Uganda Court Ruling Causes Foreign Company Confusion

LB Correspondent

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A court ruling has opened the door for foreign companies to do business in Uganda without being incorporated or registered in the country.

The 21 May ruling by Justice Boniface Wamala in the Commercial Division of the High Court of Uganda, was made on an application by local mine operator Krone Uganda seeking dismissal of litigation brought by United Kingdom metals company Kerilee Investments over an export permit. That suit which had become complicated by the signing of a consent judgement in contentious circumstances.

Krone Uganda was represented by Bazira Anthony, a partner with Kampala-based Byenkya, Kihika & Co Advocates, while Kerilee Investments was represented by Wilfred Niwagaba MP, lawyer and current shadow attorney-general.

The judge did, however, set aside the consent judgement, due to what he called “conduct amounting to collusion”, and ordered further hearings to take place on the matter.

Registration and Incorporation

Krone contended that Kerilee’s suit was null and void because it was filed in 2015, whereas the UK company did not register in Uganda in 2017.

Wamala acknowledged that “the law is now well settled that a non-existent entity cannot sue or be sued under the law”, but questioned whether Kerilee was non-existent at that point.

“Once a company is incorporated, it obtains legal personality as against the whole world,” wrote the judge. “It is therefore the true position that a company incorporated in the United Kingdom can transact business in Uganda without having to go through any form of registration.”

He continued: “It follows that it has capacity to enforce its rights if they are affected in the course of doing business. Bringing and maintaining a court action is one major way of enforcing such rights.”

Wamala noted that the Companies Act No 1 of 2012 did not state expressly, or implicitly, a duty to register. “All it says is, if the company wishes to establish a place of business, then it must register. As such, non-registration under the said provisions does not disempower a duly incorporated company from transacting business in Uganda and from bringing or maintaining a court action in Uganda.”

The ruling “appears to contradict an earlier higher court (Court of Appeal) decision that if a company is not incorporated in Uganda, then such a company does not exist in Uganda as a body corporate” says Silver Kayondo, a lawyer and partner with Ugandan professional services firm Ortus Advocates.

 Implications and Appeals

The decision has “triggered debate on the actual position of the law” says Kayondo. In particular, the implications for business registrations handled by the Uganda Registration Services Bureau (URSB), the tax collection done by the Uganda Revenue Authority (URA) and the financial regulation handled by the Financial Intelligence Authority (FIA), especially for anti-money laundering and counter-financing of terrorism purposes.

It has also raised alarm among some in the business and legal communities who wish to protect the position of domestic companies from foreign competitors. That is a particularly sensitive topic at a time when the African Continental Free Trade Area (AfCFTA), of which Uganda is a member, is already due to open up cross-border business across Africa.

Despite the confusion, the ruling does at least clarify the interpretation of the Act when it comes to establishing a place of business notes Kayondo. “It also gives comfort to foreign companies that they can pursue their rights in Ugandan courts.”

It is currently unclear whether the ruling will be appealed, but “if filed, it would give the Court of Appeal another opportunity to re-visit the matter, hopefully, more comprehensively” he says.

The Court of Appeal decision would appear to be the precedent, but “it does not delve into a thorough discussion of the Ugandan Companies Act as the High Court ruling does. The High Court judge made an attempt to distinguish the Court of Appeal decision on privity of contract grounds”. Whether that remains as the position, remains to be seen, but for now, the ruling “causes more confusion on the correct legal position” Kayondo adds.

 

 

 


This article was first published by International Comparative Legal Guides

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