EFFECTS OF LAND JUSTICE SYSTEM TO THE BANKING INDUSTRY

Below are key practical highlights of how the land justice system affects the banking industry.

a) Issues of spousal consent

Some Banks take the effort to obtain spousal consent from borrowers before they take on an individual’s land as security as a legal requirement. The borrowers declare and confirm that the person giving consent is their spouse. The aspect of obtaining consent from a spouse is a challenge. There are no parameters of which spouse should consent, for instance under customary marriage and Muslim marriages that allow polygamous marriages. The bigger challenge however is that at the time of realizing the security, another lady files a suit claiming to be the spouse of the borrower and that no consent was obtained from her. The Bank’s efforts of realizing the security are derailed and since suits take long to be concluded, the Bank’s money is tied down. To what extent should the Bank inquire? Sometimes borrowers have deponed affidavits stating that they are not married and no need for spousal consent. But in future, an alleged spouse comes up to claim she did not consent to the mortgage and therefore the mortgage is void. Most times the borrower is working in cohorts with the wife to frustrate the bank’s recovery process. The spirit of the law is clear, once it is established that spousal consent was not obtained, the mortgage transaction is void. Should the borrower be allowed to benefit from his dishonesty? Sometimes it is true that the borrower was indeed married but he lied; should the bank be the one to pay the price?

Another issue is that Judges should be encouraged to be proactive and interpret the law on spousal consent purposively. The law requires that consent be obtained before the transaction is concluded and if it is not obtained, the transaction is void. What if after the transaction the spouse who transacted without the other’s consent convinces his/her spouse to approve and consent. Shouldn’t that later consent validate the transaction? The whole purpose of the law on spousal consent is that family property should be protected and a spouse who is not a registered proprietor should not be surprised or ambushed by eviction orders when the land has been sold, mortgaged or leased without their consent. So once the spouse is aware of the transaction even if it is after it was concluded and he/she approves it that should suffice as consent/ratification. The transaction should therefore be voidable but not void abnitio. Spousal consent should be limited to matrimonial property. This lacuna seems to be the spirit of the Mortgage Bill, however it has its challenges for the bankers. I will revert to it later. b) Delay of Land Justice

Even when people rush to court seeking justice, the matters take too long to be concluded. Banks are also affected in the process. For instance if an alleged spouse halts the Bank’s recovery process by instituting a suit against sell of mortgaged property, when the case takes long to be concluded, even if the Bank were successful at the end, justice will not be served. The Bank’s money will have been tied down for a very long time without any returns being made on it. The quicker the cases are concluded, the better for the parties. It enables them determine their positions and decide on other strategies. Further, with the laxity in issuing of interim orders without proper evaluation of the merits of the application, this renders the land justice not palatable to the banking industry. The continuous extension of the interim orders without fixing of the main applications works only to promote the delaying tactics of the debtors. Sometimes the main applications are never fixed because the Applicants never intended to proceed with them in the first place. Once they obtain interim orders and renewals, they relax since the property cannot be sold when there is a pending order. Debtors are abusing the court process and using court as their avenue to delay financial institutions from recovering their monies. Courts should task Applicants to be vigilant and pursue their matters and in the event that no follow up is being made by the Applicants, the Applications should be dismissed.

c) Extra Legal Factors The President’s directives against evictions are hugely affecting the Bank’s recovery process. The Bank may sell mortgaged property but to grant vacant possession to the purchaser is difficult because evictions have been stopped and therefore the police who should assist in evictions have desisted from it. The recent bailiffs’ sit down strike, demotion of policemen that wanted to execute a warrant, decried killing of the landlord by tenants/bibanja holders is a manifestation of the glaring need to protect and preserve the rule of law and allowing the due process of the law to its conclusion. Of course the mortgage industry is hugely affected knowing that land is still a crucial collateral security for lending. d) Nature of the Land tenure System The Nature of the land tenure system itself is a challenge to the Mortgage industry. Sometimes there are competing claimants over land that may last generations. The land Act provides that customary tenure rights may be registered and certificate of ownership issued. However, provisions of certificate of ownership are yet to be operationalized eleven years after the Land Act was enacted. By implication, that very certificate is convertible for a freehold title also shows that it is inferior to a land title and may be treated with contempt by lending institutions. It is hoped that the certificate will allow people at local level to borrow against it from micro credit schemes and other financial institutions, pledge it or even sell their land against it. However it is in dispute whether the customs of the community will allow for the land to be mortgaged or even sold. It is in doubt that customary owners will be able to enjoy these privileges; there will be very few customary land tenure systems that will permit these privileges. It remains to be seen that customary land will meet the challenges of the land market and not be found wanting in many respects. Would a bank accept a certificate of occupancy from a customary tenant as a security well aware that it could be premised on a freehold or mailo tenure? What are its implications when it comes to the recovery process? However, this does not only affect the banking industry, failure to title some land interests sterilizes the owners’ value of the existing properties, which could easily be turned into collateral to secure access to capital – providing more insecurity for land owners. Lenders are reluctant to accept it because most of the land is communally owned and does not have well-defined Certificate of titles, which are required by lenders as security for mortgage loans. As stated earlier, land remains a crucial security in Uganda, but because of such a challenge bankers resort to lending against other risk and insecure securities.

e) Lack of integrity of the land registry

The country has witnessed massive land frauds that remain uninvestigated later on prosecuted. Intended borrowers forge Certificates of title sometimes in cohorts with the land registry official. When the bank goes to verify with the registry what the intended borrower has presented as title, its genuineness is certified until the time of default and the recovery process. It is when the bank is informed that it cannot recover on a forgery. Meanwhile it was on the strength of the Security that the bank considered disbursing a certain amount of monies. It’s a huge challenge if the banking industry cannot rely on the integrity of the land registration system. It should be beyond reproach and forgery. The registry should be able to detect any forgery upon inspection of the register. The dilemma is worsened with the introduction of Search Statements that contain exclusion clauses. This was not the intention of the torren system of the land registration. Probably computerization of the system could alleviate the dilemma

f) Commentary on The Land (Amendment) Bill, 2007

The government proposed an amendment to the Land Act, Cap 227. The government has stated that the object of the bill is to enhance the security of occupancy of the lawful and bonafide occupants on the registered land. That whereas section 31 of the Land Act provides for the enjoyment of security of occupancy, there has been widespread arbitrary “evictions of these categories of tenants in utter disregard of their interest in the land”. Government has proposed that a lawful or bonafide occupant cannot be evicted from registered land except upon a court order and only for non payment of the annual nominal ground rent. And the rent is payable within one year after the minister has approved the rent payable. There are no provisions for appeal against the minister’s decision. Eviction order under the proposed can only be executed after six months. These proposed amendments may not arguer well for the country’s banking system. Many land owners, in one way or another have used their land titles to borrow money from financial institutions. So if ownership of land is ‘diluted’ in a way by creating two titles on the same piece of land (registered owner and a bonafide or lawful occupant), the borrowers will simply abandon their mortgaged land titles with the financial institutions well knowing that the bank or any financial institution will have an uphill task trying to take over the land in question. It may also in turn result in potential borrowers who were hoping to use their land as collateral being turned away by banks. There is a need to scrutinize these proposed amendment in light of what effect they have in the business sector.

g) Commentary on the Mortgage Bill.

Whereas S.115 of the Mortgage Act Cap 230 currently empowers only the proprietor of land or a donee of his power of attorney to mortgage land under the Act, the Mortgage Bill capacitates any holder of land under any land tenure to secure a loan repayment or fulfillment of a condition by a mortgage. This implies that beyond the legal owner of land, any interest bearers therein can competently mortgage the land. Furthermore, the Bill will make land under customary tenure mortgage-able, subject to the customary law applicable. However, in the even to default, the Bank as mortgagee shall not have a customary remedy of possessing the land, unless it first engages a mediator in the security realization and then obtains a court order authorizing the remedy. This remedy may be countered by the mortgagor’s application to court for a reopening of the mortgage on grounds which are highly mawkish and subjective to the area’s customary law. I any case, the customary tenant can only be evicted after six months of passing the eviction order( That is if the Land Amendment Bill 2007 is passed into law).

h) Matrimonial home vs family property

Unlike under the Land Amendment Act, 2004 where a spouse’s security of occupancy is over family land generally, the Mortgage Bill precisely guarantees a spouse security for his/her matrimonial home. The Bill clearly draws parameters of a matrimonial home, to which the requirement of spousal consent will be limited. The Bank will therefore be at liberty to dispense from the need for spousal consent over any security furnished by a married borrower, save where it is matrimonial property. Such consent must be informed and genuine consent, given in writing and in the presence of an independent person, as defined therein. That notwithstanding, the Bill does not shield the Bank from crafty polygamous borrowers who may instead use the consent of a spouse, for whom the security is not their matrimonial home. Under the bill the bankers are under a duty to investigate further the status of the individual borrowers and verify whether they are married or not. To make sure that the parties have obtained independent advise on the loan and mortgage transactions.

Future

There is fragility in the land justice system; heavily interference by politics, sluggishness in the court supervised mortgage recoveries, and the pro-peasant- agrarian land law regime that affects land as a market commodity due to the complexities in the land tenure system. Fraud and forgeries are worsening the situation. It is imperative that the bankers look for some alternative means of securing their lending business or carefully look out for their interests before taking on a mortgage. Of course not withstanding competition from small moneylenders who take heavy risks.

