30TH COHORT

PRACTICAL
ASPECTS OF
COMMERCIAL LAW
LS 106

Compiled by: Jr. in Learning

2020
 TABLE OF CONTENTS
LECTURE 1
INTRODUCTION TO PRACTICAL ASPECTS OF COMMERCIAL LAW

LECTURE 2
COMMERCIAL AND NON-COMMERCIAL ENTITIES

LECTURE 3
COMPANIES

LECTURE 4 (A)
MANAGEMENT

LECTURE 4(B)
CONCEPT OF CAPITAL AND THE FINANCING OF COMPANIES

LECTURE 5
WINDING UP

LECTURE 6 (A)
REGISTRATION OF COMPANIES THROUGH ORS

LECTURE 6 (B)
REGISTRATION OF BUSINESS NAMES THROUGH ORS

LECTURE 7
THE LAW RELATED TO SALE OF GOODS

LECTURE 8
GENERAL PRINCIPLES OF COMMERCIAL CONTRACT

LECTURE 9
REVIEW QUESTIONS

LECTURE 10
AGENCY LAW AND BUSINESS TRANSACTIONS

LECTURE 11
PRACTICAL ASPECTS OF INTERNATIONA SALES LAW
LECTURE 12
REVIEW QUESTIONS

LECTURE 13
COMMERCIAL DISPUTE RESOLUTION IN TANZANIA

LECTURE 14
SELECTED FORUM FOR COMMERCIAL DISPUTE RESOLUTION IN TANZANIA

LECTURE 15
PRACTICAL ASSIGNMENT
 THE LAW SCHOOL OF
TANZANIA
INTRODUCTION TO PRACTICAL
ASPECTS OF COMMERCIAL LAW
LS 106
30 COHORT
TH
 INTRODUCTION
Commercial law:
Body of legal principles (statutory, common
law principles or established practices by
commercial lawyers)
Governing/regulating
Commerce/commercial transactions
NB: For purpose of this course commercial law is
what (i.e. practical issue) commercial lawyer do.
OBJECTIVES OF THE COURSE
At the end of the course you are expected to have full
grasp of the following skills:
Identification & analysis of practical
issues/facts
i.e. what to be considered when opting for
certain business organization vs legal and/or
financial implications
II. Identification & drafting of relevant
documents
i.e. required legal docs for the formation
of different b/organizations
OBJECTIVES CONT.
Demonstration of sufficient legal skills on
III.
management & control of b/organization
Who is responsible with management & how
should the same be done.
How business operations of the formed
organization should be carried out
Management & control starts with formation
– winding up or dissolution of the respective
b/organization
 SKILLS ON HANDLING
COMMERCIAL TRANSACTIONS
Over all skills on commercial law related
matters. Including BUT not limited to:
Governing principles on the formation and
management and dissolution/winding up of
business entities including companies,
partnership, and sole proprietorship, the law of
contract, sales of goods, credit sales, hire
purchase, joint venture, and commercial
dispute resolutions
NB: some of the areas will be covered as
separate topics but not all.
 INTERVIEWING SKILLS IN
COMMERCIAL MATTERS
• Essential step for making impression to the client for further
reliance or not to show up again for advice/service.
• Thus as a professional commercial lawyer display good
professional impression while interviewing a client.
Knowledge on the subject
Organization (arrangement of questions in respect of the facts
needed)
Preparedness
Diligence
Cost effectiveness (magnitude of service rendered and
professional requirements )
QUESTIONING CONT.
Open ended questions (asked at the beginning to solicit
facts)
Closed ended (may be used at a later stage after you are
familiar)
Practicability of questions (ask practical questions to meet
client’s objectives)
Advice vs risks (give advice and let the client make risks)
Key points (highlight all key points/concern needs to be
addressed)
Precision
Time consciousness
QUESTIONING CONT.
Questions of law vs fact (differentiate what
questions to be asked)
• In the end:
• Take initiative (explain to the client what will
you do & when vs what you expect from
him/her and when)
• Legal opinion/letter of advice to the client
• NB: purpose of the supra aspects is to enable you
conduct a good interview for quality service delivery
 CHECKLIST IN HANDLING
COMMERCIAL TRANSACTIONS
Guiding tool for orderly handling of
commercial transactions. A checklist
may include the following:
I. Type of entity which may be
established
II. Choice of business name
III. Formalities for formation or
establishment
CHECKLIST CONT.
IV. Constitution/ rules
V. Ownership
VI. Management
VII. Business premises
VII. Tax issues (i.e. direct & indirect
taxes such as PAYE, VAT, income
tax, capital gain, SDL, property
tax etc )
CHECKLIST CONT.
VIII.IP issues
IX. Reporting issues (annual
returns, statutory resolutions
and other compliance
issues)
X. Borrowing (secured and
non secured)
XI. Employees related issues
CHECKLIST CONT.
VIII. Bankers, accountants, and
auditors
IX. Insurance
X. Licences
XI. expansion plans
XII. Dispute settlement
XIII. insolvency
LIST OF STATUTES
• List of statues include;
• The Business Name Registration Act [Cap 213 R. E 2002];
• The Companies Act Cap 212 R.E 2002,
• Law of Contract Act, Cap 345 R.E 2002,
• The Sales of Goods Act Cap. 214 R.E 2002,
• The National Industries (Licensing and Registration Act Cap 46 R.E. 2002) The Civil
Procedure Code, Cap 33 R.E 2002,
• The Trade And Service Marks Act, 1986, Cap 236 R.E 2002,
• The Patents Registration Act CAP 217 R.E 2002
• The High Court (Commercial Division) Procedure Rules, 2012 (GN 250/2012) and
• The High Court (Commercial Division) Procedure (Amendment) Rules, GN 107 of
2019.
 LECTURE 2

COMMERCIAL AND NON-

COMMERCIAL ENTITIES
 GENERAL OVERVIEW
• As pointed out in the 1st lecture, commercial law
is wide subject which covers number of
commercial issues.
• The important thing to note at this juncture is
that, most of the time commercial transactions
are done through commercial entities.
• Therefore, it is very important for students to be
aware of different commercial entities so as
he/she can easily advise the client on the best
commercial entity to be established.
 DIFFERENT TYPES OF COMMERCIAL
AND NON-COMMERCIAL ENTITIES
• It is important for the student to know
different types of entities, be it, commercial or
non-commercial entities.
• In our jurisdiction there number of entities
that can be established to carry on
commercial or non-commercial activities.
Those entities, include among others, Sole
Trader; Partnerships; Companies;
Cooperatives; Trusts; NGOs and Societies.
 PROPRIETORSHIP (SOLE TRADER)
• Proprietorship or Sole Trader, as its title
suggests, is the simplest form of business
organisation, i.e., it is business belonging to
one person only.
• A person who establishes proprietorship/sole
trader is called Sole trader.
• A sole trader is responsible in matters relating
to his business and he can sue or be sued on
his/her own name.
 Laws regulating Proprietorship
• The laws governing proprietorship/sole trader
are:
The Business Name Registration Act [Cap 213
R. E 2002];
The Business Activities Registration Act [Cap
208 R. E 2002] and
The Business Licensing Act, 1972
 Legal Status of Proprietorship/Sole
Trader
• One may ask is the Sole Trader a legal entity?
The answer is in the negative. It is no a legal
entity rather business form whereby the
owner, i.e., trader trade can sue and be sued
in relation to the activities of the business.
• This necessitates us to discuss advantages and
disadvantages of the proprietorship/sole
trader.
 Advantages of Proprietorship/Sole
Trader
1. The Sole trader receives all profit alone, because he/she
does not share his/her business with any other person;
2. It is easy to establish because it involves few legal
compliances and formalities on its registration;
3. It is the most flexible business organisation compared to
other forms of business like companies and partnership.
For example, the sole trader can easily shift from one
business to another;
4. The sole trader is free to make decision concerning the
business, because, there is no external influence or
control over the business other than market pressure; and
5. The tax payable is relatively low compared to other forms
of business
Disadvantages of Proprietorship/Sole
Trader
1. It is difficult to deal with risks relating to the business,
because only a sole trader is responsible for the
business, hence, it is difficult sometimes to get
assistance from other people;
2. The capacity to raise capital is limited to personal
funds hence increases risk to the business; and
3. Lack of continuity of the business. It is so because,
once a sole trader dies the business dies with
him/her, since the sole trader is the only person who
knows the nature of the business.
 PARTNERSHIP
• The law governing partnership is the Law of Contract
Act [Cap. 345 R.E 2002]. Section 190 of the Act defines
Partnership as follows:

S. 190. Relationship which subsists between persons

carrying on business in common as defined with a view
of profit.

• The important thing to note is that, a person who

enters into partnership with other are collectively
called a “Firm” and the name under their business is
carried on is called the “Firm Name”.
 Essential elements for existence of
Partnership
• From section 190 above, for partnership to
exist, the following elements must be there:
(i) There must be a relationship;
(ii) Such relationship subsists between persons;
(iii) Carrying on Business;
(iv) Carrying Business in Common; and
(v) Carrying business with the view of making
profit.
 There must a relationship
• One may ask, what kind of relationship should exist
between or among partners? This question is answered by
section 191(1) which provides thus:

S. 191(1). The relationship arises from contract and not

from status.

• What does the above provision mean then? It means that,

the relationship between or among the partners is
contractual relationship stipulated in the Partnership Deed
and Articles of Partnership.
• Therefore, it is only those who have capacity to enter into a
contract can form a partnership.
 Such relationship subsists between
persons
• The law stipulates clearly that, the partnership can be formed between or among
persons. The question is, what is the maximum number of people to form a
partnership? The answer to this question is provided under section 463 of the
Companies Act [No. 12 of 2002]. It provides:
S. 463 No company, association or partnership consisting of more than twenty
person shall be formed for the purpose of carrying on any business that has for its
object the acquisition of gain by the company, association or partnership or by the
individual member thereof, unless it is registered as a company under this Act or is
formed in pursuant of some other Act, or of letters patents:
(a) Carrying on practice as solicitor or accountant, of a partnership consisting of
persons each of whom is a solicitor or accountant as the case may be;
(b) Carrying on business as member of a recognised stock exchange, of a
partnership consisting of persons each of whom is a member of that stock
exchange.
• By virtue of the above provision, the maximum number of partners to form
partnership should not be more than 20. however, for those who form partnership
for purpose of conducting professional services like lawyers, accountants and
those who work with the stock exchange may be more than 20 as the case may be.
 Carrying on Business
• The primary aim of a partnership is to carry on
business and not charitable work.
• Therefore, a partnership is formed for
purposes of carrying on business as
professionals in continuity manner.
 Carrying Business in Common
• The business through partnership must be
carried on in common.
• For partnership to exist, partners must have
common purpose and aim.
• Above all they must trust each other with
utmost good faith, because the liability of a
partnership is business liability of all partners
and the liability of one partner is the liability
of all partners.
 Carrying business with the view of
making profit
• Partners must strive to carry on business with
the aim of making mutual profit, but sharing
of loss is not necessary.
• Sharing of profit is not a conclusive test of the
existence of partnership, although it is prima
facie evidence of the existence of partners in
the market.
 Important documents for the
formation of Partnership
• The important document for formation of
partnership is the Partnership Deed
NB: Students are required to be acquainted
with format of Partnership Deed and other
documents necessary for registration of
partnership with BRELA. This include Form No.
2
 COMPANY
• The word ‘Company’ is an amalgamation of the Latin words ‘Com’
meaning ‘with or together’ and ‘pains’ meaning ‘bread’.
• Originally, it can be referred to as a group of persons who took their
meals together.
• The law regulating companies in Tanzania is the Companies
Act(supra). Section 2 of the Act defines a company as:

“… a company formed and registered under this Act or an existing

company”

• Therefore, a company is a group of persons who have come

together or who have contributed money for some common
purpose and who have incorporated themselves into a distinct legal
entity in the form of a company for that purpose
 The Nature of the Company
• A company is the legal entity, i.e., has corporate
personality.
• Corporate personality is the fundamental principle or
doctrine that goes to the root of company law that, a
company being a legal person is entirely distinct from its
members who formed it.
• After being incorporate, a company becomes an
independent legal entity vested with personality separate
that of its shareholders.
• The personality gives a company an artificial life, perpetual
succession, the right to own and dispose of property and
limited liability.
See, the case of Salomon vs Salomon [1897] A.C 22
 Important Documents and
Registration of Companies
• The organisation that deals with the
registration of companies is the BRELA.
• The important documents before registration
at BRELA are Memorandum and Articles of
Association (MEMATS).
NB: The are required to be acquainted with the
formats of the MEMATS.
 TRUSTS
• What is trusts? Trusts is the tripartite relationship among the
Donor/Settlor, Trustees and Beneficiaries.
• Donor/settler
As far as law of trusts is concerned, the term ‘settlor’ or ‘donor’ are
used interchangeably to mean the same thing.
the term donor has no technical legal meaning, it literally means
‘giver’. Therefore, a donor is a person who gives his property or
capital to trustees to hold for the benefit of beneficiaries.
• Trustees
These are people appointed by the donor to hold property or
capital for the benefit of the beneficiaries.
• Beneficiaries
These are people to whom the donor invest his/her property to the
trustees for the benefit of the beneficiaries
 The Nature of Trusts
• Is a trust legal person? Basically, trusts as
pointed out earlier is a tripartite relationship
among the donor/settlor, trustee(s) and
beneficiaries.
• Therefore, trust is just an arrangement on how
the beneficiaries can enjoy from the property
vested to the trustees by the donor. However,
once the trustees are registered they become
body corporate having legal personality.
 Important Documents and
Registration of Trusts
• The organisation which deals with the
registration of trusts is Registration, Insolvency
and Trusteeship Agency (RITA).
• The important documents in registering trusts
are: Trust Deed and Trust Rules
NB: the students are required to be acquainted
with the format of the Trust Deed and Rules
 Advantages of Trusts
• It can be used to formulate a pension scheme
such as NSSF and PSSSF.
• It can be used to formulate collective investment
scheme such as Unit Trust.
• It can be used to formulate a collective security
trust for holder of bonds or debenture stock.
Read: Page 14 of the book: Succession and Trust:
Theory, Law and Practice by N. N. N. Nditi (Jr.)
 Assignment
• The students are required to carefully read the
Written Laws (Miscellaneous Amendments) (No.
3) Act, 2019 and do the following:
(i) Identify different types of commercial and non-
commercial entities.
(ii) How does the amendments help identifying
commercial and non-commercial entities.
(iii) In your opinion what is the purpose or spirit
behind the amendment in the said Act.
Expected out come of this Lecture
• The Students are expected to have general
knowledge of different commercial and non-
commercial entities.
• Have knowledge of different laws regulating
different commercial and non-commercial
entities.
• Develop skills of identifying and apply/form
different entities to satisfy the Client’s needs
Companies
Contents to be covered
• Formation and registration of companies: Local & Foreign
• Memorandum and Articles of Association: Key features & functions
Formation and registration of local companies
• In registering a company one has to undergo the following steps:
1. Name search and reservation s.30 of the Companies Act. The
reservation is valid for 30-60 days.
2. If the proposed name of the company is approved then the
following documents duly stamped together with the necessary
fees are to be filed with the registrar:
a) The memorandum of association duly signed by subscribers. This in
effect, defines the company and what it can do. Section 5 (1) of the
Companies Act that requires at least one witness should attest the
signatures of subscribers to the memorandum.
Local companies contd…
b) The articles of Association, if any, signed by the subscribers to the
memorandum of Association. Articles of Associations usually regulate
the internal management, and the rights and duties of shareholders
vis-à-vis the company and each other. They deal with matters such as
transfer of shares, meetings, voting and other rights of shareholders,
dividends, and Directors’ powers of management. Most companies
adopt Table A, a model articles in Regulations made under the
Companies Act.
c) A statement in prescribed form containing the names and address of
the persons being the first directors and secretary of the company.
Local companies contd…
d) A statement specifying the intended address of the company’s
registered office on incorporation.
e) A statutory declaration, in pursuant to section 16(2) of CA by the
advocate of the High Court or by the person named in the articles as a
Director or the company secretary declaring that the requirements of
the Act have been complied with, and the registrar may accept such
declaration as sufficient evidence of compliance.

NB: With the coming of BRELA ORS system nowadays there is no need
of filling Form no.14(a), one has to fill only Form no.14(b) only, other
particulars are filled in the consolidated registration form.
Local companies contd…
If all requirements in respect to registration and matters incidental to it
have been satisfied, the registrar issues a certificate of incorporation
which is the company’s birth certificate.
NB: Where the registrar refuses to register the Memorandum and
articles delivered to him, he shall return the same to the person who
tendered them for registration and shall advise the applicant in writing
that in exercise of the power or, as the case may be, he refuses to
register the memorandum and articles of association.
Registration of foreign companies
• According to s. 433(1) of the Companies Act, a foreign company
means a company incorporated outside Tanzania which after the
appointed day, established a place of business within Tanzania and
companied incorporated outside Tanzania, which have before the
appointed day, established a place of business within Tanzania and
continue to have a place of business in Tanzania on and after the
appointed day.
• If a foreign company doing business through an agent shall not be
deemed to have a place of business in Tanzania. S.433(2) of the
Companies Act.
Foreign companies contd…
• According to section 434 of the CA, Foreign companies which, after the
appointed day, establish a place of business in Tanzania shall, within thirty
days of the establishment of the place of business deliver to the Registrar
for registration the following documents:
(a) a certified copy of the charter, statutes or memorandum and articles of
the company or other instrument constituting or defining the
constitution of the company, and, if the instrument is not written in the
English language, a certified translation thereof,
(b) a list of the Directors and Secretary of the company containing the
following particulars; his present name and surname and any former
name or surname, his usual address, his nationality and his business
occupation, if any; Provided that, where all the partners in a firm are
joint secretaries of the company, the name and principal office of the
firm may be stated instead of the particulars mentioned
Foreign companies…
(c) a statement of all subsisting charges created by the company, being
charges of the kinds set out in section 99 and not being charges
comprising solely property situate outside Tanzania;
(d) The names and addresses of one or more persons resident in
Tanzania authorized:
• (i) to accept on behalf of the company service of process and any
notices required to be served on the company, and
• (ii) to represent the company as its permanent representative for
the place of business, including a statement as to the extent of the
authority of the permanent representative, including whether he is
authorised to act alone or jointly.
(e) the full address of the registered or principal office of the company,
and the full address of the place of business in Tanzania;
(f) a statutory declaration made by a Director or Secretary of the
company stating the date on which the company's place of business on
Tanzania was established, the business that is to be carried on and, if
different from the registered name of the company, the name under
which that business is to be carried on;
(g) a copy of the most recent accounts and related reports of the
company including, where such are not in English, a translation of the
same.
Foreign Companies contd…
• On the registration of the documents specified above, the Registrar
shall certify under his hand that the company has complied with the
provisions of that section and such certificate shall be conclusive
evidence that the company is registered as a foreign company. This
certificate is commonly known as “Certificate of Compliance”.
Check Form No.434.
Memorandum and Articles of Association:
Key features and functions
Memorandum of association
The memorandum of association is a document of great importance in
the company because of the following:

(1)It provides the basis of incorporation

(2)It determines the areas of operation of the company.
(3)It defines the relationship of the company with the outsiders.
(4)It is unalterable charter of the company. Although it can be altered
under some special circumstances.
Memorandum contd…
The purposes of memorandum of are two-fold:-
(i) The prospective shareholders shall know the field in or the purpose
for which their money is going to be used by the company and what
risks they are undertaking in making investment.
(ii)The outsiders dealing with the company shall know with certainty as
to what objects of the company are and as to whether the
contractual relation into which they contemplate to enter with the
company is within the objects of the company.
Read ss.4,5&12 of the CA
Contents of the Memorandum of Association
Clause I: The Name
The name of the company establishes the identity and is a symbol of
the company. The name of Public Company must end with the words
“Public Limited Company” and for private company with the word
“Limited”.
(Read ss.34 & 112)
Clause II: Registered Office
A company shall at all times have a registered office which all
communications and notices may be addressed.
(Read ss. 14(3), 110 &111)
Contents of the Memorandum contd…
Clause III: The objects of the company
The objects clause defines the sphere of the company’s activities, the
aims that its formation seeks to achieve and the kind of activities or
business that it proposes to undertake.
(Read s.8 of CA on alteration, sections 35&36 on ultra vires)
Clause IV: Liability Clause
(a)Whether the liability of the company is limited or unlimited.
(b)If limited, is it by shares or by guarantee.
[s.4 (2) & (3) of CA]
Contents of memorandum…contd
Clause V: The capital clause
The capital clause of a company states the amount of capital with
which it is registered, divided into shares of fixed amount.

Clause VI: Association Clause

In this clause, the subscribers declare that they desire to be formed
into a company and agree to take the shares stated against their
names.
Articles of Association
• The articles of association are the rules and regulations of a company
formed for the purpose of internal management. The articles
regulate the manner in which the company’s affairs will be managed.
• According to section 2(2) of Cap.212, “articles” means the articles of
association of a company, as originally framed or as altered by special
resolution, including, so far as they apply to the company, the
regulations contained in Table A in the first schedule to either the
repealed Ordinances or in Table A in the first schedule to the Act.
• The company may adopt all or part of the regulations contained in
Table A to be its articles of association [s.11 of cap.212].
Contents of Articles of association
(a)Share capital, rights of shareholders, variation of these rights, payment of
commissions, share certificates
(b)Lien on shares
(c)Calls on shares
(d)Transfer and transmition of shares
(e)Forfeiture of shares
(f) Conversion of shares into stock
(g)Alteration of capital
(h)General meeting and proceedings thereat
(i) Voting rights of members; voting & poll; proxies
(j) Directors, their appointment, remuneration; qualification; powers and
proceedings of Board of directors.
(k)Manager
(l) Dividends & reserves
(m)Accounts, Audit and borrowing powers.
(n)Winding up.
Articles…contd
The company can alter articles by special resolution. (s. 13(1) & (2) CA
LEGAL EFFECTS OF MEMORANDUM & ARTICLES OF ASSOCIATION
The memorandum and articles when registered bind the company and
the members thereof to the same extent as if;
(1)They had been signed and sealed by each member;
(2)They contained covenants by the company and each member to
observe all the provisions of the memorandum and of the articles
[s.18 (1)CA].
The effect of s.18 is to constitute through the memorandum and
articles of a company, a contract between each member and the
company.
Legal effect
• The legal implication of MEMARTS can be discussed under four headings
on how the documents bind different groups:
(1) Members to the company
The memorandum and articles constitute a binding contract between the
members and the company. Each member is bound as if he/she actually
signed the memorandum and articles. See Borland’s Trustee v Steel Bros &
Co. Ltd. (1901)1 Ch.279
(2) A company to members
A company is bound to the members in the same manner as are the members
bound to the company. The company can exercise its rights as against any
member, only in accordance with the provisions in the memorandum and the
articles.
Legal effect…contd
(3) Members Inter se
As between members themselves the memorandum and articles
constitute a contract between them and are also binding on each
member against the other or others. However, such a contract can be
enforced through the medium of the company. This was elaborated by
Lord Horschell in Welton v. Saffery (1897) AC.299.
(4) Company to the Outsiders.
The articles do not constitute any binding contract as between a
company and an outsider. An outsider cannot take advantage of
articles to found a claim against a company. This is based on a general
rule of law that a stranger to a contract cannot acquire any right under
such contract.
Readings
• Mwidadi Ally Mawila v. Sakawa (T) Ltd & Martin Ochora Ndira
Commercial case no 95 of 2009 High Court of Tanzania(
Commercial Division) at Dar Es Salaam (Unreported)
• FRANK WERAIRUKA MUSARI vs. GAPOIL (T) LTD AND MUNZA
TRADING ENTERPRISES LTD Civil Application no.60 of 2003,
Court of Appeal of Tanzania.
• Salomon V Salomon & Co. Ltd [1897] A.C. 22.
• Ss.2-23,30-34, 433-441 of the Companies Act, Cap 212
• Companies Forms 14(b), Form 434
 MANAGEMENT

Management in businesses and organizations is the function that coordinates the

efforts of people to accomplish goals and objectives by using available resources
efficiently and effectively. Management includes planning, organizing, staffing,
leading or directing, and controlling an organization to accomplish the goal.
Resourcing encompasses the deployment and manipulation of human resources,
financial resources, technological resources, and natural resources.

Most companies’ articles have the provisions that regard to the delegation of powers
pertaining to the company's management. Table A, article 71 of the Company Act
provides that "the business of a company shall be managed by the directors."

DIRECTORS

A company from juristic point of view is a legal/artificial person. It has no physical

existence. As such it cannot act in its own person. It can only do so only through
human agency i.e. directors.

Aberdeen Railway Co. V Balkie Bros, Lord Cranworth described directors as "a body
to whom is delegated the duty of managing the general affairs of the company.

Cairns LJ in Furguson v Wilson observed:

“The company itself cannot act in its own person, for it has no person; it can only act
through directors, and the case is, as regards those directors, merely the ordinary
case of principal and agent”.

Lord Cranworth L.C. observed in Aberdeen Rly Co. v. Blaikie Bros.;

“The directors are a body to whom is delegated the duty of managing the general
affairs of the company. A corporate body can only act by agents, and it is of course
the duty of those agents so to act as best to promote the interests of the corporation
whose affairs they are conducting”.

The persons who are in-charge of the management of the affairs of the company are
termed as directors. They are collectively known as the Board of Directors. The
importance of the directors as par Neville J. is that they are the brains of the company:

“The Board of Directors are the brain and only brain of the company which is the
body, and the company can and does act only through them”

1
Definition:

Section 2 of Cap.212 defines director to include any person occupying the position
of director by whatever name called. The important factor to determine whether a
person is or is not a director is to refer to the nature of the office and its duties. It
does not matter by whatever name he/she is called. If he/she performs the functions
of a director he would be termed a director in the eyes of the law even though he
may be termed differently.

