High Court clarifies on set-off in contractual claims, circumstantial evidence & constructive knowledge, judicial recusal motions, land transactions defects, & withholding tax on commercial properties

High Court Clarifies Principles on Set-Off in Contractual Claims, Apportionment of Litigation Costs, Circumstantial Evidence and Constructive Knowledge, Judicial Impartiality and Recusal Motions, Land Transactions and Patent Defects, and Withholding Tax on Commercial Properties

Introduction

The law of contract, civil procedure, land transactions, tax compliance, and judicial ethics rarely show up together in commercial disputes, but when these principles interface, then it must have been a case worth reading.

General principles of contract law recognise that parties are bound by the obligations they freely undertake, and courts will give effect to those terms unless overridden by statute or public policy.

In commercial litigation, set-off and counterclaims play a critical role in balancing reciprocal obligations—allowing a defendant to reduce or extinguish the plaintiff’s claim by asserting its own liquidated or ascertainable claim, even if arising under a different transaction.

Equally, judicial recusal safeguards the constitutional right to a fair hearing. Under the Constitution (Recusal of Judicial Officers) (Practice) Directions, 2019, judges must disqualify themselves where there is actual or perceived bias. The test, articulated in Porter v Magill [2002] AC 357, is whether a fair-minded and informed observer would conclude that there is a real possibility of bias. However, applications for recusal must be timely and genuine, not tactical devices to frustrate proceedings.

In land law, the principle of caveat emptor continues to govern transactions. Buyers must conduct thorough due diligence on title and encumbrances. Patent defects—those discoverable through reasonable inquiry—are not actionable, while latent defects may entitle a purchaser to redress. Importantly, the law distinguishes between instruments “lodged for registration” and those actually registered: only registration gives constructive notice of claims or encumbrances.

Tax law also features prominently in property and commercial transactions. Withholding tax obligations attach to the purchase of business assets, including commercial property, regardless of whether the proceeds are applied to settle outstanding obligations. The transferee must withhold and remit the tax at the point of payment, based on the gross purchase price, not the net capital gain.

In a recent decision of Bernard Byamukama v Paul Muwanga t/a Polo Boutique (Civil Suit No. 477 of 2022) [2025] UGCommC 261 (16 August 2025), the High Court of Uganda has reaffirmed and clarified these principles. The Court held, among other things, that where obligations of both parties arise from the same contract, a defendant may set off its obligation against that of the plaintiff even if the plaintiff’s claim is not fully ascertained. On litigation costs, the Court reiterated that in mixed outcomes—where parties succeed in some claims but fail in others—costs will be apportioned to reflect the degree of success and failure. On evidence, it clarified that while circumstantial evidence in criminal matters must exclude all other reasonable inferences, in civil disputes courts may select the most plausible inference where multiple are available.

The judgment further emphasized that constructive knowledge may be imputed where a prudent person would have made inquiries capable of uncovering the truth. On judicial practice, the Court underscored that fairness requires immediate resolution of recusal applications, but also warned against late or tactical motions. Regarding land transactions, it reiterated that buyers must investigate title and encumbrances thoroughly, and that defects discoverable by reasonable inquiry are patent, invoking caveat emptor. Finally, on taxation, it confirmed that withholding tax applies to purchases of business assets or commercial property, with liability arising on payment, not on how proceeds are subsequently applied.

This decision is a must read for Litigants, lawyers, and the business community.

Brief Facts of the Case

The dispute arose from a land sale agreement dated 25th October 2019 between the plaintiff (vendor) and the defendant (purchaser) concerning property at Najjanankumbi, Kibuga Block 13, Plots 881 & 391.

The defendant secured mortgage financing from DFCU Bank to facilitate payment of the purchase price. However, when DFCU attempted to register a mortgage on the property, it was blocked by a caveat lodged by one Tumusiime Paul on behalf of the estate of the late Sarah Wanyama Mukaka. This delayed transfer of the property into the defendant’s name and registration of the mortgage.

The defendant alleged further breaches of the sale agreement by the plaintiff, including: failure to clear outstanding utility and property rate arrears, lodging a caveat after receiving substantial payment, delayed vacation of the premises, and removal of fixtures.