After the inception of the crisis in the mortgage industry financial regulators in the developed economies now talk of a return to "old-fashioned banking", where banks grant loans only to clients they know and from resources already available. It is starting to happen. A move towards trade finance and warehouse receipt system is a welcome development. Evaluation of the creditworthiness of the intended borrower is imperative. what are the financial and industry risk involved in that transaction. Does the intended borrower has a history of steady cash flow? What about previous loan repayment behavior? Monitoring and evaluation of the borrower’s business. The emergence of Credit Reference Bureau is key to the banking industry and should be embraced. The banks have only themselves to blame as they are reluctant to do business with each other. Banks do not want to lend money to each other because they are hoarding funds for themselves and worried that their rivals may not be able to pay them back. That attitude should stop. Otherwise, the banking industry should lobby for the reform of the land policy that enhances the symbiotic relationship between property owners who want to use their property as collateral to finance their business from banks and the bankers who would like to secure the lending with land since it is still an important commodity in Africa.

Formation and Regulation of Single Member Companies

Background A single member company is a private company limited by shares or by guarantee, which is incorporated with one member, or whose membership is reduced to one person. Paul L. Davies, in the book Gower and Davies’ Principles of Modern Company Law[1], traces the concept of a single member company to as far back as the nineteenth century in the case of Salomon v Salomon [1897] A.C. 22 when he states; “……….. whilst the decision of the House of Lords at the end of the nineteenth (19th) century in Salomon v Salomon in effect allowed the incorporation of a company with a single member, the other six being bare nominees for the seventh” Indeed, single member companies have been in existence though not in the legal context. Companies have been in existence where in form, there is more than one member but in substance, it is a single member company and the other members are “shadow members” who appear on the company documents and registered as members only for the purpose of reflecting the entity as a company. With the increasing number of sole proprietorships all over the world, and the realization that these proprietorships deal with the public as much as companies do, the European Economic and Social Committee proposed the passing of a Directive that would enable formation or continuity of a single member company. In 1989, the Council of the European Community passed Directive 89/667/EEC on single member companies – refer to Directive. This Directive has been adopted by member states of the European Community, some of which have passed domestic legislation in that respect. For instance the United Kingdom passed the Companies (Single Member Private Companies Regulations 1992 S.I 1992/1699). In 1994, the European Community implemented its own Directive and passed the European Communities (Single Member Private Limited Companies) Regulations, 1994 S.I. No. 275 of 1994. This concept has also been adopted in the American jurisdiction though with some changes in respect of how they are regulated. Introduction Until 1985, it was the generally accepted position in most jurisdictions worldwide that a minimum of two people is required in order to form a private incorporated company. Although no literature exists that has been specifically designed to justify this position, there are a few arguments that seem to rest beyond debate on the matter. In spite of these arguments, however, there is an increasing tendency that favors the formation of a private incorporated company by one person particularly in Europe and the United States. Several jurisdictions now permit the formation and operation of a single-member Limited Liability Company. This paper is intended to examine the feasibility of restructuring Uganda’s company law to make room for the formation of a single member limited liability company. In this paper, the following acronyms will be used for convenience: SMLLC - Single Member Limited Liability Company LLC - Limited Liability Company. The Concept of SMLLC’s In jurisdictions that have adopted the concept, the SMLLC operates like any private company in all respects. In essence, an SMLLC is a sole proprietor doing business with the kind of protection granted to shareholders in a limited liability company. The question that arises automatically is why anyone should register himself as a LLC when he can run the business as a sole proprietor. The answer is simple – with a LLC he obtains limited liability protection, which means that for liabilities arising from the business, his personal assets cannot be touched. In fact, certain people exploit this position by contributing only their risky assets to the LLC and keeping the rest outside its scope. An additional advantage of a single-member LLC is that the interest in the company can be transferred to a beneficiary (for example, your son or next of kin), without paying gift taxes. Even after such a transfer you can continue to control the company by being appointed as ‘manager’. The Case for Reform. The proposition to allow single member companies in Uganda is supported by several sound arguments including but not limited to: The Company law of the UK on which Uganda’s company law is based has been overhauled several times. The Companies Act 2006 (UK) now allows single member companies. Modern trends are leaning towards creating new flexibility in the business sector to make room for more investment. One of the ways of doing this is by getting rid of legal requirements which have no proved efficacy in the real business world including that a limited company should have at least two members. The business public for years has been dealing with sole proprietors with remarkable ease and there seems to be no concrete justification for denying such proprietors the benefit of limited liability. Anticipated/Proposed Changes.

A. FORMATION The formalities requisite to incorporation have several implications. They affect, among other things, the ease and tempo with which a company may be incorporated. In view of the need to strike a balance between making this process easier thereby increasing investment and ensuring that creditors in particular and the public in general are protected, the following changes are recommended: The Companies Act should be amended to allow a single person to form a limited liability company. This change should also encompass situations where the number of members in a limited company falls to one or where an unlimited company with only one member becomes a limited company. Thus, (a) Every person who wishes to incorporate a limited liability company as the sole member thereof should be required to have a specified minimum capital.[2] (b) An individual seeking to incorporate a limited company should be required to file a statement that the company has only one member. This should be in addition to all the usual filing requirements. Provisions should be put in place to specifically ensure that Ugandan citizens are given sufficient investment opportunities in comparison to non citizens. In 1989, the Council of the European Community passed Directive 89/667/EEC on single member companies – refer to Directive provisions which have been put in place to incorporate SMMLCs. Article 2(1) Directive 89/667/EEC. Regulation 3(1) European Communities (Single Member Private Limited Companies) Regulations 1994, SI 275 of 1994 & Regulation 2(1) of the Companies (Single Member private Limited Companies) Regulations 1992 SI 1992 No. 1699 – all provide for formation of a Private Limited Company by one person. In the Ugandan context therefore, the amendments made to the UK Companies Act of 1985 (providing for SMMLCs) would be relevant and applicable to our Companies Act since it is similar to the UK one. If we were to adopt the amendments made by the UK to incorporate single member companies in their law, amendment would be made to section 3(1) of the Companies Act Cap. 110 to provide for incorporation of such a company with a proviso that the existing rules of law on requirements of incorporation would apply to the single member company with such modifications that would be necessary for such a company.