In Re forest of Dean Mining Company(1878) 10 chD 450 Jessel MR said

“It does not much matter what you call them so long as you understand what their
real position is, which is that they are really commercial men managing a trading
concern for the benefit of themselves and shareholders in it”.

A director may generally be defined as a person having control over the direction,
conduct, management or superintendence of the affairs of a company.

Number of directors:

Every company must have at least two directors [s.186].

Qualifications of directors: For a person to be appointed a director he must have the

following qualifications.
Ø Must be of the age of majority according to the law to which he is subject.
Section 194(1) of the Companies Act 2002 provides: “subject to the provisions
of this section, no person shall be capable of being appointed a director of a
company which is subject to this section if at the time of appointment, he had
not attained the age of twenty one or he has attained the age of seventy”.
Ø Must be of sound mind
Ø Must not be disqualified by any law to which he/she is subject.
Ø Undischarged bankrupts
Ø Must not be disqualified by an order of the court [s.197]
Ø If the articles so require, the director must have share qualification. In such
cases, a person cannot be appointed as director unless he acquires he acquires
a certain minimum number of shares in a company (share qualification). Such
qualification shares may be acquired within two months after his appointment
or such shorter time as may be fixed by the articles [s.191) of Cap.212].

A person shall not be capable of being appointed director unless he signs and
deliver to the registrar for registration a consent in writing to act as such director

2
POSITION OF DIRECTORS

It has been very difficult to pinpoint the exact legal position of the directors of a
company. They have been described by various names; sometimes as agents, as
trustee, and sometimes as managing partners.

Directors as agents: A company being an artificial person, acts through directors who
are elected representatives of the shareholders. They are, in the eyes of the law,
agents of the company for which they act, and the general principles of the law of
principal and agent regulate in most respects, the relationship between the company
and its directors. It cannot, however, be said that directors are nothing more than
agents of a company. They have in certain matters independent powers. They are not
bound to consult the shareholders in all matters. Some powers may, according to the
articles, be exercised by the directors.

Directors as Trustees: Directors are treated as trustees of the company’s money and
property; and of the powers entrusted to them. In Great Eastern Rly Co. v. Turner
(1872) LR 8 Ch.App.149 Lord Selborne observed:

“The directors are mere trustees or agents of the company trustees of the company’s
money and property – agents in the transactions which they enter into on behalf of
the company”.

Directors are trustees of the company’s money and property in the sense that they
must account for all the company’s money and property over which they exercise
control. They have also to refund to the company any of its money or property which
they have improperly paid away or transferred [Cook v. Deeks (1916) AC 554]

Directors are trustees of the power entrusted to them in the sense that they must
exercise their powers honestly and in the interest of the company and shareholders
and not in their own interest. In Percival v. Wright, the directors of a company had
the power to issue the unissued shares of the company. The company was in no need
of further capital but the directors made fresh issue for themselves and their
supporters with a view to maintaining control of the company. It was held that the
allotment was invalid and void.

Directors are, however, not trustees in the real sense of the word because they are
not vested with the ownership of the company’s property. It is only as regards some
of their obligations to the company and certain powers that they are regarded as
trustees of the company.

3
POWERS

The Board of directors of a company is entitled to exercise such powers, and to do

all such acts and things, as the company is authorised to exercise and do. However,
wherever the law requires authorization by the members in a general meeting, the
directors can do such act only on receiving such authorisation.

DUTIES OF COMPANY DIRECTORS

The essence of the duties of directors is twofold. On the one hand, having been
elected to office, directors become responsible for the company finances and assets.
As such, in the absence of any legal controls, the directors have virtually a free hand
over the manner the corporate property may be used. As trustees, the directors
become subject to fiduciary duties. On the other hand, the directors are in practice
conferred with almost unlimited powers by the company Articles of Association. The
agency principle relates to the exercise of directorial powers in that the directors, as
agents, owe a duty to exercise their directorial powers carefully, skillfully and with
diligence.

Before examining the directors’ duties in extenso it is important to note that the
extent of the duties of directors is limited to the company. That is, the directors owe
these duties to the company only and not to individual shareholders. Courts have
reasoned that shareholders choose their own directors and if they decide to choose
incompetent amateurs to run their business, then law would not prevent them. The
only exception to the above rule restricting the scope of the duties of directors is
where shareholders appoint directors specifically as their agents in any matter. In such
cases the directors will owe such shareholders the ordinary fiduciary duties arising
form that agency relationship. In the New Zealand case of Colemn v. Myers the court
of appeal held that in determining whether the duty arises when a director is dealing
with a shareholder, regard must be paid to all surrounding circumstances and the
nature of the responsibility which in a real and practical sense the director has
assumed towards the shareholder.

The Companies Act has provided duties for directors in any company which include
the following;-
Ø Duty to act in good faith and best interest of the company - The Companies
Act vests directors with powers when acting for the company. However, they
should act honestly and in good faith in the best interest of the company,
As provided under The Companies Act.
section 182.-(1) Subject to this section, a director of a company, when
exercising powers or performing duties, must act honestly and in good faith
and in what the director believes to be the best interests of the company.

4
 A director of the company when performing his duties is required to act
honestly and in good faith and in what he believes to be the best interest of
the company.

Evershed, M.R. in Greenhalgh v. Arderne cinema Ltd. stated that it is the

subjective opinion of the director as to the interests of the corporations as a
general body which courts.

The gist of this rule is that, where a director makes some judgment which he is
required or permitted to exercise under his company’s constitution, if he does
so bonafide, there is no liability for the consequences of a faulty judgment.

Ø Regards to interest of employees - As stated earlier in the overview of the

company’s affairs, employees are the most important integral part of the
company. Therefore, directors are required, under
As provided under The Companies Act,
section 183.-(1) The matters to which the directors of the company are to have
regard in the performance of their functions include, in addition to the interests
of the members, the interests of the company's employees.

Ø Duty to exercise powers for proper purposes - The powers that are vested in
directors under The Companies Act are statutorily applied for a proper
purpose.
As provided under The Companies Act.
Section 184.- A director must exercise his powers for proper purposes.

This section requires directors to exercise powers for the particular purpose for
which such powers were given to them, and not for collateral purposes.

Ø Duty of care, skill and diligence - The Companies Act brings accountability to
directors to act with great care, skill and diligence when implementing their
statutory duties. They are expected to make decisions in relation to this duty
and not otherwise. The liability of negligence of directors may lead them to be
liable civilly and possibly criminally, depending on the circumstances of their
acts or omissions in relation to the company’s business.
As provided under The Companies Act.
Section 185. A director owes the company a duty to exercise the care, skill and
diligence which would be exercised in the same circumstances by a reasonable
person having both -
(a) the knowledge and experience that may reasonably be expected
of a person in the same position as the director, and
(b) any special knowledge and experience which the director has.

5
 Romer, J. in Re: city equitable fire insurance co. Ltd laid down three
propositions which define the directors’ duty of care, skill and diligence.

First, that a director need not exhibit in the performance of his duties a greater
skill than may reasonably be expected of a person of his knowledge and
experience. This means that no minimum reasonable amount of skill is
required. Thus, the less knowledge and experience a director has, the less skill
is expected of him and the less likely he is to be liable when something goes
wrong. The standard of care expected of a director is that of a reasonable man.
This proposition positively encourages incompetent people to accept
directorship, because the law expects little or nothing of them.

Second that a director is not bound to give continuous attention to the affairs
of his company. The law thus considers the director’s duties to be of an
intermittent nature in that a director executes his duties at periodic board
meetings and at meetings of any committee of the board upon which he
happens to be placed, but he is not bound to attend all such meetings.

For example, in Re: Cardiff Savings Bank, Marguis of Bute’s case where
Marguis of Bute was not liable as president of Cardiff irregularities in the bank
for losses resulting from irregularities in the bank’s operations. He had been
appointed president when only six months old, and had attended one board
meeting in thirty eight years.

In Re: city equitable fire insurance co. Ltd (supra) no blame was attached to a
director who lived in Aberdeen and found it difficult to attend board meeting
in London, or another director who attended no board meeting for five years
due to illness.

Lord Hatherly opined in Land credit company of Ireland v. Lord Fermay that
where a director does attend, however, it is reassuring to know that the law
expects him to remain awake.

Third, that a director is, in the absence of grounds for suspicious, justified in
trusting some other official to perform certain duties honestly. That is a director
is not necessarily required to do everything himself, or to distrust and
continuously supervise those to whom he has delegated task. However, as
pointed out in Fisheries development corporation of SA Ltd. V. Jorgenson.

They are not absolved from the duty of reasonable supervision, nor ought they
to be permitted to be shielded from liability because of lack of knowledge of
wrongdoing, if that ignorance is the result of gross inattention.

6
Appointment of Company Directors
Directors are appointed by shareholders at the annual general meeting and must
upon appointment, sign and deliver for registration at the Companies Registry
consent in writing to act as directors. Subject to the Companies Act and limitations
by shareholders’ resolutions, the articles of the company specify the scope of the
directors’ powers and duties, which involve managing the company’s affairs.

Directors’ Liability
Ø Fraudulent trading (s.383)
Ø Wrongful trading (s.384 CA)
Ø Disqualification order (s. 197)
Ø Criminal liability (s.314 Penal Code)

Company Meetings
A company is an association of several persons. Decisions are made according to the
view of the majority. Various matters have to be discussed and decided upon. These
discussions take place at the various meetings, which take place between members
and between the directors. Needless to say, the importance of meetings cannot be
under-emphasized in case of companies. The Companies Act, contains several
provisions regarding meetings. These provisions have to be understood and
followed.

For a meeting, there must be at least 2 persons attending the meeting. One
member cannot constitute a company meeting even if he holds proxies for other
members.

Kinds of Company Meetings: Broadly, meetings in a company are of the following

types: -
Ø Meetings of Members:
These are meetings where the members / shareholders of the company meet and
discuss various matters. Member’s meetings are of the following types: -

A. Annual General Meeting: [s.133 of Cap 212]

Must be held by every type of company, public or private, limited by shares or by
guarantee, with or without share capital or unlimited company, once a year. Every
company must in each year hold an annual general meeting. Not more than 15
months must elapse between two annual general meetings. However, a company
may hold its first annual general meeting within 18 months from the date of its
incorporation. In such a case, it need not hold any annual general meeting in the year
of its incorporation as well as in the following year only.

7
A notice of not less than 21 days before the meeting is required to be served to all
members entitled to attend a meeting [S.135] The notice must state that the meeting
is an annual general meeting. The time, date and place of the meeting must be
mentioned in the notice. The notice of the meeting must be accompanied by a copy
of the annual accounts of the company, director’s report on the position of the
company for the year and auditor’s report on the accounts. Companies having share
capital should also state in the notice that a member is entitled to attend and vote at
the meeting and is also entitled to appoint proxies in his absence. A proxy need not
be a member of that company. A proxy form should be enclosed with the notice. The
proxy forms are required to be submitted to the company at least 48 hours before
the meeting.

The AGM must be held on a working day during business hours at the registered
office of the company or at some other place within the city, town or village in which
the registered office of the company is situated.

A company may, by appropriate provisions in its articles, fix the time for its annual
general meeting and may also by a resolution passed in one annual general meeting
fix the time for its subsequent annual general meetings. In case of default in holding
an annual general meeting, the consequences are provided under section 133(4) &
(7)
Business to be transacted at Annual General Meeting: At every AGM, the following
matters must be discussed and decided. Since such matters are discussed at every
AGM, they are known as ordinary business. All other matters and business to be
discussed at the AGM are special business.

The following matters constitute ordinary business at an AGM (s. 133(1): -

• Consideration auditor’s report of annual accounts, director’s report
• Appointment of and the fixing of the remuneration of auditors.
• Declaration of dividend
• Appointment of directors in the place of those retiring the

In case any other business (special business) has to be discussed and decided upon,
an explanatory statement of the special business must also accompany the notice
calling the meeting. The notice must also give the nature and extent of the interest
of the directors or manager in the special business, as also the extent of the
shareholding interest in the company of every such person. In case approval of any
document has to be done by the members at the meeting, the notice must also state
that the document would be available for inspection at the Registered Office of the
company during the specified dates and timings.

8
B. Extraordinary General Meeting [s.134]
Every general meeting (i.e. meeting of members of the company) other than the
annual general meeting or any adjournment thereof, is an extraordinary general
meeting. Such meeting is usually called by the Board of Directors for some urgent
business which cannot wait to be decided till the next AGM. Every business
transacted at such a meeting is special business. An explanatory statement of the
special business must also accompany the notice calling the meeting. The notice
must/ should also give the nature and extent of the interest of the directors or
manager in the special business, as also the extent of the shareholding interest in the
company of every such person. In case approval of any document has to be done by
the members at the meeting, the notice must also state that the document would be
available for inspection at the Registered Office of the company during the specified
dates and timings.

The Articles of Association of a Company may contain provisions for convening an

extraordinary general meeting. E.g. it may provide that "the board may, whenever it
thinks fit, call an extraordinary general meeting" or it may provide that "if at any time
there are not within the country, directors capable of acting who are sufficient in
number to form a quorum, any director or any two members of the company may call
an extraordinary general meeting".

Extraordinary General Meeting on Requisition (s. 134(2):

The members of a company have the right to require the calling of an extraordinary
general meeting by the directors. The board of directors of a company must call an
extraordinary general meeting if required to do so by the following number of
members: -
• Members of the company holding at the date of making the demand for an
EGM not less than one-tenth of paid-up capital of the company as at the date
of the deposit carries the right of voting in general meeting of the company.
• If the company has no share capital, the members representing not less than
one-tenth of the total voting rights of all the members having at the said date
a right to vote at a general meeting.

The requisition must state the objects of the meetings and must be signed by the
requisitioning members. The requisition must be deposited at the company's
registered office. When the requisition is deposited at the registered office of the
company, the directors should within 21 days, move to call a meeting. If the directors
fail to call and hold the meeting as aforesaid, the members who required the meeting
or any of them meeting the requirements at (a) or (b) above, as the case may be, may
themselves proceed to call meeting within 3 months from the date of the requisition,
and claim the necessary expenses from the company. The company can make good
this sum from the directors in default. At such an EGM, any business which is not

9
covered by the agenda mentioned in the notice of the meeting cannot be voted
upon.

C.Class Meeting
Class meetings are meetings which are held by holders of a particular class of shares,
e.g., preference shareholders. Such meetings are normally called when it is proposed
to vary the rights of that particular class of shares. At such meetings, these members
discuss the pros and cons of the proposal and vote accordingly. (See provisions on
variations of shareholder’s rights s.73 of Cap212). Class meetings are held to pass
resolution which will bind only the members of the class concerned, and only
members of that class can attend and vote.

Unless the articles of the company or a contract binding on the persons concerned
otherwise provides, all provisions pertaining to calling of a general meeting and its
conduct apply to class meetings in like manner as they apply with respect to general
meetings of the company.

Ø Meetings of the Board of Directors

(a) Meeting of the Board of Directors
(b) Meeting of a Committee of the Board

Ø Other Meetings
A. Meeting of debenture holders
A company issuing debentures may provide for the holding of meetings of the
debenture holders. At such meetings, generally matters pertaining to the variation in
terms of security or to alteration of their rights are discussed. All matters connected
with the holding, conduct and proceedings of the meetings of the debenture holders
are normally specified in the Debenture Trust Deed. The decisions at the meeting
made by the prescribed majority are valid and lawful and binding upon the minority.

B. Meeting of creditors
Sometimes, a company, either as a running concern or in the event of winding up,
has to make certain arrangements with its creditors. Meetings of creditors may be
called for this purpose. E.g. U/s 261 & 262, a company may enter into arrangements
with creditors with the sanction of the Court for reconstruction or any arrangement
with its creditors. The court, on application, may order the holding of a creditors'
meeting. If the scheme of arrangement is agreed to by majority in number of holding
debts to value of the three-fourth of the total value of the debts, the court may
sanction the scheme. A certified copy of the court's order is then filed with the
Registrar and it is binding on all the creditors and the company only after it is filed
with Registrar.

10
Similarly, in case of winding up of a company, a meeting of creditors and of
contributors is held to ascertain the total amount due by the company and also to
appoint a liquidator to wind up the affairs of the company.

Requisites of Valid Meetings:

The following conditions must be satisfied for a meeting to be called a valid meeting:
Ø It must be properly convened. The persons calling the meeting must be
authorized to do so.
Ø Proper and adequate notice must have been given to all those entitled to
attend.
Ø The meeting must be legally constituted. There must be a chairperson. The
rules of quorum must be maintained and the provisions of the Companies Act,
Cap 212 and the articles must be complied with.
Ø The business at the meeting must be validly transacted.
Ø The meeting must be conducted in accordance with the regulations governing
the meetings.
Ø Notice of every meeting of company must be sent to all members entitled to
attend and vote at the meeting. Accidental omission to give notice to or the
non-receipt of notice by, any member or any other person on whom it should
be given will not invalidate the proceedings of the meeting. The notice may
be given to any member either personally or by sending it by post to him at
his registered address, or if there is none in India, to any address within India
supplied by him for the purpose. Where notice is sent by post, service is
effected by properly addressing, pre-paying and posting the notice. A notice
may be given to joint holders by giving it to the joint holder first named in the
register of members. A notice of meeting may also be given by advertising the
same in a newspaper circulating in the neighborhood of the registered office
of the company and it shall be deemed to have been dully served on every
member.

A notice calling a meeting must state the place, day and hour of the meeting
and must contain the agenda of the meeting. If the meeting is a statutory or
annual general meeting, notice must describe it as such. Where any items of
special business are to be transacted at the meeting, an explanatory statement
setting out all materials facts concerning each item of the special business
including the concern or interest, if any, therein of every director and manager,
is any, must be annexed to the notice. If it is intended to propose any
resolution as a special resolution, such intention should be specified.

A notice convening an AGM must be accompanied by the annual accounts of

the company, the director’s report and the auditor’s report. The copies of
these documents could, however, be sent less than 21 days before of the

11
 date of the meeting if agreed to by all members entitled to vote at the
meeting.

Proxy
In case of a company having a share capital and in the case of any other company, if
the articles so authorize, any member of a company entitled to attend and vote at a
meeting of the company shall be entitled to appoint another person (whether a
member or not) as his proxy to attend and vote instead of himself. Every notice calling
a meeting of the company must contain a statement that a member entitled to attend
and vote is entitled to appoint one proxy in the case of a private company and one
or more proxies in the case of a public company and that the proxy need not be
member of the company.

A member may appoint another person to attend and vote at a meeting on his behalf.
Such other person is known as "Proxy". A member may appoint one or more proxies
to vote in respect of the different shares held by him, or he may appoint one or more
proxies in the alternative, so that if the first named proxy fails to vote, the second one
may do so, and so on.

The member appointing a proxy must deposit with the company a proxy form at the
time of the meeting or prior to it giving details of the proxy appointed. However, any
provision in the articles which requires a period longer than forty eight hours before
the meeting for depositing with the company any proxy form appointing a proxy,
shall have the effect as if a period of 48 hours had been specified in such provision.
[For a sample of proxy form: see Article 61 of Table A to the first schedule]

The proxy form must be in writing and be signed by the member or his authorized
attorney duly authorized in writing or if the appointer is a company, the proxy form
must be under its seal or be signed by an officer or an attorney duly authorized by
it.

The proxy can be revoked by the member at any time, and is automatically revoked
by the death or insolvency of the member. The member may revoke the proxy by
voting himself before the proxy has voted, but once the proxy has exercised the
vote; the member cannot retract his vote. Where two proxy forms by the same
shareholder are lodged in respect of the same votes, the last proxy form will be
treated as the correct proxy form.

A proxy is not entitled to vote except on a poll. Therefore, a proxy cannot vote on
show of hands (s. 138).

12
Quorum
Quorum refers to the minimum number of members who must be present at a
meeting in order to constitute a valid meeting. A meeting without the minimum
quorum is invalid and decisions taken at such a meeting are not binding. The articles
of a company may provide for a quorum without which a meeting will be construed
to be invalid. Unless the articles of a company provide for larger quorum, 2 members
personally present shall be the quorum for a general meeting of a company (s. 136(c)

It has been held by Courts that unless the articles otherwise provide, a quorum
need to be present only when the meeting commenced, and it was immaterial that
there was no quorum at the time when the vote was taken.

Chairman
The chairman is the head of the meeting. Generally, the chairman of the Board of
Directors is the Chairman of the meeting. Unless the articles otherwise provide, the
members present in person at the meeting elect one of themselves to be the
chairman thereof on a show of the hands. If there is no Chairman or he is not present
within 15 minutes after the appointed time of the meeting or is unwilling to act as
chairman of the meeting, the directors present may elect one among themselves to
be the chairman of the meeting. If, however no director is willing to act as chairman
or if no director is present within 15 minutes after the appointed time of the meeting,
the members present should choose one among themselves to be chairman of the
meeting. If, after the election of a chairman on a show of hands, poll is demanded
and taken and a different person is elected as chairman, then that person will be the
chairman for the rest of the meeting.

Voting and Demand for Poll

Generally, initially matters are decided at a general meeting by a show of hands. If
the majority of the hands raise their hands in favor of a particular resolution, then
unless a poll is demanded, it is taken as passed. Voting by a show of hands operates
on the principle of "One Member-One Vote". However, since the fundamental voting
principle in a company is "One Share-One Vote", if a poll is demanded, voting takes
place by a poll. Before or on declaration of the result of the voting on any resolution
on a show of hands, the chairman may order sua moto (of his own motion) that a poll
be taken. However, when a demand for poll is made, he must order the poll be taken.
The chairman may order a poll when a resolution proposed by the Board is lost on
the show of hands or if he is of the opinion that the decision taken on the show of
hands is likely to be reversed by poll. When a poll is taken, the decision arrived by
poll is final and the decision on the show of hands has no effect.

A poll is allowed only if the prescribed number of members demands a poll. A poll
must be ordered by the chairman if it is demanded (s. 139 & 140):-

13
 Ø By such number of members for the time being entitled under the articles to
vote at the meeting, as may be specified in the articles.
Ø If no provision is made by the articles with respect to the right to demand poll,
by three members who hold not less than fifteen percent of the paid up share
capital of the company.

Motion
Motion means a proposal to be discussed at a meeting by the members. A resolution
may be passed accepting the motion, with or without modifications or a motion may
be entirely rejected. A motion, on being passed as a resolution becomes a decision.
A motion must be in writing and signed by the mover and put to the vote of the
meeting by the chairman. Only those motions which are mentioned in the agenda to
the meeting can be discussed at the meeting. However, motions incidental or
ancillary to the matter under discussion may be moved and passed. Generally, a
motion is proposed by one member and seconded by another member.

Amendment
Amendment means any modification to a motion before it is put to vote for adoption.
Amendment may be proposed by any member who has not already spoken on the
main motion or has not previously moved an amendment thereto. There can be an
amendment to an amendment motion also. A motion must be in writing and signed
by the mover and put to the vote of the meeting by the chairman. An amendment
must not raise any question already decided upon at the same meeting and must be
relevant to the main motion which it seeks to amend. The chairman has the discretion
to accept or reject an amendment on various grounds such as inconsistency,
redundancy, irrelevance, etc. If the amendment is adopted on a vote by the members,
it is incorporated in the body of the main motion. The altered motion is then
discussed and put to vote and if passed, becomes a resolution.

Kinds of Resolutions
Resolutions mean decisions taken at a meeting. A motion, with or without
amendments is put to vote at a meeting. Once the motion is passed, it becomes a
resolution. A valid resolution can be passed at a properly convened meeting with the
required quorum. There are broadly three types of resolutions: -
Ø Ordinary Resolution: An ordinary resolution is one, which can be passed by a
simple majority. I.e. if the votes (including the casting vote, if any, of the
chairman), at a general meeting cast by members entitled to vote in its favour
are more than votes cast against it. Voting may be by way of a show of hands
or by a poll provided 14 days notice has been given for the meeting.
Ø Special Resolution (s. 143): A special resolution is one in regard to which is
passed by a 75 % majority only i.e. the number of votes cast in favour of the
resolution is at least three times the number of votes cast against it, either by

14
 a show of hands or on a poll in person or by proxy. The intention to propose a
resolution as a special resolution must be specifically mentioned in the notice
of the general meeting. Special resolutions are needed to decide on important
matters of the company. Examples where special resolutions are required are:
o To alter the provisions of its memorandum with respect to the objects
of the company;
o in the case of a private company seeking to become a public
company, or a public company seeking to become a private company,
alter the company's memorandum including by way of the inclusion
or, as applicable, the deletion of a statement that the company is to
be a public company
o To alter the articles of association
o To alter / change the name of the company
o To reduce share capital.

Ø Resolution requiring Special Notice (s. 144): There are certain matters specified
in the Companies Act, Cap 212 which may be discussed at a general meeting
only if a special notice is given regarding the proposal to discuss these matters
at a meeting. A special notice enables the members to be prepared on the
matter to be discussed and gives them time to indicate their views on the
resolution. In case special notice of resolution is required by the Companies
Ordinance or by the articles of a company, the intention to propose such a
resolution must be notified to the company at least 28 days before the
meeting. The company must within 21 days before the meeting give the notice
of the proposed resolution to its members. Notice of the resolution is required
to be given in the same way in which notice of a meeting is given, or if that is
not practicable, the company may give notice by advertisement in a
newspaper having an appropriate circulation or in any other manner allowed
by the articles, not less 7 days before the meeting.

The following matters requiring Special Notice before they are discussed
before that meeting: -
o To appoint at an annual general meeting an auditor a person other than
a retiring auditor.
o To resolve at an annual general meeting that a retiring auditor shall not
be reappointed.
o To remove a director before the expiry of his period of office.
o To appoint another director in place of removed director.
o Where the articles of a company provide for the giving of a special
notice for a resolution, in respect of any specified matter or matters.

15
 Please note that a resolution requiring special notice may be passed either as
an ordinary resolution (simple majority) or as a special resolution (75 %
majority).