He claimed financial losses due to damaged banking relationships, inability to obtain further financing, and payment of legal fees to resolve encumbrances.

In return, the defendant counterclaimed, seeking declarations of breach, indemnity, set-off of various sums (including withholding tax, arrears, and legal fees), removal of encumbrances, injunctions, and damages.

The plaintiff, in reply, denied liability, asserting that he complied with the sale agreement by handing over executed transfer forms, authorising release of titles to DFCU, and delivering possession.

He contended that the third-party caveat was baseless and promptly dismissed by the Commissioner for Land Registration, that he had no knowledge of such claims, and that the defendant voluntarily incurred unnecessary legal fees.

The plaintiff also argued that the alleged withholding tax was not applicable, that the property was sold to settle a mortgage rather than as a taxable business asset, and that the defendant’s rent arrears should have been applied to clear utilities.

Submissions of the Parties

Defendant (Counterclaimant)

The plaintiff breached the sale agreement by failing to deliver a title free of encumbrances, lodging a caveat, failing to clear property rates, utilities, and withholding tax, and unlawfully removing fixtures.

The defendant suffered financial losses due to inability to register the mortgage with DFCU and obtain further financing.

He was entitled to set off expenses and losses from the balance of the purchase price, including arrears, taxes, and legal fees.

Sought declarations of breach, indemnity, injunctions, and damages.

Plaintiff (Counter-Defendant):

Fully complied with obligations under the agreement, including handing over transfer forms, authorising title release, and giving possession.

Had no knowledge of the third-party caveat, which was dismissed by the Commissioner as baseless.

Denied lodging any caveat or obstructing transfer; argued the defendant acknowledged the third-party claims were groundless.

Contended that withholding tax did not apply since the property was not a business asset and the proceeds were used to clear a mortgage.

Asserted that rent arrears offset utilities, and that no breach of the agreement or recoverable damages had been proved.

Issues for Determination

1. Whether the plaintiff (counter-defendant) breached the land sale agreement.

2. Whether the defendant (counterclaimant) is entitled to the set-off claimed.

3. What remedies are available to the parties.

Determination of the preliminary matter regarding the prayer for recusal and counterclaims

In resolving the preliminary issue, the court observed the procedural and substantive principles applicable to counterclaims and judicial recusal under the law, providing guidance on their practical implications for litigation.

Regarding counterclaims

The court observed that a counterclaim allows a party to deduct amounts from sums otherwise due because of a countervailing debt or claim.

The court highlighted that both the claim and counterclaim must generally be “due and payable,” liquidated, or ascertainable without valuation, though the claims need not arise from the same contract.

Where obligations arise under the same contract, set-off may occur even if one obligation’s existence or amount is unascertained.

The court emphasized that the counterclaimant bears the persuasive burden of proof on a balance of probabilities. This includes demonstrating the existence and essential terms of a contract, breach of the contractual obligation by the counter-defendant, and resultant damages.

Once established, mutual deduction discharges obligations up to the lesser of the two amounts owed, ensuring both parties’ obligations are appropriately offset.

Regarding Judicial Recusal

The court reiterated that judges must refrain from proceedings where impartiality might reasonably be questioned, as provided under Principle 2.4 of the Uganda Code of Judicial Conduct, 2003, and the Constitution (Recusal of Judicial Officers) (Practice) Directions, 2019.

That disqualification may arise from actual bias, implied bias, or apparent/perceived bias, judged objectively by a reasonable, fair-minded, and informed observer.

Justice Stephen Mubiru observed that:

“In deciding motions of recusal, the court has to envisage what would be the perception of a member of the public who is not only reasonable but also fair-minded and informed about all the circumstances of the case (see Attorney-General v. Anyang’ Nyong’o and others [2007] 1 EA 12).

Even if a Judge is as impartial as could be, nevertheless if fair-minded persons would think that, in the circumstances, there was a reasonable likelihood of bias, then the Judge should not sit.

Counsel representing the plaintiff in this case, being counsel engaged by the current trial Judge in on-going litigation in matters affecting the private interests of the Judge in a suit now pending in the Land Division of this court, it is my well-considered view that the perception of a member of the public who is not only reasonable but also fair-minded and informed about all the circumstances of the case, would conclude that the trial Judge is conflicted.”

