Jacob Stephen v. Coast Commercial Co., H.C. Misc. Civ. App. 14-DSM-71, 25/5/72.

 

Jacob Stephen v. Coast Commercial Co., H.C. Misc. Civ. App. 14-DSM-71, 25/5/72.

Held:   (1) The transferee of a business is liable for all the debts and obligations of the transferor in respect of that business at the time of transfer unless notice of the intended transfer has been published in the Gazette or a prescribed newspaper, In accordance with Section 2, Transfer of Business (Protection of Creditors) Ordinance, Cap. 398.

(2) However it is not open to a creditor who has obtained judgment against a debtor to execute his decree by resort to attachment of property owned by the transferee of the debtor’s business, without first obtaining judgment against the transferee himself.

(3) The High Court has the inherent power to review orders of lower courts, whether appeal able or not, which are perverse or contain grievous errors of fact or law.

            MWAKASENDO, AG. J. – The appellant in this case, one Jacob Stephen Haule appeals from an order of the District Court of Dar es Salaam made under rule 57, 0.21 of the Civil Procedure Code. Before coming to the issues raised by this appeal, I will first give a brief outline of the background facts of the case. One Frederick Alexis Mwalinde Mutafurwa, is a businessman trading as the Coastal Commercial Company. During the year 1968, Mutafurwa, trading as Coastal Commercial Company (hereinafter called “the plaintiff Co.”) sold and delivered goods on credit of the value of Shs. 1,654/70 to the defendant, one E.C. Haule, a tradesman doing business at shop No. 27, National Housing Corporation Estate, Keko. Payment for this sum was demanded by the plaintiff Co. but the defendant neglected or refused to pay. Consequently the Plaintiff Co. sued the defendant for the recovery of the aforesaid sum. On 31^st August, 1970 the Plaintiff Co. obtained an exparte judgment and on 15^th day of October 1970 applied for the execution of the decree. The District Court issued the attachment order five days later, that is, the 20^th of October 1970. The attachment order commanded the Court Broker to attach the movable property of the judgment debtor which were set forth in the Schedule to the order as furniture, shop goods at shop No. 27, N.H.C. Keko, ad all motor vehicles of the judgment debtor. The property of the judgment debtor was duly attached in execution of the decree and the Court Broker made a report accordingly to the Court on 7^th November, 1970.

            On 21^st November, 1970, the appellant Jacob Stephen Haule filed in Court an objection to the attachment of the attached property. The objection was made under Rule 57, 0.21 of the Civil Procedure Code. The objection filed by the appellant was fully investigation by the Court but at the end of the investigation the court ruled against the objector on what is stated in the ruling t be a point of law. The ruling is a short one and may conveniently be set out in full:-

            “The applicant applied that the order of attachment of goods per inventory dated 7/11/1970 annexed to the chamber application be lifted as the said property belongs to him and not to the judgment debtor in civil case 2579/68. I wish to dispose of this application on a point of law which the respondent has raised. Under Cap. 398, Transfer of Business (Protection of Creditors) Ordinance, Section 2 (b) states that transferees of business shall be liable for all debts and obligations for which the transferor thereof is liable in respect of that business at the date of the transfer unless notice of the intended transfer has been published in the Gazette. The learned Counsel for the applicant raised a very appreciable point that an ordinary man is not expected to know the formalities involved in business transfer. I should first point out to the learned Counsel for the applicant that Cap. 398 is “intended” to protect creditors on the transfer of a business. So that in my

Opinion Section 2(b) of Cap. 398 which section deals with the liability of transferees in respect of the debt of their transferors of businesses unless of course the transferees had published a notice in the Gazette. The rationale of imposing absolute liability on the transferees is to make them take heed of fraudulent transferors who would sell their business in order to defeat their creditors’ demands. So that in the absence of such notice being published in the Gazette or a national newspaper, the judgment debtor still held himself out to be the owner of the business since his creditors were ignorant on the fact that he had already sold the business to the applicant. So that under Section 398 (2) (b) and on the principle of holding out, I reject the application.”

            The appellant takes great exception this ruling …… [The court reproduced the grounds of appeal and then continued].

            Perhaps at this stage I should deal briefly with the evidence adduced by the objector/appellant in support of the application. The objector stated that he objected to the attachment of the goods in shop No. 27, N. H.C. Keko on the ground that the goods in the shop belonged to him, as licensee of the shop and owner of the goods therein, and not to the judgment debtor. He disclosed to the Court that he became owner of the shop on 6^th June, 1970 as a result of the goodwill of the business and the goods of the shop being sold to him by E.C Haule, who as we know was the defendant/judgment debtor in Dar es Salaam District Court Civil Case No. 2579 of 1968. The objectors produced receipt and other documents as evidence of the transaction of sale.

            The question whether the plaintiff Co. Creditor could validly attach the trade goods in shop No. 27, N.H.C. Keko at the time when he did. Counsel for the Plaintiff Co. has justifiably argued that although the goods in the shop were at the time of the attachment owned by the objector, the objector as transferee of the goodwill and business formerly owned by the judgment debtor, was by virtue of the provisions of Section 2 (b) of the Transfer of Business (Protection Creditors) Ordinance, liable to the Plaintiff Co. for the judgment debtor’s debts or obligations at the date of the transfer of his business to the objector. Section 2 of the Transfer of Business (Protection of Creditors) Ordinance, Cap. 398, reads: - “…… every person who after the date of the coming into operation of this Ordinance acquires: - (a) the goodwill; or (b) the whole or substantially the whole of the property of any trading or manufacturing business or any business or any business of a like nature shall, notwithstanding any agreement to the contrary, be liable for all the debts and obligations for which the transferor is liable in respect of that business at the date of the transfer unless notice of the intended transfer has been published in accordance with the provisions of section 3 not less than two months or more than six months before the date when the transfer is to take effect.”