Registration of Resolutions and Agreements (s. 145)

A copy of each of the following resolutions along with the explanatory statement in
case of a special business and agreements must, within 30 days after the passing or
making thereof, be printed and duly certified under the signature of an officer of the
company and filed with the Registrar of Companies who shall record the same: -
Ø All special resolutions
Ø All resolutions of the board of directors of a company or agreement executed
by a company, relating to the appointment, re-appointment or renewal of the
appointment, or variation of the terms of appointment, of a managing director
Ø All resolutions or agreements which have been agreed to by all members of
any class of members but which, if not so agreed, would not have been
effective unless passed by a particular majority or in a particular manner and
all resolutions or agreements which effectively bind all members of any class
of shareholders though not agreed to by all of those members.
Ø Resolutions for voluntary winding up of a company

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 CONCEPT OF CAPITAL AND THE FINANCING OF COMPANIES

As Latham CJ said in the Australian Case of Incorporated Interest Pty Ltd V Federal
commissioner of Taxation (1943) 67 CLR 508 at 515:’ it is impossible to say that capital
has a single technical meaning which prima facie should be attributed to the word in
any statutory provision’

The legal concept of capital crops up in the law of trusts and revenue law as well as
company law. In trust law it describes the original trust fund and any assets which
replace the items in the original fund. A distinction is drawn between capital and
income. In revenue law, there is the same capital and income distinction. In modern
company law capital is used to cover:
a. Share capital – the funds subscribed by members;
b. Loan capital – the fund provided by commercial finance providers and
investors holding debentures or debenture stocks;
c. All funds whether provided by members, creditors or by retention of profits
and
d. The assets in which funds have been invested.

Share
Share is the interest of a shareholder in a company. The interest is what is owned and
it gives a shareholder certain rights as defined by the articles of association and has
a nominal value.

Share Certificate
The ownership of interest is evidenced by a document called share certificate. When
a share has been allotted to a member the company is required to issue certificate
within six days. Where shares are transferred from one member to another, the
company must send a share certificate to the new member within two months (s.82).

A share certificate is merely a prima facie evidence of the fact that the person stated
as being the owner of the shares is the owner and that the shares are paid up to the
amount so stated (s. 83(1). On the other hand the company cannot deny the truth of
these statements against anyone who relied on the certificate to his detriment unless
the share certificate is a forgery. (See Re Bahia and San Fransico Rly Co. (1868) LR 3
QB 584 and Reuben v. Great Fingall Consolidated (1906) AC 439)

Share Capital
This means the capital raised by a company by the issue of shares. The capital clause
in Memorandum of Association must state the amount of capital with which company
is registered giving details of number of shares and the type of shares of the
company. A company cannot issue share capital in excess of the limit specified in the

1
Capital clause without altering the capital clause of the memorandum of association.
The following different terms are used to denote different aspects of share capital: -
Ø Nominal authorized or registered capital means the sum mentioned in the
capital clause of Memorandum of Association. It is the maximum amount,
which the company raises by issuing the shares and on which the registration
fee is paid. This limit cannot be exceeded unless the Memorandum of
Association is altered.
Ø Issued capital means the nominal value of the shares which are offered to the
public for subscription. A company does not normally issue capital at once, so
that issued capital in such case is less than the authorized capital. The issued
capital can never exceed the authorized capital, it can at most be equal to the
authorized capital which is the case when all shares have been issued to the
public.
Ø Subscribed capital means that part of the issued capital at nominal or face
value which has been subscribed or taken up by purchaser of shares in the
company and which has been allotted. The subscribed capital may be less than
the issued capital.
Ø Called-up capital this is that part of the issued capital which have been called
up on the shares. It is the total amount called upon the shares issued and which
the shareholders continue to be liable to pay as and when called. I.e. if the
face value of a share is Tsh. 500/- but the company requires only Tsh 200/- at
present, it may call only Tsh. 200/now and the balance Tsh 300/- at a later
date. Tsh. 200/- is the called up share capital and Tsh. 300/- is the uncalled
share capital.
Ø Paid-up capital means the total amount of called up share capital, which is
actually paid to the company by the members. Often some shareholders fail
to pay the calls made on them and the amount thus owing is known as “calls
in arrears” or “calls unpaid”

Call on shares
A call is a demand by a company on its shareholders to pay the whole or in part of
the balance remaining unpaid on each share. It is made in pursuance of a resolution
of the board of directors and terms of articles of association. It may be made at
anytime during the lifetime of the company or its winding up.

Transfer of shares
The shares of a company are movable property, transferable in the manner prescribed
in the articles of association of the company (S. 74). Although the right of a
shareholder to transfer his shares in a company is absolute as it is inherent in the
ownership of the shares it can still be restricted by contract which has to be found in
the articles of association of a company.

2
Transfer of shares shall not be lawful unless a proper instrument of transfer duly
stamped and executed and signed by both the transferor and the transferee is
delivered to the company (s. 77).

A transfer executed by legal representative of the deceased member, although he is

not himself a member, is valid as the one executed by the member himself.

An application for the registration of a transfer of shares of a company may be made

either by the transferor or the transferee. On the application of the transferor of any
share, the company shall enter in its register of members the name of the transferee
in the same manner and subject to the same conditions as if the application was made
by the transferee.

A company may refuse to register the transfer of its shares and shall within sixty days
from the date, on which the instrument of transfer was delivered to the company,
send a notice of the refusal to the transferee (S. 80(1)). If default is made in complying
with this provision, the company, and every officer of the company who is in default,
shall be liable to the default fine.

Forged transfer
An instrument of transfer of shares on which the signature of the transferor is forged
is called forged instrument and any transfer of shares effected on such instrument is
called forged transfer. The first thing that the company should do when an instrument
of transfer is tendered to it is to inquire into its validity. The company should send a
notice to the transferor at his address and inform him/her that such transfer has been
lodged and that if no objection is made before a specified day, it would be registered.
But in spite of these precautions forged transfer may be registered.

Consequences of forged transfer

Ø A forged transfer is a nullity. It does not pass legal title to the transferee. The
true owner can have his name restored on the register of members.
Ø If the company has issued a share certificate to the transferee on a forged
transfer and he has sold these shares to an innocent buyer, the buyer gets no
right to be registered as a shareholder. In such case, he can claim damages
from the company on the ground that he acted on the share certificate of the
company (See Balkis Consolidated Co. Ltd v. Tomkinson (1893) A.C 396.
Ø If the company has been put to a loss by reason of the forged transfer, it may
recover the loss from the person who procured registration, even if he might
have acted in good faith. In Sheffield Corp. v. Barclay (1905) A.C 392, the
respondent lodged with a company for registration a forged transfer of some
shares which stood in names of T and H, T having forged H’s signature to the
transfer. The respondent was ignorant to this. The company registered the

3
 transfer in the name of the respondent. The respondent transferred the shares
to C and a certificate was issued in his name. H subsequently discovered the
forgery and compelled the company to issues new shares. The respondent was
bound to indemnify the company which in turn was bound to indemnify C.
[Read s. 86 on impersonation of shareholder]

Restriction on the transfer of shares

Unless the articles provide some restriction on transfer all shares are freely
transferable. Listed companies can not impose any restriction because of stock
exchange rules. Restrictions take one of the following forms:-

Ø Directors’ powers to refuse transfer

Such clauses usually allow the director to refuse to register any transfer in their
absolute discretion and without giving any reason thereof. The court will not interfere
unless the directors have acted in bad faith, nor can they be compelled to state their
reasons unless the articles require them to do so. (See Re smith and Fawcett Ltd
(1942) Ch. 304 and Berry and Stewart v. Tottenham Hotspur Football (1935) Ch 718.)
Any transfer in breach cannot be registered but the director must call a meeting to
exercise the power of refusal. Unreasonable delay will lead to the Veto being lost.

Ø Pre- emption clauses

Such clauses require members to offer their shares first to the existing members
before they may sell them to outsiders. A transfer in breach of the pre- emption clause
cannot be registered but it may operate as a transfer of the beneficial interest.

Transmission of shares
This occurs where the rights encompassed in the holding of shares vest in another by
operation of law and not by reason of transfer. It occurs in the following
circumstances: -

Ø Death of a shareholder – the shares of the deceased shareholder vest, in terms

of the rights they represent, in executor or administrator who can sell or
otherwise dispose of them, e.g. to the beneficiary, without actually being
registered, subject to any restrictions on transfer which the articles may
contain.
Ø Bankruptcy – On the bankruptcy of a member, the right to deal with the shares
passes to trustee in bankruptcy, and he can sell without actually being
registered or he can elect to register subject to any restrictions in articles.

4
Forfeiture of shares
If the shareholder having been called upon to pay on any call of his shares fails to pay
the call, the company has two remedies against the shareholder
Ø it may sue him for the amount
Ø it may forfeit his shares

Forfeiture means depriving a person of his property as a penalty for some act or
omission. However, shares can be forfeited for non- payment of call if only special
powers in the articles is given to the directors to do so. The forfeiture must be made
strictly in accordance with the regulations regarding notice, procedure and manner
stated in Articles. Re Esparto Trading Co.(1879) 12 Ch D 191. The power to forfeit
shares must be exercised by the directors in good faith and for the benefit of the
company. A person whose shares have been forfeited ceases to be a member of that
company.

Classes of shares
The capital of a company is divided into certain indivisible units of a fixed amount
called shares. Farewell J, in the case of Borland’s Trustee v. Steel Bros. (1901) 1 Ch
279 defines a share as the interest of a shareholder in the company measured by a
sum of money for the purpose of liability in the first place and of interest in the second
place but also consists of a series of mutual covenants entered into by all
shareholders. Shares in the company may be similar i.e. they may carry the same
rights and liabilities and confer on their holders the same rights, liabilities and duties.

Ø Equity shares/ ordinary Shares

Ordinary shares are also referred to as the equity capital. Members holding them are
said to have the equity in the company and equity here means ownership of the
company. This is because just has much as they take the “lions share” of the
company’s profits when dividends are declared handsomely; they also take the
greater part of companies’ financial losses.

Ordinary shares will have a right to return of capital ranking after preference shares,
but in the same way as the payment of dividend, ordinary shares will claim the pool
of surplus assets in the solvent winding up after the return of capital to all other
shareholders.

Ordinary shares will usually carry one vote per share although companies may attach
such voting rights as they choose. As preference shares have only a restricted right
to vote, ordinary shares will carry voting control in general meetings. Non- voting
ordinary shares can be issued but they are not common.

5
 Ø Preference Shares
Preference Shares means shares which fulfill the following two conditions. Therefore,
a share which is does not fulfill both these conditions is an equity share.
a. It carries preferential rights in respect of Dividend at fixed amount or at fixed
rate i.e. dividend payable is payable on fixed figure or percent and this
dividend must be paid before the holders of the equity shares are paid
dividend.
b. It also carries preferential right in regard to payment of capital on winding up
or otherwise. It means the amount paid on preference share must be paid back
to preference shareholders before anything is paid to the equity shareholders.
In other words, preference share capital has priority both in repayment of
dividend as well as capital.

Types of Preference Shares

a. Cumulative or Non-cumulative: A non-cumulative or simple preference shares
gives right to fixed percentage dividend of profit of each year. In case no
dividend is declared in any year because of absence of profit, the holders of
preference shares get nothing nor can they claim unpaid dividend in the
subsequent year or years in respect of that year. Cumulative preference shares
however give the right to the preference shareholders to demand the unpaid
dividend in any year during the subsequent year or years when the profits are
available for distribution. In this case dividends which are not paid in any year
are accumulated and are paid out when the profits are available.
b. Redeemable and Non- Redeemable: Redeemable Preference shares are
preference shares, which have to be repaid by the company after the term for
which the preference shares have been issued expires. Irredeemable
Preference shares means preference shares need not repaid by the company
except on winding up of the company. A company can issue the preference
shares which from the very beginning are redeemable provided it comprises
of following conditions provided by Section 61 of Companies Act: -
§ It must be authorized by the articles of association to make such
an issue.
§ The shares will be only redeemable if they are fully paid up.
§ The shares may be redeemed out of profits of the company
which otherwise would be available for dividends or out of
proceeds of new issue of shares made for the purpose of redeem
shares.
§ If there is premium payable on redemption it must have provided
out of profits or out of shares premium account before the shares
are redeemed.
§ When shares are redeemed out of profits a sum equal to nominal
amount of shares redeemed is to be transferred out of profits to

6
 the capital redemption reserve fund. This amount should then be
utilized for the purpose of redemption of redeemable preference
shares.

c. Participating Preference Share or non-participating preference shares.

Participating Preference shares are entitled to a preferential dividend at a fixed
rate with the right to participate further in the profits either along with or after
payment of certain rate of dividend on equity shares. Nonparticipating shares
are those that earn dividends at a fixed rate only once whether or not there is
a surplus still available for distribution to the members

Deferred or founders Shares

These types of shares are usually issued to the founders of the company as reward
to their services. They are usually given rights to a portion of the profits if the
dividend on ordinary shares exceeds a certain fixed amount. The rights attaching to
them are determined by the memorandum or articles.

Corporate shares
These are shares created by a company for issue to its employees. They are,
therefore, shares that serve special purpose. They are usually given to employees as
a means of winning their corporation with the company’s management and owners.
Normally, the company pays for them to the employees as fully paid up shares. Since
the employees will one day leave the company employment, the company’s trustee
will look after these shares in the event of an employee leaving the company. These
shares are normally issued without voting rights but have the rights to earn dividends.

Variation of shareholders rights (s. 73 of Cap 212)

The rights, duties and liabilities of all shareholders are clearly defined at the time of
issue of the shares. Once the rights of shareholders are fixed, they cannot be altered
unless the provisions of the Companies Act for this purpose are complied with. The
rights attached to the shares of any class can be varied only with the consent of any
specified proportion of the holders of the issued shares of that class or with the
sanction of special resolution passed at a separate meeting of the holders of issued
shares of that class. However, the following conditions also must be complied with: -
Ø The variation of rights is allowed by the Memorandum or Articles of
Association of the Company.
Ø In absence of such provision in the Memorandum or Articles of company, such
variation must not be prohibited by the terms of issue of shares of that class.

7
Rights of Dissenting Shareholders:
The rights of the shareholders who did not consent to or vote for variation of their
rights are protected by the Companies Ordinance. If the rights of any class of the
shareholders are varied, the holders of not less than 15 per cent of the shares of that
class, being persons who did not consent to or vote in favor of resolution for variation
of their rights can apply to the court to have the variation cancelled. Where such
application is made to the court, such variation will not be given effect unless and
until it is confirmed by the court.

Application and allotment of shares

An application for shares is an offer by a prospective shareholder to take shares.
Allotment is the acceptance by the company of such an offer and it results in a binding
contract between the company and the applicant.

General provision regarding Allotment

The general principle as regard to offer and acceptance in the law of contract apply
to a contract involving an application for and allotment of shares in a company.
Ø Proper Authority – An allotment must be made by a resolution of the board of
directors of the company. This duty cannot be delegated by the directors
except in accordance with the provisions of the articles.
Ø Reasonable time – Allotment must be made within reasonable time otherwise
the applicant is not bound to accept it.
Ø Communication – Allotment must be communicated to a person making the
application so that it is legally complete. Where post is used as a means of
communication between parties then S. 4(2) of Law of Contract Ordinance Cap
433 applies.
Ø Absolute and unconditional – the allotment must be absolute and
unconditional. If an application for shares is conditional and the condition is
not fulfilled, the applicant is not bound to take shares.

Alteration of Share Capital

The power of a limited liability company to alter share capital is provided under s.64
(1) of Cap.212. Such powers can only be exercised by the company in general
meeting and the same must be authorized to do so by its articles of association.

A company limited by shares can alter the capital clause of its Memorandum in any
of the following ways provided that such alteration is authorized by the articles of
association of the company: -
Ø Increase its share capital by new shares of such amount as it thinks expedient.
Ø Consolidate and divide all or any of its share capital into shares of larger
amount than its existing shares.

8
 Ø Convert all or any of its fully paid shares into stock and re-convert stock into
fully paid shares of any denomination.
Ø Subdivide shares or any of shares into smaller amounts fixed by the
Memorandum so that in subdivision the proportion between the amount paid
and the amount if any unpaid on each reduced shares shall be same as it was
in case of from which the reduced share is derived.
Ø Cancel shares which have been not been taken or agreed to be taken by any
person and diminish the amount of share capital by the amount of the shares
so cancelled.

The alteration of the capital of the company in any of the manner specified above can
be done by passing a resolution at the general meeting of the company and does
not require any confirmation by the court.

Reduction of share Capital

The law relating to the capital of a company has something sacred. The general
principles of law founded on principles of public policy and rigidly enforced by courts
is that no action resulting in a reduction of capital should be permitted unless
reduction is effected
Ø Under statutory authority or forfeiture
Ø In strict according to procedure, if any, laid down in that behalf in the articles
of Association. Any reduction contrary to this principle is illegal and ultra vires.

A reduction of capital may be effected in different ways

Ø Reduction of capital without sanction of the court
i. Forfeiture of shares. The company may, if authorized by its articles,
forfeit shares for non-payment of calls. This result in forfeiture of shares
if the forfeited shares are not re- issued.
ii. Surrender of shares. The company may accept surrender of shares partly
paid to save it from going through the formalities of forfeiture.
iii. Cancellation of shares. The company may if so authorized by its articles,
cancel shares which have not been taken or agreed to be taken by any
person and diminish the amount of share capital by the amount of the
shares so canceled.
iv. Redemption of redeemable preference shares. The company may
redeem preference shares in accordance of the provision of the
ordinance.

Ø Reduction of capital with the consent of the court.

Reduction of capital in any other form apart from the ways stated above must be
carried out in conformity with the provision of sections 68 – 72. Under the Companies
Act reduction of share capital do not apply to an open – ended investment company

9
whose establishment has been duly authorized under the Capital Markets and
Securities Act. See Section 68. Open-ended investment companies (OEIC) is a
company that is able to redeem its own shares for cash and manages a portfolio of
investments on behalf of its members.

According to these sections, a company limited by shares or guarantee can reduce

its capital if;
i. Authorized by the articles
ii. A special resolution has been passed to this effect
iii. It has been confirmed by the court

Section 69 gives the company the power to reduce its share capital in any way but
specifically mentioning the following ways in which the reduction of capital may be
effected.
i. It may extinguish or reduce the liability of member in respect of uncalled
or unpaid capital. For example, where shares are of Tsh 10,000 each
with Tsh. 600 paid up, the company may reduce them to Tsh. 6,000 fully
paid and thus release the shareholder from the liability on uncalled
capital of Tsh. 4,000/-.
ii. Pay off or return part of the unpaid capital not wanted for the purpose
of the company. For example, where the shares are fully paid of
Tsh10,000 they may be reduced Tsh. 4,000 each and Tsh. 6,000 may be
paid back to the shareholders.
iii. Cancel paid up capital which is lost or unrepresented by the available
assets either with or without extinguishing or reducing the liability on
any shares. Due to heavy trading losses, C Company reduces its equity
share of Tsh 10,000 each fully paid up to Tsh. 2,000 per share. If the
company extinguishes liability on these shares the Tsh 10,000 shares
will become shares of Tsh. 2,000 fully paid up. If it does not extinguish
liability on these shares the Tsh 10,000 shares will continue to be shares
of Tsh. 10,000 each, Tsh. 2,000 paid up.

The procedure to follow in order to reduce share capital

i. Special resolution: Notice calling a meeting to propose a resolution
must be accompanied;
• Director’s certificate of solvency
• Auditors report
Any director of a company giving a certificate of solvency without
reasonable ground shall be liable to imprisonment or fine or both.

10
 ii. Advertise in the gazette, and in case of a public company, one national
newspaper, in each case within five working days of the resolution being
passed

iii. Application to the court by any creditor to object to the reduction within
twenty-eight days from the advertisement of the resolution.

iv. File a resolution to the Registrar thirty five days from the date when a
resolution was passed.

Increase in share capital ss. 64 -67

The nominal share capital of a company can be increased, even though it has not yet
issued all its authorized capital, by ordinary resolution of the company in general
meeting. The company’s articles usually contain the authority to allow the company
to increase its capital but in case the articles does not allow they must be altered by
special resolution to this effect. The law requires that where the company has
increased its share capital beyond the registered capital, notice must be given to the
registrar within thirty days from the date of passing the resolution by which the
increase is affected

The increase must not be done with ill motive. In the case of Clemens v. Clemens
Bros. Ltd (1976) 2 All E.R 268 resolutions to increase the capital and issue of new
shares in such a way as to deprive the plaintiff, a shareholder her “negative control”
of the defendant company were set aside as having been passed by an inequitable
use of defendant’s rights. In this case the plaintiff owned 45% of the issued share
capital of the defendant company and her aunt owned the remaining 55%. Although
at one time both the plaintiff and her aunt had been directors of the defendant
company, at the relevant time the plaintiff was no longer a director, the aunt and her
fellow directors proposed to increase the company’s share capital by the creation and
issue of further shares. The plaintiff concerned was that the proposed share issue
would dilute her holding and voting power from 45% to 25%. She commenced
proceedings against the company and the aunt seeking a declaration that the
resolutions were oppressive, and an order setting them aside. It was held that
resolutions were specifically and carefully designed to ensure not only that the
plaintiff can never get the control of the company but deprive her of what has been
called her negative control i.e. powers to prevent the passage of any special
resolution of which she disapproved.

In the case of Tanzania Knitwear Ltd. v. Shamsu Esmail (1989) 1 T.L.R 48 resolution
was passed by directors of the company to issue 800 shares. It was also resolved that
each shareholder be offered to purchase the said shares according to individual
shareholding. It was held that where shareholders are offered to purchase new shares

11
on a pro-rata basis, the applicant cannot be heard to complain that the resolution was
oppressive to him. However, the resolution was declared illegal because it was
passed by directors contrary to the requirement of section 51(2) of the Companies
Ordinance which required such resolution to be passed by a company in general
meeting.

Loan Capital / Debt Financing

Debt capital is a common method of financing business enterprise and for successful
companies, particularly listed companies. Debt capital represents the obligation of a
company to repay the loan made by the debt holder. A company is bound by contract
to make payments of principal and interest on a fixed schedule. Companies may
borrow money in many ways; by making short term commercial notes, taking
shareholders loan, accepting bank lines or credits and issuing debt securities/ stocks.
Debt financing can be from outside third parties or inside shareholders.

Debentures
The most usual form of borrowing by a company is by issue of debentures. According
to section 2 of Cap 212 and Companies Act, debenture includes debenture stock,
bonds and any other securities of a company, whether constituting a charge on the
asset of a company or not.

In Levy v Abercorris Slate & Slab Co. (1897) 37 Ch. D 260; Debenture was said to
mean a document which either creates a debt or acknowledges it.

In Edmonds v Blaina Co. (1887) 36 Ch.D 215 Chitty J: the meaning of debenture was
described as follows:” the term itself imports a debt or an acknowledgment of debt
and obligation or covenant to pay. This obligation or covenant is in most cases
accompanied by some charge or security”

It follows from the above judgments that a debenture is an acknowledgement in

writing of a debt by a company to some person or persons, and it is issued to the
public by means of a prospectus in the same manner as shares. It normally contains
provisions for the payment of interest and eventual repayment of the sum loaned at
a fixed date.

Debentures are therefore, a form of a security which may be bought and sold in such
a way as shares. In order to give lenders some security against non- repayment of
their loan, a charge is often made against the assets of the company.

Debentures are commonly issued through prospectus. The amount might be payable
by installments on application, allotment and calls. But usually the amount is payable
in one lump sum.

12
As a general matter debts do not have the participation, voting, conversion and
redemption rights that constitute the fundamental ingredients of equity securities/
stocks. It is not uncommon for a company to issue debentures that are convertible at
holder’s option into specified equity securities or that are redeemable at the holder’s
option (“put” debentures). Generally the issue of debt securities/stocks (like entering
into any other contractual arrangement) is a matter left to board’s discretion.

Classes of debentures
Ø According to negotiability
i. Bearer debentures – these are known as unregistered debentures, are payable
to its bearer. These are regarded as negotiable instruments and are
transferable instruments by delivery and a bona fide deliveree for value is not
affected by the defect in title of the prior holder. In Bechuanaland Exploration
Co. v. London trading bank ltd (1898) 2 Q.B 648 B co held debentures of an
English company, payable to bearer. It kept them in the safe of which the
secretary had the key. The secretary pledged the debentures with a bank
security for a loan taken by him. The bank took the debenture bona fide. It was
held that the bank was entitled to the debentures as against the company.
ii. Registered debentures – These are debentures payable to the registered
holders. A holder is one whose name appears both on the debenture
certificate and in the company register of debentures. It usually contain the
following clauses
a. A covenant to pay the principal sum
b. A covenant to pay interest
c. A description of the charge on the company’s undertakings and
property
d. A statement that it is issued subject to conditions endorsed thereon

Ø According to security
i. Secured debentures – Debentures which create some charge on the property
of the company are known as secured debentures
ii. Unsecured or naked debentures – debentures which do not create charge on
assets of the company. The holder of these debentures like unsecured creditor
may sue the company for recovery of debt.

Ø According to permanence
i. Redeemable debentures – Debentures usually issued on condition that they
shall be redeemable after a certain period
ii. Irredeemable debentures – when debentures are irredeemable they are called
perpetual debentures. They are so treated where wither there is no fixed
period for payment of the principle sum or repayment of it is made conditional

13
 on the happening of an event which may not happen for indefinite period or
may happen only in certain specified and contingent event i.e. winding up.

Debts priority over equity

When a company becomes insolvent or dissolves, creditors or debt holders are
entitled to pay before equity shareholders.

If a company has insufficient equity cushion to satisfy all inside and outside creditors’
claims, outside claims will seek to have inside debt characterized as equity. This is
essentially an equitable subordination question. During winding up courts can
subordinate or lower the nominal priority of claims by corporate insiders if based on
transaction that based on breach of fiduciary duties or fraud. Courts will also consider
factors used in lifting the veil of incorporation.