The Test for Bias Warranting Judicial Recusal

The court observed that;

“The common law test for perceived bias was as set out in Porter v. Magill [2002] AC 357 at 102: i.e. whether ‘a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.’

The ‘fair-minded’ person referred to in these statements has since crystallised into a reasonable, impartial, well-informed, fair-minded, detached, objective observer (see Halliburton Company (Appellant) v. Chubb Bermuda Insurance Ltd [2020] UKSC 48 and Belize Bank Ltd. v. Attorney General of Belize [2011] UKPC 36).

This means that there must be some demonstrable and rational basis for what the informed observer suspects. The question then is whether a reasonable person, knowing all the facts, would harbour reasonable doubts as to the judge’s impartiality.

Since bias is a lack of readiness to change one’s mind upon some issue, whether upon new information or simply on further reflection, and to change it from a previously declared position, the fair-minded and informed observer would not attribute to the judge an inability or reluctance to change his mind when faced with a rational basis for doing so.”

Moreover, recusal motions must be filed promptly, and routine case management decisions, including adjournments and timeline enforcement, do not automatically justify disqualification.

In this case, the court found no reasonable apprehension of bias, noting that the motion was filed two months after the hearing concluded, just three days before judgment, and allowed the counterclaim to proceed.

Court’s Analysis on whether the plaintiff (counter-defendant) breached the land sale agreement.

The key question was whether the plaintiff failed to disclose claims lodged by Tumusiime Paul, Herbert Bwitababo, and Semakula Halima, as administrators of the estate of the late Sarah Wanyama Mukaka, and whether such non-disclosure amounted to a breach of the land sale agreement.

Court’s Analysis

I. Registration, Constructive Notice, and Caveats

The court emphasized the statutory framework under the Registration of Titles Act, noting that:

“An instrument purporting to affect registered land or any interest in registered land is deemed to be registered when a memorial of the instrument has been entered in the Register Book upon the folium constituted by the certificate of title (see section 46(2) of The Registrations of Titles Act).”

The court clarified that the mere lodgement of an instrument, such as a caveat, does not create public notice or automatically affect title:

“Instruments ‘lodged for registration’ are deemed not publicly available and only become so when they are duly registered… Accessing lodged but yet to be registered instruments, a registration in progress or a rejected registration, requires specialised knowledge or investigation.”

The court emphaised that constructive notice arises only upon proper registration. A registered caveat or instrument gives constructive notice to the world, whether or not a purchaser has actual knowledge. This principle is central in determining the duty of disclosure: if a claim is not yet registered, it may not constitute an encumbrance binding on the seller.

II. Latent vs Patent Encumbrances

A central pillar of the court’s reasoning was the distinction between latent and patent defects in land title:

The court defined Latent encumbrances as hidden defects unknown to the buyer that cannot be discovered by ordinary inspection. A seller may be liable if such defects were known or reasonably discoverable with diligence.

While Patent encumbrances are visible or easily discoverable defects that the buyer could uncover through reasonable inspection or inquiry.

The court observed:

“From the perspective of a search at the registry, the claim by Tumusiime Paul, Herbert Bwitababo and Semakula Halima… constituted a latent encumbrance for which the duty of disclosure would attach to the plaintiff, provided it was within his knowledge or is determined to be one which he had the means to know, acting reasonably and diligently… If the latent claim was not known to the plaintiff; one that he was genuinely unaware of at the time of the sale, he cannot be held liable for the defect.”

However, the court noted that determining whether a defect is latent requires considering the buyer’s ability to discover it through reasonable diligence. Patent defects, even if not actually discovered, remain the buyer’s responsibility under the principle of caveat emptor.

III. Standard of Diligence for the Buyer

The court emphasized that a purchaser of land owes a high standard of diligence, encompassing:

1. Conducting a registry search to identify registered encumbrances.

2. Undertaking a physical inspection of the land.

3. Making reasonable inquiries with neighbors, local leaders, and other stakeholders regarding the property’s history.

The court stated:

“Due diligence is the process of investigating a property before purchasing it. It includes inspections, reviewing documents, and making inquiries to uncover any potential problems or risks associated with the property… Patent defects in title include third party claims and encumbrances that are easily discoverable upon making reasonable inquiries about the property.”

