act s.177
  • Registration of Titles Act s.46(3)
  • Constitution of Uganda 1995 art.28(1)
  • Constitution of Uganda 1995 art.44
  • Court of Appeal Rules r.102(c)
  • Supreme Court Rules r.64(3)

Cases cited (16)

  • Mohammed Mohammed Hamid v Roko Construction (Civil Appeal No. 1 of 2013)
  • Bakaluba Mukasa v Betty Nambooze Bakireke (Election Petition Appeal No. 04 of 2009)
  • Active Automobile Spares Ltd v Crane Bank and Rajesh Parkesh (Civil Suit No. 442 of 2003)
  • Ahmad Ibrahim Bolim v Car and General (U) Ltd (Civil Appeal No. 12 of 2002)
  • Mistry Amar Singh v Serwano Wofunira Kulubya [1963] EA 408
  • Makula International Ltd v His Eminence Cardinal Nsubuga and Another [1982] HCB 15
  • H. Singh vs. Dhiman (1951) EACA 75
  • Manzoor v Baram [2003] 2 EA 580
  • Alibhai and Others v Karia and Another [1995-98] 2 EA 9 (SCU)
  • J.W.R. Kazzora v M.L.S. Rukuba (Civil Appeal No. 13 of 1992)
  • Ridge v Baldwin [1953] All ER 66
  • American Tobacco Ltd v Sedrach Mwijakubi
  • Coussens v Attorney General [1991] 1 EA 40
  • Shenoi v Maximov
  • Sietco v Noble Builders Ltd
  • Kyambadde v Mpigi District Administration [1983] HCB 44
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