Wakilii

Home Connect Properties (U) Limited v Buyondo and Another (Misc Cause 258 of 2022)

High Court · [2024] UGHCCD 49 · 2024 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application under Section 5 of the Insolvency Act 2011 to set aside statutory demand
Decision
Statutory demand set aside; 2nd Respondent struck off as a party

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that a statutory demand under the Insolvency Act 2011 must be verified by a statutory declaration unless it relates to a judgment debt. The omission to verify renders the demand defective. Additionally, a creditor cannot issue a statutory demand to enforce a debt that is subject to an arbitration clause without first exhausting the agreed dispute resolution mechanism. A statutory demand was set aside where issued prematurely in breach of the arbitration clause and where the debtor raised a substantial dispute regarding the debt's existence arising from third-party claims to title.

Outcome

Statutory demand set aside; 2nd Respondent struck off as a party

Facts

The Applicant company entered into a sale and purchase agreement with the 1st Respondent for 61 acres of land in Busiro Block 38 at a purchase price of UGX 1,035,475,000. The Applicant paid UGX 460,000,000, took possession, and subdivided the land into 392 plots. When third-party claims arose challenging the 1st Respondent's title based on disputes in the estate administration of the previous owner, the Applicant halted further payments. The 1st Respondent terminated the agreement on 4 October 2022 for non-payment of the balance and issued a statutory demand on 4 November 2022 for UGX 575,475,000 or return of certificates for 34.7 acres. The Applicant applied to set aside the demand, arguing that the debt was disputed and that the arbitration clause in the agreement had not been invoked.

Issues

  1. Whether the application to set aside the statutory demand is incompetent and defective for lack of a seal of the court and for being served out of time.
  2. Whether the Applicant has a cause of action against the 2nd Respondent.
  3. Whether the affidavit in support is full of falsehoods rendering it defective.
  4. Whether the statutory demand is incurably defective for not being verified by a statutory declaration.
  5. Whether the statutory demand offends the binding and enforceable arbitration clause between the parties.
  6. Whether there is a debt owing and due to the Respondents.
  7. What remedies are available to the parties.

Orders

  • The statutory demand dated 4th November 2022 is set aside.
  • The 2nd Respondent is struck off as a party to the application.
  • The Applicant is awarded half the costs of the application.

Rules and key headnotes

Insolvency — Statutory Demand — Verification by Statutory Declaration
A statutory demand issued under Section 4(2)(c) of the Insolvency Act 2011 must be verified by a statutory declaration except where the debt is a judgment debt. The use of the word 'shall' in the provision makes it a mandatory requirement, and the omission to verify the demand by statutory declaration constitutes a sound reason for the demand to be set aside.
Arbitration Clause — Effect on Insolvency Proceedings
Where a contract contains an arbitration clause providing for dispute resolution, a party cannot bypass the agreed arbitration mechanism and trigger insolvency proceedings to enforce a disputed debt. The issuance of a statutory demand in such circumstances is premature and contrary to Section 5(1)(a) and Section 9 of the Arbitration and Conciliation Act.
Insolvency — Substantial Dispute as to Debt
Under Section 5(4)(a) of the Insolvency Act 2011, a statutory demand may be set aside if the court is satisfied that there is a substantial dispute whether the debt is owing or is due. Where a debtor raises a substantial dispute based on third-party claims affecting the creditor's title to property that is the subject of a sale agreement, the statutory demand should be set aside.
Insolvency — Purpose of Insolvency Proceedings — Not a Debt-Collecting Tool
Insolvency proceedings are not intended as a means for a single creditor to enforce his debt but are instead a method for collective realization of the assets of a debtor in order to maximize recovery for the general body of creditors. A company's court is not, and should not be used as, a debt-collecting court. Insolvency proceedings are meant for companies undergoing financial distress, not for healthy companies engaged in a dispute with one creditor.
Electronic Filing — ECCMIS System — Authentication of Pleadings
Under the Constitution (Integration of ICT into the Adjudication Processes for Courts of Judicature) (Practice) Directions 2019, the Judiciary introduced the Electronic Court Case Management Information System (ECCMIS). Documents filed through ECCMIS are properly authenticated by the court even where the usual manual court seal and registrar's signature are not physically present, provided there is proof of filing and validation through the system.
Cause of Action — Requirements for Disclosure
For a suit or application to disclose a cause of action, it must show that the plaintiff enjoyed a right, the right was violated, and it is the defendant who violated the right. A legal practitioner who provides professional services to one party in a transaction and drafts or issues a statutory demand on that party's instructions is not liable to the other party for violation of rights unless personal liability is established.

Legislation cited (20)

Cases cited (11)

  • Auto Garage v Motokov [1971] EA 514
  • Auto Garage v Motokov No.3 [1973] EA 514
  • Kapeeka Coffee Works Ltd v NPART (CACA No. 3 of 2000)
  • Col. Dr. Kiiza Besigye v Museveni Yoweri & EC (Election Petition No. 1 of 2001)
  • Victor Tunesvitsch Pty Ltd v Farrow Mortgage Services Pty Ltd (In Liquidation) TASSC 121 (1994) 14 ACSR 565, (1994) 12 ACLC 963 (2 September 1994)
  • Sitenda Sebalu v Sam K. Njuba and Another (Supreme Court Election Petition Appeal No. 26 of 2007)
  • Mbale Resort Hotel Ltd v Babcon (U) Ltd (HCMC No. 24 of 2018)
  • Regal Pharmaceuticals Limited v Maria Assumpta Pharmaceuticals Limited (Company Cause No. 20 of 2011)
  • Chan Siew Lee Jannie v Australian and New Zealand Banking Group Ltd [2016] 3 SLR 239
  • Cambridge Gas Transportation Corp v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2007] 1 AC 508
  • Re A Company (No. 001573 of 1993) [1983] BLC 492

Full judgment

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Home Connect Properties (U) Limited v Buyondo and Another (Misc Cause 258 of 2022) [2024] UGHCCD 49 (8 April 2024)
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.