In this case, the defendant had been a tenant on the property for almost a year, which meant he had ample opportunity to observe and inquire about potential claims, including anecdotal knowledge among neighbors and local civic leaders.

The court found that the defendant failed to conduct these basic inquiries:

“By omitting to make the expected inquiries from the local civic leaders and the neighbours, the defendant failed to exercise caution and foresight; he failed to discharge his burden of proving that the encumbrances were hidden defects, not discoverable after a careful and diligent inquiry.”

This failure placed the responsibility for discovery of patent defects squarely on the defendant.

IV. Duty of Disclosure and Misrepresentation

The court addressed the seller’s duty of disclosure, noting that it attaches only to defects that are known, latent, or actively concealed:

“Whereas a seller has a duty to disclose material defects of title that are not readily discoverable by the buyer, this duty does not extend to patent defects, as the buyer is expected to find them through their own diligence.”

The court clarified that a seller may be liable if there is:

1. Deliberate concealment of defects;

2. Misrepresentation regarding known defects; or

3. Provision of false reassurances that distort the buyer’s understanding of a defect.

   
   

However, the court found that the plaintiff had disclosed all known rights and liabilities, explicitly clarifying that disclosure only included matters of which he was aware:

“The plaintiff disclosed all rights and liabilities he was aware of, making clear that the disclosure only included those rights and liabilities he was aware of. He did not represent that there were no other rights or liabilities encumbering the land.”

No evidence suggested active concealment or misrepresentation, meaning the plaintiff did not breach the sale agreement in this regard.

V. Validity of the Third-Party Claim

The court undertook a detailed assessment of the caveat lodged by Tumusiime Paul, Herbert Bwitababo, and Semakula Halima:

1. The caveat relied on Civil Suit No. 76 of 2013, asserting a claim over the property.

2. Evidence indicated that the property had ceased to form part of the late Sarah Wanyama Mukaka’s estate on 25th May 2012, prior to the filing of the suit.

3. Neither the registered proprietor at the time (Kasumba Vincent) nor the plaintiff (Bernard Byamukama) was a party to the suit.

4. The Commissioner of Land Registration confirmed that the court proceedings were inconsequential to the property in question.

   
   

The court concluded:

“Unfounded, baseless or invalid third-party claims without proper documentation or legal basis, do not constitute an encumbrance on land… if the interest of a third party is non-binding, it does not operate against a bona fide purchaser.”

As a result, the purported caveat could not legally encumber the property or impose a disclosure obligation on the plaintiff.

VI. Knowledge and Mental State

The court examined the different categories of knowledge relevant to assessing liability:

1. Actual knowledge – the seller knew of the claim;

2. Willful blindness – deliberately ignoring the claim;

3. Constructive knowledge – circumstances would reasonably put the seller on notice of a potential claim.

   
   

The court noted:

“Although the defendant and P.W.2 asserted that the plaintiff had knowledge of the claim… they did not adduce any evidence from which it may be deduced that the plaintiff had actual knowledge of the claim.”

In the absence of evidence proving actual or constructive knowledge, the plaintiff could not be held liable for non-disclosure. The court emphasized that the burden rests on the buyer to show that the seller knew or ought to have known of a valid third-party claim.

VII. Caveat Emptor and Discoverability

The court stressed the application of the doctrine of caveat emptor, particularly for patent defects:

“If an encumbrance or claim is easily discoverable through a reasonable inspection or inquiry, it is considered a patent encumbrance, and the seller has no duty to disclose it. The buyer is expected to conduct their own due diligence to uncover such defects.”

Because the third-party claim was readily discoverable through ordinary inquiries, it constituted a patent defect. The defendant’s failure to investigate relieved the plaintiff of any obligation and precluded any claim for breach.

Application to the Facts

1. The plaintiff disclosed all known rights and liabilities.

2. The purported caveat was invalid and did not constitute a legal encumbrance.

3. The defendant, despite being a tenant for nearly a year, did not make reasonable inquiries that would have revealed the claim.