Charge on assets of a company

Whenever a company has power to borrow; it has as an incident to such power, a
power to security for the debt by a charge on all or any its property. A power to
borrow includes, if there is nothing to the contrary in the memorandum and the
articles, the power to charge uncalled capital of the company Jackson vs. Rainfford
Coal Co (1896) 3 Ch 360.

A company cannot however borrow on the security of its reserve capital. In Re May
fair Property Co (1898) 2 Ch. 28 A company’s memorandum and articles gave it power
to charge uncalled capital. The company passed a special resolution in a general
meeting not to call the last ₤ 5 per share remaining uncalled except in the event of
and for the purpose of the winding up of the company. Later the directors charged
the undertaking including the uncalled capital by issuing debentures. It was held that
the reserve capital of ₤ 5 per share was not subject to the charge₤ 5 per share.

A charge means an interest or right which a lender or creditor obtains in the property
of the company by way of security that the company will pay back the debt. Charges
are of 2 types:
Ø Fixed charge: Such a charge is against a specific clearly identifiable and
defined property. The property under charge is identified at the time of
creation of charge. The nature and identity of the property does not change
during the existence of the charge. The company can transfer the property
charged only subject to that charge so that the charge holder or mortgage
must be paid first whatever is due to him before disposing off that property.
Ø Floating charge: Such a charge is available only to companies as borrower. A
Floating charge does attach to any definite property but covers the property
of a circulating and fluctuating nature such as stock-in-trade, debtors, etc. It
attaches to the property charged in the varying conditions in which happens

14
 to be from time to time. Such a charge remains dormant until the undertaking
charge ceases to be a going concern or until the person in whose favor charge
created takes steps to crystallize the floating charge. A floating charge on
crystallization becomes a fixed charge.

Characteristics of a floating charge

a. It is a charge on the class of assets of the company both present and
future
b. That class of assets is one which, in the ordinary course of the business
of the company, is changing from time to time.
c. It is contemplated by the charge that, until some steps are taken by or
on behalf of those interested in the charge, the company may carry on
its business in ordinary way

Consequences of the floating charge; The company can:-

a. Deal with the property on which a floating charge is created, till the
charge crystallizes
b. Notwithstanding the floating charge, create specific mortgage of its
property having priority over the floating charge.
c. Sell the whole of its undertaking if that is one of its objects specified in
the Memorandum, in spite of the floating charge on undertaking see Re
Foster Vs Borax Co (1901) 1 Ch 326.

Crystallization of floating charge: When the charge holder takes steps to

enforce his charge, a floating charge becomes a fixed charge on the assets
covered by that charge. Until a floating charge becomes a fixed charge, the
company is free to deal with the property charged in any manner it deems fit.
But once the floating charge crystallizes, the company cannot dispose off the
charged assets without paying of the charge holder. Otherwise, the charge
holder can recover his dues from the proceeds. A floating charge crystallizes
or becomes the fixed in following situations: -
a. Where the company ceases to carry on the business, whether the
principal money has become payable or not, unless the debenture or
trust deed contains the stipulation to the contrary.
b. Upon the commencement of winding up of the company.
c. If a debenture holder, having become entitled to realize the securities
by the reason of the fact that the principal money has become payable,
intervenes for the purpose by appointing the receiver or by making an
application to the court for appointment of the receiver.

Registration of charges: Every company must keep at its registered office a register
of charges in which all the charges and mortgages specifically affecting the property

15
of the company must be entered. The register must contain short description of the
property charged, the amount of the charge, the name of the person entitled to the
charge, etc. The company must keep at its registered office, a copy of every
instrument creating any charge requiring the registration. Particulars ofthe charge
together with the instrument by which the charge was created must be delivered to
the Registrar for registration.

Charges requiring registration: A company must file within 42 days of creation of a

charge with the Registrar complete details of the charge together with the instrument
of charge or its verified copy in respect of certain charges( See Section 97 of Cap 212)
Otherwise the charge will be void. This does not mean that the creditors cannot
recover their dues. It merely means that the benefit of the charged security will not
be available to them. The following charges are compulsorily registrable: -
Ø a charge for the purpose of securing any issue of any debentures.
Ø a charge on uncalled share capital of the company
Ø a charge created or evidenced by an instrument which, if executed by an
individual, would require registration as a bill of sale
Ø a Charge on land, whenever situated, or any interest therein
Ø a charge on book debts of the company
Ø a floating charge of on the undertaking or property of the company
Ø a charge on calls made but not paid
Ø a charge on ship, or aircraft, or any share in a ship
Ø a charge on goodwill, or any intellectual property

Effects of Registration: Once a charge is registered, it acts as a notice to the public at

large that the charge holder has an interest in the charged property. No person can
take a defense against the charge holder that he was not aware that a charge was
created against the property. That person will be entitled to the property subject to
the interest of the charge holder. Once certificate of charge is issued by the Registrar,
it is conclusive evidence that the document creating the charge is properly registered.

Consequences of Non-Registration:
Ø A charge which is compulsorily registerable but which is not registered is void.
This does not mean that the creditors cannot recover their dues. It merely
means that the benefit of the charged security will not be available to them. In
Monotholic Building Co.(1915) 1 Ch. 643. In March, M ltd mortgaged land to
T, to secure a loan of ₤ 500. The charge was not registered. In December, the
company issued debentures secured by a floating charge on all company’s
assets to J, who knew of the charge in favor of T to secure ₤ 500. These
debentures were registered. It was held that J had priority over the claim of T.
Ø Although the security becomes void by non-registration, it does not affect the
contract or obligation of the company to repay the money thereby secured.

16
 Ø Omission to registrar particulars of charge as required is punishable with fine.
A company or every officer of company is in default shall be liable to fine.

Memorandum of satisfaction: the registrar may, on evidence being given to his

satisfaction that the debt for which any registered charge was given has been paid or
satisfied, order that a memorandum of satisfaction be entered on the register, and
shall, if required furnish the company with a copy thereof.

17
 WINDING UP

The terms "Winding up" and "Dissolution" are sometimes erroneously used to mean
the same thing. However, they are quite different in their meanings. Winding up is
a process whereby all assets of the company are realized and used to pay off the
liabilities and members. Dissolution of the company takes place after the entire
process of winding up is over. Dissolution puts an end to the life of the company. A
dissolution order passed by the Court is like the Death Certificate of the company.
One common confusion of terminology occurs in the use of the term ‘bankruptcy’.
Bankruptcy is a legal process by which the assets of the insolvent individual or
partnership are realized and proceeds distributed to the creditors. Company
cannot be made bankrupt.

A company to be wind up may be solvent or insolvent. A solvent company may be

wound up because the business opportunity which the company was formed to
exploit has come to an end, the members of a family business may wish to retire or
because of internal disputes i.e. winding up on just and equitable ground.

Relevant provisions on winding up of the companies includes SS 275 – 404 of the

Companies Act and the Companies (Insolvency) Rules GN. No 43 of 2005

Modes of Winding Up

A Company may be wound up in any of the following modes:

Ø By the Court
Ø Voluntary winding up, which may be;
a) Member's voluntary winding up;
b) Creditor's voluntary winding up;

WINDING UP BY THE COURT (SS. 275-332) Part VIII Chapter II

Winding up of a company under order of a court is known as compulsory winding

up. A petition for winding up the company must be filed before the court. It is the
High Court, which has the jurisdiction to wind up companies. The following are the
situations where a company may be wound up by the Court (s. 279): -
Ø A company by special resolution resolves that the company be wound up by
the court. It should be borne in mind that, without such act directors cannot
pass a resolution that the company be wind up by the court. The resolution has
to be passed at a general meeting. The members can however ratify the act of
directors already done.
Ø if the company does not commence business within one year from its
incorporation or it suspends business for a whole year.

1
 Ø The number of its members falls below the minimum required i.e. 2
Ø It is unable to pay its debts. A company will be deemed to be unable to pay its
debts if (s. 280)
a) if a creditor, by assignment or otherwise, to whom the company is
indebted in a sum exceeding fifty thousand shillings or such other
amount as may from time to time be prescribed in regulations made
by the Minister, then due has served on the company, by leaving at
the registered office of the company, a written demand requiring the
company to pay the sum so due and the company has for twenty-one
days thereafter neglected to pay the sum or to secure or compound
for it to the reasonable satisfaction of the creditor; or
b) if execution or other process issued on a judgment, decree or order
of any court in favour of a creditor of the company is returned
unsatisfied in whole or in part; or
c) if it is proved to the satisfaction of the court that the company is
unable to pay its debts as they fall due; or
d) if it is proved to the satisfaction of the court that the value of the
company's assets is less than the amount of its liabilities, taking into
account the contingent and prospective liabilities of the company.
Ø The Court is of the opinion that it’s just and equitable to wind up the company
e.g.
a) Where the whole object of the company was fraudulent
b) Where the substratum of the company is gone.
c) Where the company is insolvent.
d) Where there has been mismanagement of funds by the directors.
e) Where there is honest difference of a director and the other directors
f) Where there was a deadlock in the management of a public company.

A body corporate may also be wound up by the court if incorporated outside

Tanzania and carrying on business in Tanzania and winding up proceedings
have been commenced in respect of it in the country of its incorporation or
in any other country in which it has established a place of business.

Persons entitled to petition in a winding up by Court: The following persons

may petition the Court for winding up: -
a) The Company i.e. the company itself may present a petition to the court for
winding up after it has passed a special resolution. A company does not often
represent a petition to have itself wound up by the court as it can achieve this
object more conveniently by passing a special resolution to wind up
voluntarily. If at the general meeting the company resolves that it shall,
however, be wound up by the court; it may present a petition for winding up
order.

2
 b) Any creditor of the Company (Note that contingent and prospective creditors
can also petition for winding up but only if security for cost has been given as
the court thinks reasonable and until a prima facie case for winding up has
been established to the satisfaction of the court. S. 169(c).
c) Any contributory / shareholder. Contributory means every person liable to
contribute to the assets of a company in the event of its being wound up and
includes holders of its fully paid shares. A contributory shall not be entitled
to present winding up petition unless
i. either the number of members is reduced in case of a private
company below two and in case of a public company below
seven.
ii. The shares in respect of which he is contributory or some of
them either were originally allotted to him or have been held by
him, and registered in his name for at least six months during
the 18 months before the commencement of the winding up.

Powers of the Court (s. 282) On hearing the petition the court may;
a) dismiss it with or without cost
b) adjourn the hearing conditionally or unconditionally
c) make an interim order that it thinks fit
d) Make an order for winding up the company with or without costs or any
other order as it thinks fit.

The words “on hearing a winding up petition occurring in section 170 cover the
entire period from the date of entertainment of the petition and issuing of notice
until an actual order of winding up is made or the winding up petition is dismissed

In determining the petition the interest of the applicant alone is not of predominant
consideration. The interest of the shareholders as a whole apart from those of other
interests have to be kept in mind at the time of consideration, as to whether the
application should be admitted on the allegations mentioned in the petition.

Commencement of winding up (s. 286)

Where, before the presentation of the petition for the winding up of the company
by the court, a resolution has been passed by the company for voluntary winding
up, the winding up shall be deemed

Consequences of winding up order (s 287- 289)

Copy of winding up order to be forwarded by the company to the registrar who

shall make a minute thereof in the books relating to the company.

3
The order for winding up shall be deemed to be notice of discharge to the officers
and employees of the company, except when the business of the company is
continued, where the servant of a company is on contract of service for a fixed term
and that term has not expired on the date of the order of the winding up of the
company, the order operates has a wrongful termination and damages are allowed
for a breach of contract of service.

Midland Countries Bank district v. Attwood (1905) 1 Ch. 357: When winding up
order has been made no suit or other legal proceedings shall be commenced
against the company except by the leave of the court.

An order for winding up a company shall operate in favour of all the creditors and
all of the contributories of the company as if it had been made on the joint petition
of a creditor and a contributory.

Liquidator (s. 294)

For the purpose of conducting proceedings in winding up company and

performing such duties in reference thereto as the court may impose the court may
appoint a liquidator or liquidators. The liquidator may be appointed provisionally
at any time after presentation of a winding up petition and before making of a
winding up order, and either the official received or any other fit person may be
appointed. See also SS 184 – 189.
Powers of liquidators (s. 301):
Ø The liquidator in a winding up by the court shall have power with the sanction
either of the court or of the committee of inspection –
a) to bring or defend any action or other legal proceeding in the name and on
behalf of the company;
b) to carry on the business of the company so far as may be necessary for the
beneficial winding up thereof,
c) to appoint an advocate to assist him in the performance of his duties;
d) to pay any classes of creditors in full;
e) to make any compromise, or arrangement with creditors, or persons claiming
to be creditors, or having or alleging themselves to have any claim, present
or future, certain or contingent, ascertained or sounding only in damages
against the company, or whereby the company may be rendered liable;
f) to compromise all calls and liabilities to calls, debts and liabilities capable of
resulting in debts, and all claims, present or future, certain or contingent,
ascertained or sounding only in damages, subsisting or supposed to subsist
between the company and a contributory or alleged contributory or other
debtor or person apprehending liability to the company, and all questions in

4
 any way relating to or affecting the assets or the winding up of the company,
on such terms as may be agreed, and take any security for the discharge of
any such call, debt, liability or claim and give a complete discharge in respect
thereof.

Ø The liquidator in a winding up by the court shall have power without the
express sanction of the court –

a) to sell the movable and immovable property and things in action of the
company by public auction or private contract, with power to transfer the
whole thereof to any person or company or to sell the same in parcels;
b) to do all acts and to execute, in the name and on behalf of the company, all
deeds, receipts and other documents, and for that purpose to use, when
necessary, the company's seal;
c) to prove, rank and claim in the bankruptcy, insolvency or sequestration of
any contributory for any balance against his estate, and to receive
dividends in the bankruptcy, insolvency or sequestration in respect of that
balance, as a separate debt due from the bankrupt or insolvent, and
rateably with the other separate creditors;
d) to draw, accept, make and endorse any bill of exchange or promissory note
in the name and on behalf of the company, with the same effect with
respect to the liability of the company as if the bill or note had been drawn,
accepted, made or endorsed by or on behalf of the company in the course
of its business;
e) to raise on the security of the assets of the company any money requisite;
f) to take out in his official name letters of administration to any deceased
contributory, and to do in his official name any other act necessary for
obtaining payment of any money due from a contributory or his estate
which cannot be conveniently done in the name of the company, and in all
such cases the money due shall, for the purpose of enabling the liquidator
to take out the letters of administration or recover the money, be deemed
to be due to the liquidator himself-

Provided that, nothing in this paragraph shall be deemed to affect the

rights, duties and privileges of the Administrator-General;

g) to appoint an agent to do any business which the liquidator is unable to do

himself,
h) to do all such other things as may be necessary for winding up the affairs
of the company and distributing its assets.

The exercise by a liquidator in a winding up by the court of the powers

conferred by this section shall be subject to the control of the court, and any

5
 creditor or contributory may apply to the court with respect to any exercise or
proposed exercise of any of those powers.

VOLUNTARY WINDING UP (SS333-364) Part VIII Chapter III

In case of voluntary winding up, the entire process is done without Court
Supervision. When the winding up is complete, the relevant documents are filed
before the Court for obtaining the order of dissolution. A voluntary winding up may
be done by the members as it may be done by the creditors. The circumstances in
which a company may be wound up voluntary are: -
Ø When the period fixed for the duration of the company in its articles has
expired.
Ø When an event on the happening of which the company is to be dissolved as
per its articles happens.
Ø The company resolves by a special resolution at a general meeting to be
voluntarily wound up.
Ø If the company resolves by special resolution to the effect that it cannot by
reason of its liabilities continues its business and that is advisable to wind up.

A voluntary winding up commences from the date of the passing of the resolution
for voluntary winding up. This is so even when after passing a resolution for
voluntary winding up, the Court presents a petition for winding up.

The effects of the voluntary winding

Ø Company ceases to carry on its business except so for as may be required for
the beneficial winding up thereof.
Ø Board’s power cease on appointment of liquidator in case of members
voluntary winding up.
Ø A voluntary winding up does not necessarily operates as a discharge of the
company’s servants but if it takes place because the company is insolvent, it will
operate as a discharge of the servants of the company without prejudice either
to their right to claim compensation for premature termination. Reigate v.
Union Mfg. (1918) 1 K.B 592

Member’s Voluntary Winding Up

In case of a company which is solvent and able to pay its liabilities in full and which
desires to be wound up voluntarily, the majority of its directors at a Meeting of the
Board must make a declaration of solvency verified by an affidavit stating that in
their opinion the company will be able to pay its debts in full. The company must
appoint liquidators for the purpose of winding up and fix their remuneration at a
general meeting. On the appointment of the liquidators, the Board of directors,

6
managing director and manager of the company cease to have any management
power. The liquidator may transfer or sell the assets of the company and pay off its
liabilities. If the winding up proceedings continue for more than one year, the
liquidator must call a general meeting at the end of each year the liquidation
continues. At the last meeting, the accounts of the liquidator must be approved by
the members. Such accounts must be filed by him with the registrar of Companies
within one week after the meeting. The Registrar on receiving such accounts must
register them.

Creditors’ Voluntary Winding Up

Where the company is not solvent or where the declaration of solvency of the
company is not made and delivered to the Registrar in a voluntary winding up, it
amounts to creditor’s voluntary winding up. In such case the company must call the
meeting of the creditors on the same day as or the next day after the meeting at
which the resolution for voluntary winding up is to be proposed. The notice of the
meeting of creditors must be advertised in the Gazette and the directors must lay
before the meeting of creditors a statement of the position of the company with a
list of its creditors. The directors must also appoint one of their members to preside
at the meeting whereupon it is the duty of that director to attend the meeting and
preside thereat.

Powers of the Court in case of voluntary winding up

Ø It may appoint liquidator where the appointed liquidator is not acting.
Ø It may remove the liquidator and appoint another liquidator on justifiable
cause being shown.
Ø On an application of the Liquidator or contributory or creditor, it may
determine any question arising in the winding up of a company and it may
exercise, as respects the enforcing of calls, the staying of suits or other legal
proceedings or any other matter, all or any of the powers which the Court
might exercise if the company were being wound up by the Court

7
REGISTRATION OF COMPANIES
THROUGH ORS

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Creation of an account (National Identification Number)
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Company Information
Company Information Cont..
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Shareholders
Shareholders cont..
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Upload attachments cont....
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Payment Order cont…..
Payment Invoice
Tracking Application status
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processing by moving the application from My
List to Applications section on the left panel of
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While the application is at BRELA, its status can
be viewed under the Task Name column with
one of the following task names:-
1. Process and Enter Recommendation
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applicant can access the results.
Certificate of Incorporation
BRELA BUSINESS CENTER
REGISTRATION OF BUSINESS NAMES
THROUGH ORS

BRELA
 Online Registration System
Creation of an account (National Identification Number)
ORS Account creation
Activating ORS Account
Signing-in ORS
Getting Started
Services Offered Online
Business Name Registration
Application
Applicant Information
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 Tracking Application status
 Once payment is made the application will
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by moving the application from My List to
Applications section on the left panel of the
dashboard
 While the application is at BRELA, its status can be
viewed under the Task Name column with one of the
following task names:-
1. Process and Enter Recommendation
2. Make Final Decision
 Tracking Application status cont..
 While the application is at the applicant, its status can be
viewed under the Task Name column with one of the
following task names:-
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2. Define Payment
3. Prepare eApplication
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Certificate of Registration
Extract from the Register
BRELA BUSINESS CENTER
 THE LAW RELATED TO SALE OF GOODS
GENERAL CONSIDERARTIONS
 Sale goods is the most common of all commercial transactions.
 It is normally by way of a contract known as a contract of sale.
 A contract of sale is subject to the general legal principles applicable to all contracts (see
for instance sect. 10 of the LCA, Chapter 2 & 3 of the Contract Law book by Prof. Nditi )
 Generally it means a contract where by the seller transfers or agrees to transfer the
property in goods to the buyer for money consideration called price (see sect. 3 of SOGA).
This means therefore that the property in the goods is transferred from the seller to the
buyer.
 The Contract can be two-fold: (See sect 3(3) of SOGA
 Contract of sale:- the property in the goods is immediately transferred from
the seller to the buyer at the time of making the contract. Here, the
consideration is executed one).
 An agreement to sale:- the transfer of property in goods is to take place either
at a future date or subject to a condition to be fulfilled at a later date. (Here,
the consideration is executory one).
 The term property in goods means the ownership of the goods. So what is
transferred in a sale contract is the ownership of the goods (See Bridge, M
(1998). The sales of goods, at pg 30).
 Note:
 In a contract of sale there must be an absolute transfer of the ownership.
 Physical delivery of goods is not essential for transferring the ownership.
 In any contract of sale, the following are key things to understand:-
 The contract is consensual transaction based on promises to sale and buy.
 Consideration must be in monetary terms. Otherwise the very nature of the
transaction turns into a different thing such as barter, etc. So, this is the most
essential element of any contract of sale. (See sects. 10 & 11 of SOGA)
 Note: Price in a contract for sale of goods may be fixed by the contract or
may be determined by the course of dealing between the parties.
 If none of the above is present, then the buyer pays a price as reasonably
determined by the circumstances of each particular case. (see Hoadly v
Mclaine (1854) 118 ER 1304, in Clarke v Westrope (1856) 139 ER 1572)

1
  Positions above have not gone un-criticized. See May and Butcher v The
King [1934] 2 KB 17-21 which held that if the price in the contract of sale
remains unfixed by the contract itself then such contract will be regarded as
not concluded.
 Parties to contract of sale, to make a contract of sale there must be at least two parties.
 Buyer (any person who buys or agrees to buy the goods) and Seller any
person who sells or agrees to sell the goods. (See sects. 2(1) of SOGA).
 These parties must meet all the requirements required by the general
contract law to conclude contracts eg. Capacity.
 Subject matter of a contract of sale.
 Goods - include all personal chattels that are tangible and being capable of being
moved, and the provision exclude all emblements (growing crops produced
annually), money and things that are permanently affixed or attached to the land
such as the land, trees and houses (see sect. 2(1) of SOGA).
 are the main subject of such contract, they may be either existing ot future
goods
 in their absence the contract cannot be made for there are nothing to sale.
 Classification of Goods
 Goods may be: (See sect. 7(1) &(2) of SOGA)
(a) existing,
(i) specific or generic,
(ii) ascertained or unascertained.
(b) future, or
(c) contingent.

 Sales of Perishable Goods: Effect of Perishing of Goods (See sect. 8 & 9 of SOGA)
 goods perishing before sale is complete:
 Goods perishing before making a contract:
(i) Where in a contract of sale of specific goods, the goods without the
knowledge of the seller have, at the time of making the contract
perished or become so damaged as no longer to their description in
the contract, the contract is void. This is based on the rule that

2
 mutual mistake of fact essential to the contract renders the contract
void.
(ii) If the seller was aware of the destruction and still entered into the
contract, he is stopped from disputing the contract. Moreover,
perishing of goods not only includes loss by theft but also where the
goods have lost their commercial value.
 Goods perishing after agreement to sell:
(i) Where there is an agreement to sell specific goods and
subsequently, the goods without any fault of any party perish or are
so damaged as no longer to answer to their description in the
agreement before the risk passes to the buyer, the agreement is
thereby avoided.
(ii) The provision applies only to sale of specific goods. If the sale is of
unascertained goods the perishing of the whole quantity of such
goods in the possession of the seller will not relieve him of his
obligation to deliver.

SALE CONTRACT DISTINGUISHING FROM

 Bailment
 This is a transaction under which goods are delivered by one person (the bailor) to
another (the bailee) for some purpose, upon a contract that they be returned or
disposed of as directed after the purpose is accomplished. Thus, it does not
intended to transfer property in the goods. This however does not negate the
parties’ intention that property in the goods should pass in due course.
 Agreement to sell
 This is a contract whose consideration is executory. In this, risk remains with the
seller; meaning that if accident happens and goods are destroyed then the loss falls
on the seller whereas in a sale contract, the loss falls on the buyer, even though the
goods are with the seller.
 Hire Purchase Agreement
 This is basically a contract of hire, but in addition, it gives the hirer an option to
purchase the goods at the end of the hiring period.

3
  Not until the final installment, the hirer remains merely a bailee of goods and
ownership remains with the bailor. Under such a contract, the owner of goods
delivers the goods to person who agrees to pay certain stipulated periodical
payments as hire charges.
 NOTE:
 There is a difference between a hire purchase agreement and mere
payment of the price by way of staggered installments. The later is a
credit sale, since ownership passes on the first payment of the first
installment
 In a hire-purchase agreement the risk of loss or deterioration of the
goods hired lies with the owner and the hirer will be exonerated from
any responsibility thereof provided he has taken reasonable care to
protect the same as a bailee.
TERMS OF CONTRACT OF SALE: CONDITIONS AND WARRANTIES
 The parties are free to contract at their terms which may either be a condition or a
warranty. (Generally sects 12 & 13 (2) of SOGA)
 Conditions
 If the stipulation forms the very basis of the contract or is essential to the main
purpose of the contract i.e. goes to the root of a contract.
 Its breach gives the aggrieved party a right to treat the contract as repudiated.
 Warranties
 If the stipulation is collateral to the main purpose of the contract, i.e. is a subsidiary
promise. The effect of a breach of a warranty is that the aggrieved party cannot
repudiate the contract but can only claim damages because the breach does not go
down to roots of the contract.
 Circumstances where a condition may be treated as warranty. (See Section 13 (1)-(4) of
SOGA)
 There are certain situations where a condition descends to a level of a warranty.
 Situations that depend on the will of the buyer
 A condition will become a warranty where the buyer waives the condition,
or
 A condition will sink to the level of a warranty where the buyer treats the
breach of condition as a breach of warranty

4
  Situation where there is estoppel against the buyer.
 Where the contract is indivisible and the buyer has accepted the goods or
part thereof then the breach of condition can only be treated as breach of
warranty; then the buyer can only claim damages and cannot reject the
goods or treat the contract as repudiated.
 Sometimes the seller may be excused by law from fulfilling any condition or
warranty and the buyer will not then have a remedy in damages
 Categories of Conditions/Warranties: Express or Implied
 Conditions and warranties may be either express or implied.
 Express are those which, are expressly provided in the contract and implied are
those which are implied by law or custom. The later prevail in a contract of sale
unless the parties agree to the contrary.
 Even in absence of definite representations, the law implies certain representations
as having been made which may be warranties or conditions.
 An express warranty or condition does not negative an implied warranty or
condition unless inconsistent therewith.