B. REGULATION 1. Meetings (a) General Meetings All power exercisable by a company in general meetings under the companies Act should be exercisable in case of a single member company, by a sole member without the need to hold a meeting. Thus any matter to be done, decided by a company in general meeting or decided by resolution are satisfied, in case of a single member company, by decision of the member which is drawn up in writing and notified to the company. These notifications/resolutions must be recorded by the company and retained in book form or other suitable means.[3] Resolutions to which sec. 141, 142 and 143 of the Companies Act Cap 110 applies (special resolutions) should be registered/notified to the registrar of companies within 15days. Every single member company should be required to hold meetings in similar fashion as other companies for matters concerning the removal of an auditor or for non- appointment of an auditor. In the case of a company limited by shares or guarantee and having only one member, one qualifying person present at a meeting would be quorum.[4] The sole member would exercise the powers of the general meeting. Where the sole member takes any decision that (a) may be taken by the company in general meeting and (b) has effect as if agreed by the company in general meeting, he must (unless that decision is taken by way of a written resolution) provide the company with details of that decision. It should be provided that if a person fails to comply with this requirement he commits an offence which should attract a heavy fine. (b) Annual General Meetings The sole member of a SMLLC may decide, to dispense with the holding of an AGM. The decision should have effect for the year in which the decision is made and subsequent year but should not have effect on any liability already incurred by reason of default in holding an AGM. It is open to the Sole member of the company to require the holding of an AGM in a particular year by notice to the company not later than at least 3 months before the end of the year. If such a notice is given then the provisions of Section 133 of Cap 110 should apply in respect to the calling of the meeting. Where a decision to dispense with the holding of AGMs for SMLLC is in force then the requirement in Cap 110 to lay balance sheet (Section 149), profit and Loss Accounts (Section 148) , auditor’s report (sec.156), directors’ report (Sec. 157) ( compliance with sec.158) before the AGM shall be satisfied where the accounts and reports are sent to the sole member. These should be sent not less than 21 days before the would-be date for the AGM. 2. Directors The directors or managers of the SMLLC may include the single owner. It should be a requirement of the law that the sole member of the company names, at the time of incorporation, the persons that are going to be charged with the running of the company viz, Directors (and a Board of Directors), Secretary and other company officials. 3. Office of the Company Secretary It is our opinion that a single member company should have a company secretary. Under the Companies Act Cap. 110, a private company can have a director who is also the secretary provided that director is not the sole director. With single member companies, it is highly likely that the sole member would appoint himself as company director and the sole director. There is need, in such an instance, to have a different person appointed as company secretary since such a sole director may not adequately perform all the duties of the two offices. However, where a sole member appoints other people as members of the Board of Directors, then one of the directors can take up the role of company secretary. In United Kingdom, the requirement that private companies should have a company secretary was removed. The duties carried out by the company secretary can now be done by the directors. It is upon the directors to decide whether they may appoint a company secretary or not as they are no longer obligated to do so – see Gower & Davies Principles of Modern Company Law, 7th Edition at p.298. 4. Returns The same requirements as to annual returns should apply to single-member companies. Every single-member company should be required to file a return whenever the number of its members rises to more than one, stating that fact and giving particulars of the new shareholder(s). This will, in effect, change the status of the company. 5. Shares The same rules of law relating to shares in a private company should apply to a sole member company. 6. Capital maintenance There should be a legal requirement for the directors and the sole member of the company to ensure at all times that its capital does not go below the minimum capital requirement referred to above. This is intended to provide some level of protection for the company’s creditors. 7. Contracts Contracts with a single member company may be executed as provided by the existing law subject to any necessary modifications. However, certain contracts require special attention such as: Contracts with sole members who are also directors where a private company limited by shares or by guarantee having only one member enters into a contract with the sole member who is also director of the company, the company should, unless the contract is in writing, ensure that the terms of the contract are either set out in a written memorandum or are recorded in the minutes of the first meeting of the directors of the company following the making of the contract. Thus in the event that such a contract is not written and recorded it should be unenforceable as against the company but enforceable against the sole owner. This to give protection to the creditors of the company 8. Changing to a Single- Member Company A private company limited by share or guarantee registered with two or more subscribers to its memorandum of association in accordance with Cap 110 may become a single- member company on such a date as the number of members and all the shares in the company are transferred and registered in the name of a sole person. Particulars of this change should be notified to the registrar of companies within 30days after the date within which the number of members is reduced to one. 9. Changing from a Single- Member company. A company which is incorporated as or becomes a single-member in accordance with Cap 110 or this suggested amendment shall cease to become a single-member on such a date as the number of member increases to more than one. Particulars of this change should be notified to the registrar of companies within 30days after the date from which the number of members increased to more than one. the EEC Law & UK Law and laws of other jurisdictions which adopted the EEC Directive, provide that the fact of members reducing to one, date on which the number reduced to one and the identity of the sole member should be notified in writing in the prescribed form to the Registrar of Companies within 28 days after the date on which the number of members is reduced to one – see R.5(2) & (3) SI 275/1994, R.4(1) & (3) of Schedule to SI 1992/1699. The law further provides that in the event that the number of members in the single member company increases, this should be notified to the Registrar of Companies – refer to R.6 SI 275/1994, r.4(2) of the Schedule to SI 1992/1699. The effect of legalizing formation of one-man companies is that the provision in the law making members of a private company, who after six months subsequent to the reduction of members below the statutory number continue carrying on business liable to pay the debts incurred was repealed – refer to R.3 SI 1992/1699 & r.7 of SI 275/1994. Similarly, if the Ugandan Law were to be amended to provide for single member companies, the aforementioned provisions would be relevant and applicable and should be adopted with necessary modifications putting the Ugandan circumstances into context. Legal and Socio-Economic Implications of Reform Capital requirements Attaching minimum capital requirements to the incorporation of a limited company by a single person might eliminate a considerable portion of local business participants from investment. However, a convincing counter argument would be that such ‘small investors’ would still have available to them the option of pooling their resources to incorporate a limited liability company which they can later break away from as their capital increases to each of the individuals to incorporate a limited company on his/her own. Incorporation The formalities, expense and other rigors of incorporation in Uganda are already a considerable hindrance to local investment because of the low levels of literacy and high levels of poverty. Making it possible for a single person to incorporate a limited company and hiring skilled persons to run it might loosen the grip on the wider population. The minority who are wealthy but illiterate are likely to invest in sole member companies (some of which would take the form of educational institutions)[5] thereby providing employment the poorer majority. This, however, is not guaranteed to deal with the time-honored social predicament presented by poverty and illiteracy in Uganda. Liability The combination of no minimum capital requirements and limited liability could be an invitation to trading at the expense of creditors. Accordingly, in the absence of ex ante minimum capital requirement, there should be developed some ex post controls on those who get into trade without sufficient money of their own or at their disposal to secure their liability to creditors. It is completely clear that a single member company is needed in all the economies. However, there is no doubt that it could be dangerous, especially for creditors when shares are in the hands of one member. Therefore it is prudent that the shareholder has to pays in all the share capital or must pay the minimum required and provide security for the remaining amount. This is the position in Germany in a bid to protect prospective creditors who have to deal with a SMLLC Piercing the corporate veil Piercing the corporate veil may raise more questions under SMLLCs than it would under the ordinary limited liability company. Should the sole member be responsible in any case or should the law define the situations of liability? Who will be responsible to creditors - the sole member or somebody else? Definitely piercing the veil is a concept meant to protect the creditors but the veil should be pierced only if there is a notion of abuse. In such an instance the responsibility should be borne not only by the sole member, but also by the board of directors. Where the company has one director who is not the owner of the company, such a person should be responsible along with the sole member. Tax revenue It can be reasonably forecast that legalizing the formation of sole member companies will widen the threshold of investment resulting in growth in the private sector. This would naturally translate in a wider tax base and thus more revenue for the Government. On the other hand, however, one can rightly anticipate increased litigation arising from instances of liability to creditors. The real extent of the implications of such trends can only be told by time. Taxation A single member company may be taxed as a sole proprietorship. The profits of the LLC should be added to the other income of the interest holder. Thus the profits and losses should be reported to his/her personal tax returns. Thus this would call for the amendment of Income Tax statute to incorporate these changes (American Jurisdiction). However, the English jurisdiction has maintained corporate tax even on these SMLLCs. The question thus lies on which position will increase the tax base in Uganda. Is it when SMLLC business is taxed as a proprietorship or as a company applying rates like of any other corporation? Should the sole owner be given an option to choose whether the single-member company should be treated as a sole proprietorship for tax purposes or to be taxed a any other body corporate under tax statutes. In some states in US, an SMLLC can elect whether to be taxed as proprietorship or as a corporation. Under our current tax regime any company would be taxed on its earnings at a corporate level and shareholders are taxed on any distributed dividends. Transitional Provisions There should be provisions to smoothen the progress of the reform. Examples of such provisions may include: a) Those relating to conduct which may be punishable under the new law/amendment which is not punishable under the current law. b) Those relating to companies whose membership falls below the required number of members immediately before the coming into force of the new legal regime. c) Standard forms should be put in place for; (i) Incorporation of a single member company (ii) Notification of a multi-member company changing to a single-member company. (iii) Notification of a single-member company changing to a multi-member company The Minister may be given power to make by Statutory Instrument such transitional provisions and savings as he considers necessary or expedient in connection with the commencement of any provision made by or under the new law/amendment. Conclusion In all jurisdictions, Company Law recognizes companies as entities distinct from the members/shareholders and minimum guidelines are set down on how such entities should be operated subject to each company’s Articles of Association. Company Law provides for general rules of law that must be complied with by every company and such rules should be applicable to single member companies. In conclusion therefore, our considered opinion is that single member companies can be regulated like the existing companies are being regulated subject to any necessary modifications and alterations that are peculiar to such companies. Regard should be placed on the form, liability of a single member to its creditors and to what extent should a sole owner (especially a corporate entity) of a SMLLC be allowed to form other SMLLCs [1] 7th Edition at page 4. [2] See Part III of the Financial Institutions Act, Cap. 54. [3] In most European and American jurisdictions, there is an option to use electronic means. [4] For the purposes of this provision a “qualifying person” should be taken to mean (a) an individual who is a member of the company, (b) a person authorised to act as the representative of a corporation in relation to the meeting or (c) a person appointed as proxy of a member in relation to the meeting. Cf S. 135, Cap.110. [5] This theory is fortified by the current steady increase in the number of private schools and universities in Uganda.

