Of Desk Drawer Regulations And Regulatory Excess

Many years ago, a foreign client asked for a brief on some local regulations. He also asked if there were any "desk drawer" regulations he should know about, those additional expectations a regulator may impose even if not expressly grounded in the law. And indeed, there were. The law says one thing, the registrar says another, your client wants the job done yesterday, your landlord wants his rent! What's your move Counsel?

Statements like "the law says [x] but in practice the registrar insists on [z]" are sadly commonplace. The judgment in Mayambala v Uganda Registration Service Bureau ("URSB") is a breath of fresh air and brings welcome clarity to this dark desk drawer regulatory regime.

In that case, a registrar rejected a board resolution approving a transfer of shares and insisted on a special resolution even though the company's articles of association provided for approval by the board of directors. URSB argued that the articles of association are mere guiding models that do not bind the registrar. The registrar also declined to give reasons for her decision in writing. As we read the judgment, we can almost hear the usually calm and erudite Justice Boniface Wamala shouting his disapproval.

Articles of association are binding

Justice Wamala rejected the argument that articles are not binding on the registrar, emphasising that articles of association constitute the company's constitution, defining internal rules for management, members' rights, meetings and governance. Under the Companies Act, where a company does not register articles of association, it is deemed to have adopted Table A without any modifications.

The "no harm" argument rejected

Justice Wamala hammered that most vexing of arguments by regulators making such extra-legal requirements, that "it does no harm". URSB argued that it was not harmful to insist on a special resolution over a board resolution as the former was superior. Justice Wamala ruled that much as such a view could make common sense, it is legally incorrect, problematic and capable of occasioning an absurdity. His Lordship reasoned that the law gives directors an absolute discretion to decline to register any transfer of shares. Following URSB's logic would mean that at some point, the board of directors would be placed in a position to veto a decision of the general meeting, an outcome that would be unlawful and irregular. A regulator's decision must be guided first and foremost by the law and they have no power to make any additional requirements.

The duty to provide written reasons

The court also addressed URSB's failure to give written reasons for its decisions. URSB argued that they had too heavy a workload to give written decisions for each matter. We wonder if they stopped to think that the courts too had chronic case backlog and their recalcitrance wasn't helping matters. Justice Wamala ruled "I do not see how a public body could properly make a decision, based on specific regulations, and communicate the same with reasons, verbally. Such conduct would not be in compliance with the basic standards of procedural propriety and fairness".

He ruled further that "where it is required that a decision be made in writing, the amount of workload before a given public body cannot be an excuse for giving an oral decision. In some cases, where it is possible to give an oral decision, the requirement is that if the affected person so demands, a written decision must be availed."

The principle on written decisions is particularly significant. Since it is anchored in the constitutional right to fair administrative treatment, this principle should be extended by inference to other regulators as well.

Conclusion

On a whole, the court found that the registrar acted illegally by rejecting the board resolution approving the share transfer without assigning any reasons, and by insisting on a special resolution without legal basis. The decision was declared tainted with illegality, irrationality and procedural impropriety. The court issued writs of certiorari and mandamus, quashing URSB's decision and compelling it to effect the registration by way of a board resolution.

This judgment marks a welcome shift away from company law being shaped by the practice of URSB. For too long, practitioners have had to navigate the gap between what the law says and what URSB insists upon. The decision should serve as a wake-up call, requiring the registrar to ground its positions firmly in law rather than the personal preference of individual officers.

Going forward, practitioners and their clients should take confidence in insisting that URSB adheres to the law as written. Where the registrar refuses to provide written reasons for rejecting a document or imposes requirements not found in the Companies Act or a company's articles of association, this judgment provides strong authority to challenge such conduct.

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