4. There was no evidence of misrepresentation or concealment by the plaintiff.

The court concluded:

“Having been a tenant on the building for close to a year before he purchased the property, the defendant could reasonably be expected to be familiar with the largely anecdotal folklore of the village relating to the property, or to discover it on inquiry.”

“Whereas a seller has a duty to disclose material defects of title that are not readily discoverable by the buyer, this duty does not extend to patent defects, as the buyer is expected to find them through their own diligence.”

Burden of Proof

The court highlighted the dual nature of the burden of proof:

1. The buyer must prove that the seller had actual or constructive knowledge of a latent defect.

2. If the facts allow multiple inferences, the court must adopt the most plausible. If the evidence favors the plaintiff, the claim fails.

3. In this case, the defendant failed to adduce sufficient evidence to prove knowledge or misrepresentation by the plaintiff.

Holding

The court held that:

1. The plaintiff (counter-defendant) did not breach the land sale agreement.

2. The third-party claim was invalid, readily discoverable, and did not constitute an encumbrance requiring disclosure.

3. The defendant failed to exercise the due diligence expected of a prudent purchaser.

4. No misrepresentation, concealment, or fraudulent conduct occurred.

On Prevention or Interference with the Transfer of Title and Mortgage Registration

The court had to determine whether the plaintiff (vendor) was liable for preventing or interfering with the process of transferring title into the defendant’s name and the subsequent registration of a mortgage in favor of DFCU Bank.

The court’s recounted the testimony of the defendant: DFCU Bank had discovered that a caveat had been lodged by one Tumusiime Paul on behalf of the administrators and beneficiaries of the estate of the late Sarah Wanyama Mukaka. This caveat, registered on 5th August 2019 under Instrument No. KCCA-00063859, effectively barred the transfer of the property and the registration of the bank’s mortgage.

The plaintiff, however, asserted that he had fully complied with his obligations under the sale agreement. He had handed over all the requisite documents, including a duly executed transfer form and authorisation to Equity Bank, which was in possession of the certificates of title. These were handed to DFCU Bank to enable creation of a mortgage and completion of the sale transaction. Clause 4.2 of the sale agreement expressly placed on the vendor the duty to hand over documents and facilitate the transfer of title to the purchaser.

The court emphasized that contractual interpretation aims at ascertaining the common intention of the parties. Where contractual terms are clear and explicit, courts do not embark on speculative interpretations. In this case, once DFCU Bank had redeemed the title from Equity Bank and taken possession of the documents, the plaintiff’s contractual duty was deemed satisfied. Thus, any subsequent impediment to registration occasioned by the caveat was not a failure on his part.

Nature and Effect of the Caveat

The defendant argued that the plaintiff bore responsibility because the existence of the caveat thwarted the very object of the agreement—the transfer of title and registration of a mortgage.

Yet the evidence revealed that at the time of execution of the agreement on 25th October 2019, neither party was aware of the lodged caveat. Although it had been presented to the registry on 5th August 2019, it had not been registered on the title.

This was corroborated by a search conducted on 25th October 2019, which showed no encumbrance.

The caveat only appeared on the title later, but was deemed lodged as of August 2019 by virtue of section 46(3) of the Registration of Titles Act, which provides that the date of lodgment is deemed the date of registration once entered.

The court therefore found that the impediment arose after the execution of the contract and that both parties were unaware of it. The bank’s subsequent communications in 2020 and 2021 confirmed that the caveat continued to block transfer and mortgage registration for over two years.

Whether the Plaintiff Knew or Ought to Have Known of the Caveat

The court addressed whether the plaintiff had any duty of disclosure in relation to this latent encumbrance. A seller may be liable if he fails to disclose known defects or defects that, with reasonable diligence, he ought to have known. However, the court found that the plaintiff was genuinely unaware of the claim, which had not been asserted for eight years while he enjoyed quiet possession and operated his business on the property.

The court held that the caveat amounted to a latent defect—a claim not discoverable by ordinary care or a routine search, but requiring specialized knowledge. Since it was not proved that the plaintiff knew or recklessly disregarded the existence of the encumbrance, no duty of disclosure could attach to him. Thus, he could not be faulted for the delay in transfer occasioned by the caveat.