            It is not disputed in this case that on or about the 6^th of June, 1970 the appellant acquired the goodwill and the whole of the trading business of the judgment debtor, E.C. Haule, by way of sale. It is further not in dispute that as on that date the judgment debtor, E.C. Haule was indebted to the Plaintiff Co. in the sum of Shs. 1,654/70. In fact this sum remained unpaid to the date of the attachment. It is also in evidence and not disputed by the parties

that when the sale of the judgment debtor’s trading business took place no notice of the transfer had been published either in the Gazette or in any prescribed newspaper. However, the question is, was the objector as transferee of the judgment debtor’s business, liable, for the debt or obligation of paying the sum of Shs. 1,654/70 owed by the judgment debtor to the Plaintiff Co. at the date of the transfer? In Mpanda General Agency v. Kassamali Kanji and Others (1964) E.A. 639, a case which involved the construction of the provisions of Section 2 of the Transfer of Business (Protection of Creditors) Ordinance, Mr. Justice Law (Law, j. as he then was) said in construing the word “liable” in the context of section 2 of the Ordinance, “I can see no justification for interpreting the word ‘liable’ in the restricted sense of ‘liable to be sued’ It is immaterial, so far as the defendant is concerned, whether Amor’s indebtedness rendered him liable to be sued on the date of the transfer, or whether his liability to be sued had been deferred by agreement, or by giving of a promissory note. The essential point is that ton October 10, 1960. Amor was under an obligation to pay a debt to the plaintiff. As I have already found that he defendant acquired the goodwill and substantially the whole of Amor’s property in his trading business if follows that ….. Amor was liable to the plaintiff for his debt or obligation existing at the date of the transfer of his business to the defendant, and the defendant is liable to the plaintiff in respect thereof.”

            I have no doubt that Mr. Justice Law’ interpretation of the word “liable” in Section 2 of the Ordinance is a correct one and I have no hesitation in applying it to the present case. Hence the answer to the question I have already posed would be that as the judgment debtor was liable to the Plaintiff Co. for his debt or obligation existing at the date of the transfer of his business to the objector, i.e. on the 6^th of June, 1970, the objector/appellant was as of that date liable to the Plaintiff Co. in respect thereof. I have however grave doubts as to the correctness of the Procedure adopted by the Plaintiff Co. in enforcing their rights against the transferee of the judgment debtor’s trading business. I do not think it is open to a creditor who has obtained judgment against a debtor to execute his decree by resort to attachment of the property owned by that debtor’s transferee of his business, without first going to Court and obtaining judgment against the transferee. What the plaintiff Co. purported to do in this case was to short-circuit the long process involved in obtaining judgment against the objector/appellant .This procedure, I must say, is novel but I can find no legal authority for it n the circumstances. Although the learned Resident Magistrate was perfectly entitled to deal with the legal issue raised by the Counsel for the Plaintiff co., she was wrong to rule against the objector on the basis of it. Indeed, I cannot see how the provision of Section 2 of the Transfer of Business (Protection of creditors) Ordinance could have been invoked in support of a wrongful attachment of property belonging to the objector, against whom there was no decree at the time.

            Before disposing of this appeal there is only one final point that I have to consider. Learned Counsel for the Plaintiff Co./respondent raised an important point of procedure. His argument is to put it briefly, that this appeal is incompetent on the ground that it being an appeal from an order from which no appeal lies to the High Court under the provisions of the Civil Procedure Code, vide section 74 as read together with Rule 57, 0.21 and rules 1 and 2, 0.40. As I have already found that the learned Resident Magistrate

Erred in ruling against the appellant/objector on the mistaken assumption that the provisions of Section 2 of the Transfer of Business (Protection of Creditors) Ordinance, which were in fact irrelevant, applied, I do no think the point raised by the Counsel for the respondent/Plaintiff Co. can be seriously entertained. While I concede that if the order from which this appeal originates was legally sustainable no appeal would lie there from, I am unable to agree that the same consequences flow from a perverse or irregular order. Suffice only to add that in the view of this Court, the High Court has power, inherent as well as under the civil Procedure Code, to review orders of the lower Courts, whether orders are appealable or not, which in the view of the Court, are perverse or contain a grievous error of fact or law. Were the Courts not possessed of this power, many a party would be denied justice, which those of us who sit here, are enjoined to administer without fear or favour to all who seek it.  

            Accordingly, I hold that the appellant/objector who undoubtedly was aggrieved by the order of the learned Resident Magistrate was entitled to have that order reviewed by this Court by way of an appeal, notwithstanding that no appeal lies from such an order under section 74 of the Civil Procedure Code. Consequently the legal objection raised by the Counsel for the Plaintiff Co. /respondent fails. In the result, appellant’s ground of appeal succeeds in toto and this appeal is therefore allowed with costs.