ShareCapital Revision under companies Act Cap 110

Legal opinion on share capital revision of two companies with a view of doing away with one 1. Amalgamation under Ss 207 to 210 of the Companies Act 9 herein after referred to as the “Act” 2. By transferring all the assets and liabilities of the transferor companies to the surviving transferee company and winding up the other company voluntarily under Ss 276 (1) (b), 283 to 289 of the Act Cap. 110. With respect to the second option of transferring the assets and liabilities of the company to another company while winding up voluntarily the transferor company, we would draw your attention to S. 285 of the Act, which provides that where the transferor company is proposed to be, or is in the course of being wound up voluntarily, and the whole or any part of its business or property is proposed to be transferred or sold to the transferee company, the liquidator of the transferor company, may, with the sanction of a special resolution of the company, do the following :- (a) Receive, by way of compensation for the transfer or sale of the property of the transferor company, shares policies or other like interests in the transferee company, for distribution among the members of the transferor company or, (b) Enter into any other arrangement, whereby the members of the transferor company may in lieu of receiving cash shares etc, participate in the profits of the transferee company. This section gives the liquidator the power to sell the property of the company for money or shares, debentures or other interests, where the transferor company is proposed to be wound or is in the course of being wound up voluntarily, and it is also proposed that the company's property may be transferred or sold to another company. Such a sale or arrangement shall be binding on the members of the transferor company. The dissentient members who did not vote in favour of the special resolution giving sanction to the sale or arrangement, may give note of their dissent to the liquidator within seven days from the date of passing of the resolution. Where the dissentient shareholder and the liquidator do not come to any agreement as to the value of his/her interest, he/she may require the liquidator either to abstain from carrying the resolution into effect or to purchase his or her interest at a price to be determined by agreement or by arbitration under the provisions of the Arbitration and Conciliation Act. For winding up the company voluntarily as a members' voluntarily winding up, you shall have to follow the procedures laid down under Sections 276, 277, 283- 289 of the Act. In view of the above, the procedure for transferring the property of the transferor companies to the transferee company shall take place where the transferor company is proposed to be wound up or is in the course of winding up voluntarily. Then the defunct company after transferring assets and liabilities can be struck off the company register under S. 343 of the Act In case you opt for amalgamation, the transferor company is automatically dissolved without going through the procedures of winding up. However, there is a need shall to go through the court procedures as laid down under the provisions of section 207-210 of the Act. If you opt for the second option that is under S. 285 of the Act then you can transfer the property of the transferor companies to the transferee companies only where the transferor company is proposed to be wound up voluntarily, or is in the course of being wound up voluntarily. Transfer of shares The provision in regard to transfer of shares under S.210 of the Act contemplates another arrangement not amalgamation and does not require application to court. Transferee company to make an offer to the shareholders of transfer of company to purchase their shares in the transferor company at a stated price which is usually higher or more attractive than the prevailing marketing price and to fix a time within which the offer is to be accepted with a condition usually added to the effect that if a specified percentage of the shareholders do not accept the offer the offer is to be void. The offer is to buy the Transferor Company's share either for cash or in exchange for the shares of the said company. If the offer is accepted by all the transferor company shareholders, there is no problem. If the specified percentage ( that is by the holders not less than nine-tenths in value of the shares whose transfer is involved) of the transferor company's shareholders accept the offer, the Transferee Company will then purchase their shares and would acquire the shares in the manner provided under S.210 of the Act. The merit of this scheme is that without resort to tedious court procedures take over is effected. Only in the cases where the dissenting shareholders interest, the procedure described under S.210 (2) will have to be followed. Reduction of share capital by the transferor company. Under Sec. 68(1) of the Act, a company may by special resolution and subject to confirmation by the court reduce its share capital and it may, if so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its shares accordingly. However, the company must be authorized by the articles of association to reduce capital A special resolution referred to is “a resolution for reducing share capital” (see Sec.68 (2) of the Act). After passing a resolution for reducing share capital, the company shall apply to court by petition for an order confirming the reduction. The procedure varies according to whether existing creditors of the company will be affected. All creditors have to be notified and given an opportunity to object. The difficulty of identifying everyone of a fluctuating body of creditors can be avoided by satisfying court that a sufficient sum has been deposited, or been guaranteed by a bank or insurance company, to meet the claims of all creditors. increase of share capital of a company Resolution to increase 1. Under the Sec.65 (1) of the Act the authorized capital of the company can be increased by passing an ordinary as well as special resolution authorizing the increase. 2. May alter the conditions of its memorandum by increasing its share capital by new shares of such amount as it thinks expedient. 3. The power to increase share capital must be exercised by the company in a general meeting. 4. If the company is governed by Table A of the companies Act, the increase is made by an ordinary resolution prescribing the amount of increase, and the shares into which it is divided. 5. In other cases the power depends on the articles which sometimes require the power to be exercised by a special or extraordinary resolution. 6. If there is no authority under the articles to increase the share capital, the articles of association may be altered by special resolution so as to give the power. This resolution can be done in the same meeting as that to increase capital. 7. The notice convening the meeting to pass the resolution for increase of share capital must specify the amount of the proposed increase (McConnell vs. E. Prill & Co. Ltd [1916]2 Ch. 57] Compliance with Articles of Association 8. Any provisions contained in the articles of association regulating the offer of the new shares must be complied with and the issue of shares in breach of such provisions will be restrained by the court. [e.g., all new shares should before issue be offered to such persons at the date of the offer were entitled to receive notices from the company general meetings in the proportions as the circumstances admit to the amount of the exiting shares to which they were entitled. 9. However, the alteration or increase of share capital does not affect the company’s issued capital, and existing share holders cannot be compelled to take the additional shares. The company simply takes power to issue new shares in excess of its former nominal capital and particulars of any new class of shares. Notices 10. Within thirty days after passing of the resolution authorizing increase of share capital beyond the registered capital shall give notice to the Registrar of Companies notice of the increase who shall then record it. 11. The notice to the registrar of companies must include such particulars as may be prescribed with respect to the classes of shares affected and the conditions subject to which the new shares have been or are to be issued. 12. There must be forwarded to the registrar together with the notice a printed copy of the resolution authorizing increase. 13. However, note should be taken that the passing of resolution to increase the authorized share capital does not operate as a grant of authority to the directors to proceed to allot those shares. Authority to allot is a separate matter and the directors will need authority from their shareholders in general meeting or in the company’s articles of association.

LEASING LITIGATION IN UGANDA

CHALLENGES OF LEASING LITIGATION IN UGANDA. The terminology commonly used in the field of leasing that would be important for this discussion are; operational leasing, finance leasing, asset, rentals, hire purchase, bailment, lessee, lessor. What is leasing? The International Accounting Standards 2000, on page 381 defines both a “lease” as “…. An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time” and “finance Lease” as “… a lease that transfers substantially all the risks and rewards incidental to ownership. Title may or may not eventually be transferred”. In a typical lease, the lessor, usually a bank, leasing company, or other financial Institution, (often a special-purpose entity formed by the parties for the sole purpose of holding title to the asset), purchases the asset from a vendor and leases it to the user, or lessee. The lease agreement requires the lessee to pay the lessor periodic lease payment during the lease term. At the end of the term, the lessee may purchase the asset at a predetermined fixed purchase price. Alternatively, the lessor may sell the asset to a third party, with the lessee providing a first-loss guarantee in the form of a termination payment

Types of Lease transactions and their Structures Finance leasing and operational leasing The concept of finance leasing has been set out in Chitty on contracts (27th Edition, Vol II, 1994 at para 32-56 thus; “… in a finance lease, the lessee selects the equipment to be supplied by the manufacturer or dealer, but the lessor (a finance company) provides funds, acquires title to the equipment and allows the lessee to use it for all (or most) of its expected useful life. During the period of the lease, the usual risks and rewards of ownership are transferred to the lessee, who bears the risk of loss, destruction and depreciation of the eased equipment (fair ware and tear only excepted) and of its obsolescence or malfunctioning….. The regular rental payments during the rental period are calculated to enable the lessor amortise its capital outlay and to make a profit from its finance charges. At the end of the primary lease period, there will frequently be a secondary leasing period during which the lessee may opt to continue the lease at a nominal rental, or the equipment may be sold and a proportion of the sale proceeds returned to the lessee as a rebate of rentals...” That definition of finance leasing was cited with approval in the case of ON DEMAND INFORMATIO p/c (under Receivership) & Anor vs Micheal Gerson (Finance) p/c & Anor (1999) CD 810. Section 19 of the of the Ghanaian finance Lease Statute defines a finance lease follows; “Finance Lease agreement means a written agreement between two parties whereby one of the parties (known as the lessor) undertakes to lease to the lessee for the latter’s use only and against payment of mutually agreed rentals over a specified non-cancellable period- a) either the lessor’s own already acquired assets; or b) an asset that the lessor agrees to acquire from a third party, known as the supplier, chosen and specified by the lessee so that the lessor shall retain full title to the asset during the period of the lease and, under which subject to the agreement by the lessor, a lessee may exercise an option to purchase the asset outright after the period of the lease at a price to be agreed upon by the parties” Where as the provisions of that statute have no legal force in Uganda, the cited section demonstrate the essential ingredients of finance leasing arrangements that suffice to guide in the appreciation of a finance lease structure. A finance lease is where a lender/lessor purchases an asset on the lessee’s behalf before leasing it back to it for a fixed period. Following the repayment period, the term can be renegotiated or the asset lender will arrange the asset’s sale to a third party with the lessee keeping a portion of the takings. In a nutshell, a finance lease or capital lease is a type of commercial arrangement where: — the lessee (customer or borrower) will select an asset (equipment, vehicle, software); — the lessor (finance company) will purchase that asset; — the lessee will have use of that asset during the lease; — the lessee will pay a series of rentals or installments for the use of that asset; — the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee; — the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price); Comparison with operating lease A finance lease differs from an operating lease in that: — In a finance lease the lessee has use of the asset over most of its economic life and beyond (generally by making small payments at the end of the lease term). While in an operating lease the lessee only uses the asset for some of the asset's life. — In a finance lease the lessor will recover all or most of the cost of the equipment from the rentals paid by the lessee. While in an operating lease the lessor will have a substantial investment or residual value on completion of the lease. — in a finance lease the lessee has the benefits and risks of economic ownership of the asset (e.g. risk of obsolescence, paying for maintenance, claiming capital allowances/depreciation). While in an operating lease the lessor has the benefits and risks of owning the asset. In Uganda, there is no specific legislation that regulates business and practice of leasing. Therefore, finance leasing is generally governed by certain provisions of the Finance Acts, the Income Tax Act, principles of the law of contract and legal precedents.

