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Last Updated: 12 July 2007
Francis Xavier Muhoozi t/a Kabale Kobil Station V
National Bank of Commerce (U) Ltd -HCT-00-CC-CS-0303-2006 [2007]
UGCommC 33 (19
April 2007)
THE REPUBLIC OF UGANDA
IN
THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL COURT
DIVISION)
HCT-00-CC-CS-0303-2006
Francis
Xavier Muhoozi t/a Kabale Kobil Station Plaintiff
Versus
National
Bank of Commerce (U) Ltd Defendant
19 April 2007
BEFORE:
THE HONOURABLE MR. JUSTICE YOROKAMU BAMWINE
J
U D G M E N T:
The plaintiff’s claim against
the defendant is for recovery of Shs.403,000,000=, general damages,
interest and costs of the suit.
The case arises out of an alleged
breach of a Guarantee Deed.
From the evidence, the plaintiff
was the defendant’s customer at its Kabale branch. He operated a
fuel station under a dealership
arrangement with Kobil Uganda Limited
at a place called Rwakaraba in Kabale Town. For a while, the
plaintiff obtained over draft
facilities from the defendant. He had
difficulty paying them back. In February 2006, the plaintiff
approached the defendant to negotiate
for him a guarantee facility
with Kobil Uganda Limited. The defendant agreed. The said guarantee,
between the defendant and Kobil
Uganda Limited, was for a sum of
Shs.100,000,000=, valid effective March 13, 2006 for a year. Under
the guarantee, the defendant
agreed to honour cheques issued to Kobil
Uganda Limited by the plaintiff as long as the amount did not exceed
Shs.100,000,000=. When
the plaintiff drew a cheque of Shs.43,910,229=
under the arrangement, the defendant dishonoured it. Following the
dishonour, Kobil
Uganda Limited called off the plaintiff’s
dealership with them. Hence this suit in which the plaintiff contends
that the defendant
breached the contract of guarantee, between the
defendant and Kobil Uganda Limited, without any lawful excuse.
There
are two issues for determination:
1. Whether the defendant
breached the terms of the guarantee agreement.
2. Whether the
plaintiff is entitled to the remedies sought.
Representations:
Mr.
Barata and Mr. Birungyi for the plaintiff; Mr. Musisi for the
defendant.
I now address myself to the issues. The first one
is whether the defendant breached the terms of the guarantee
agreement.
It is notable that there are two agreements in this
case. The first one is dated 24/2/2006. It is headed:
"Letter
of Offer-Application for Bank Guarantee Shs.100million." In this
offer letter, the defendant informed the plaintiff
as follows:
"We refer to your recent application seeking for a Bank Guarantee of Ug. Shs.100million...favouring Kobil Uganda Ltd. We are pleased to convey our approval for the same subject to the following terms and conditions."
Those terms and conditions appear therein in
black and white. It is unnecessary to reproduce them here. It is
enough to state that
the plaintiff fulfilled the terms and conditions
set by the defendant. This document is on record as D. Exh. V.
The
second one is dated 13 March 2006. It is by way of a letter from the
defendant to the General Manager, Kobil Uganda Ltd, P. O.
Box 27478
Kampala. It reads (in part):
Re: Bank Guarantee No.
2006/007 dated 13th
March 2006 for Ug. Shs.100,000,000= in your favour and valid up to
13th March
2007
In consideration of your having agreed to
supply Kabale Kobil Service Station Plot 256, Kisoro Road, P O Box
108, Kabale, Uganda ("the
Customer") with all Petroleum
Products Lubricants and LPG on CREDIT for their business, we National
Bank of Commerce (U) Ltd,
P O Box 23232 Kampala, Uganda, having our
registered office at Plot 13A, Parliament Avenue, Kampala
(hereinafter called "the
Bank") agree with you the
following:-"
The letter then sets out the terms of the
agreement. The highlights of it are that the defendants guaranteed to
Kobil Uganda Limited
payment by the said customer for all the
petroleum products the customer would get on credit, subject to the
limit on their aggregate
liability of Shs.100m; and that the Bank’s
Liability would include guaranteeing payment of cheques, Promissory
Notes and Bills
of Exchange drawn in favour of the said Kobil Uganda
Limited by the customer. The document is on record a P. Exh. 1. It is
not disputed
that when the plaintiff issued a cheque of
Shs.43,910,229= to Kobil Uganda Ltd, the defendant dishonoured it.
What is disputed is
the defendant’s liability to the plaintiff
under the second agreement.
I have addressed my mind to the
arguments of counsel on the matter. Mr. Musisi’s bone of contention
is that the guarantee, P. Exh.
1 was between the defendant bank and
Kobil Uganda Ltd. That the plaintiff was not party to it much as he
was to derive a benefit
out of it. That accordingly, since he was not
privy to it, he can not sue on it.
The two learned counsel for the
plaintiff do not agree. They argue that the document was initiated by
the plaintiff, that he participated
in drafting it and that the
agreement was to his favour. They see no wisdom in separating the two
transactions. Accordingly, they
argue that the plaintiff is entitled
to sue on it.
On this issue of privity of contract, learned
counsel for the plaintiff have submitted that this was not one of the
issues framed
for determination; that in fact it was never in issue
from the time of scheduling through hearing. The implication is that
the defendant
is estopped from raising the issue now.