 There are two implied warranties: (See sects. 14(b), 14(c)].

 Implied warranty of quiet possession:
The contract impliedly warranties that the buyer shall have and enjoy quiet
possession of the goods.
 Implied warranty against encumbrances:
 The contract impliedly warranties that the goods are not subject to any
right in favour of a third-party, or the buyer's possession shall not be
disturbed by reason of the existence of encumbrances.

 There are several implied conditions

 Implied Conditions as to title
 That the seller, in an actual sale has the right to sell the goods and has the
title when it has to pass.
 That if the title of the seller turns out to be defective, the buyer is entitled
to reject the goods and can
 Implied conditions under a sale by description

5
  Goods must correspond with description. (See sect. 15 of SOGA, the cases
of Beale v. Taylor (1967) All E.R. 253 and Mussa Mahaba v Rukia Shamte
[1979] LRT 6).
 If they are bought by description from dealer of goods of that description,
the dealer must ensure that the goods are of merchantable quality. (See
sect 16 (b)).
 Goods must also be of merchantable quality
 This means that the goods must be such that would be acceptable to a
reasonable person having regard to prevailing conditions.
 They are not merchantable if they have defects which make them unfit for
ordinary use, or are such that a reasonable person knowing of their
condition would not buy them.
 If the buyer has examined the goods, there is no implied condition as
regards defects which such examination ought to have revealed. If,
however, examination by the buyer does not reveal the defect, and he
approves and accepts the goods, but when put to work, the goods are
found to be defective, there is a breach of condition of merchantable
quality.
 The buyer is given a right to examine the goods before accepting them. But
a mere opportunity without an actual examination, however, cursory,
would not suffice to deprive him of this right.
 Condition as to wholesomeness
 The goods supplied must not only answer the description, but they must
also be merchantable and wholesome or sound.
 Condition as to fitness for a particular purpose
 As a general rule, there is no implied warranty or condition as to the quality
of fitness for any particular purpose of goods supplied. (See sect. 16 of
SOGA).
 Exceptions: (See Sect. 16(a)
(i) the buyer expressly or impliedly makes known the intended
purpose, so as to show that he relies on the seller's skill and
judgement, and

6
 (ii) the goods are of a description which it is in the course of the seller's
business to supply (whether he be the manufacturer or not). There
is no such condition if the goods are bought under a patent or trade
name.
(iii) Caveat emptor doctrine (Students urged to read the doctrine)

Also read: Priest v. Last (1903) 2 K.B. 148, Grant v. Australian Knitting Mills
(1936) 70 MLJ 513.

 Implied Condition as to sale by sample (See sect. 17 of SOGA)

 There is an implied condition that the bulk shall correspond with the sample
in quality;
 There is another implied condition that the buyer shall have a reasonable
opportunity of comparing the bulk with the sample; (c) it is further an
implied condition of merchantability, as regards latent or hidden defects in
the goods which would not be apparent on reasonable examination of the
sample.
 In both a sale by sample and by description, the goods supplied must
correspond both with the samples and the description. See Nichol v. Godis
(1854) 158 E.R.426
Also read: Hartley V. Hyman (1920) 3K.B 475 and Timber Furniture Agency V. Dodoma
District Council. Civ. Case No. 13 OF 1989 (HC) Dodoma (Unreported).

TRANSFER OF OWNERSHIP (SECTIONS 18-22)

 The sole purpose of a sale is the transfer of ownership of goods from the seller to the
buyer and so it is imperative to know the precise time at which the property in the goods
passes from the seller to the buyer.
 Time is of essence in this case because;
 Of the general rule that risk follows the ownership, notwithstanding the delivery.
 Where there is a damage of the goods by the action of third party it is the owner
who can take action.

7
  The rights of third parties may depend on the passing of the property if the buyer
resells the goods to a third-party, the third-party will only obtain a good title if the
property in the goods has passed to the buyer before or at the time of the resale.
 Similarly, if the seller, in breach of his contract with the buyer, attempts to sell the
goods to a third party in the goods, has not passed to the buyer, e.g., where there
is only an agreement to sell.
 In case of insolvency of either the seller or the buyer, it is imperative to establish
whether the goods can be taken over by the official assignee or the official
receiver. It depends upon whether the property in the goods was with the party
adjudged insolvent.
 Therefore, ownership and possession are two distinct concepts and these two can
at times remain separately with two different persons.

 Passing of property in specific goods

 In a sale of specific or ascertained goods, the property passes to the buyer as and
when the parties intended to pass. The intention must be gathered from the terms
of the contract, the conduct of the parties, and the circumstances of the case.
 Unless a contrary intention appears, the following rules are applicable for
ascertaining the intention of the parties

 Rules of Transfer Property between Seller and Buyer

 Transfer of ownership has to be ascertained in order to establish time at which the
property in goods had passed to the buyer.
 Establishment of time of passage of ownership is vital because it tells at whose
risk the goods are, who is legally capable of passing a good title by resale or other
dealings with the goods.
 To whom the goods belong in the event of bankruptcy of the buyer before the
payment of the price.

NOTE: The general rule:

 Unless otherwise agreed, the goods remain at seller’s risk until the property therein is
transferred to the buyer, whereupon the goods are at the buyer’s risk whether delivery has

8
 been made or not. In that regard, therefore the ascertainment as to the transfer of
ownership has been dealt with by the rules provided under section 20 of SOGA.

This means therefore that transfer of property between seller and buyer is regulated by four basic
RULES, i.e Rule I-IV. The Rules are set out in S. 20 (a) (b) (c) (d) of SOGA
.
RULE 1: Where there is an unconditional contract for the sale of specific goods in a
deliverable state, the property passes to the buyer when the contract is made. (See
Sect. 20 (a))
 Meaning of deliverable state: A state that the buyer would be bound to take
delivery of the goods. The fact that the time of delivery or the time of payment is
postponed does not prevent the property from passing at once.
 Gist of the rule: Where the goods in a deliverable state are identified, and
ascertained by the buyer and the transaction is unconditional, then the property in
goods passes to the buyer. Read: SADRU H SAID C/O SIDI V R [1980] TLR 265

RULE II: Where there is a contract for the sale of specific goods not in a deliverable state
(meaning the seller has to do something in order to have the goods in a deliverable
state) then the property does not pass until that thing is done and the buyer has
notice of it. (Section 20(b)). Read: (Rugg v. Minett (1809) 11 East ~10),

RULE III: Where there is a sale of specific goods. in a deliverable state, but the seller is
bound to weigh, measure, test or do something with reference to the goods for the
purpose of ascertaining the -price, the property to the goods for the purpose of
ascertaining the price, does not pass until that thing is done and the buyer has
notice of it. (Section 20 (c))

RULE IV: This rule deals with a different type of transaction which is very similar to a
conditional sale and may become a sale in due course36. It stipulates: "When goods
are delivered to the buyer on approval or ‘on sale or return’ or other similar terms,
the property therein passes to the buyer –
(i) when he signifies his approval or acceptance to the seller or does any other
act adopting the transaction;

9
 (ii) if he does not signify his approval or acceptance to the seller but retains the
goods without giving notice of rejection, then, if a time has been fixed for
the return of the goods, on the expiration of such time if no time has been
fixed, on the expiration of a reasonable time; and what is reasonable time is
a question of fact."

NOTE: Once the buyer signifies acceptance to the seller then the buyer cannot repudiate
the contract of sale and reject the goods on the ground that there was breach of
contract.

TRANSFER OF TITLES
 This is normally governed by the maxim nemo dat quod non habet means no one can give
or transfer what he does not have. (See sect. 23 of SOGA)
 It further means that no one can pass a better title than what he has. Read: Rowland v
Divall, Bishopsgate Motor Finance Corporation Ltd v Transport Brakes Ltd,
 Exceptions
 Estoppel
Operates when the owner of the goods is refrained from denying the seller’s
authority as his conduct makes it appear to the buyer that the seller has the
owner’s consent to sell the goods. Thus, the title in the goods will be transferred to
the buyer should he buy the goods. Read: Eastern Distributers Ltd v Goldring.
 Sale by a mercantile agent (See sect. 27 of SOGA)
 Any sale by the mercantile agent made in the normal course of business is
valid as long as the agent had the consent by the owner of the goods which
he has possession of.
 The sale is valid as though the agent had been expressly given the authority
by the owner. But, the buyer must have acted in good faith and no notice
expressing that the seller was not authorized was obtained at the time of
the contract. Read: Folkes v King.
 Sale under a voidable title. (See sect. 25 of SOGA)
 Sale by a seller in possession after sale. (See sect 27 of SOGA)
 The gist of this exception has that should the seller sell the goods that was
bought by a previous buyer but is still in the seller’s possession to a second

10
 buyer, the second buyer will obtain a good title to the goods he bought
from the seller in good faith. The first buyer will lose his title on the goods
but he is entitled to sue the seller who would be liable to him.
 Sale by one of several joint owners who is in possession of goods by permission of
the co-owners the buyer in good faith gets good title to the goods. If one of several
joint owners of goods has the sole possession of them by permission of the co-
owners, the property in the goods is transferred to any person who buys them from
such joint owner in good faith and has not at the time of the contract of sale notice
that the seller has no authority to sell
 Sale in Market Overt: When goods are sold in an open, public and legally
constituted market the purchaser obtains a better title under sect.24 of SOGA
provided that he buys them in good faith and without notice of any defect or want
of title on the part of the seller.
 Sale by unpaid seller
Where the seller remains unpaid, he can exercise his right of lien, or stoppage in
transit by reselling. Read: sect. 40-49 of SOGA.

PERFORMANCE OF A CONTRACT OF SALE (S. 29-39 of SOGA)

 Both parties to a contract of sale are duty bound to perform it.
 Duty of a seller:
 to deliver the goods (Sections 31-39 of SOGA)
 Delivery may be actual, constructive or symbolic.
(i) Actual or physical delivery takes place where the goods are handed
over by the seller to the buyer or his agent authorized to take
possession of the goods.
(ii) Constructive delivery takes place when the person in possession of
the goods acknowledges that he holds the goods on behalf of and at
the disposal of the buyer.
(iii) Symbolic delivery is made by indicating or giving a symbol whereas
the goods themselves are not delivered but the means of obtaining
possession of goods is delivered.

 Rules of Delivery (S. 31-36 of SOGA).

11
 (i) Delivery should have the effect of putting the buyer in possession.
(ii) The seller must deliver the goods according to the contract.
(iii) The seller is to deliver the goods when the buyer applies for delivery;
it is the duty of the buyer to claim delivery.
(iv) Where the goods at the time of the sale are in the possession of a
third person, there will be delivery only when that person
acknowledges to the buyer that he holds the goods on his behalf.
(v) The seller should tender delivery so that the buyer can take the
goods. It is no duty of the seller to send or carry the goods to the
buyer unless the contract so provides. But the goods must be in a
deliverable state at the time of delivery or tender of delivery. If by
the contract the seller is bound to send the goods to the buyer, but
no time is fixed, the seller is bound to send them within a reasonable
time.
(vi) The place of delivery is usually stated in the contract. Where it is so
stated, the goods must be delivered at the specified place during
working hours on a working day. Where no place is mentioned, the
goods are to be delivered at a place at which they happen to be at
the time of the contract of sale and if not then in existence they are
to be delivered at the price they are produced.
(vii) The seller has to bear the cost of delivery unless the contract
otherwise provides. While the cost of obtaining, delivery is said to be
of the buyer, the cost of the putting the goods into deliverable state
must be borne by the seller. In other words, in the absence of an
agreement to the contrary, the expenses of and incidental to
making delivery of the goods must be borne by the seller, the
expenses of and incidental to receiving delivery must be borne by
the buyer.
(viii) If the goods are to be delivered at a place other than where they are,
the risk of deterioration in transit will, unless otherwise agreed, be
borne by the buyer, unless otherwise agreed, the buyer is not bound
to accept delivery in instalments.
 Duties of the buyer:

12
  to accept the goods (S. 37 of SOGA)
 Acceptance of the goods by the buyer takes place when the buyer:
(i) intimates to the seller that he has accepted the goods; or
(ii) retains the goods, after the lapse of a reasonable time without
intimating to the seller that he has rejected them; or
(iii) does any act on the goods which is inconsistent with the ownership
of the seller, e.g., pledges or resells.
(iv) NOTE:
 If the seller sends the buyer a larger or smaller quantity of
goods than ordered, the buyer may:
(a) reject the whole; or
(b) accept the whole; or
(c) accept the quantity be ordered and reject the rest
 If the seller delivers, with the goods ordered goods of a
wrong description, the buyer may accept the goods ordered
and reject the rest, or reject the whole.
 Where the buyer rightly rejects the goods, he is not bound to
return the rejected goods to the seller. It is sufficient if he
intimates to seller that he refuses to accept them. In that
case, the seller has to remove them.
 Pay for them in accordance with the contract.

BREACH OF CONTRACT
 Anticipatory Breach
 This happens where either party to a contract of sale repudiates the contract
before the date of delivery, the other party may, either treat the contract as still
subsisting and wait till the date of delivery, or he may treat the contract as
rescinded and sue for damages for the breach.
 In case the contract is treated as still subsisting it would be for the benefit of both
the parties and the party who had originally repudiated will not be deprived of:
 his right of performance on the due date in spite of his prior repudiation or
 his rights to set up any defense for non-performance which might have
actually arisen after the date of the prior repudiation.

13
  Measure of Damages
The rules laid down in section 73 of the Law of Contract Act apply in absence of any
provision in SOGA with this regard.

RIGHTS OF UNPAID SELLER

 Section 40 of SOGA provide for circumstances that the seller of goods is deemed to be
unpaid seller:
 When the whole of the price has not been paid or tendered; or
 When a conditional payment was made by a bill of exchange or other negotiable
instrument, and the instrument has been dishonoured.
 Rights open to unpaid seller
 Rights against the Goods (Sect. 40-49 of SOGA)

 Right of lien until the buyer pays his debt (sect. 42-44 of SOGA).
 Right of stopping the goods in transit. (Sect. 45 – 47 of SOGA)
 A right of resale may be available accordingly (Sect. 48 – 49 of SOGA)
 Rights against the Buyer
 See remedies available for breach (Remedies of the seller).

14
GENERAL PRINCIPLES OF
COMMERCIAL CONTRACT
PRACTICAL TIPS
SYNOPSIS
1. Definitions: Commerce & Commercial
Contracts
2. Categories of Commercial Contracts
3. Legal regimes governing commercial contract
4. The general principles of commercial contract
5. Conclusions
 Defn…
1.2. Commercial Contract
refers to a legally binding agreement between
parties in which they are obligated to do or
restrain from doing particular things
1. Definitions of concepts
1.1. Commerce:
The exchange of goods and services, esp. on a
large scale involving transportation between
cities, states, and nations(Black’s Law Dict.8th
Edn. P. 807)
The exchange of goods, services or something
of value, between businesses or
entities(https://www.investopedia.com/terms
/c/commerce.asp)
the activity of buying and selling, especially on
a large scale.
 2. Categories of Commercial Contracts

International commercial contracts- between

nationals of different states, or cross border
contracts-involving more than one nation
Domestic Commercial Contracts-within a
state and between nationals of the same
state.
• Construction
• Sale of goods
• Disposition
• Retainer
• Consulting
• Etc.
3. Legal regimes governing commercial contracts
 UNIDROIT Principles of International Commercial
Contracts,1994
 United Nations Convention on Contracts for the
International Sale of Goods
 INCOTERMS 2020
 UNCITRAL Model Law on Electronic Commerce, 1996
 United Nations Convention on the Use of Electronic
Communications in International Contracts, 2005
 The Law of Contract Act, Cap. 345 R.E 2002
 The Electronic Transactions Act, 2015
4. General Principles
NOTE:
Various principles governs commercial
contracts.
Broadly they are categorized in terms of:-
1. Formation
2. Content
3. Expiration/Exit
4. Remedies
4.1.Formation
Essentials for a valid and enforceable
Commercial Contract are:
a) Offer and Acceptance
b) Intention to create legal relationship
c) Capacity
d) Consent (free)
e) Consideration
f) Legal/Lawful Object
a). Offer and Acceptance
i. An Offer:
 One’s (offeror) expression of readiness to contract on
specified terms, intending to be binding once accepted
by the other party (offeree)
 Can be express or implied (conduct)
 Can be made to an individual, specific group or the
World at large
 For there to be an offer, an intention to be bound by
the same if accepted must be established. HENCE:
 An invitation to treat is not an offer
 See the case of Carlill v Carbolic Smoke Ball Company
[1893] 2 QB 256
4.2 Contents
 Generally, the primary contents of any contract are
terms and conditions. These are categorized as;-
1. Express terms/conditions
 Written
 Oral
 Collateral
-Set out and agreed by parties
-Cannot be varied-the parole evidence rule

2. Implied terms/conditions
-By Law
-By fact
-By customs and trade usage
4.3.Expiration/end/exit
Generally, a contract can be brought to an end
through four primary ways namely
i. Expiration
ii. Termination -(due to Breach(actual or
anticipatory) i.e. failure/refusal to perform,
defective performance or self-incapacitation;
via repudiation, impossibility or inability to
perform.
iii. Vitiation (due to Misrepresentation or
Mistake)
iv. Frustration
 NOTE: ON VITIATION
• i) Misrepresentation:
A false statement of fact, which, though not a
term, is made with intent to induce another to
contract. It must be a statement of fact, not an
opinion or law
Silence does not amount to misrepresentation,
but one must tell the whole truth-not only part
of it
It can be Fraudulent, Negligent or Innocent
Remedies in case of misrepresentation includes
Rescission, Indemnity and Damages
ii) Mistake
Generally classified into the following:
i. Common Mistake-Both parties making same
mistake on a fundamental fact-eg. on
existence of the subject matter-the contract
is void
ii. Unilateral Mistake(if relates to terms-then
the contract is void
iii. Mutual mistake-both parties cannot
understand each other
iv. Mistake as to quality of the subject matter-
iii) Illegality
Generally, A contract may otherwise be valid
with all elements but unenforceable due to
illegalities either at the time of formation or
during performance.

The illegalities may be due to:

a) Illegal mode of performance
b) Illegality of Purpose
c) Violation of legal rules and public policy
d) Breach of legislation
4.4. Remedies/Damages
Remedies are the options available to make
good for the breach of the contract
Damages are essentially compensation for the
loss suffered due to breach of a contract.
Essential factors to consider for determining
damages includes
a) Actual loss having ensued
b) It is a compensable loss
c) Causation-the loss is not too remote
Some common remedies
Specific performance
Compensation
Restitution
Injunction
5. Conclusion
The principles that governs commercial
contracts are universal in terms of formation,
performance and enforcement.
However, legal regimes varies depending with
the nature of the transaction, location of the
transaction, Parties to the transaction as well
as the Modality of transaction.
6. References
1. I. C Saxena “Commercial Law” at
https://www.coursehero.com/file/20952494/Co
mmercial-Law/.
2. C. Elliot et al, Contract Law, 7th Edn., Pearson
Education Ltd, 2009.
3. Oysterbay Villas Limited vs. The Kinondoni
Municipal Council &Another, Commercial Case
No. 88 of 2011 (unreported)(Breach, Remedies).
4. First National Bank (T) Limited vs. Miles Solutions
Co. Ltd & 2Others, Commercial Case No. 108 of
2017 (Unreported) (Frustration, Breach)
 LECTURE 9: REVIEW QUESTIONS

QUESTION ONE

You, the Managing Partner, of the Law Firm known as KCM, Advocates, have just received
telephone call from Mr. Paul Kimweri, a renowned businessman in Dar es Salaam, seeking
urgent legal assistance.

Mr. Kimweri has informed you that he plans to establish agricultural business in Dodoma
following shift of the government offices from Dar es Salaam to Dodoma, the Capital City of
Tanzania. He believes that the shift of government employees to Dodoma will enhance the
business in agricultural sector.

On 1st September, 2017 Mr. Kimweri approached Azania Bank Plc for a loan on his plan to do
agricultural business in Dodoma. The Bank agreed to issue him a personal loan amounting to
Tzs. 300,000,000/= (Three Hundred Million). Mr. Kimweri managed to repay the loan in full by
31stDecember, 2018 according to the terms of his loan agreement.

In January 2019, Mr. Kimweri approached the Bank for the second loan to purchase the farm.
The Bank agreed to issue a loan of Tzs500,000,000/= (Five Hundred Million) on condition that
said loan would be issued to a registered commercial entity carrying on agricultural business.

(i) As Managing Partner of KCM Advocates and with assistance of other advocates in your
firm prepare a checklist on items which will guide you in advising and handling Mr.
Kimweri’s issues relating to various types of Business Organizations in Tanzania.
(ii) In your opinion what do you think is the best business entity that Mr. Kimweri should
form for smooth conduct of his business bearing in mind Mr. Kimweri:
a. Wishes to avoid significant levels of formality and regulation
b. Wants to have flexibility in establishing the procedures by which the business is
to be run

Page 1 of 5
 c. Wants to be able to run their affairs in private
d. Wants to avoid personal liability for the debts and liabilities of the business
e. Wants the process of creating the business to be relatively cheap and quick
f. Does not want to invest significant amounts of their own capital in setting up
the business and will probably wish to raise capital from outside sources
(iii) Based on your answer under item (b) above draft the relevant documents for
registration of the same.

Assume in the scenario above, Mr. Kimweri has agreed to incorporate a company with her
daughter Janelle Kimweri and three close friends Majuto Masikitiko, Majimoto Mkali and
Mwendo Msafiri.

(iv) Prepare a set of questions (checklist) whose answers will guide you on successful
registration of the Company.
(v) Prepare necessary documents for successful registration of the company
(vi) Narrate the procedures to be followed in registering a companyin Tanzania and
demonstrate how companies and other entities are registered online

QUESTION TWO

Sanga is a 50% shareholder in BALOMI Ltd which on 13 th August 2018 acquired 20%
shareholding in IT company (BWERA Ltd.) for an investment of TZS 300,000,000. BALOMI Ltd.
was issued with 2,000 shares of the capital of BWERA Ltd whose nominal value for each share
is TZS 10,000. The Registered and Issued Capital of BWERA Ltd was TZS 100,000,000 but the
same was increased to TZS 500,000,000 during the Board of Directors meeting held 15 th
November, 2018. The Board of Directors informed the shareholders of such increase during the
Annual General Meeting (AGM) held on 15th December, 2018 as part of the Directors Report.

Page 2 of 5
The company has five directors but the only directors recognized at the Registry are Magoti,
Maranga and Lukavu who are also the first directors of the company. Mr. Jandwa was
appointed as a Chief Executive Officer (CEO) of the Company during the AGM.

Mr. Sanga is unhappy with the manner in which Magoti, Maranga and Lukavu are running the
company. He is also concerned that a lucrative contract which would, in the ordinary course
have gone to BWERA Ltd, has been won instead by another company recently incorporated by
Magoti, Maranga and Lukavu. When Mr. Sanga tried to raise his concerns and complaints at
the Annual General Meeting, Magoti, Maranga and Lukavu used their voting power to ensure
that no resolution was passed at Sanga’s instigation.

Again, immediately before the Annual General Meeting (AGM), Nanga, a shareholder in
BWERA Ltd decided to sell his shares in this company to Magoti, Maranga and Lukavu, who
agreed to buy Nanga’s shares at a nominal value. The deal went through and Nanga sold his
shares to Magoti, Maranga and Lukavu, who each purchased one-third of them.

Three months after the sale of his shares, Nanga discovers that at the time he agreed to sell his
shares to Magoti, Maranga and Lukavu, the Board had been negotiating with BAMOTE Ltd to
sell BWERA Ltd. to it at a price of TZS 200,000 per share. Just two days ago, the board of
BWERA Ltd announced that all its shareholders had accepted BAMOTE Ltd bid to buy their
shares at a price of TZS 200,000 per share.

a) Advise Balomi Ltd, Sanga, Nanga and the CEO of the Bwera Ltd
b) Assuming that the shares acquired by Balomi Ltd were not ordinary shares, what rights
does Balomi Ltd has in the company and how would Balomi Ltd get any financial return
for their investment?
c) Assume, the company also had a debenture with the Mapendo Bank PLC under which it
was given a loan of TZS 300,000,000 and that the company had incurred losses. Jandwa
has informed Bakunda, the branch manager of Mapendo Bank PLC, of a forthcoming
special resolution whereby the shareholders of company will seek to reduce the
company’s paid up share capital to TZS 300,000,000. Bakunda is concerned at this

Page 3 of 5
 development, and seeks your advice as to how the company would go about effecting
this reduction of capital, and whether or not the bank, as secured creditors, can take
any steps to prevent this reduction happening. Advise Bakunda.

QUESTION THREE

Assume that, it is more than twenty (20) years since Chakula Investment Company Limited
was incorporated. During that period the Company has made a lot of profit which enabled it
expand its supply to other countries including Kenya, India and Sudan. However, in the last five
years, the business has not been doing well due to emergency of competitors from Kenya and
Malawi, which by and large affected the exportation of its products. Following such incident,
the company has failed to pay back loans it borrowed from different banks such as CRDB Bank
PLC, Azania Bank Limited and Exim Bank (T) Limited.