What can be leased? Virtually and equipment can be leased ranging from few thousands to many millions of dollars. However, a study shows that leasing equipment in Uganda has been in areas of; a) Communication and administration- computers and related items, office equipment, telecommunication equipment etc b) Industrial and manufacturing equipment- machine tools, contractor’s plant, c) Agriculture equipment- tractors, combine harvestors, medical and hotel equipment d) Transportation- commercial vehicles like buses, taxis etc Most of these items give rise to no special difficulties in the creation of the lease but might have attending problems at the time of recovery, should the lessee default

Distinction between a Lease facility and other transactions akin to Leasing. A distinction ought to be drawn between a finance leasing transaction and a hire purchase agreement. It will be shown that the two agreements are more dissimilar than similar. — Hire purchase is a purchase of an asset in which customer makes down payment and finance rest of the amount through financial institutions or bank. On rest of the unpaid amount he pays interest at a certain pre-described rate of interest. After making complete payment the assets becomes the legal right of customer. Lease on the other hand is an agreement of using asset for certain period and paying rent on it at a pre-described rate of interest. It is a temporary acquiring of an asset just to use it. — Whereas in a hire- purchase agreement the hirer pays owner of the equipment rentals that are a composite of the price, in a finance lease the lessee is paying rentals to enable the lessor recoup its capital outlay and realize profits from finance charges. Thus, while having met the installment obligation of the contract ownership passes under hire- purchases, under finance lease merely meeting rental payments as and when they fall due does not give rise to transfer of ownership, a further contract is required. — The latter agreement non-cancellable while the former may be cancelled. — The remedy of an owner under the hire purchase agreement are to recover the rental arrears with interest for default. While in finance lease the lessor is not only entitled to recover rental arrears but to compensations that would place him in the position he would have been had the lessee performed the agreement. Actually, a finance lease agreement is likened more to a loan agreement than a hire purchase agreement. This similarity is more emphatic in Section 59 of the Income Tax Act Cap 340, Laws of Uganda. The impugned provisions states that; (1) Where a lessor leases property to a lessee under a finance lease, for the purposes of this Act- (a) The lessee is treated as the owner of the property; and (b) The lessor is treated as having made a loan to the lessee, in respect of which payments of interest and principal are made to the lessor equal in amount to the rental payable by the lessee. It is apparent from the above section that the closest transaction akin to finance lease is a loan agreement. Thus Finance Lease is a full payout and lessor has a right to recover any unpaid rentals not only arrears up the date of termination but what was agreed upon.

Formal documentation of the Lease In a typical finance lease transaction the following documents/ steps ought to be present, (the fact that a lease is a contract must be born in mind and basic tenets of a valid contract must be present- offer, acceptance, and consideration) — An application for the facility from the intended lessee — An offer letter from the financing institution ie the leasing company or the bank — A master lease agreement. This ordinarily lays down the general terms of the agreement — A lease schedule agreement. This agreement is an integral part of the master lease agreement by incorporation, it lays down the specific terms of the lease, the nature of the equipment financed, capital cost, rentals payable and any other condition precedent to performing the agreement like providing security for payment of rentals, directors or personal guarantees, spousal consent in case of mortgaging family property. — Proforma invoices and other documents in proof of purchase. — Supply agreement from the supplier — A sale and lease back agreement — The Lease Ledger maintained by Lessor with the guiding lease accounting principles.

Securitization under a lease transaction. Mortgage on immoveable property to secure rental payments ü Search if there are any existing encumbrances ü Valuation of the property ü Spousal consent ü Proper execution, attestation and witnessing ü Registration with the Lands Registry Fixed and floating Charges/debentures on the company’s present and future assets ü Articles and Memorandum of association ü Board resolutions ü Assessing bank statements to determine the cash flow. The lessee must have a predictable stream of cashflows ü Schedule of Inventory of existing assets ü Personal guarantees from directors or shareholders Since in Uganda there is no central registration for the registration of such leases, registration will depend on the nature of the document and the equipment financed. ü Registrar of documents ü Motor Vehicle registry manned by Uganda revenue Authority ü Land Registry for Land ü Companies’ registry for Debentures Common claims in a Lease Litigation v Over charging, excessive or punitive interests; Deluxe Enterprises vs Uganda Leasing co. Limited v Pre mature repossession and recovery/ security realization v Under valuing and selling of the security equipment cheaply/at an under value. v Supplying of defective equipment- Nassolo Faridah vs Dfcu Leasing Co Ltd. v Refund of the monies being the ‘excessive’ rentals paid to the lessor or sums being excess from security realization. This is sometime brought about by overcollateralization as a means of internal credit enhancement. Challenges in Litigation.

v No statute or legislation governing Leasing The concept of leasing is not well understood by many, including a number of experienced professionals. In the case of Deluxe Enterprises vs Uganda Leasing co. Limited HCCS No1253 of 2000, the first leasing case in Uganda, the plaintiff was claiming refund of excessive rentals paid to the defendant, remitted balance from the sale of the mortgaged property, both counsel and court recognized the fact that there was no legislation to govern the issues at hand. There was skepticism from court whether the defendant was licensed to carry on the business of finance lease. However the issue would be whether there was such a requirement since there was no statute regulating such business. Counsel for the defendant had intimated in his submission that since there was no legislation governing leasing, court should lay down a precedent upon which future cases on finance leasing would be decided. However, the court was hesitated to transcend into the untrodden path which was a missed opportunity to guide future cases. Justice C.K Byamugisha, as she was then stated that; “What I have done is not to lay down any ground rules or parameters to govern the business of finance leasing in Uganda. I just put inot effect what the parties agreed on. However, I think it is the duty of the legislature to put in place an appropriate legislation to govern this type of business…” Apparently no legislation has come in place. The bill was formulated a couple of years a go but has been shelved. Leasing suits continue to flock court house without any guiding legislation. Her Lordship was shy to lay down simple parameters notwithstanding the defendant counsel’s vehement submissions with a view of guiding court on the same. Much as some suits have genuine claims, some of them are a manifestation of failure to appreciate the leasing industry and how it works. I would be hesitant not to blame it on the absence of legislation as court stated in the above cited case. Interim remedial way forward- the leasing officer must be prepared to gauge his customer’s understanding of leasing, and be prepared to provide education accordingly.

v General deficiency in the knowledge on finance Leasing In addition to absence of a statute, there is a lack of knowledge on the business of leasing. Parties just look at the product the way they perceive for instance hire purchase. Such deficiency cuts across the judiciary, litigants and law enforcement agencies like police who ought to assist in repossession. Many of the finance leases contain a provision for the lessee to buy the asset at the end of the rental period, and concern or misconception is most of the time expressed that this brings the lease within the hire purchase provision. Such provisions would imply that there has been capital expenditure and that the right of ownership falls on the performance of the contract. Under hire purchase agreement such is the case: having met the installment obligations of the contract, ownership passes. Under a finance lease merely meeting rental payments as and when due does not give rise to transfer of ownership; a further is required. The mere payment of the rentals does not in itself involve acquisition of an asset (which hire purchase payments do). Such has been the misconception that has dragged litigants to court. Coupled with lack of legislation, this would result in erroneous decisions that do not appreciate the international leasing transaction.

v Third party claims or suits – This is normally as a result of insufficient or little knowledge about leasing; especially tortuous claims in respect of the leased equipments like negligence and accident claims where the equipments financed are motor vehicles. Ordinarily the master lease agreement and the schedules make for the provisions to the effect that risk passes to the lessee. However such third party suits come as a result of the fact that; a) There is no independent registry for lease equipments especially automobiles for registration. This would help in providing the central registry where searches can be made before commencing the suit to ascertain the proper party to sue. b) Since the ownership has not passed under leasing the equipment like the vehicle would still be registered in the names of the lessor. c) The vehicle is normally is driven by the servant of the lessee of the lessee himself, a fact not known to the accident victim. d) This brings about increased costs of litigation on the victim and the lessor amending pleadings when such facts come out which might in turn drag the suit for a long time in court. v Repossession. In many leasing transactions, the lessor’s reversionary right constitutes its security interest in the goods. Since the value of the reversion depends upon the goods being properly maintained, close attention needs to be paid to the maintenance requirements. However, due to the specialty of the equipment, the lessor especially the leasing company under finance lease may not have the technical expertise to maintain. This becomes problematic at the recovery time when the valu of the equipment hugely depreciates for lack of proper maintenance. To mitigate such risk, the lessee is subject to onerous provisions in the lease agreement that makes the whole transaction complex making litigation inevitable. The capacity to repossess the leased assets when the lessee is in default is an important risk mitigation tool not only for the lessor but also for the development of the leasing industry itself. Much as the civil and commercial litigation rules are structured in a way that accommodates judicial assistance to repossession of the lease equipment, the reality is that the delays in the judicial process are often so great that the equipment has so declined in value that the recovery is economically meaningless. Additionally, the present value of the sums realized upon such delayed disposition of the asset makes the effective recovery even worse. Although there will always be there infuriating lessee that just refuses to cooperate when he is default not only with the lessor but also with the courts, the lessees in Uganda still have the mind-set that they are buying the equipment and that the leased equipment “is theirs”. This makes litigation a battle field for determining ownership, a situation that would not have happened, had the lessees been oriented on the nature of a lease transaction.

v Feasibility of recovery Normally the legal remedy in case of the event of default is repossession and sale of the leased equipment or realization of the security. Most of the equipments financed are mobile. The lessor may not be able to trace the equipment for self-help. Costs involved eg in repossessing a combine harvestor from rural areas is high. Most times the equipment has been tapered with engines or other vital parts of the equipment. This is coupled with the difficulty in disposing off specialized equipment results in realizations below the estimated market value. This bleeds conflict between the lessee and the lessor when the lessor seeks to recover the balance of the unpaid rentals. Some equipments are unique, imported only for the lessee’s use, hence no market for the equipment. This is further aggravated by old modeled or archaic technology which the lessee wanted but not marketable once the lessor has repossessed.

v Unique accounting Principles The accounting principles employed in finance leasing especially in preparing ledger postings by the lessor are unique and complex to be apprehended by lessee let alone court. This bleeds claims like over changing because of failure to appreciate the concepts of accounting in leasing. This is aggravated by the courts’ unwillingness/slowness in adapting to the new concepts.

Additional challenges

v Lease Administration. The administration of the lease is so complex especially where expertise is required to supervise the lessee in the use of the unique equipment. The lessor may not have the expertise in such equipment which calls for hiring expertise to supervise eg laboratory equipment, combine harvesters, Fixed plant may raise the question of ownership if a chattel becomes fixed to the land it may form part of the freehold and so belong to the landlord. If the Lease is registered (that is if there is a lease registry) the lessor should be entitled to a summary repossession procedure under O. 36 Rule 1& 2 of the Civil Procedure Rules.

