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LEGAL ALERT

A COMPANY’S POWER TO OWN MAILO

& FREEHOLD LAND IN UGANDA

A. Introduction B. Summary
In Biyinzika Enterprises Ltd, Samuel Mukasa and Milly In the above decision, the court has held that it is not
Mukasa versus Biyinzika Farmers Ltd and Agro Busi- sufficient that a company’s control lie with Ugandan cit-
ness Development A/S, Civil Appeal No. 18 of 2017, the izens for it to be considered a Ugandan company. The
Court of Appeal has ruled that a company controlled company’s memorandum and articles must include a
by Ugandan citizens with Articles of Association that clause prohibiting the transfer of shares to non-Ugan-
do not restrict the acquisition of shares by non-citizens dans alongside the fact that its control is with Ugan-
cannot legally own mailo land. dans for it to be considered a Ugandan company.
The judgement handed down on the 22nd of July 2021 is This is important because, at law, if a company is not
an eye opener on how a company’s ownership rights considered a Ugandan company, it cannot hold any
over land can be affected by the possibility that a other land tenure except leasehold.
non-citizen may acquire shares in the company. While
the dispute from which the decision arose involved oth- This also means that all companies which do not have
er legal questions which were adjudicated upon by the a clause prohibiting transfer of shares to non-Ugandans
Court, this Alert focuses on the court’s reasoning and are considered foreign companies, and if they present-
ruling in regards to a company’s power to acquire mai- ly hold any land under freehold or Mailo tenure, they
lo and by extension freehold land. do so wrongly. Companies which lie in this category
should take steps to regularise their proprietorship.

