Wakilii

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

High Court · [2024] UGHCCD 48 · 2024 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application by motion to set aside statutory demand served under the Insolvency Act 2011
Decision
Application allowed; statutory demand set aside; 2nd Respondent struck off; parties directed to resolve disputes through arbitration as per contract

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 must be verified by a statutory declaration unless the debt is a judgment debt, and failure to comply renders the demand defective and liable to be set aside. Further held that issuance of a statutory demand was premature where the parties' agreement contained a binding arbitration clause requiring disputes to be settled amicably and then by arbitration. Held that insolvency proceedings are not a debt collection mechanism and should not be used to establish rights between parties where a substantial dispute exists as to the debt and the debtor company is solvent.

Outcome

Application allowed; statutory demand set aside; 2nd Respondent struck off; parties directed to resolve disputes through arbitration as per contract

Facts

The Applicant company entered into a land sale agreement on 2 June 2022 with the 1st Respondent for 61 acres at UGX 1,035,475,000. The Applicant took possession, transferred the land into its name, and subdivided it. The Applicant paid UGX 460,000,000 (claimed by Applicant to be UGX 685,000,000 including squatter payments) when third party claims arose regarding the land title due to disputes over the administration of the estate of the previous owner. The Applicant halted further payments. On 4 October 2022, the 1st Respondent terminated the agreement for breach and demanded return of certificates for 34.7 acres equivalent to the unpaid balance of UGX 575,475,000. On 8 November 2022, the 1st Respondent served a statutory demand on the Applicant. The Applicant filed this application to set aside the statutory demand on multiple grounds.

Issues

  1. Whether the statutory demand dated 4th November 2022 should be set aside.
  2. Whether the application was incompetent and defective for lack of a court seal and for being served out of time.
  3. Whether the Applicant had a cause of action against the 2nd Respondent.
  4. Whether the affidavit in support of the application contained falsehoods rendering it defective.
  5. Whether the Respondent's statutory demand was incurably defective for not being verified by a statutory declaration.
  6. Whether the Respondent's statutory demand offended the binding and enforceable arbitration clause between the parties.
  7. Whether there was a debt owing and due to the Respondents.

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 — Requirement for Verification by Statutory Declaration
A statutory demand under section 4(2)(c) of the Insolvency Act 2011 must be verified by a statutory declaration attached to the demand except where the debt is a judgment debt. The use of the word 'shall' in the provision connotes a mandatory requirement. The omission to accompany the statutory demand with the requisite statutory declaration constitutes a sound reason why the demand should be set aside.
Arbitration — Effect of Arbitration Clause on Other Proceedings — Insolvency Proceedings
Where a contract contains an express arbitration clause requiring disputes to be settled first amicably and then by arbitration, the issuance of a statutory demand triggering insolvency proceedings without first exhausting the agreed dispute resolution mechanism is premature and contrary to law and the contractual obligation. Purported termination of the contract by one party does not render the arbitration clause inoperative where the termination itself was not done in accordance with the contract terms and no express term for automatic termination existed.
Insolvency — Purpose of Insolvency Proceedings — Not a Debt Collection Mechanism
Insolvency proceedings are not intended as a means for a single creditor to enforce his debt but are instead a method of collective realization of the assets of the debtor in order to maximize recovery for the general body of creditors. A company's court should not be used as a debt-collecting court. Where parties seek to establish their rights through use of insolvency proceedings, pulling the insolvency trigger is not a proper procedure to undertake.
Insolvency — Substantial Dispute as to Debt — Grounds for Setting Aside Statutory Demand
A statutory demand may be set aside under section 5(4)(a) of the Insolvency Act 2011 where the court is satisfied that there is a substantial dispute whether the debt is owing or is due. Where the source of the creditor's title to land sold is questioned on grounds based on the law of succession and the dispute affects the status quo on the subject property, such dispute is substantial and cannot be ignored in insolvency proceedings.
Electronic Filing — Effect of Lack of Manual Signature and Seal
Under the Electronic Court Case Management Information System (ECCMIS) introduced by the Constitution (Integration of ICT into the Adjudication Process for Courts of Judicature) (Practice) Directions 2019, provided that there is proof that a document has been duly filed through the system, it cannot be challenged on account of non-compliance with certain aspects of the old manual system such as physical signature of the Registrar and court seal. Authentication of documents takes a different form away from the usual court seal.
Cause of Action — Test for Whether Disclosed
For a suit 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. Where a legal practitioner provided professional legal services to one party to a transaction and drafted a statutory demand on instructions of that party, such conduct does not disclose a violation of the other party's rights sufficient to establish a cause of action against the legal practitioner personally.

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 (Court of Appeal Civil Appeal 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 (High Court Miscellaneous Cause 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] B.L.C 492

Full judgment

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Home Connect Properties (U) Limited v Buyondo and Another (Miscellaneous Cause 258 of 2022) [2024] UGHCCD 48 (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.