Allegation of a Subsequent Caveat by the Plaintiff

The defendant further alleged that even after the caveat of Tumusiime Paul was vacated, the plaintiff himself lodged a caveat, thereby breaching the agreement and preventing completion of the transaction. However, the documentary evidence contradicted this assertion. A statement of search dated 12th October 2023 revealed only two caveats: one lodged by DFCU Bank as equitable mortgagee (September 2021) and another by the defendant himself (July 2023). There was no caveat by the plaintiff.

The court noted that the defendant’s claim lacked evidential foundation. There was no proof that a caveat by the plaintiff existed or that it hindered the bank’s legal mortgage. On the contrary, the evidence pointed to the defendant himself having lodged a caveat. Accordingly, the allegation that the plaintiff interfered with the registration process failed.

Determination of Liability for Prevention of Transfer

The court concluded that:

1. The plaintiff had discharged his contractual obligations by providing duly executed transfer forms and authorisation to redeem the title.

2. The impediment to transfer arose from a third-party caveat lodged but not yet registered as at the date of contract execution.

3. The plaintiff neither knew nor could reasonably have known of the caveat.

4. There was no evidence that the plaintiff subsequently lodged a caveat of his own.

Therefore, the defendant’s counterclaim that the plaintiff prevented or interfered with the transfer of title and registration of the mortgage was unsupported by evidence and failed.

Withholding Tax on the Sale of Commercial Property

The court next considered whether withholding tax was payable in respect of the transaction. Under the Income Tax Act, a purchaser of land or a business asset must withhold 6% of the consideration as tax at source and remit it to URA. The law imposes personal liability on the purchaser who fails to withhold.

The defendant had argued that the payment of the initial instalment, which was applied to clear the plaintiff’s loan with Equity Bank, was not subject to withholding tax because it constituted repayment of a loan rather than taxable income. He relied on Luwaluwa Investments Ltd v URA, where the High Court had held that proceeds from the disposal of mortgaged property, being a refund of capital and interest, were exempt.

The court disagreed with Luwaluwa. It held that section 127(2) of the Income Tax Act exempts only interest paid to financial institutions from withholding tax. It does not exempt the entire proceeds of disposal of mortgaged property. To hold otherwise would undermine the purpose of the tax regime. The court instead harmonised section 127(2) with section 130(2) (formerly 118B(2)), which requires withholding on business asset transfers.

The rationale is that withholding tax is a mechanism for collecting capital gains tax at source. Gains in land value often accrue not through the owner’s efforts but due to economic development and public infrastructure. As such, capital gains taxation protects the tax base and ensures equitable contribution.

The court explained that the taxable gain is the difference between the consideration received and the adjusted cost base, but for withholding purposes, the obligation attaches to the gross amount paid since the purchaser cannot reasonably know the seller’s cost base or profit. Any adjustments are later settled between the seller and URA.

Application to the Facts

In this case, the property comprised a commercial building actively used for business purposes: parts were rented out to tenants and part was used by the plaintiff to run a restaurant. It therefore constituted a business asset under section 2(h) of the Act. Its sale was subject to withholding tax.

The defendant was obligated to withhold 6% of the consideration. Out of the Shs. 200,000,000 balance, he was required to withhold Shs. 120,000,000. His failure to remit this tax did not absolve him of liability. Under section 142 of the Act, a purchaser who fails to withhold becomes personally liable for the tax, though entitled to recover it from the seller. The court stressed that this liability persists irrespective of whether URA has issued demands.

Accordingly, the defendant was held liable to account for withholding tax to URA.

Court’s Final Holding

1. On the issue of prevention of transfer and mortgage registration:

   • The plaintiff had fulfilled his contractual obligations.

   • The impediment arose from a third-party caveat of which he was unaware.

   • The allegation that he later lodged a caveat was disproved.

   • The defendant’s counterclaim failed.

2. On the issue of withholding tax:

   • The property was a commercial building and therefore a business asset.

   • The defendant was obligated to withhold 6% of the purchase price.

   • His failure to do so made him personally liable for Shs. 120,000,000 in tax.

The court therefore dismissed the defendant’s counterclaims and upheld the plaintiff’s entitlement under the sale agreement, subject to the purchaser’s statutory obligation to remit withholding tax.