The Directors of the company have tried all possible means to rescue the situation, but nothing
good has come out of it. The only option they have now is to wind up the company in order to
avoid unnecessary future problems with TRA and other debtors.

The Directors of the company have come to you to seek your legal assistance in winding up the
company.

Prepare a comprehensive Legal opinion on the things to consider in winding up the company
and the procedure thereto.

QUESTION FOUR

Bongoland (the buyer) is a famous musician based at Mbagala area within the city of Dar es
Salaam. He normally makes copies of his own music (commonly known as “B-Flev”) which he
sells via the internet. The number of his customers has been increasing day after day. To be
able to meet this demand, he resolves that he needs a new machine to speed up the copying of

Page 4 of 5
his music. Knowing that he is not an expert in electrical equipments, he contacts Mr. Awilo (the
seller) who owns a shop for electric and computer equipments for advice. Having informed Mr.
Awilo the purpose of buying the instrument in question, he was advised to buy a machine
which he (Awilo) claims is more than 10 times quicker than the one currently used by
Bongoland. Having negotiated and agreed on the price, Bongoland buys the machine for cash
and takes it with him. However, when he tried it he found it to be no quicker than his old one.
He also found that it started making loud grinding noises when it was being used. He decides
to return the machine to Awilo and asks for his money back. Mr. Awilo turns down Bongoland’s
demands and reminds him that the contract he signed contained a clause stating clearly that;
“goods once sold, cannot be returned.” Mr. Awilo who seemed to have rudimentary knowledge
on the law of sale of goods, also informs Bongoland that under such law, seller of goods is not
obliged to guarantee quality or fitness of goods he sells. Bongoland is seriously confused and
approaches you as an expert of the law of sale of goods for advice.

With relevant authorities, prepare a detailed legal opinion on whether or not Bongoland is
entitled to return the machine to Awilo under the above circumstance.

Page 5 of 5
 SALE OF GOODS

PRACTICAL ASPECTS OF
INTERNATIONAL SALES LAW
 What is an international Trade?
• Authors in international Trade have defined
International Trade/sale to mean;
• Movement of goods, services from one
country to another when involves nationals of
different countries and when the contract was
concluded in a foreign state.
• International trade is “the exchange of goods
*or+ services” “between nations.” Black’s Law
Dictionary 285, 1529 (8th ed. 2004).
 Why do nations trade?
• Generally Nations do not trade
• Individuals and firms do trade
– Subject to law of demand
– Subject to law of supply
• Nations by necessity or otherwise have to
import and export
– Reasons underlying these processes may differ
from country to country

JULIUS COSMAS, LLD.

 Why Exports?
• Sell of surpluses
• May obtain higher prices overseas
• Depend on natural endowment, structure of
production and trade partners, level of
development etc
• Earn foreign currency to pay for imports
– Link to exchange rates
– Employment considerations

JULIUS COSMAS, LLD.

 Why import?
• Purposes may differ from country to country
– May be essential to economy (e.g. oil) due to
national and strategic reasons
– Based on consumer choice (cars and wine)
– Foreign competition (textiles)
• Trade specialisation
– Country by country factors
– Comparative advantage

JULIUS COSMAS, LLD.

 RISKS AND PROBLEMS ENCOUNTERED IN
INTERNATIONAL BUSINESS.
• Risk lying in the persons of the parties .i.e economic risks
the buyer may be unable to pay because of lack of funds
or unwilling to pay because he has found a better bargain
elsewhere, the seller may also decide not to perform.
• This is more likely in IT than in Domestic as here the issue
of suing in a foreign jurisdiction arises.
• Political risk- this risk lies with the government, proper
performance of the contract may be prevented or made
difficult due to factors such as war, blockage of funds,
cancellation of export and import licenses, antidumping
legislations, and tariff or quota restrictions.
• Quality control is another difficult in international business as
the buyer is far away hence he cannot inspect the goods
whether conforming or not. If not then he has to sue in a
foreign jurisdiction.
• The moment of payment is another risk. In an international
sale the transport period is a major problem. The time
between the shipment of the goods by the seller and the
taking in charge of the goods by the buyer may be very
substantial.
• The seller of course will not want to relinquish control of the
goods before receiving payment. The buyer on the other hand
will not want to pay before taking control of the goods. To find
a balance could be very challenging.
• Damage during transport. The transport
especially marine transport hold the risks that
the goods may be damaged in the process. The
question regarding who bears the risks is of
utmost importance.
• The issue as to which party should arrange for
the insurance is also a challenge to the parties,
and how one can enforce in case of damage.
• International community efforts to address the
challenges
 CISG

• The Convention on International sales of Goods.

• Link www.
https://www.uncitral.org/pdf/english/texts/sales/cis
g/V1056997-CISG-e-book.pdf
• Accepted at the Vienna Conference in 1980
• Came into force in 1988
• Tanzania has not ratified the convention.
• By February 2020 it has 93 member states.
 CISG
• Once adopted the CISG becomes applicable law in
international sales contracts.
• CISG is based on the principle of Party autonomy ie.
Most of the provisions can be modified by the
parties to suit their contractual needs. Art. 6
• The CISG is in force in more than 93 States
from all parts of the world, among them both
industrial nations and developing states
• It has been widely applied in international
commercial transactions in the past 30 years.
• More than 1700 decisions by state courts and
arbitral tribunals have been reported so far;
legal writing on the Convention is abundant.
• It is available in 6 Official Languages ie arabic,
chinese, french, english, russian and spanish
• It is framed in a fairly non technical language
which is free from legal jargon

• It is therefore fair to say that the CISG has in

fact been one of the success stories in the
field of the international unification of private
law.
 Application
• The CISG applies to contracts of sale of moveable
goods between parties which have their place of
business in different states when these states are
contracting states (Art. 1(1) (a) or
• When the rules of private international law lead to
the application of the law of a contracting state (Art.
1(1) (b).
• Certain types of contracts are excluded from its
scope of application by virtue of Art. 2 CISG. For
instance most consumer sales will not fall under the
CISG. Art. 2 (a).
 EXPLANATION/ Illustration
• Seller is a French manufacturer of electrical
kitchen equipment. Buyer is a New York "retailer
of home furnishings, including kitchen equipment.
On a trip to the United States, seller's
management agrees with buyer to manufacture
and supply 2,000 food processors meeting buyer's
specifications. The parties sign a contract
document which provides for payment by letter of
credit and for arbitration of disputes; the contract
does not, however, include a choice-of-forum or a
choice-of-law clause.
 After signing the document the New York
buyer asks the following four questions:
• (a) How do I know whether or not my transaction is a "contract for the
international sale of goods" as these terms are defined by the 1980
Vienna convention?
• (b) Assuming that my transaction is a contract for the international sale of
goods, what connection must my transaction have to a State which has
ratified or acceded to the Vienna convention so that the convention's
provisions govern my contract?
• (c) If my transaction is subject to the Vienna convention and for some
reason I am unhappy about this, is there anything I can do to exclude
some or all of its provisions?
• (d) If my sales contract is subject to the Vienna convention, will the
convention's provisions govern all the issues that might arise in
connection with my transaction?
 Contract for the International Sale of
Goods
• [a] Is the Transaction "International"?

Article 1 provides a simple test for determining

whether a transaction is international: Article 1(1)
states that it must be "between parties whose places
of business are in different States."
• In all likelihood the transaction between the New
York buyer and the French seller meets the objective
"internationality" test of the Vienna convention. At
the time they enter into the contract the buyer has
his place of business in the United States and the
seller has its place of business in another country
• Although the seller has multiple places of business Article
l0(a) provides that the relevant place of business is the one
which has "the closest relationship to the contract and its
performance," which in this case is France.
• The term "place of business" implies some permanency.
• In any event, even if it is decided that seller has a place of
business in New York one still must determine which place of
business is the relevant one.
• Because seller's performance (manufacture, packing, and
possibly delivery) will take place in France Article 10(a)
suggests that the relevant place of business would still be
France.
[b] Is the Transaction a "Contract of Sale"?

• Although there is no definition of "contract of

sale" in the Vienna convention, one can
reconstruct a definition from the later articles
defining the obligations of the parties.
• Article 30 requires the seller "[to] deliver the
goods, hand over any documents relating to them
and transfer the property in the goods"; while
Article 53 requires the buyer "[to] pay the price
for the goods and take delivery of them
• In the hypothetical case, the transaction is
probably a contract of sale.
• The obligations undertaken by the parties are
characteristic of seller-buyer obligations.
 [c] Is the Transaction a Sale of "Goods"?

• There is no doubt that the food processors in

the hypothetical case are goods.
• Even if they were to be installed as a "fixture"
by a retail purchaser from the New York buyer
the processor would be a movable at the time
of the French seller-New York buyer
transaction.
 Relation of Sales Transaction to a
Contracting State
• Not all contracts for the international sale of goods will be
governed by the Vienna convention because, the 1980
convention requires a substantial relation between a
transaction and a State which has ratified or acceded to the
convention before its provisions govern the transaction
• Article 1(1) provides the basic rule:
"This Convention applies to contracts of sale of goods between
parties whose places of business are in different States:
• (a) when the States are Contracting States; or
• (b) when the rules of private international law [i.e., conflict-
of-laws rules] lead to the application of the law of a
Contracting State."
 [a] Contracting States (Art. 1(1)(a)
• The hypothetical case of the French seller and the
New York buyer illustrates the application of para.
(l)(a). The seller and buyer are from different
Contracting States.
• If a sales dispute is brought before a forum in France,
New York, or any other Contracting State the forum
will be bound by para. (l)(a) to apply the convention.
• Under the facts of the hypothetical case it is highly
likely that the law of either France, as the place
where the seller has its business, or the United
States, where the contract was entered into and
performed, will apply and the relevant legal rules will
be those of the convention.
 [b] Rules of Private International Law
(Art. 1(1)(b))
• To illustrate the operation of para. (1)(b) one must vary the original
hypothetical case. Assume, for example, that the United States has not
ratified the Vienna convention and that a sales dispute between the
parties is brought before a forum in France. The forum will not be bound
by para. (1)(a) because the parties are not from different Contracting
States and the forum will therefore proceed to examine its rules of private
international law to determine if it is bound by para 1b

• These rules are readily available because France is a party to the 1955
Hague convention on conflict-of-laws rules for international sales
contracts. Under the rules of the 1955 convention, the forum will look to
the law of the State where the seller has its establishment if the order is
received there or to the law of the State where the buyer resides if the
order is given there.
 [5] Excluding the Convention
• Having concluded that his sales contract with
the French seller is governed by the Vienna
convention, the New York buyer asks if he can
avoid this result. The answer is set out in
Article 6:
• "The parties may exclude the application of
this Convention or, subject to article 12,
derogate from or vary the effect of any of its
provisions.
 INTERPRETATION OF THE CONVENTION:
• As the CISG is an international legal instrument, the issue of
interpretation requires special attention.
• The Convention itself gives some guidelines in Art. 7(1) CISG
which have to be taken into account when trying to find the
standards of interpretation that are admissible .
• Guidelines in Art. 7(1) CISG
• Art. 7(1) CISG provides a rule on the interpretation of the
Convention which states that regard is to be had to its
international character and to the need to promote
uniformity in its application and the observance of good
faith in international trade. This rule gives guidelines for
interpreting the Convention:
• The first guideline is its international
character. In the first place, therefore, the
Convention has to be interpreted
autonomously.
• This means that the terms of the CISG should
not simply be regarded as having the same
meaning as identical terms that may exist in
the domestic legal system.
• They should rather be given a "CISG-
meaning", based on the structure and the
underlying policies of the Convention as well
as on its drafting and negotiating history.
• The second guideline is the need to promote
uniformity in the application of the Convention.
• The ideal would be a situation where every court or
tribunal that has to apply the CISG would interpret its
provisions in exactly the same way and with the same
results.
• In practice, of course, this aim is hard to realize, in
particular because there is no supranational court.
• The courts should, however, try to take into account
foreign case law (and academic writing) as persuasive
authority when interpreting the CISG.
 USAGES AND TRADE PRACTICES
• Art. 9(1) CISG states that the parties are bound by any usage
to which they have agreed and by any practices which they
have established between themselves.
• Art. 9(2) CISG goes somewhat further.
• It essentially states that, unless otherwise agreed, relevant
international trade usages (INCOTERMS) will be binding on
the parties if they knew or ought to have known of these
usages.
 Obligation of the seller and buyer
• GENERAL OBLIGATION OF THE SELLER;
• Art. 30 deliver the goods
• Handing over of documents
• Transfer of property in goods
• Art. 85, 87-89 Duty to preserve the goods.
• GENERAL OBLIGATION OF THE BUYER;
• Art 53-59 payment of the price
• Art 60 Taking delivery of the goods
• Art. 86 Preservation of the goods.
 Seller’s duty to deliver: Place of
delivery.
• According to contractual agreement/trade usage.
• Art. 31 determines place of delivery if no particular place is
expressly stated
• Art. 31 distinguishes also between instances where contract
of sale refers to carriage and those where no carriage is
involved
• Art. 31(a) If carriage is involved the delivery is complete when
goods are handed over to the first carrier.
• Art. 31 (b)&(c) If no carriage is involved, when placed at
buyer’s disposal at specific place or at seller’s place of
business.
 Seller’s duty to deliver: Time of delivery

• Art. 33 Delivery should be done at a fixed date

or ata determinable date or within a
reasonable time.
 Seller’s duty to deliver conforming goods
• Art. 35(1) conforming can be defined by agreement
• Art 35(1) Goods of quantity, quality and description required by the
contract
• Contained or packaged in manner required by contract.
• Default Rule: Art. 35(2) Unless parties have agreed otherwise, the goods
do not conform if they are not;
• Art. 35(2)(a) marketable, or of reasonable quality.
• Goods must be fit for usual purpose for which ordinaily used
(merchantable goods)
• Goods are not conforming if they are not fit for particular purpose
expressly or impliedly made known to the seller at conclusion of the
contract
• The goods must be free from third parties incumbrances.Art 41-43
 When does the right to sue starts?
• At the moment of delivery ie when the risks passes to the
buyer Art. 36(1)
• Also after delivery if the non conformity is due to the seller’s
breach of guarantee on goods.
• However the seller is given the right to cure the defects. Art.
37 If goods are delivered prior to the delivery date defects
may be cured until the due date of delivery. Art 48 possibility
to cure after delivery.
• Buyer must examine the goods within a short period of time
as is practicable
• He must also give notice of lack of conformity within
reasonable time after he has discovered it.
 Passing of Risks.
• Art. 66 General principles
• Buyer must pay contract price after risk has passed,
unless loss damage is due to act/ omission of the
seller.
• The rationale is that the buyer is in better position to
evaluate loss and claim from insurers
• WHEN DOES RISKS PASSES TO BUYER;
• The CISG links passing of risks to passing of
possession and thus to moment of delivery.
• It distinguishes between contracts that involves
carriage and those that don’t. Art 31.
• Where carriage is involved normally incortems will be
incorporated hence supersede the CISG.
• Art 67(1) Risk passes when handed over to the carrier (see
also art. 31.)
• Where no carriage is involved, Risks passes to the buyer when
he takes over the goods or when placed at his disposal and
fails to take delivery.
• Buyer still have breach of contract remedy if seller committed
fundamental breach. Art. 70.
• In case of sale in Transit, risk passes at the time of conclusion
of in transit contract.
 Remedies of Seller and Buyer
• Specific performance Art 45(1)(a) & 61(1)(a)
• Avoidance (cancellation) Art 45(1)(a) &61
• Damages Art 45 (1)(b) & 61 (1) (b)
• Reduction of price Art. 50
• Suspension of performance Art 71
• Interest Art. 78
• Where there is fundamental breach the innocent
party is given the right to avoid the contract. Art 25.
• Fundamental breach is when the breach results in
detriment to other party.
• The detriment must be that substantially deprive the
other party what he is entitled to expect under the
contract.
• What is substantial depends on the aggrieved party
expectation as set out in the contract.
 Specific performance
• Buyer’s rights to specific performance is stated
under Art 46&47
• Seller’s Art 62& 63
• Limits Art. 28
• When?
• Failure to perform Art. 46(1)
• Delivery of non conforming goods
 Avoidance
• Buyer Art. 49
• Seller Art. 64
• The notice of avoidance is effective only if made by
notice to the other party. Art. 26.
• When?
• Where there is fundamental breach, or failure to
deliver.
• Consequences of Avoidance:
• Parties released from their obligations Art 81(1)
• Restitution of performances for interests. Art. 81(2).
 DAMAGES
• Art 74
• It is a direct or indirect loss including loss of profit
• It must have a causal link to the breach
• Must be foresiable at the conclusion of the contract.
• Calculation of damages if the contract is avoided; If the buyer
has bought substitute goods and the seller resold goods, the
difference between contract price of the substitute goods and
plus additional damages. As per Art. 74.
• In other instances the difference between contract price and
current price at the time of avoidance or time of taking over
the goods.
 Exemption from liability
• Art. 79.Parties are not liable for failure to
perform if due to;
• Impediment,
• Beyond your control
• Not reasonably foreseeable
• And which was reasonably impossible to
overcome.
 SPECIAL TERMS IN EXPORT SALES-
INCOTERMS
• As seen under Article 9 of the CISG, parties are
bound by the Trade practice known to them.
• Trade terms have been developed by international
mercantile custom and have simplified the sale of
goods abroad.
• International Commercial Terms. They were first
published by the International Chamber of
Commerce (ICC) in 1936 and since then have been
updated in 1953, 1967, 1976, 1980, 1990 , 200 and
the current revision 2010.
 The Steps of Global Logistics
Customs Clearance
for Export
2 3 4
Handling
Loading Outbound
1 Preliminary
Transportation
5
Packing
6
Insurance
Main
Customs International
Clearance Transportation 7
Duties

11 10 9 8

Unloading Final Handling

Transportation Inbound
• The basic purpose of each INCOTERM is to ;
• Allocate shipping responsibilities – pre carriage,
main carriage and on carriage.
• Clarify when delivery take place – refer CISG
• Clarify when risks of loss transfers
• The terms range from a situation in which everything
is fundamentally the responsibility of the buyer to
the other extreme where everything is
fundamentally the responsibility of the seller.
• Delivery point is Key . It can be to a place, to carrier
or to buyer’s final destination.
 INCOTERMS 2010 – 11 Terms

EXW
FCA CFR
DAT
FAS CIF
DAD
FOB CPT
DDP
DAP
DAT
CIP
FAS, FOB, CFR, CIF – Marine restricted
EXW, FCA, CPT, CIP, DAT, DAP, DDP – Omni-modal
Factors which influences the choice of
a particular term
• Company policy – the seller who is a
monopoly dictates that it only do ex work or
buyer dictating DDP
• Market place tradition – some terms may be
unfamiliar/unpopular in a certain jurisdiction
where goods are purchased.
• Legal and financial restriction of the
importing country/exporting country – Freight
and insurance must be paid in Tz.
• Transport infrastructure – in other jurisdiction
air transport is the only available means - eg
land locked countries & poor road
infrastructure.
• Mode of transport – some terms are meant
for sea transport hence cannot be chosen
where there is no sea
• Type of cargo and value – perishable goods?
Expensive cargo? Low value why CIF?
 The Incoterms are split into four distinct
groups:
1. Group E - where the goods are made available to the
buyer at the seller's premises - Departure term
2. Group F - where the seller must deliver the goods to
a carrier appointed by the buyer;- main carriage
unpaid
3. Group C - where the seller must contract for the
carriage of the goods without assuming risk of loss
of, or damage to the goods or additional costs due to
events occurring after shipment; - seller pays main
carriage
4. Group D - where the seller has to bear all costs and
risks required to bring the goods to the place of
destination – arrival terms
 extent of liability to bear –
EX W

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost
1. Group E - Departure
• EXW - Ex Works
Named place - Any mode of transport
The seller must place the goods at the disposal of
the buyer at the seller's premises or another
named place not cleared for export and not
loaded on any collecting vehicle.
• Buyer arranges for pre inspection costs, customs,
freight forwarders in the exporting country,
inland carriage, terminal charges, insurance and
importing charges etc.
 F (…named port of shipment) Main
carriage to be paid by buyer
Seller
• delivers goods alongside ship
• evidence of delivery

Export Import
SELLER BUYER
Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk
Buyer
• export documents
Seller’s Cost • nominates carrier,
• contracts carriage
• pays freight
2. Group F Main Carriage Unpaid – BUYER PAYS
FREIGHT
• FCA - Free Carrier at
Named place - Any mode of transport
The seller must deliver the goods, cleared for export,
to the carrier nominated by the buyer at the named
place.
• FAS - Free Alongside Ship
Named port of shipment - Maritime and inland
waterway transport only
The seller must place the goods, cleared for export,
alongside the vessel at the named port of shipment.
Buyer responsible for lading etc.
• FOB - Free on Board
Named port of shipment - Maritime and
inland waterway transport only
The seller delivers the goods, cleared for
export, when they pass the ship's rail at the
named port of shipment. Freight is paid by the
buyer. The buyer cannot take possession of
the goods until he pays the seller to release
the BOL.
 C term the Liability of seller
ends with ship’s rail – main
carriage paid by seller.

Export Import
SELLER BUYER
Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Buyer
Seller’s Cost • nominates carrier,
• contracts carriage
• pays freight
 Group C Main Carriage Paid – SELLER PAYS FREIGHT
3.
• CFR - Cost and Freight
Named port of destination - Maritime and inland
waterway transport only
The seller delivers the goods when they pass the ship's
rail in the port of shipment and must pay the costs and
freight necessary to bring the goods to the named port of
destination. The buyer bears all additional costs and risks
after the goods have been delivered (over the ship's rail
at the port of shipment).
• CIF - Cost Insurance and Freight
Named port of destination - Maritime and inland
waterway transport only
The obligations are the same as under CFR with the
addition that the seller must procure insurance against
the buyer's risk of loss of, or damage to the goods during
carriage.
• CPT - Carriage Paid To
Named place of destination - Other mode of
transportation than Sea
The seller delivers the goods to the nominated carrier
and must also pay the cost of carriage necessary to
bring the goods to the named destination. The buyer
bears all additional costs and risks after the goods have
been delivered to the nominated carrier.
• CIP - Carriage and Insurance Paid To
Named place of destination – OTHER mode of transport
than Sea.
The obligations are the same as under CPT with the
addition that the seller must procure insurance against
the buyer's risk of loss of, or damage to the goods
during carriage.
 DAT (…Delivered at Terminal)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost
 INCOTERMS
DAT/DAP/DDP

• More obligations for seller than EXW, F terms, and C

terms
• “Delivery” and Risk of Loss Transfer:
 Delivered at Terminal (DAT) – when seller delivers
goods to named destination terminal on buyer’s side,
packaged appropriately and unloaded
 Delivered At Place (DAP) – when seller delivers goods
to buyer at named place on buyer’s side,
appropriately packaged but not unloaded
 INCOTERMS
DAT/DAP/DDP

• “Delivery” and Risk of Loss Transfer (cont’d):

 Delivered Duty Paid (DDP) – when seller places
goods at buyer’s disposal on transport arrival at
destination place
Seller is not required to unload goods but must
clear goods for import
DDP puts most obligations on seller (compare to
EXW), but is expensive for buyer.
 INCOTERMS

• Only DDP puts import clearance obligation on

the seller.
 Ocean vs Other
• Ocean Terms Other Terms
– CFR CPT
– CIF CIP
THE END
 LS 106: PRACTICAL ASPECTS OF COMMERCIAL LAW

LECTURE 12 REVIEW QUESTIONS

QUESTION ONE

Sima owned a shop selling old traditional goods. This required her to attend a number of
auctions per year. When Sima went to these auctions her best friend Bungu ran the shop.
Sima instructed Bungu, that she could sell any of the items displayed in the shop as long as
Sima got at least sixty five percent of the price displayed on the item. Sima warned Bungu
that under no circumstances must she purchase any items for the shop.

While Sima was away at an auction, Bungu sold Chamama an tradition clock for sixty
percent of the price displayed. Chamama bought the clock believing that Bungu owned the
shop.

Bungu also sold Dangota, a regular customer and good friend of Sima’s, a traditional bed
for fifty five percent of the displayed price. Diana was aware that Sima would not sell for
lower than seventy five percent of the marked price, even to a trader such as herself.

Bungu also purchased a number of jewelry items shown to her by Emma, for TZS 500,000.
On Sima’s return, she discovered that the jewelry pieces were very rare and in fact worth
TZS 7,000,000. Emma, also having heard that the jewelry items were worth much more,
returned to the shop and insisted that the items be returned because she was unaware that
Bungu did not own the shop, and thus had no right to buy them. However, Sima refused to
give the items back, arguing that the contract was valid.

Advise Sima and Bungu of their legal positions.

QUESTION TWO

International business, as opposite to local business, comes with a number of risks to the
parties involved. Among the common risks are; delivery risk, quality control risk and
disputes resolution risk. To curb these risks, the international community has created
international business legal frameworks which addresses all these risks. Suffices it to say
that the international business legal frameworks make the international business
environment conducive to all parties involved. Anonymous.

Do you agree with the above quotation? Substantiate your answer with compelling
arguments.

QUESTION THREE

Discuss the rights and obligations of the parties as provided for under the Convention for
International Sales of Goods (CISG).

QUESTION FOUR
The INCOTERMS range from a situation in which everything is fundamentally the
responsibility of the buyer to the other extreme where everything is fundamentally the
responsibility of the seller.

Do you agree with the above statement? Support your answer with vivid examples.

QUESTION FIVE

Seller is a French manufacturer of electrical kitchen equipment. Buyer is a New York

"retailer of home furnishings, including kitchen equipment. On a trip to the United States,
seller's management agrees with buyer to manufacture and supply 2,000 food processors
meeting buyer's specifications. The parties sign a contract document which provides for
payment by letter of credit and for arbitration of disputes; the contract does not, however,
include a choice-of-forum or a choice-of-law clause. After signing the document the New
York buyer asks the following four questions:

(a) How do I know whether or not my transaction is a "contract for the international sale of
goods" as per the 1980 Vienna convention?