History & Nature of Torts

THE HISTORY OF TORTS. A tort is defined by Winifield and Jolowicz as a civil wrong for which the remedy is a common law action for un liquidated and which is not exclusively the breach of contract trust or any other equitable obligations. The development of the law is closely related to the development of society. In society people organize themselves in different ways. They have institutions that assist in the running of the society. GENTILE SOCIETY. This society was organized on the basis of clans and produced on a collective basis. This was in response to the fact that they had limited skills and instruments of production so they had to work together to sustain themselves. They lived in a natural economy as opposed to a market economy. Today human beings have developed to a level when they can produce their own means of production and can manipulate nature to their advantage. The stages of development were savagery where they had no skills at all and just appropriated nature to survive. The middle stage of savagery is marked by the discovery of fire, then the club and spear. In the upper stage of savagery they made bows and arrows out of polished stone and hunting became established. In the lower stage of barbarism there was pottery, weaving and the domestication of animals/agriculture. In the middle stage there was introduction of bronze tools and weapons. It was then that division of labour began. In the upper stage of barbarism there was iron smelting and this led to large-scale agriculture. It also increased the effectiveness in war. The final stage was civilisation. At each of these stages productivity of labour developed and there was development of skills. Because of the collectiveness of the production political organisation also became collectivist. It was a classless society based on kinship ties. In many societies the clans were totemic. They were governed by taboos as a means of social regulation. They were cohesive and conflict was minimal. They were democratic and had no laws because they had no government to institute the laws. Many of the civil wrongs that today make up the corpus of tort law were nonexistent. SLAVE SOCIETY. These were differentiated in classes and were organised in states. When people became able to produce in surplus it became possible to sustain a class of persons who were not producing anything. The barbery stage then fades in to civilisation. They had leisure and time to think which led to discoveries like writing. It was the persons who learnt to write who became philosophers. As a result of the fact that they were not engaged in production their philosophies were idealist. They were aimed at projecting their status of life. They regarded mind and spirit as primary and matter and life as secondary. To hem thinking was primary and labour was secondary. This resulted in classes as the philosophers started appropriating the wealth of those who produced under slavery. Those who owned property became the minority with no way of directly asserting their will on the majority. The only way they could do this was through the state as an instrument of coercion. It is important to note that not all societies were slave societies, in places like Africa there was a mixture. The mode of production was slave labour which was owned by the minority in society. They had private means of production like land owned by the minority free men on which the slaves worked. The state had a number of instruments like the prisons to impose the will of the minority on the majority. Law developed as an aspect of the state to sanctify the unfair relations. It bound the slaves to work for the masters. The state was not sufficient so they developed ideology to back it up. This was in the sense of false consciousness. It was against this background that the philosophies thrived. This ideology later achieved social prejudice as a way of maintaining the supremacy of the minority. Roman law had already begun to develop delicit that was the basis of tort. It began to reflect the interests of society, it promoted inequality in society. 90% of society had no rights and no remedies for injuries to person and property. Whichever law developed was for the benefit addressed the 10% who had property and rights. These could get remedies if they were injured or their property rights were violated. The law that was produced was a class law designed for a class of persons. The slaves could only benefit from incidental protection. Today the law plays an ideological role. Unlike during the period of slave society the law is not open about the inequality it perpetuates. The issues of human rights and principles of equality before the law it perpetuates the false notion that people are actually equal before the law and generally in society. Eventually slave societies collapsed because the empires had become unsustainable. The slave population became too small to sustain the majority who were not participating in production. As the slave were exploited trade developed in the Roman Empire. The slaves had therefore to sustain all the trading partners. The Roman got slaves from conquest but as trade developed war and conquest ceased to be viable sources of slave labour. This inevitably led to a decline in the slave population. The rate of reproduction among the slaves was also very low because of the high proportion of males. Later slaves could be freed which further depleted the population of slave labour. This made the large-scale agricultural estates unsustainable. The Romans were overrun by the Barbarians. It was out of the ashes of the slave system that the feudal mode of production evolved in Europe. The large-scale agricultural units collapsed in to smaller units. The slaves scattered and sought patrons and lived in what came to be called colonii. They lived together and shared common facilities. It was out of these societies that the feudal system developed. FEUDAL SOCIETIES. 800AD to 1450AD. When the Roman Empire collapsed all urban life collapsed and people reverted back to rural conditions. This was when the common law system began to emerge forming the foundation of today’s legal system. The economic base was feudal land ownership (serfdom). The serfs were the direct producers and were tied to the land. Production was agricultural and the water wheel, harness, and the plough were the main instruments of production. It was possible to use animals as it was mainly small scale agriculture. There was scattered handcraft industry. It was a natural economy and they produced use values for consumption. The main economic unit was the manor which developed from the colonii. There were landlords who owned large estates of land occupied by serfs who produced the means of production. The serf produced for his own sustenance and also for the landlord. They engaged in surplus labour. There was also common land for grazing. Exploitation here was based on land ownership and the landlords extracted the surplus from the serfs in the from of rent for the use of the land. This rent was payable in various forms including labour or produce. Guilds also later developed and were under guild master who had apprentices and journeymen working for them. Guilds engaged in pottery, weaving and blacksmithing. In the countryside they had the cottage industry doing the same. The feudal state was part of the economic structure. Here there was also the hegemony of the church. The church was the largest land owner and had a lot of political power. The feudal state was highly decentralized with the feudal lords wielding a lot of power. The monarchy was the first among equals and though the serfs were not slaves in the sense of being owned by the landlords they were tied to the land by law. DEVELOPMENTS OF THE LAW IN THIS PERIOD. Feudal exploitation depended on land ownership. The law therefore was preoccupied with protecting interests in land. This was opposed by the Magna Carta of 1215 which was in a sense an early version of a bill of rights. It tried to protect the rights of the serfs. The developed writs which were in a sense the causes of action. A writ is a way of starting a legal action and covered various forms of conduct which was considered to be actionable. If no writ covered a particular situation then the person had no remedy in law. The la w of torts as it exists did not exist until about 1280. Court action could be begun in two ways: by the individual (appeal) and by the state (indictment). Note the strong language of criminal summons as opposed to the “humble prayer” of a plaintiff in civil actions especially petitions. All cases were regarded as criminal and there was no demarcation as we have it today. Private actions were risky because they could be tried by battle and if one lost they could lose their property or even be sent to jail so the indictment was very popular. Towards the 13th century the writ of trespass was introduced and it was the foundation of all torts and it was both civil and criminal. It was designed to address serious breaches of the peace. Trespass was both civil and criminal because if successful it ended in the compensation of the plaintiff and punishment for the defendant. As society developed there arose situations where trespass was not a direct consequence of the actions of the defendant and could not be remedied under the traditional writ of trespass. The courts created a writ analogous to trespass to remedy consequential trespass i.e. trespass on the case. Trespass on the case is what developed in to negligence to remedy consequential harm. In its early stages it was limited to persons carrying on common callings e.g. innkeepers, blacksmiths, journeymen and common carriers. The law further developed to apply to a person not because they pursued a common calling but because they undertook to perform something. This was called assumpsit and laid the foundation for the law of contract. Case expanded to cover other feudal interests like the writ of debt, the writ of detinue and account. Detinue was the wrongful detention of a chattel and was usually against a bailee. The writ of debt was used to recover money, the price of goods, money from a surety, money promised under a sealed document and statutory penalties. Covenant dealt with undertakings under seal. The writ of account dealt with accountability. It was usually brought by feudal lords against baillees who collected for them rent from their estates. What is to day called assault, battery and theft were covered by trespass because there was infliction of physical injury. When there was trespass intention was