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The decision does not affect Ugandan and non-Ugan- Dissatisfied with the judgement and orders of the High
dan companies owning land under leasehold ar- Court, BEL and the Mukasa’s challenged the judgement
rangement, regardless of whether the landlord’s title and orders in the Court of Appeal vide Court of Appeal
is freehold or Mailo. Civil Appeal No. 118 of 2017 on the ground that the High
Court erred when it ordered BEL and the Mukasa’s to
pay BFL compensation amounting to UGX 480,000,000
C. Background for the land whereas BFL was a non-citizen company
that could not legally own Mailo land.
Biyinzika Enterprises Ltd (BEL) under the control of
Samuel Mukasa and Milly Mukasa (The Mukasa’s) and
Agro Business Development A/S (ABD) owned 88% and E. Arguments Before the Court of
12% shares respectively in Biyinzika Farmers Ltd (BFL).
BFL was incorporated in 2004 to carry on the business Appeal
of production of broiler chicken for both local and in- The point of contention before the Court of Appeal was
ternational market. It’s Articles of Association permit- whether, BFL was a non-citizen company at the time it
ted it to own land under any form of tenure. acquired the land and if so, whether BFL could acquire
ABD is a foreign company incorporated in Denmark legal title to the land.
while BEL is a Ugandan company controlled by citizens In the Court of Appeal, BEL and the Mukasas argued
of Uganda. ADB availed money to BEL to acquire land that since BFL’s Articles of Association did not prohibit
for BFL. Subsequently, Mailo land comprised in Kyag- transfer shares to non-citizens, BFL was a non-citizen
gwe Block 118 plot 7 measuring 24.3 hectares at Budo, company under Section 40(7)(e) of the Land Act 1998
Kyaggwe County (The land) was acquired and regis- as Amended and therefore incapable of legally owning
tered into the names of BFL as the registered owner. mailo and freehold land. BEL and the Mukasas appear
At the time, majority of the shares (88%) in BFL were to have based their argument on Article 237(2) (c) of the
owned by BEL, a Ugandan company. However, BFL’s 1995 Constitution of the Republic of Uganda which al-
Articles of Association did not contain a restriction on lows non-citizens to acquire leases and Section 40(4)
transfer of shares to non-citizens. which expressly prohibits non-citizens from acquiring
Subsequently, ADB and BFL started developing struc- mailo and freehold land. BEL and the Mukasas asked
tures for production of broiler chicken on the land, un- the Court of Appeal to reverse the judgement and or-
known to them, the land had been sold and transferred ders of the High Court.
by the Mukasa’s, purportedly on behalf of BFL to a one For BFL and ABD, it was argued that since BFL was
Emmanuel Bwanika. Bwanika forcefully evicted BEL controlled by Ugandans (BEL owned 88% shares) at the
and ABD from the land and destroyed all the infrastruc- time it acquired the land, the company was a citizen of
ture initially put up by BEL and ABD. Uganda pursuant to Section 40 of the Land Act 1998 and
could therefore, legally acquire and own mailo land. It
was further argued that when ABD, a non-citizen com-
D. Litigation in the High Court pany acquired a 50% stake in BFL, the mailo land in-
Aggrieved by the eviction and destruction of infra- terest was converted into a 99-year lease in accordance
structure, BFL and ABD sued BEL, the Mukasa’s and with Section 40(5) of the Land Act 1998. BFL and ABD
Emmanuel Bwanika in the High Court Commercial Di- asked the Court of Appeal to uphold the judgement and
vision seeking to recover among others, the market val- orders of the High Court.
ue of the land or its recovery in physical form, money
spent on the destroyed infrastructure, general damag-
es and interest on all monetary claims. F. Court of Appeal’s Decision
The question before the High Court was whether the The Court of Appeal ruled that at the time BFL acquired
land was legally owned by BFL and if so, whether the the land, it was a non-citizen company for purposes of
land had been illegally and fraudulently sold to Em- land acquisition since at the material time, BFL’s Ar-
manuel Bwanika by BEL and the Mucosa’s. ticles of Association did not have a restriction on the
acquisition of its shares by non-citizens. Consequently,
The High Court ruled that the land legally belonged to Court ruled that the purchase of the land by BFL was
BFL. The Court also ruled that BEL and the Mukasas illegal since, as a non-citizen company, it is prohibited
fraudulently sold the land to Emmanuel Bwanika and by the Constitution and the Land Act 1998 from acquir-
ordered BEL and the Mukasa’s to pay BFL and ABD the ing Mailo or freehold land.
current value of the land, UGX 70, 895,000 being the
money lost on construction and labour on the land, As a result, the Court of Appeal set aside the order of
general damages of UGX 100,000,000 and interest on the High Court requiring BEL and the Mukasa’s to pay
all sums. to BFL and ABD a sum equivalent to the current value
of the land and general damages of UGX 100,000,000.
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 The Court of Appeal also set aside the orders of the H. Way Forward
High Court requiring BEL and the Mukasas to pay to
BFL and ABD damages of UGX 70,895,000 represent- (a) Consider amending Articles of Association.
ing the value of the infrastructure destroyed by Em-
Moving forward, companies which are controlled by cit-
manuel Bwanika’s forceful eviction of BFL and ABD
izens of Uganda and would like to acquire either mai-
from the land.
lo or freehold, with Articles that allow non-citizens to
Court reasoned that since BFL had illegally acquired acquire shares, should consider altering their Articles
the land, it could not derive any benefit from an illegal to provide for a restriction on the acquisition of shares
acquisition of land. Ordering BEL and the Mukasas to by non-citizens.
pay BFL the current value of the land had the effect of
(b) Prioritize leasehold.
enabling BFL to benefit from its own illegal acquisition.
Having Articles of Association that restrict acquisition
of shares by non-citizens may seriously stifle equity fi-
G. Implications nancing with undesirable consequences especially in a
market like Uganda, which heavily relies on foreign in-
a. For purposes of owning mailo and freehold land
vestment. It is therefore expected that some companies,
by a Ugandan company, it is not sufficient that the
may not be willing to restrict. Prioritizing leasehold
company is incorporated in Uganda with majority
tenure ensures that the company owns land without
shares held by citizens of Uganda. Such a compa-
losing its capacity to attract equity finance from for-
ny must incorporate in its Articles of Association,
eign investors.
a clause that restricts the acquisition of its shares
by non-citizens. (c) Legal advice on prior mailo or freehold acqui-
sition.
b. All Ugandan companies which acquired either mai-
lo or freehold land at a time when their Articles of Companies which have acquired mailo or freehold
Association did not restrict acquisition of shares without a restriction on the acquisition of shares by
by non-citizens did so illegally. The fact that at the non-citizens in their Articles of Association face seri-
time of acquisition, Ugandan citizens held majority ous risks in regards to enforcement of ownership rights
of the company’s shares is irrelevant if the above over such land. It is advisable that such entities seek
restriction is not contained in the company’s arti- legal advice on how best their rights can be protected
cles of association and memorandum. Such com- and risks minimized.
panies may not be able to enforce ownership rights
over such land.
I. Conclusion
c. The decision does not affect Ugandan and
non-Ugandan companies owning land under lease- Having Articles of Association that Prohibit non-citi-
hold arrangement, regardless of whether the land- zens from acquiring shares is not desirable for most
lord’s title is freehold or mailo. This is so because companies which may wish to attract foreign invest-
the Constitution and the Land Act 1998 expressly ment by way of equity finance. However, the law and
permit non-citizens to acquire leases over land in now the Court decision have to be complied with, in
Uganda. that regard, companies seeking to acquire land in
Uganda should prioritize leasehold tenure since the
law expressly permits non-citizens to acquire leases.

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