(b) Assuming that my transaction is a contract for the international sale of goods, what
connection must my transaction have to a State which has ratified or acceded to the Vienna
convention so that the convention's provisions govern my contract?

(c) If my transaction is subject to the Vienna convention but for some reasons I am unhappy
about this, is there anything I can do to exclude some or all of its provisions?

(d) If my sales contract is subject to the Vienna convention, will the convention's provisions
govern all the issues that might arise in connection with my transaction?

QUESTION SIX

Mr. Igogo is a real estate tycoon with a fairly successful track record. Over the last two
decades, he has (through his network of partnership firms established along with his close
family members) developed several residential and as well as commercial projects that
have earned him quite a fortune. However, Mr. Igogo faced a bleak period during 2010-
2012 when there was a significant downturn in real estate prices. At that point in time, he
had several projects that were under construction, and many of them had no takers, due to
which he had to substantially reduce the prices of the units so as to make them saleable.
This brought about substantial losses to Mr. Igogo resulting in erosion of his wealth.

Mr. Igogo is an eternal optimist, and when the markets witnessed a recovery a few years
later, in 2014-2015, he was ready to begin new projects for construction after acquiring land
for that purpose. The lack of available funding from his own resources was a dampener to
his spirits. He realized that the only way to restart his business was either to collaborate
with another industry player in order to modernize his business practices or to raise funding
by way of equity or debt from financial investors. After initiating discussions with various
potential collaborators and investors, he decided to join hands with an industry player as
well as a financial investor. Of course, in this arrangement, Mr. Igogo would end up ceding
his autonomy and flexibility to operate his business, but that was a small price to pay in
order to achieve his dreams of becoming the biggest real estate player in the country.

After prolonged negotiations, he was able to arrive at a basic understanding with DEMA
Industries Limited (DIL), which is a conglomerate engaged in several business activities
ranging from the hotel industry, to manufacturing and to shipping. DIL is controlled by the
RUZIGA family and its shares are listed on the Dar es Salaam Sock Exchange. DIL was
willing to infuse a sum of TZS. 50 Billion into the business. Mr. Igogo himself was capable of
investing TZS 25 Billion. The balance needed to fulfil the total capital requirement was TZS.
25 Billion. This he managed to secure from Kimboki Properties Limited, which is a leading
private company in the real estate space, based in Nairobi.

In order to effectuate this agreement, a private limited company by the name of KIDULA
Constructions Private Limited (KCPL) was formed on February 9, 2015 in which the real
estate business would be housed. While Mr. Igogo and DIL Ltd would be involved in the
day-to-day management of the company, Kimboki Properties would only be a financial
investor. The parties finalised the shareholding pattern such that it mirrored the proportion
of the investment made by each party. Therefore, DIL took up a 50% shares in KCPL, while
Mr. Igogo and Kimboki Properties took up 25% shares each in KCPL. The parties also
entered into a shareholders agreement on April 14, 2015 that reflected the terms and
conditions of the arrangement involving the investment by all parties in KCPL.

All the broad terms and conditions of the shareholders agreement were incorporated into
the articles of association of the company (with the relevant provisions being extracted
below):

i. The board of the company shall consist of four directors, of which two shall be
nominated by DIL and one each by Mr. Igogo and Kimboki Properties.
ii. In the event that any of the shareholders (the “Selling Party”) desires to sell, pledge,
encumber or otherwise deal with the shares it holds in the Company, it shall first
make an offer to the other parties (the “Receiving Parties”) at a proposed price (the
“Offered Price”) and give the Receiving Parties a period of 28 days to determine
whether they wish to purchase those shares or not. In the event the Receiving
Parties decide to purchase the shares, then the Selling Party shall sell the shares to
the Receiving Parties (in proportion to the shares held by them in the Company at
the relevant time) at the Offered Price. If the Receiving Parties decline the offer or
do not respond within the period of 28 days, then the Selling Party shall be free to
sell the shares to any other person at the Offered Price. Provided that the
restrictions in this Article shall not be applicable to the sale by any party of a
maximum of 1% shares in the Company in any financial year.
iii. The Company shall undertake an initial public offering (IPO) on or before January 1,
2019. In the event that the Company has been unable to undertake an IPO by such
date for any reason whatsoever, Kimboki Properties shall have the option (but not
the obligation) by issuing a notice to Mr. Igogo and DIL to sell its shares to them at a
fair market value to be determined by a Big-4 accounting firm in Tanzania. Upon
receipt of such notice, Mr. Igogo and DIL shall be required (in the proportion of their
then existing shareholding in the Company) to purchase Kimboki Properties ' shares
 at predetermined price, such that all the shares of Kimboki Properties are
purchased.
iv. On any matter that is presented for voting at a meeting of the shareholders of the
Company, DIL and Mr. Igogo shall cast their votes in the same manner as may be
determined by agreement between them. In case of disagreement, Mr. Igogo shall
vote his shares in the company in the manner specified by DIL.

Moreover, the main objects in the memorandum of association of KCPL stated that the
business shall be limited to carrying on real estate and construction business in the city of
Dar es Salaam.

The shareholders’ agreement also contained a dispute resolution clause which required the
parties, in case there was a dispute in connection with the agreement, to submit to
arbitration by a sole arbitrator to be appointed jointly by the parties. However, this clause
was not incorporated into the articles of association of KCPL.
KCPL began its operations in late 2015 by acquiring two pieces of land in the city of Dar es
Salaam, one for a residential project and another for a commercial project. Due to the
heavy demand for these projects triggered by the upswing in the Tanzania real estate
market, they were sold out by early 2016, and for this reason the company was required to
meet the schedule for handover of position by early 2017, which it quite comfortably did.
Riding on the property boom of the season, the company made hefty profits of TZS. 45
Billion for the financial year ending 2016-2017.

Owing to the success of these projects, both Mr. Igogo and DIL were keen to utilise these
profits to expand the business operations to other growing cities in Tanzania, primarily
Dodoma and Mwanza. However, Kimboki Properties was not all that confident about the
Tanzania real estate market, and it was keen to take the profits of the company out in the
form of dividends in order to meet its liquidity requirements in Kenya and to minimise any
future risks. Mr. Igogo and DIL were not in agreement with this view as they thought it too
premature to distribute profits and were keen to deploy the same in further business
expansion. They decided to convene an extraordinary general meeting (EGM) of KCPL to
change the objects clause to cover the whole of Tanzania rather than merely the city of Dar
es Salaam.

On July 15, 2017, an EGM was held at which the resolution to amend the objects clause in
the memorandum of association of KCPL was passed, and thereby the territory for conduct
of business of the company was expanded from the city of Dar es Salaam to all of Tanzania.
While Mr. Igogo and DIL voted in favour of the resolution for such amendment (which was
put forward by way of a poll), Kimboki Properties voted against. This was found to be the
beginning of the souring relationship between Kimboki Properties and its other two
collaborators in the business.

While Kimboki Properties began consulting its lawyers on various options as to its stake in
KCPL, Mr. Igogo found himself to be in urgent need of a sum of TZS. 50 Million in order to
meet his obligations under a family settlement. In this connection, he had no option but to
approach his previous white knight and current collaborator, DIL. The latter agreed to
provide the sum, but was unable to loan the amount to Mr. Igogo owing to some internal
requirements, but was willing to pay it to Mr. Igogo as consideration for a possible purchase
of 1% of Mr. Igogo’s shares in KCPL. With his hands somewhat tied, Mr. Igogo had no
option but to agree to this arrangement. Consequently, on December 1, 2017, he sold 1% of
his shares to DIL for the sum of TZS. 50 Million.

Subsequently, the lawyers of Kimboki Properties came up with their recommendations on

how to improve its position in KCPL. One piece of advice was that Kimboki Properties
should increase its stake in the company to beyond 25% if it was to protect its interests
better. Kimboki Properties then began to initiate discussions with DIL and as well as Mr.
Igogo to purchase additional stake from either or both of them. However, both of them
flatly refused this proposition, thereby further straining their relationship with Kimboki
Properties.

In May 2018, Kimboki Properties was shocked to receive some potentially devastating
information. It found that Mr. Igogo, again in need of further funds, had sold 10% of his
shares in KCPL to Chuza Ventures, a real estate fund based in Kenya, which is a competitor
of Kimboki Properties – the sale was effected in accordance with applicable foreign
investment regulations. As an aside, it is to be noted that Kimboki Properties’ internal
policy was to ensure that it did not stay invested in any company where its competitor has
an investment, and such a transfer of shares in KCPL was not something it would ever
favour. The transfer of the shares was to be registered at a board meeting of the company
scheduled for June 5, 2018, for which meeting the director nominated by Kimboki
Properties on the board duly received notice. The transfer, Kimboki Properties alleges, was
made in blatant violation of the provisions of the shareholders agreement and the articles
of association of KCPL. On June 1, 2018, upon the advice of its lawyers, Kimboki Properties
filed a civil suit in the High Court seeking an injunction, and alternatively damages worth
TZS. 45 Bllion. The High Court, after hearing the parties, refused to grant an interim
injunction or any other relief. Therefore, at the board meeting on June 5, 2018, the 10%
shares were duly registered in favour of Chuza Ventures, with Kimboki Properties’ director
handing in the only dissenting vote. Subsequently, after hearing the merits of the case, the
High Court dismissed Kimboki Properties’ suit in a final judgment.

Kimboki Properties was now resigned to the fact that it does not have a bright future in
KCPL. Therefore, the only way forward was for it to exit the company. This could
potentially be done in an IPO where Kimboki Properties could offer its shares to the public
at the public offering price. In any event, the deadline for an IPO was January 1, 2019.
However, the other shareholders in the company were opposed to the idea of an IPO
considering the already sagging capital markets in Tanzania and the possibility of obtaining
a very low valuation for the company's shares. That left Kimboki Properties with only one
realistic option, which was to require DIL and Mr. Igogo to acquire its shares at the
prescribed valuation.

Therefore, Kimboki Properties promptly issued a notice on January 1, 2019 to DIL and Mr.
Igogo calling upon them to acquire Kimboki Properties’ shares in the company. To this, DIL
and Mr. Igogo replied on January 10, 2019, stating that they are under no obligation to do
so and that they refuse to purchase the shares. Kimboki Properties made its way back to
seek relief from the High Court on what it sees as another blatant violation of the
shareholders agreement and the articles of association. Much to its dismay, the High Court
refused to grant any relief (either interim or final) after hearing the parties, including on the
merits of the case.

In the meanwhile, the other shareholders at the company came to the conclusion that
Kimboki Properties’ nuisance value was the best offering it brought to the company, and it
was therefore beneficial to boot it out of the company, but at the terms to be set by the
majority shareholders. They therefore came up with an ingenious scheme (ably supported
by their lawyers) to squeeze Kimboki Properties out of the company. They proposed a
scheme of a reduction of share capital of KCPL, whereby the 25% share capital of Kimboki
Properties only (and not any other shareholder) will be reduced by way of repurchase by
the company under the scheme. For this purpose, the majority shareholders appointed M/s.
Julius & Co, a small-sized chartered accountant firm based in Morogoro to come up with a
valuation of the shares of KCPL. Julius & Co. came to the conclusion that the value of the
Tzs. 100,000 per share was fair and that was the amount that the company ought to pay
Kimboki Properties for the reduction of their capital. This was on account of the slump in
the real estate market in Tanzania. While Julius & Co’s valuation has taken into account all
necessary parameters, there is no dispute to the fact that a valuation by a Big-4 accounting
firm would have been considerably more liberal in favour of a higher valuation that would
have benefited Kimboki Properties.

On February 15, 2019, the board of KCPL met to consider the scheme of reduction of
capital on the terms set forth above. The resolution was duly passed, again with the
director nominated by Kimboki Properties dissenting. The matter was also approved at an
EGM of the company held on March 15, 2019. The company sought the approval of the
High Court, at which time Kimboki Properties filed its objections stating that the scheme of
reduction of capital was in violation of the law. However, after hearing the parties and
noting that all creditors of KCPL had approved the scheme, the High Court sanctioned the
scheme on June 26, 2019.

Having lost its case on three occasions before the High Court, and on available appeals,
Kimboki Properties decided to approach the appellate Court of last resort in order to pursue
its claims. The Court of Appeal, after having granted leave, decided to consolidate all the
appeals and to hear and pass judgment on them in a composite manner.

A. Assume you are a well-seasoned commercial lawyer prepare a concise submission in

support of the consolidated appeals
OR
B. Assume you are the opposing counsel in (A) above prepare a concise submission in
opposition to the consolidated appeals

C. Identify and prepare documents that were/are to be filled with the Registrar of
Companies (BRELA) from the time when the company started operations in the
year 2015
 THE LAW SCHOOL OF TANZANIA
PRACTICAL ASPECTS OF COMMERCIAL LAW

Lecture 13
Commercial Disputes Resolution in Tanzania:

Aderickson H. Njunwa (Advocate),

LL.B(Hons.),LL.M,PDGL.
Senior Arbitrator-Tanzania Insurance Ombudsman.
+255755373983.
derickhezron03@gmail.com_.________________________
A SYNOPSIS
1. Introduction-Definitions
2. Systems/Forms;
2.1. Commercial Litigation-Practice
and Procedure
2.2. Commercial Arbitration System
1.Introduction-Commercial Dispute Resolution
 Commercial Dispute resolution system comprises of both
Judicial and quasi-judicial (formal and informal) systems
 Formal systems is comprised of Courts of law including
District, RM, High Court and the CAT.
 Quasi-judicial (Informal) systems is comprised of Tribunals
including the Tax Appeals Tribunals, the PPAA, the Fair
competition Tribunal and the Fair Competition Commission
and recently established Tanzania Insurance Ombudsman
 Common approach/methods is adversarial system which is
litigious in nature.
 However, some of the informal systems including the Formal
systems employ Alternative Dispute Resolution mechanisms
for example the Tanzania Insurance Ombudsman as well as
the Court-annexed mediations through the Courts of law.
2. SYSTEMS OF DISPUTE RESOLUTION
2.1. Commercial Litigation: the Practice and
Procedure
2.1.1. Introduction to the High Court-Commercial Division
and Commercial Litigation
2.1.2. Setting the Litigation machinery/process in motion-
getting Started
2.1.3. Pre-action protocols and Incidental matters
2.1.4. Alternative Commercial Dispute Resolution- in the
Commercial Court-Some salient features
2.1.5. Other Important features of the Commercial Court-
operational
2.1.1. Introduction to the High Court-Commercial
Division and Commercial Litigation
i) What is it (Establishment, functions, Jurisdiction)
 The High court of Tanzania Commercial Division commonly the
“Commercial Court” is one of the three divisions of the High
Court of Tanzania.
 Main registry is located at Kivukoni front with two sub-
registries in Arusha and Mwanza.
 Established in 1999 (under the then High Court Registries
Rules, 1999
 Objective for its establishment: dispensing commercial
justice effectively, speedily, and efficiently in order to enhance
conducive environment for investment.
 Pecuniary Jurisdiction: It resolves Commercial cases-
i.e. cases with commercial significance. Formerly, it was
limited to 70&100 million for immovable and movable
property respectively.
 It does not enjoy exclusive jurisdiction over
commercial cases (O.IV Rule 4 CPC)
ii) Applicable Laws
 The Civil Procedure Code, Cap. 33 R.E 2002( in case of lacunae)
 The High Court (Commercial Division) Procedure Rules,
2012(GN.250/2012)-principal rules and The High
Court(Commercial Division) Procedure(Amendment) Rules,
GN.107 of 2019
 The High Court of Tanzania(Commercial Division Fees Rules
(GN.249/2012)
 All substantive Commercial laws including but not limited to the
following
 a) The companies Act and Rules made thereunder
 b) The Arbitration Act, 2020
 c) The Contract Act, [Cap,345 R.E 2002]
 d) The Insurance Act,2009.
 e) The Carriage of Goods by Sea Act, [Cap. 164, R.E 2002]
 f) The Evidence Act, Cap.6.R.E. 2002
iii) Who can access the Comcourt
A) Litigants: The Court is accessible to all persons either
Tanzanians or foreigners provided that the case is of
commercial significance.
B) Legal practitioners/advocates:
 In terms of Order III Rule 2A, no advocate is allowed to
appear in the commercial court unless he is certified by
the council of continuing legal education or is allowed by
the Judge in charge of the commercial division.
 Practically no advocate has ever been denied access and
practice in the Comcourt for want of such certificate.
 However, it takes only advocates who are competent in
Commercial litigation to access and litigate successfully
iv) Factors to consider before selecting the Commercial
Court
A: For a Litigant- all he/she needs is right information and
right guidance
B: For a Legal Practitioner/Advocate-Factors to consider
before you decide to institute a case in the Commercial Court
a) Competence (the Advocate, the Suit/subject matter, the
Court and the Litigant)
 The Advocate:
 In terms of the said CPC, one need to be certified by either council
of continuing legal education or J/Inch to practice in the Comcourt-
though not strictly observed.
 However, one need to be competent in both substantive and
procedural corporate and commercial laws as well as commercial
litigation.
 Ensures a comfortable ride throughout the turbulent litigation
journey
Factors…competence
 The Suit/subject Matter of the litigation
 It must be a civil case of commercial significance- i.e. that which
has a connection with buying and selling of goods or service (see
Rule 3 and the cases of G.K Hotels (pty.) vs. Board of Trustees
of the LAPF, CC 01/2008, Kibo Hotel Kilimanjaro vs.
Presidential Parastatal Sector Reform Commission
&Another, CC 44/2007).
 It must be within the prescribed time limit in terms of Cap.89 R.E
2002
 The Court
 The Court’s competence is determined by its statutory pecuniary,
territorial and subject matter limits in relation to the subject matter
value and place/location of the Court.
 Pecuniary-as noted above
 Territorially-Throughout Tanzania Mainland (excluding Zanzibar)-and
nearest registry.(See the cases of Ahmed Mohamed Siwij vs.
NBC Limited& Another, CC 96/2010)
Factors…competence…

 The Litigant
 Who is suing who?-the proper and or necessary
party
 It assist in determining the proper mode of
suing/instituting the suit-the procedural aspect.
e.g. a contracted between a company and an
education or religious institution, a guardian, or
a suit between a corporate entity and its
shareholders etc.
Factors…
b) Cost
 Consider the financial and time aspects of litigating in the
commercial court in terms of Requisite Fees and time to be taken
from institution of the suit to finalization i.e. Judgment delivery.
 Fees- Categories and Structure are provided under GN. 249/2012
namely Filing Fees, Service Fees and Fines
 Filing Fees
 Payable amount for claims whose subject matter can be
monetarily valued is 2% of the value of the subject matter
provided it does not exceed 10 Million(First Schedule of
GN.249/2012) and TZS 3,000,000/- for claims whose subject
matter can’t be valued monetarily or by Originating summons)
 There are also prescribed fees for filing Annexures and other
documents
Costs…Fees
 Service Fees
 These are fees payable for various services offered by the
Court e.g.
 Transcription services
 Certification services
 Taking Evidence outside the Court
 Translation
 Attesting signatures etc.
 Fines
Factors…
 c) Time lines for actions-you must be a good time manager-
because time is of essence in commercial litigation i.e.

Action Time due Rule

Filing of a Plaint/Petition/Claim See Cap.89 R.E 2002

Assignment 1 day from filing of the plaint 14

Filing a Written Statement of Defense 21 days of service 20(1)

An application for extension of time to 7 days from expiry of the 21 days 20(2)
file a defense
Setting mediation date/schedule and Within 7 days of appointment of a 33
information to the parties Mediator
Mediation 14 days from commencement/first 40
session
Restoration of Mediation 7 Days from the date of the Order. 37(1)
Action Time due Rule
Application for restoration of suit 14 days from the order of dismissal 31(2)
dismissed for none appearance at 1st PTC

Filing Witness Statement 14 Days from final PTC 49(2)

An application for Extension of Life span Any time before expiry of original life 32(3)
of a case span

An application for enforcement of an 180 days from the date of issuance of

Arbitral Award through filing the same in An Award
Court
2.1.2 Setting the Litigation machinery/process in motion-
getting Started
2.1.2.1 Modes of Instituting a Suit;
 By way of a Plaint or Originating summons-depending
on the nature of the Claim.
 Originating summons is a statement that initiates a case
where parties agree on the facts but disagree on law,
provision in a contract or other document and hence require
court’s interpretation. As such it is filed where dispute on
fact is unlikely but rather seek interpretation of the law or
any other document
 It is heard on affidavit in support and opposition of the said
statement and it must, inter alia, contain statement of
questions to be answered by the Court and concise
description of relief sought therefrom.
 See Rules 10-11
2.1.2.2 Pleadings, other incidental documents and special
considerations.
 A Pleading is a document drafted and filed in Court for the purpose of
litigation or communication i.e. Statement of claim and answers
(Plaints, Petitions, Affidavits, WSDs, Replies, Rejoinders etc.)
a) Format of Pleadings and other documents to be filed in the
Comcourt
 The accepted format of the pleading to be filed in the Commercial court
is 12” font size, Times New Roman, 1.5’ line space
 The purpose of format is to enhance clarity and good order in pleadings
and save time in administration of commercial justice (see the Exim
Bank (T) vs. Kobil (T) Limited, CC 35/2013)
b) Failure to comply with format requirement
 May lead to rejection of the Plaint (Rule 19(2) and Ernest Nduta
Nyororo vs. NBC Limited &Another, CC 01/2015). Note:
 NOTE: However, the Court has noted that failure to observe
this requirement does not in any way prejudice the other party
and as such it does not go to the root of the matter-See Kobil
supra)
2.1.2.3 Other Incidental Documents
a) Skeleton Arguments
 Summary presentation of arguments (with supporting authorities if
any) to be made during the oral hearing (Rule 64, Denis Michael
Msafiri vs. Acaste Corporation Limited, Misc. 4/2014 and Eco
bank Tanzania Ltd vs. Multisol Mauritius Ltd Misc.276/2016)
 They are supposed to be filed within 3 days before the date of
hearing.
 Failure to file skeleton arguments cannot be a reason for
adjournment and neither are skeleton arguments equal to written
submissions.
 Hence appearance for oral hearing is mandatory regardless the filing
of Skeleton arguments (see MPS Oil Tanzania Ltd&2Others vs.
Citibank Tanzania Ltd, Misc.248/2014)
 No extension of time can be granted to file skeleton arguments
 They help to save time during oral hearing and enable the counsel to
make submission within the 20 minutes time allocated for oral
submissions
b) Witness statement (Rules 47-58)
 A statement of evidence made by a witness under oath
or on affirmation in lieu of oral testimony through
examination in chief.
 It is filed in court within 14 days after the Final Pre-trial
conference.
 It is filed only where a suit has been commenced by
way of a plaint.
 It must make reference to all exhibits intended to be
relied upon during the trial.
 Each party has an independent obligation to file and
serve the statement to another party.
 A Witness, after filing the statement, must be procured in
Court for cross examination, or else, the court cannot rely on
examination in chief alone. He or she must be procured in
court for cross examination
 Failure to file witness statement is tantamount to failure to
prosecute the case. However, failure to prosecute the case
does not justify grant of summary judgment in presence of
defense earlier filed.
 As such the court must proceed with trial expert to establish
the veracity of the claim (Puma Energy Tanzania Ltd vs.
Spec-Check Enterprises Ltd, Consolidated
Misc.233&252/2014, Barclays Bank Tanzania Ltd. Vs.
Tanzania Pharmaceutical Industries Ltd.&2others,CC
147/2012)
2.1.2.4. Case filing and admission/registration procedure