immaterial. False imprisonment was handled as a battery since there was application of force directly. This was aimed at protecting the rights of mobility granted by the Magna Carta. Malicious prosecution was not distinguished from false imprisonment but when it was it was called a writ of conspiracy. The writ of nuisance was designed to protect immovable property from interference especially land since it was the most important form of property. The writ of defamation begaun as a criminal case. It was not available for the peasants in the beginning since they did not have a reputation to protect. It was aimed at protecting the state from ridicule but even private individuals could benefit from its protection. The manorial courts had jurisdiction to hear these cases until they were taken over by the king’s courts. The court of Star Chamber had exclusive jurisdiction to hear defamation cases. The king’s court punished defamation and the ecclesiastical courts punished slander. The general characteristics of tort liability. · In its initial development, it was criminal but later took on a quasi-criminal nature. · When the common law begun to develop civil liability it was based on an act causing harm. it had to fit in a given writ to be remedied. Writs were designed to address particular interests and issues of serfs were not considered. · It did not make a distinction between careless, intentional and accidental wrongs. It was in the nature of strict liability. The period of mercantilism 1450 -1700. This was a period of great change. In this period feudalism was fading and capitalism was taking centre stage. It was marked by the rise of towns and merchant capital. Trade developed out of the expansion of guilds. The merchant class emerged and became differentiated from the guilds. Trade towns developed based on fairs. Trade fairs were temporary markets. It was still a natural economy and trade could not have permanence. As the fairs became permanent trade towns developed. The merchants then begun to penetrate the feudal economy. · Serfs and peasants engaged in the cottage industry and the merchants supplied them with the materials for production and bought the products from them. · The merchants begun selling luxuries to the feudal lords and money penetrated the feudal economy. There were natural limits to feudal exploitation but when money came in the nobility desired the luxuries supplied by the merchants and the level of exploitation escalated. This led to the peasant riots which rocked Europe during this period. The merchant class was growing much richer and superseded the nobility. The feudal arrangement was not compatible with a money economy so the lords begun to ask for money rent which made the serfs free to work elsewhere to earn the money to pay the lords. They then lost their ties with the land and became free peasants. This infiltration of money into the feudal economy led to the development of an exchange economy which enriched the merchants at the expense of the nobility. The people in the country side ceased to be self-sufficient and the feudal economy died. 2. The development of manufactories. In the beginning merchants supplied raw materials to the cottage industry and bought products from them. They later consolidated the manufactories in to manufactories. They were different from the modern factories in the sense that there was no division of labour, the direct producers owned the means of production and there was no wage labour. Manufactories led to commodity production that facilitated the exchange economy. Enclosure movement. This completed the process in that there was an unprecedented expansion in the manufacture and trade in wool, which was highly priced. Capitalist farmers engaged in the production of wool inn the countryside. Because of the high prices of wool, the capitalist farmers enclosed the countryside to make sheep rands. The free peasants were uprooted from the countryside and became labour. It led to the emergence of a labour market in the urban areas. This led to a larger market, which facilitated an international economy. The enclosure movement went hand in hand with the disruption of the feudal system and affected the church as the largest landowner. The transformation in feudalism also took the from of a reformation in the church. International trade. Trade in the beginning was international and occasional in nature. When international trade begun in Europe it took the form of plunder and brigandry. The exploration of a route to the east begun in search for silver and gold as the mines in Europe were exhausted. Silver and gold were used as money and thus were very important. This led to the establishment of the triangular trade. Because of the expansion in trade the merchants became very powerful. The merchants begun to combine with the monarchy in the state. The monarchy sold charters tot trade to the merchants and the merchants extended credit to the lords that led to the accumulation of the public debts. They established a central bank to take care of the public debt. This weakened the feudal nobility and the merchants rose to power. The feudal kings relied on the merchants and abandoned the nobility. This led to the emergence of despots because the nobility could not control the kings and yet the merchants also did not have the power or the goodwill to restrain the kings. This period ends when industrial capital is coming in leading to revolutions. Developments in the law. Economic activity became more and more socialized. An exchange economy developed over the natural economy. The common law begins to absorb principles of law developed by the merchants ( lex macartoria). The merchants moved from community to community, had their own laws and their own courts called fair courts or dust courts to solve their conflicts in trade. The common law courts did not handle issues related to commercial transactions which were alien to the natural economy. The merchant law principles developed separately and applied throughout Europe. As trade developed the merchant courts begun to merge with the common law courts. The common law courts then became able to adjudicate in commercial transactions. This strengthened the bond between the nobility and the merchants. The law of contract was firmly established. The law of tort also developed to cover new areas for example transport and injuries in manufactories. This period witnessed important political developments. The overthrow of feudalism was manifested in the reformation by Henry VIII. The church as a powerful ally of the state was overthrown. There were also bourgeois revolutions to establish constitutional arrangements. The law of tort developed to cover malicious imprisonment, defamation etc. owing to the fact that this was the first exchange economy it produced principles suited to the exchange economy. Trover was developed to cover situations were the defendant was willing to return a chattel but had either willingly or wrongfully damaged it or parted with possession of it. The essence of the action was not wrongful detention but failure to return it,. This is what is called conversion to day. Mis-feasance. This was intended to cover breach of contract. The common law developed a mature concept of contract. They were not conversant with commercial transactions and were not sure which type of contract was enforceable and which ones were not so they developed the concept of consideration in order to deal with the question of enforceability. Detinue at first was limited to bailment but was later extended to cover situations were the defendant refused to return a chattel when it was demanded by the plaintiff. The mobility of chattels had led to a transformation in the law. Debt was also extended to cover a wider variety of debts. Liability for dangerous things was also established. An action on the case could be brought against someone who engaged I dangerous projects on his land irrespective of intention to cause damage. Trespass at that time did not have regard to questions of intent or accident. Because of the rising populations injuries were more intentional than not soothe concept of strict liability developed to address such situations. It was adjusted to cover negligence. Defamation continues as a crime and includes sedition. It was crucial for the survival of the state because of the upheavals that rocked Europe at the time. The law of defamation and sedition were perfected at this time. In this period printing had begun and there was a need to control publication. Defamation had begun in the 16th century as a common law action. A person could bring an action for defamation. Ecclesiastical courts handled the less serious forms of defamation so there was competition with the kings courts. However, the church did not award damages as the common law courts did. As the tort developed the essence of the case became damage and not the words. The feudal nobility were prone to gambling and dueling. They did not understand the action so they turned it into a way of making money. The courts were forced to formulate the action in more precise terms. I.e. · Truth was a defense. One who spoke the truth was not liable. · There must be publication to a third party and this was intended to exclude mere insults. · An action for defamation does not survive a plaintiff for the benefit of his estate. · There was a distinction between libel and slander. Malicious prosecution. In 1589 a writ of conspiracy had been established. Conspiracy became the action for malicious prosecution. The essence of the action became damages and not the conspiracy. It covered issuing of malicious warrants against people. Lovett V Faulkner. In this case the court held that the action could not lie against one who reported a case of treason. In a later case it was reversed and the court held that when one brought a case of treason against another maliciously they were liable in malicious prosecution. Walter V Smith In the 1858 case of Knight V King the court held that the essence of the action was not the conspiracy and even one person could be sued. · In Saville V Robert the court held that the plaintiff must have suffered damage to his name or property in an action for malicious prosecution. · There had to be express malice and iniquity. · The ground of the action was not conspiracy and it could be brought against a single person. · No action could lie in a malicious civil action because the court would award damages to the successful party. · The proceedings relied on must have terminated in favour of the plaintiff. INDUSTRIAL CAPITALISM 1700 – 1870.