Issue 2 Whether the defendant (counterclaimant) is entitled to the set-off claimed

Issue 3 What remedies were available to the parties.

Court’s Analysis

1. Principles of Set-off

The Court reaffirmed that set-off operates where two parties owe each other money or obligations of the same kind. The law allows the Court to deduct one obligation from another if the following conditions are met:

1. Both obligations are due and payable.

2. The obligations are ascertained as to existence and amount.

3. If arising from the same transaction, even unascertained obligations may be set off.

The objective of set-off is to avoid the redundancy of each party performing obligations separately, instead cancelling them out by mutual deduction.

2. Application to the Case

At an earlier stage, the Court had already entered summary judgment in favour of the plaintiff for UGX 200,000,000/=, since no plausible defence existed. The defendant was, however, allowed to pursue his counterclaim.

The defendant successfully proved three heads of claims:

1. UGX 5,495,082/= in outstanding property rates.

2. UGX 581,490/= in unpaid electricity bills.

3. UGX 120,000,000/= as withholding tax obligations.

Since these claims arose from the same transaction, the Court offset them against the plaintiff’s judgment sum. After deduction, a balance of UGX 73,923,428/= remained payable to the plaintiff.

Issue 3. Remedies

1. Interest: 

   Under Section 26(2) of the Civil Procedure Act, the Court awarded interest at 20% per annum, effective from 31st October 2021 (when the last instalment became due) until full payment. The Court reasoned that this compensated the plaintiff for being deprived of the money during the prolonged litigation.

   
   

2. Costs: 

   Guided by Section 27(2) of the Civil Procedure Act, the Court emphasized that costs ordinarily follow the event, but mixed outcomes call for apportionment. Since the defendant succeeded in offsetting nearly two-thirds of the plaintiff’s claim, the Court awarded the plaintiff one-third of the costs of the suit and the counterclaim.

   
   

Final Orders

Judgment was entered for the plaintiff against the defendant in the sum of UGX 73,923,428/=, with interest at 20% per annum from 31st October 2021 until payment in full, together with one-third of the costs of the suit and counterclaim.

Key Takeaways from the Decision

1. Reaffirms the principle of caveat emptor:

   Buyers of land must exercise high diligence through searches, inspections, and local inquiries. Failure to do so leaves them responsible for patent defects.

2. Clarifies the seller’s duty of disclosure:

   A seller is only obliged to disclose latent defects of title (hidden and not reasonably discoverable). There is no duty to disclose patent defects that the buyer could uncover through due diligence.

3. Establishes the treatment of third-party caveats:

   Invalid or baseless third-party claims do not constitute encumbrances requiring disclosure, nor do they prevent a bona fide purchaser from acquiring good title.

4. Reaffirms the law on set-off:

   Set-off is permissible where obligations are due, payable, and ascertainable, even if arising from the same transaction but unascertained at the time.

5. Clarifies withholding tax obligations in land transactions:

   The sale of a commercial property is subject to 6% withholding tax, and the purchaser is personally liable for non-compliance, regardless of how the proceeds are applied.

6. Establishes that repayment of a seller’s loan does not exempt withholding:

   Even where the first instalment clears the seller’s bank loan, the purchaser must still withhold tax on the gross purchase price.

7. Reaffirms impartiality standards for judicial officers:

   Judges must recuse themselves where a fair-minded and informed observer would perceive bias, but recusal motions must be prompt and grounded in objective facts.

8. Clarifies the consequences of late recusal motions:

   Recusal applications filed after trial or close to judgment will not be entertained unless exceptional circumstances exist.

9. Litigants should be cautious in counterclaims:

   The decision illustrates that counterclaims carry a burden of proof; vague or speculative allegations will fail, while properly quantified obligations (like rates, utilities, taxes) may succeed in set-off.

10. Litigants should be mindful of remedies and costs:

    Even where a plaintiff succeeds, set-off can significantly reduce recoveries, and courts may apportion costs in light of mixed outcomes.

Read the full case below

Bernard Byamukama v Paul Muwanga ta Polo Boutique 2025 UGCommC 261 (16 August 2025).pdf

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