i. Checking the documents for compliance purposes

ii. Assessment of fees payable (by the assistance of Court
clerks or self assessment by use of Information Kiosk)
iii. Payment of fees-through given bank account and
submission of Pay-slips. After submission of a slip, ERV
Receipt will be issued to accompany the documents to be
filed in Court.
iv. Admission and Registration (Manually and electronically).
v. Files created and the case assigned a number
vi. Case assignment-tabled before the Judge in Charge for
assignment
2.1.2.5.Appearance to Court-process service
 Initial Notice to the Defendant will be sent upon the case being
registered and assigned a case number. The initial notice require
the defendant to respond by filing the necessary pleadings within
the prescribed time.
 Service in the Comcourt is per the Civil Procedure Code-direct or
by way of substituted service
 The rules also recognize E-service as a mode of substituted
service(Rule17)
 Where it is e- service, proof of the same is vide-copying the sent
summons simultaneously to the Court and procuring a “sent”
status report.(Rule 17(2&3)
 Presumption of service can be made where, though the party was
not dully served, he/she enters appearance on the date and time
she was required to appear(rule 18)
2.1.3. Pre-action protocols (case management) and other incidental
matters
2.1.3.1. Pre-trial conference (Rule 28 (1) within 14
days upon completion of pleadings)
 Designed for the purpose of expeditious disposal of case-
through making necessary Court directives on how the case
, including interim applications should be conducted-
including scheduling/filing orders and other incidental
matters
 Failure to comply with any order made may be adverse to
the defaulting party-e.g. dismissing the suit or striking out
the defense or even entering ex parte judgment (rules
28(2),29(5)&31(1) etc.
 Possibility of settlement of the case at pre-trial conference
2.1.3.2. Summary Judgment vs. Default Judgment (Rule 68)
a) Summary Judgment
 Judgment made on the basis of pleadings only. This is
where;-
 No prospect of plaintiff’s success
 No prospects of defendant’s successful defense
 No reason of deciding the case on trial-e.g. where
defendant admits the claim
 It can be made suo motto by the Court
 NOTE: the deference between Summary Judgment under the
CPC and summary Judgment under the Rules. (See the case
of Bytrade Tanzania Ltd vs. the Board of Trustees of
Tandahimba Farmers Agricultural Input Trust, CC
86/2014 for extensive discussion and Puma
energy(supra)
b) Default Judgment (Rule 22(1)
 Issued where defense has not been entered within the
prescribed time or within the time extended to do so (ten
days)
 There must be proof of service
 A plaintiff must apply for the same through a prescribed form
in the schedule to the rules
 A decree obtained through this procedure cannot be executed
unless
 The holder thereof has published it at least in two widely
circulating papers within ten days of its issuance
 21 days have lapsed after such publication
 A party failing to so publish within the prescribed time may
seek extension of such time to do so (see Borole Africa
Logistics Tanzania Ltd vs. Deus Nyanza t/a MBN
Traders, Misc. 59/2015)
2.1.4. Alternative Commercial Dispute Resolution-Some
salient features
 a) Main components/features of CADR in the
Comcourt
i. Mediation
ii. Arbitration
iii. Out of Court Settlement
iv. Request for time to pay
i) Mediation-Salient features (Rules 33-42)
 Upon conclusion of preliminary matters, the Court appoint a
mediator
 The mediator issues notice of mediation to parties and or their
advocates and third party if any
 Parties must have authority to settle or in lieu thereof must
have ready means of communication with the person with
such authority during mediation session
 Mediator may seek attendance of an expert upon parties
agreeing to bear the costs if any
 Confidentiality is mandatory
 It must be finalized within 14 days from the date of the first
session
 Mediator has no power to extend life span of a case: See
First National Bank Tanzania Limited vs. Wasward
Wilson Mapande,CC 75/2014
ii) Arbitration-under the CPC and The Arbitration Act,2020
 The Role of the Comcourt, as division of the High Court is
 Enforcement of Arbitration Agreements(Stay of proceedings)
 Appointment of Arbitrators
 Issuance of Interim Orders (preservation of subject matter)
 Directing and or guiding arbitrators-( by way of Reference,
through a petition, before or during arbitration- existence of
question of law, etc.
 Supervising Arbitration process- (setting aside and or remitting
an award)
 Enforcing Arbitration Award- procedures- For extensive
discussion See the cases of Symbion Power LLC vs. Salem
Construction Limited, Misc.12/2015
iii) Admission and Request for time to pay(rule 25)
 Admit the Claim
 Request via an application for time to pay.
 Application be accompanied with financial status of the
defendant
 See the case of MPS Oil Tanzania Ltd&2others vs.
Citibank Tanzania Ltd, Msc.248/2014
2.1.5. Other Important features of the Comcourt incidental
to litigation -operational
a) Cutting down of delay avenues vide-
 Introducing life span of a case instead of speed tracks-i.e. 10
Months, not more than 12 months,
 Fines for adjournments, re-institution of mediation or dismissed
suit,
 Abolishing briefs holding- through introducing fines where brief
holder fails to proceed,
 Introduction of summary judgment and Default judgment,
 Limiting time for mediation and powers accorded to both the Court
and Mediators to control proceedings,
 Introduction of video conferencing and electronic service
b) Modern ICT Infrastructure i.e.
 Both Visual and audio recording of the proceedings (JAVS and
FTR systems)
 Information Kiosk-case status, fees calculation etc.
 SMS-Mtandao -case status information via handset/mobile
phones
 E-Library
 The Electronic Register through the JSDS and
 Court Display board/dashboard
2.2. COMMERCIAL ARBITRATION SYSTEM
Synopsis
1. Introduction-Arbitration
2. Categories/types (Domestic and International)
3. Nature-forum (Ad-hoc and Institutional)
4. Legal Regime (Domestic and international)
5. Common essential Aspects to Commercial Arbitration
5.1. Arbitration Agreement
5.2. Arbitral Tribunal
5.3. Enforcement (of Arbitration Agreement and Arbitration
Award)
5.4. Challenging an Award
2.2.1. Introduction
 Commercial Arbitration:
 A system of assisted disputed resolution by a neutral
third party (Arbiter/Arbitrator/Umpire) whose
decision is binding on the parties upon their prior
agreement.
 One of earliest forms of ADR which is now widely
applicable in commercial dispute resolution for its
relative comparative advantages such as Privacy and
finality of the proceedings as well as Party autonomy
 Currently, it is debatable whether it is still a cost
effective system for dispute resolution compared to
other modes or litigation in particular
2.2.2. Categories/Types of Commercial
Arbitration
 Generally, Arbitration can be either Domestic or
international-depending on the parties involved and
the nature of the dispute.
i) Domestic Arbitration: (See section of the Arbitration
Act,2020)
 Denotes arbitration which takes place within a certain
country whereby
 The Subject matter of the dispute and procedure for
arbitration are governed by the laws of that country.
 The Cause of action arose whole or partly in that
Country
 The Parties are from the same country.
ii) International Commercial Arbitration
 Denotes Arbitration whereby one of the parties
reside out of the country or the subject matter of
the dispute originates abroad.
 NOTE:
Rules and procedures applicable do differ depending
on the category/type-i.e. international or domestic.
2.2.3. Nature-Forum
 Generally, the nature of Commercial arbitration is
categorized into two depending on the type of the forum for
the proceedings, namely Ad-hoc commercial Arbitration and
Institutional Arbitration.
i) Ad-hoc Arbitration:
 A form of arbitration where the parties and the arbitrators
independently determine the procedure, without the
involvement of an arbitral
institution.(https://uk.practicallaw.thomsonreuters.com/)
 Ad-hoc forum are temporary in nature constituted for the
purpose of resolving a particular dispute.
 They are composed of Arbitrator(s) according to the parties
Agreement
ii) Institutional (permanent) Forum
 Institutional forum are permanent institutions with
infrastructure and systems to administer disputes.
 Procedures for appointment of arbitrators, composition of the
tribunal and the conduct of proceedings are determined by the
institutional Rules.
 Examples includes the following:
 The London Court of International Arbitration
 The International Chamber of Commerce-International Court of
Arbitration
 The International Center for Settlement of Investment Disputes
(ICSID)
 The Nairobi Center for International Arbitration
 Kigali Center for International Arbitration
 The Tanzania Institute of Arbitrators (TIArb.)
 The National Construction Council of Tanzania
2.2.4. Legal Regimes
i) Domestic Legal Regime for Commercial Arbitration:
 Consists of laws and rules that governing arbitration in
Tanzania with particular focus on the procedural aspects,
substance of the disputes as well as enforcement of the
arbitral award.
 They include the following
 The Arbitration Act, 2020
 The Civil Procedure Act,
 The Insurance Act,2009
ii) International legal regime for commercial arbitration
 Of two broad categories depending on the nature of the
dispute/subject matter and the parties thereto. i.e.
i. The Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States,1966 (The ICSID
Convention)-governs resolution of international investment
disputes between states and Nationals of other States)
ii. The UNCITRAL Model Law on International Commercial Arbitration
and The UNCITRAL Arbitration Rules, -governing international
commercial disputes (between individuals-nationals of same or
different states)
NOTE:
 the former legal regime is applicable subject to the underlying
agreement between States, international laws as well as
institutional rules where as for the latter it depends on the
Agreement between the parties-(prior to or post-dispute),
international law as well as the institutional rules.
2.2.5.Common essential aspects on Commercial
Arbitration System
i) Arbitration Agreement/ Clause:(severability, in
writing)(See article 1(3) of the UNCITRAL Model
Law on International Commercial Arbitration)
ii) Arbitral Tribunal (Composition, Powers-e.g.
Competenz competenz, ) see further s. 40 of the
Arbitration Act,2020
iii) Enforcement of Arbitral Agreement-through the
Court- e.g. power to stay proceedings and now
power to refer parties to Arbitration upon
application) see section 12.
iv) Enforcement of Arbitral Award
v) Challenging an Arbitral Award.
NOTE:
 The common issues identified above are generally matters
provided in the Laws governing Arbitration of a particular
jurisdiction, or institution governing arbitration and the
parties’ Agreement.
 Hence it is important to always consider the legal regimes
as well as the parties agreement in relation to arbitration.
References:
1. Mashamba, C. Arbitration law and Practice in Tanzania, 2015.
2. Georges R. Delamue, ICSID Arbitration Proceedings: Practical
Aspects, 5 Pace L. Rev. 563 (1985) Available at:
http://digitalcommons.pace.edu/plr/vol5/iss3/2
3. Clayton Utz, A Guide to International Arbitration,2012; available at
https://www.claytonutz.com/ArticleDocuments/178/Clayton-Utz-
Guide-to-International-Arbitration-2012.pdf.aspx?Embed=Y

Read also:
 The UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL
ARBITRATION
 The ICSID Convention
 The Arbitration Act,2020 (Tanzania)
 The High Court (Commercial Division) Procedure Rules, 2012
(GN.250/2012) and The High Court (Commercial Division)
Procedure(Amendment) Rules, GN.107 of 2019.
 THE LAW SCHOOL OF TANZANIA
PRACTICAL ASPECTS OF COMMERCIAL LAW

Lecture 14
Selected Forum for Commercial Dispute
Resolution in Tanzania

Aderickson H. Njunwa (Advocate),

LL.B(Hons.),LL.M,PDGL.
Senior Arbitrator-Tanzania Insurance Ombudsman.
+255755373983.
derickhezron03@gmail.com
Synopsis
1. Introduction to selected Commercial
Disputes (Tax disputes, Fair competition
disputes and Insurance Disputes)
2. The forum
3.1. Insurance Dispute Resolution
3.2. Tax Dispute Resolution
3.3. Fair Competition Dispute Resolution
1. Introduction
 Generally, Commercial dispute includes
disagreements between two parties which arises or
are connected to trade and commerce transaction.
 Generally, parties to a commercial transaction are at
liberty to predetermine how to resolve their disputes
normally through their contracts.
 However, for some disputes, such as tax disputes,
their resolution is determined by statutes
 In Tanzania, the conventional forum for commercial
dispute resolution is the Court of law.
 However, there are specialized quasi-judicial forum
that deals exclusively though not generally
mandatorily with resolution of commercial disputes.
2.1. Insurance Dispute Resolution
INTRODUCTION
 Generally, insurance Disputes arise when there is a point of
disagreement between the insurer and the insured or beneficiary
of the policy, or where an insurer is aggrieved by the decision of
the Commissioner of Insurance.
 In most instances, it will relate to disagreement in relation to
either substantive or procedural aspects of the contract of
insurance leading to either repudiation of the claim, under
assessment or delay to process the claim, or any decision relating
to the general business conduct by the insurer.
 The conventional forum for resolving insurance disputes has always
been the Courts from form its lowest level in the hierarchy.
 In the year 2009, alternative forum namely the Tanzania Insurance
Ombudsman and the Insurance Appeals Tribunal were established
to resolve insurance disputes between consumers and insurers and
between the Commissioner of Insurance and insurance companies
respectively.
2.1.1. The Tanzania Insurance Ombudsman Service (TIO)
i) What it is, when, why?
 It is an independent office established under the Insurance Act, 2009 to
resolve insurance disputes that arise between insurance consumers, third
parties and the registrant’s business. Thus it is provided under S.122 of the
Insurance Act thus;
 “There is established Insurance Ombudsman Services for the purposes of
resolving insurance disputes arising between insurance Consumers and
Insurance Registrant’s business in Tanzania”
 The core objectives of establishing the Service are twofold namely:-
 To resolve insurance disputes in a timely and cost effective manner as an
alternative to normal Court litigation procedures.
 To protect Insurance Consumers, third parties who are protected by law and
the Insurance industry at large so as to create and enhance public
confidence in the insurance industry
 The service started its operations in the year 2015 after the appointment of
the Ombudsman. Since then it has been receiving and resolving insurance
complaints from complainant in Tanzania. Currently it is located in Dar es
Salaam at PPF Tower fourth floor and at all six TIRA zones throughout
Tanzania.
ii) Who can access it-complainants
 A complaint may be filed by:-
 The Complainant in person who may be either a policy
holder or a victim of accident (Third party protected by
Law).
 An heir, beneficiary or legally authorized representative of
such complainant
 The complainant must show that he/she is a victim and or a
person who is aggrieved by the Registrant’s decision or
position regarding his claim or the appropriate quantum of
compensation.
 As such, there must be an indication either a letter or a
communication from the registrant showing the position
which is complained.
 If it is a complaint against delay to process the claim, the
same must be showed through a series of communications
made on the part of the complainant (Section 123 (b) of the
Insurance Act).
iii) Categories of disputes which can be filed:
 Disagreement on quantum of indemnification or
compensation as the case may be
 Claim repudiation
 Delay to process the claim
 Disagreement on the interpretation of a material term of
an insurance Policy

iv) Modes of resolving the dispute

 Reconciliation
 Mediation
 Arbitration
v) Jurisdiction
 Section 124 (1) provides that:
 “The Ombudsman shall have powers to grant an award
to the Complainant for direct losses and damage suffered
by the complainant up to a maximum of fifteen million”.
 As such the jurisdiction in so far as granting award is
concerned; it is the said amount of fifteen Million.
 For example, such an award can be made in compensation
for material inconvenience or distress or for financial loss
suffered by a complainant as a result of error, omission or
maladministration on part of the insurance registrant’s
business (including manifestly unacceptable or
incompetent service);(See Regulation 15(2) (e).
vi) Applicable laws

 Insurance disputes are resolved in terms of the laws, rules

and principles that govern insurance business including
the following:-
 The Insurance Act, No. 10 of 2009
 The Motor vehicle insurance Act, Cap.169 R.E 2002
 Law of Contract Act Cap.345 R.E 2002
 Insurance Ombudsman Regulations – GN.411 of 2013
 Insurance Policy document
vii)Compliance with the Ombudsman’s determination/decision
or reconciliation/mediation agreement.
 As shown above, compliance with the determination of the
ombudsman, be it an award, declaratory order, or
determination order is mandatory on the part of the Insurance
registrant.
 In terms of regulation 21, a registrant is required to comply
therewith within 30 days of making of such determination.
 In the event there is failure or refusal so to do, the
Ombudsman may;
 give notice to the insurance registrant to comply with such
determination within a period of fourteen days or such further
period as the Ombudsman may determine; and
 on the failure or refusal by the insurance registrant to comply
with the notice, the Ombudsman shall report such failure or
refusal to the Commissioner.
 Upon reporting of failure or refusal by the insurance
registrant to the Commissioner, the Commissioner of
Insurance may:
 Impose, in addition to the determination made by the
Ombudsman, a penalty for failure or refusal to comply
with the determination; or
 Cancelation of insurance registrant’s business license,
and, in that event, publish in whatever manner the
Commissioner considers to be appropriate, the fact of
such termination
2.1.2 The Insurance Appeals Tribunal (s.126)
i) What it is , why, when?

 The Insurance Appeals Tribunal is an ad hoc forum

established under S.126 of the Insurance Act,
2009 as a redress mechanism for insurance
registrants who are aggrieved by the decision of
the Commissioner of Insurance.
 Generally, it deals with specified decisions of the
commissioner of insurance-though the Insurance
Act does not specify such decisions. (one of the
areas of the subject matter of appeal would be
such as decision of the COI in respect to licensing-
fit and proper persons, margins of solvency)
 For specified decision of the COI see for example the Hong
Kong Insurance Companies (Amendment Ordinance) No.2 of
2015 Schedule 9, under section 98-on specified decision of
the COI) e.g.
 Refusal to approve the appointment of a person as a
director of an authorized insurer
 Revocation of approval of appointment of a person as a
director of an authorized insurer
 Imposition of a restriction on effecting or varying contracts
of insurance by an authorized insurer
 Imposition of a requirement on an authorized insurer about
investments
 Imposition of a limitation of the premium income to be
received by an authorized insurer
 Refusal to grant an insurance agency license
 Etc.
iii) How does it become operational
 As shown above, the tribunal is designed under
the law as an ad hoc body.
 Implicitly therefore, it becomes operational only
upon existence of a complaint by the Insurance
Registrant.
 Apparently, the law presupposes that the Minister
will appoint the tribunal only upon the existence
of the complaint from the Insurance registrant.
iv) Modus Operand
 According to section 126 of the Insurance Act and the
Insurance Appeals Tribunal Regulations(GN.412/2013) the
following are the steps for operationalization of the
Tribunal:
 The Minister appoints the members and the Chairperson
(S.126 (2) and (3)
 A person aggrieved by the decision of the Commissioner
lodges the appeal by petition to the Tribunal within one
month of receipt of such decision (S.126 (4)
 A petition must be in writing and accompanied with the
impugned decision within 30 days to a designated person
 A designated person is an officer appointed by the tribunal
to receive, determine viability of admission and prepare
records of an appeal filed to the tribunal
 The designated officer will determine viability and require
the complainant to pay filing fee of Tshs. 100,000 to the
treasury
 The designated person will present the record of the
petition before the Chairperson
 Parties will be afforded opportunity to be heard.
 The tribunal will make a decision within 60 days
 The decision of the tribunal is final and conclusive on
matters of facts and evidence, save for points of law on
which the aggrieved party may appeal to the High Court
within 30 days of the decision
2.2. Tax Disputes Resolution Forum
i) Tax Disputes:
 A tax dispute arise out of a misunderstanding between the
Commissioner General and a Tax payer arising out of tax assessment.
 The disputes may arise due to the following
 Interpretation of the tax statute giving rise to tax obligation to a tax
payer
 Tax assessment and adjustments
 Decisions by the Commissioner general to enforce the law or
compliance by tax payer e.g. Warrant of Distress (See the case of TRA
vs. Tango Transport Co, Civ. App. No.84/2009)
ii) The Forum:
 The forum for resolving ta disputes are mainly four including he
following:
1. The Commissioner General of Tax (CG)
2. The Tax Revenue Appeals Board (TRAB)
3. The Tax Revenue Appeals Tribunal (TRAT)
4. The Court of Appeal of Tanzania (CAT)
2.2.1. The Commissioner General:(Sections50-52 of the
Tax Administration Act,2015)
 According to section 50 of the Tax Administration
Act,2015, the Commissioner General is empowered to
make tax decisions affecting a tax payers obligations in
maters related tax
 A person aggrieved by the that determination can lodge an
objection with the Commissioner General within 30 days
of receipt of such tax decision.
 The commissioner general is supposed to make a decision
within receive and determine objections to tax
assessment from aggrieved tax payers.
 Thereafter, the CG has powers to receive submissions
from the aggrieved party on the objections and thereafter
make a Decision on Objection.
2.2.2. The Tax Revenue Appeals Board (TRAB)
 This is established under section 4(1) of the Tax Appeals
Act,Cap.408.
 The Board has sole original jurisdiction in all proceedings of
a civil nature in respect of disputes arising from revenue
laws administered by the TRA.
 Thus, in terms of section 53 of the Tax Administration Act,
the Board receives all appeals against the decision on the
tax objections made by the Commissioner General.
 Administratively it is headed by a Secretary who is an
appointee of the Minister.
2.2.3. The Tax Revenue Appeals Tribunal (TRAB)
 This is established under section 8(1) of the Tax Appeals
Act,Cap.408.
 The Tribunal shall has sole (exclusive) jurisdiction in all
appeals arising from decision of the Board on disputes on
which original jurisdiction is conferred on the Board.
 It also has supervisory powers of the TRAB.
2.2.4 .The Court of Appeal of Tanzania (CAT) (Section 25
of the Tax Revenue Appeals Act)
 It receives and determines appeals from the TRAT
 Appeals must be on matters of la only.
NOTE:
 The choice of the forum for resolving a tax dispute
depends on the nature of the dispute i.e. A tax Objection
or an Appeal, and the stage of the disputes, i.e.
Commissioner’s decision or an appeal against the decision.
 For Procedures on making and dealing with Tax objections
to the CG see SS.50-52 of Tax Admin. Act, and S.12 of the
Tax Revenue Appeals Act.
 For Appeals procedure generally see Part IV of the Tax
Revenue Appeals Act.
Further Readings:
 The Tax Revenue Appeals Board Rules, GN. 217/2018
 The Tax Revenue Appeals Tribunal Rules, Gn.222/2018
 African Barrick Gold Plc. Vs. CG., Tax Appeals No.
16/2015-An appeal from the Tax Revenue Appeals Board)
 Tanzania Ports Authority vs. CG, Civil Appeal No. 27/2008
(CAT) (An appeal against the judgment of the TRAT)
 http://trat.go.tz/index.php/tribunalprofile/establishmen
t
 http://www.trab.go.tz/
2.3. Fair Competition Dispute Resolution
 Generally, the forum for resolving competition disputes are two
namely
 The Fair Competition Commission(FCC) and The Fair
Competition Tribunal (FCT)
 They are both public institutions established by virtue of SS.
62(1) and 83 (1) of the Fair Competition Act, No. 8 of 2003
respectively.
 The former deals with promotion and protection of effective
competition in trade and commerce as well as protecting
consumers from unfair and misleading market conduct.
 The latter deals with competition and regulatory matters from
 Orders and decisions of FCC) ;and
 The sector specific regulatory authorities including Surface
and Marine Transport Regulatory Authority (SUMATRA),
Tanzania Communications Regulatory Authority (TCRA),
Energy and Water Utilities Regulatory Authority (EWURA) and
Tanzania Civil Aviation Authority (TCAA).
For further reading:
 The Fair Competition Act, 2003
 The Fair Competition Tribunal Rules, GN.219/2012
 Laltaika, E. (2014). Legal and Institutional Aspects of Fair
Competition in Tanzania. Open University Law Journal
accessed at
https://www.researchgate.net/publication/309548844_Le
gal_and_Institutional_Aspects_of_Fair_Competition_in_Ta
nzania
 Visit https://www.fct.or.tz/
 PRACTICAL ASPECTS OF COMMERCIAL LAW
COMMERCIAL DISPUTE RESOLUTION IN TANZANIA
Practical assignment
1. The Grand Carrera International PLC (The GCIP) is a Limited Liability entity
dealing with estate management and Leisure service. Recently, it
entered into Joint Venture Agreements with Long Bay Municipal Authority
(The LBMA) in respect of two plots situate at Plot No. 232, Devgru Road,
Oysters Area, Long Bay (Contract Number LBMA/501/2017); and Plot No.
772, Manila Road, Oysters Area, Long Bay (Contract Number LBMA /511
/2017).

The parties agreed hitherto to enter into two separate Joint ventures
Agreement namely “Agreement for Joint Venture Development and Joint
Ownership" (hereinafter referred to as “the agreements”) on two
properties situate at Plot No. 232, Devgru Road, Oysters Area, Long Bay
(Contract Number LBMA/501/2017); and Plot No. 772, Manila Road,
Oysters Area, Long Bay (Contract Number LBMA /511 /2017)

They also agreed for the GCIP to construct two blocks of 24 units of
residential apartments on Plot 232 and four blocks of 40 units of residential
apartments on plot 772. However, through an addendum entered on 8th
day of June, 2019 they added four more apartments on Plot 772 and
making the total number of apartments to be constructed are 68. All
along it was a common understanding that that the GCIP would provide
complete financing and construction whereby the properties shall be
jointly owned at the ratio of 75% by the GCIP and 25% by the LBMA.

Upon successful completion of the construction of the joint venture

development projects, on 10th January, 2020 the GCIP wrote a letter to
the LBMA notifying her of the completion. The latter in turn issued
Certificate of completion. Thereafter, the GCIP wrote several letters to
LBMA reminding of the completion and requesting her to undertake the
process of issuance of new certificate of Title bearing joint names of both
parties in accordance with the terms of the Contracts. To this end, there
are three letters requesting for issuance of certificates. It is CGIP’s feeling
that the LBMA is not willing to transfer the right of occupancy into joint
ownership and that the Certificate of Title was not issued by the
Commissioner for Lands because the LBMA failed to pay capital gain Tax.

Page 1 of 3
 To date the LBMA has done nothing to head to the demand and the
GCIP is worried of losing its projected profit. Time has lapsed and the GCIP
cannot launch the apartments for commercial purposes and up to now
the estimated loss of profit is at the tune of USD 400,000 due to failure to
commercially use the property.

Meanwhile, the GCIP had taken a Fire insurance Policy from Karl
Insurance Company to cover their Building materials, machineries and
other equipment in their rented Factory Premises along Area C of
Margarita Street. The premises had various equipment and machines as
well as Building materials valued at TZS 20,000,000,000.00. Unfortunately,
on the down of 15th February 2019, the whole premise was gutted down
by fire and they were unable to save anything despite the concerted
efforts of the workers and the fire brigade. Upon placing their claim for
indemnification the insurer admitted liability but denied to pay
demanding to see the purchase and importation documents for the burnt
equipment. The GCIP is now overwhelmed by the demands for loan
repayment from the banks and yet there is no sign of the insurer paying
heed to their claim.

The directors Mr. Jong Pu and Lu Yin have come to you. They would like to
know their options available in pursuit of their rights in both scenarios.
Advise them on them with special considerations on the following

i. Whether there are tenable grounds to institute legal action against LBMA
and possible remedies to pursue;
ii. The legal action to take between filing a Suit or initiating Arbitration
proceedings in pursuit of the said remedies;
iii. The possibility of Instituting their Case in the Commercial Division of the
High Court of Tanzania and appropriate mode for instituting the suit;
iv. The possibility or otherwise of engaging the Insurance Ombudsman
Service;
v. The Possibility or otherwise of referring the matter to London Court of
International Arbitration;
vi. Assuming the suit is instituted in the High Court Commercial division:-
a) The LBMA has failed to file a written statement of defense after being
served with the summons to do so within 21 days. Explain to the

Page 2 of 3
 directors of GCIP on the next step in the proceedings and the
necessary documents.
b) The Court has entered a default judgment in favor of GCIP. Advise
them how to proceed.

2. Mr. Lincoln Sibeko is the CEO of Sibeko Gold a mining company registered
and operating in Bahende region of Nyankele State. He would like to
invest in Tanzania but he is not sure of the legal framework in relation to
international commercial arbitration. Advise him on the following:

a) Whether judgments made outside Tanzania can be enforced in Tanzania?

b) What are the procedures to have such judgments enforced?

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