This period was distinct from those before it because it was characterized by commodity production based on wage labour on the one hand and private ownership of means of production on the other. Production is by machinery and factory system on the basis of competition. The social basis for the capitalistic production had been laid in the period of mercantilism through primitive accumulation. This was done through unequal exchange, brigandage, long distance trade etc. The technical developments were furnished by the industrial revolution which was marked by extensive invention especially in the textile industry. In this period manufactories were superseded. The aim of production was profit and accumulation of surplus value. The initial form of capital was user capital. The capitalists bought commodities and resold them at a profit. There was exploitation of labour which led to struggles between labour and the capitalist over the level of remuneration, working conditions etc. as a result the capitalists accumulated a lot of wealth and controlled the state. This led to bourgeoisie revolutions in a bid to establish democracy and republican rule. There emerged the ideologies of freedom, equality and liberty. The monarchy either accepted the dictates of the bourgeoisie like in England or resisted and got thrown aside like in France. Developments in the law. There was a greater magnitude of risks of injury especially in the factories and out of the transport system. The working class lived in horrid conditions because they were at the mercy of the profit oriented capitalists. There was also mass production as a result of the industrial revolution, which heightened the risks to consumers. The capitalists were in frantic competition and needed to survive. They were not ready to reduce their profits to pay workers or pay them compensation for any injuries. The law was preoccupied with the protection of capitalists at the expense of other classes of society. There was introduction of democracy and the state is somewhat liberalized. The law of defamation was relaxed. Trespass became a personal action. Many of the injuries that occur are not remedied because the law is preoccupied with preserving the profitability of the capitalists. Developments in the law of defamation. This time there were developments to try and put aside the law especially in regard to public affairs. The law creates a lot of defenses to the action of defamation. There was a representative government and public affairs had to be discussed even the conduct of public officials. They had public rallies with a lot of freedom of speech. In 1840 there was a Parliamentary Papers Act, which provided for freedom from defamation liability for publishers of parliamentary papers. In 1843 Lord Campbell’s Act allowed an apology to be pleaded in mitigation of damages in an action for defamation. In 1868 there was the case of Wason V Walter, which accepted an apology to be pleaded in mitigation of damages for defamation. It extended the defense of qualified privilege to publishers of independent paper reports of parliamentary proceedings. In 1881 the Newspaper Libel Act had a lot to do with criminal defamation. It provided that where there was an accurate, fair and un malicious report of proceedings at a lawfully convened public meeting, such a report would be privileged even if it contained defamatory matter as long as the editor allowed the person concerned a chance to explain in the next issue of the paper. Summary of developments during this period. The law was concerned with the protection of private enterprise. In order to achieve this, three defenses were developed. · Common employment. · Contributory negligence. · Voluntary assumption of risk. These were used to reduce the liability for injuries. Vicarious liability also became established during this period, thus widening liability. A person was held liable for the torts of another on the basis of the legal relationship between them (Principal/ agent, Employer/ Employee relationship). The Principal/ Employer/ Master was made liable for the torts of his agent/ employee. This was because torts in industries were more likely to be committed by employees than employers. Therefore employers were made liable in damages for torts committed by their servants in the course of employment. Common employment. A workman could not recover damages against his employer (vicarious liability) for injuries caused to him by another workman in the same employment. In this way the benefits of vicarious liability were denied to employees in the industries. This development was due to the fact that the majority of accidents were caused by fellow employees Contributory negligence. If a person was injured as a result of the negligence of another person but the victim in some way contributed to his own injuries the courts could not allow him to recover damages to the full extent of his injuries. This was therefore an absolute defense at that point in time. Voluntary assumption of risk. If one consented to risks he could not recover damages in respect of the resultant injuries. This was used by employers to prevent workers in factories from recovering damages in respect of their injuries. The employers claimed that the employees entered employment knowing the risks they faced. Strict liability. Rylands V Fletcher. The law developed strict liability in relation to the use of land. It was designed to redress disputes amongst property owners. If one committed a tort he would be liable even if he had put in place precautions against the tort or had good intentions in committing the same. Capitalism was unplanned and the competing use of land was bound to result in injuries to some people, which made strict liability necessary. It was limited to the protection of property owners through recovery of damages to property and was not extended to personal injuries. Qns: 1. Discuss the developments in the law of torts during industrial capitalism and give reasons for those developments. 2. “The development of the law of tort during the era of industrial capitalism was influenced by the principle of welfarism more than capitalism.” Discuss. THE PERIOD OF FINANCE CAPITAL. This was a period of monopoly capital. It emerged from industrial capitalism which was geared towards profit accumulation. There was a lot of competition and massive technological innovation. Because they produced for an unplanned market and due to stiff competition some industrialists were out competed, undercut, forced to sell their capital or became subsidiaries of bigger enterprises and monopolies begun to emerge. This was due to the cost of production. The price of raw materials was rising and monopolies had to be organised to control the price of the raw materials. Monopolies emerged through two main processes: centralization and concentration. Concentration is the process of accumulation (ploughing back the profits into production in order to accumulate value.) it is a quantitative process. Centralization is a qualitative process. Capital already accumulated is spread among smallholdings that are merged into bigger units e.g. cartels that are more qualitative as smaller units. The two processes affect each other: after accumulation, there is a better position to centralize. These processes resulted in to monopolies and since they grew out of competition they became self- enhancing and they grew bigger and bigger in to international monopolies. The new role of banks. The formation of monopolies also occurred in the field of banking. Bigger banks took over smaller ones. Through credit facilities, they became universal keepers and distributors of capital/ means of production. They accelerated and intensified the process of centralization and concentration through the credit facilities. They determined which enterprise should be funded and this favoured the big monopolies at the expense of the small firms. The high profile of the banks is reflected in the collapse of the stock exchange. This was because they collected large sums of money through extending credit, discounting bills of exchange and maintaining current accounts. Finance capital This was not money capital but a social phenomena that occurred in the 1870’s. One of the most important developments in this period is the emergence of a close connection between the banks and the industries. Previously banks had been intermediaries for deficit and surplus budgets. Banks developed a close relationship with the industries through their multiple dealings with the industries which enabled the banks to obtain fuller and more detailed information about the economic conditions of those enterprises. In the result, the industrial capitalists became more and more dependent on the banks. There was thus establishment of personal links between the banks and the big industrial and commercial enterprises, acquisition of shares and appointment of bank directors to boards of directors of the commercial enterprises and vice versa. This is enhanced by appointing government representatives and civil servants to boards of these industries. The result is that banks hold shares in industries and industries hold shares in banks. There is a “merger”. There is no independent bank capitalism and industrial capitalism, thus forming a new form of finance capital. Banks developed division of labour amongst themselves, i.e certain directors for certain areas in industry and also developed research units to improve on production. The concentration of production and the monopolies arising there from, the merging of coalitions between banks and industries, is the history of the rise of finance capital. The export of capital Capital that was concentrated in Europe could not be used profitably due to over production (capitalist production became more and more capital intensive and the labour variable reduces) which lowers prices and the wages. There was need for cheap sources of raw materials and the need to control such sources. Capital was exported, on the basis of monopoly, from Europe to open up new markets, new sources of raw materials and infrastructure in those areas. Division of the world amongst monopoly companies As a result of the potential export of capital, the monopolies that emerged divided the world amongst themselves. They curved out sphere of influence for themselves where they could export capital exclusively and acquire raw materials cheaply to maintain their monopoly power and keep out others eg I.B.E.A.Co. Partition of the world The division of the world between companies could only be guaranteed by the state and its power of coersion acting on behalf of the monopolies. This was the essence of imperialism and colonization. LEGAL DEVELOPMENTS With the export of capital to places with cheap raw materials and access to markets, supernormal profits were earned. These profits provided an opportunity to make concessions that were necessary for capitalism to continue. This was because the conflict between the capitalist and the working class has sharpened. By the mid 19th century and onwards the working class had organized themselves into trade unions and socialist parties to overthrow capitalism. They cultivated socialist ideologies like Marxism and socialist revolutions. Capitalism was therefore under siege and it became necessary to make concessions to the working class to alleviate their living conditions and maintain capitalism. The concessions are represented through welfarism to benefit the working class. There were unemployment benefits, compensation in case of injuries and insurance to protect the working class. These were not based on tort but statute. Within the law of torts the concessions were represented in the relative liberalization of the law. a) There developed liability in negligence based on fault which was a broad basis of liability for the manufacturers, liability in negligence based on statute and the law was no longer exclusive b) The defenses of common employment, voluntary assumption of risk and contributory negligence were modified: - Common employment and contributory negligence were modified by statute. Contributory negligence was no longer an absolute defense. Rather the damages a plaintiff receives are reduced. Common employment was abolished by statute - The courts modify the defense of voluntary assumption of risk. Court imposed stringent measure for it such that it no longer afforded much protection to the industries. c) The new technological developments as a result of the industrial revolution produced new risks. The chemical industry was invented and became the basis of manufacture. This led to mass production of consumer products, which presented new risks to the consumers due to the quality of products. Product liability was developed to safe guard consumers, which became the basis of the law of negligence. See Donogue V. Stevenson d) There also developed liability for negligent misstatements mainly in respect of banks that gave investment advice and other such firms. See Hedley Byrne & Co. V. Heller Relationship between the law of tort and insurance: Insurance provided an opportunity for people to insure against new risks that technological developments presented. There was social insurance by the welfare state e.g motor accidents insurance and health insurance. LAW OF TORTS IN UGANDA With the exportation of capital to Uganda, it was imperative that the legal system be exported as well. In Uganda English law was received as it was on the 11th of August 1902. Although the legal principles theoretically existed, the actual practice was lacking. Torts like product liability are not compensated because of financial constraints. RECEPTION AND EVOLUTION OF ENGLISH LAW IN UGANDA Uganda was declared a British protectorate on June 18th/ august 21 1894. sir Harry Johnson came as a special commissioner to negotiate the 1900 Buganda agreement and it was regarded as the first constitution. In 1902, we had the Uganda Order in Council which provided that the jurisdiction of the court would be exercised so far as circumstances permitted upon the principles of and in conformity with the substance of the law for the time being in force in England. There was no parliament or law making body but the administration was governed by the OIC. It thus brought in the English law. The OIC, (1) established the high court of Uganda. (2) Through its amendment in 1911, it clearly provided for the date of reception of the law of England. (3. It introduced the repugnancy doctrine. The court had jurisdiction to hear non natives and cases which involved a native and a non native. The 1911 amendment is important in the sense that it established the date of reception of English law, that is, 11th August 1902. Any law existing in England as at 11th August 1902 would be the law enforced in Uganda. Jurisdiction was to be exercised in conformity with the substance of the common law, doctrines of equity and statutes of general application in courts in England on 11th August 1902. The 1902 OIC brought in law though of English origin but from India. It provided that civil procedure, criminal procedure and the penal code of India except so far as it may otherwise be provided would apply in Uganda. it remained the substance of the law till 1962. The Judicature Act 1962 was made by the parliament of Uganda by then. It provided in sec 2 that the substance of the common law of England, doctrines of equity in force in England on the date of reception shall continue to apply provided the said common law, doctrines of equity and statutes of general application shall be in force in Uganda only so far as the circumstances of Uganda and its inhabitants permit, subject to such qualifications as local circumstances may render necessary. The Judicature Act 1967, ended the statues of general application as the laws applicable in Uganda. this was not in expressed terms. It was simply an omission on their being mentioned. See UG motors Ltd v Wavah Holdings Ltd. Art 20, of the 1902 OIC provided as follows: in all cases, civil and criminal to which natives are parties every court case shall be guided by native law so far as applicable and is not repugnant to morality or inconsistent with any OIC or ordinance or regulation or rule made under any OIC or ordinance. In summary, the law applied is categorised as statutory law: principal and subsidiary law, also known as written law customary law, other than criminal law applied law: law which is made by British parliament and accepted by the judicature statute doctrine of equity note: see 1st schedule of the judicature act for applied law. See interpretation act for definition What is common law? How did common law become part of the law applied in Uganda? what are the present guidelines/ principles to the application of common law. Common law is the common sense of a community crystalised and formulated by our ancestors. It’s the customary law uniformly accepted in society. It evolved through certain courts in England through their administration of justice. They recognised and applied certain customs as being uniform. Thus its either: the system which puts emphasis on legal decisions (the doctrine of precedent) or common law according to common law countries and is civil law. The Africa Order in Council of 1889 required the consul to exercise jurisdiction in conformity with the substance of the law in England. Specifically for Uganda it was the 1902 OIC. These continued to operate till independence when they were repealed and the judicature acts came in to carry on the substance of the application of the common law. Guiding principles in application of common law “substance of the common law”-court does not apply the whole common law but the substance of it applied only in so far as the circumstances permit if there is a conflict between the rules of equity and common law, the rules of equity prevail because the principles of equity(natural justice) are more acceptable and less alien than the common law. The MCA sec 10 (3) says if in any cause or matter there is a conflict or variance between the rules of equity and rules of common law with reference to the same subject matter, the rules of equity shall prevail. The contract act sec. 3 specifically provides that the common law of England shall apply.