With the
greatest respect to learned counsel for the plaintiff, their argument
on this point cannot be accepted. The issue of privity
is key in this
case. The Defendants raised it in their Written Statement of Defence.
In paragraph 4 (f) of the plaint, the plaintiff
avers that the
defendant was at all times aware that the dishonour of the
plaintiff’s cheque was a breach of contract of guarantee
and that
it would jeopardize the business between the plaintiff and Kobil
Uganda Ltd. The defendant specifically denies this in paragraph
6 (d)
of its Written Statement of Defence and states that the defendant
shall state that the guarantee contract was between the Bank
and
Kobil Uganda Ltd. What the parties are talking about here is, in
simple terms, the principle of privity of contract. It is a
fact
pleaded by inference.
A point of law can be raised at any stage of
the proceedings. It is in my view never too late to raise it. It can
be raised as a preliminary
objection to the plaint before evidence is
led on it or a party can wait until evidence is presented and the
point is determined
on merits. The defendant opted for the latter
course. I cannot fault it, given that throughout the plaint, the
plaintiff makes no
mention of the 1st agreement. Indeed as
the record shows, the first agreement is the defendant’s Exhibit,
D. Exh. V. The plaintiff, for reasons best
known to him and his
lawyers, chose not to base his claim on it. I do not think that the
defendant can be prevented from making a
submission on it.
The
plaintiff’s alleged cause of action is expressed in paragraph 4 of
the plaint. Paragraph 4 (a) gives background information.
In
paragraph (b) he states:
"(b) For purposes of expanding business, the plaintiff applied to the defendant for a credit guarantee facility of Shs.100,000,000= (one million only) in favour of Kobil Uganda Ltd and the facility was granted on 13th March 2006 to run up to 13 March 2007. The terms of the guarantee inter alia that the defendant guarantee payment of cheques drawn in favour of Kobil Uganda Limited by the plaintiff. A copy of the terms of the bank guarantee is hereto attached as Annexture ‘A’."
In paragraph (c), he states:
"(c) Upon the basis of the said bank guarantee Kobil Uganda Limited agreed to supply the plaintiff with a truck load of fuel every seven days and to bank the plaintiff’s cheque in payment thereof every seventh day from the date of supply. Then (d) (e) and (f) follow.
"(d) That without any notice whatsoever, the defendant unilaterally dishonoured the first cheque issued by the plaintiff against the said credit guarantee facility in the sum of Shs.43,910,229= (words) drawn by the plaintiff in favour of Kobil Uganda Limited in fragrant breach of the terms of the credit guarantee facility. A copy of the cheque is attached hereto marked ‘B’.
(e) That as the result of the defendant’s breach of the guarantee, particularly the dishonour of the plaintiff’s cheque, Kobil Uganda Limited revoked the dealership with the plaintiff. A copy of the letter terminating the dealership is attached hereto marked ‘C’ together with the hand-over report marked ‘D’."
I have already set out above the content of
paragraph 4 (f).
It is settled law that in determining whether
or not a plaint discloses a cause of action the Court should look at
the plaint alone
together with anything attached to it so as to form
part of it. The Court also proceeds on the presumption that any
express or implied
allegations of fact in it are true: Jeraj
Shariff & Co. –Vs- Chotai Fancy Stores[1960] EA 374.
The
plaint has been attacked on one major ground, that is, that the
plaintiff was not privy to the Guarantee dated 13th March,
2006.
I have given considerable attention to this matter, that
is, the question of privity of contract. The doctrine of privity of
contract,
according to the learned author of Osborn’s Concise Law
Dictionary, 9th Edn at p. 302, is to the effect that, a
contract cannot usually give rights or impose obligations on any one
who is not a party to
the contract.
It is a fundamental
principle of our law, and therefore not merely a matter of
technicality, that only a person who is party to a
contract can sue
upon it. A stranger to a contract cannot take advantage of the
provisions of the contract even where it is clear
from the contract
that some provision in it was intended to benefit him. It was so held
in Midland Silicones Ltd _-Vs- Scruttons [1962] A.C 446
and the principle has been applied in numerous other cases in
this country. I would hasten to add that in the country of origin of
this doctrine, England, the same has recently been modified by an Act
of Parliament. The Contracts (Rights of Third Parties) Act
1999 (CRTP
Act) has changed fundamentally the position in England on privity of
contract since May 11, 2000. Previously, the only
persons who were
legally bound by or who could enforce a contract were the parties to
that contract. The said Act of 1999 now allows
third parties to
enforce a contract governed by English law, if the contract gives
them an express right to do so or if the contract
identifies the
third party and purports to confer a benefit on them. In the instant
case, in the absence of any provision in it to
the contrary, the
presumption is that the Guarantee in issue is governed by and must be
construed in accordance with the law of Uganda
regarding contracts.
The law in England was specifically enacted to address issues akin to
the instant one. Until our Uganda Parliament
considers moving in the
same direction by enacting a similar law, this Court is bound to
administer the law of contract as it stands
today. In my view, the
doctrine of privity of contract seals the plaintiff’s fate in this
case.
In the same Dictionary, Osborn’s Concise Law
Dictionary, at p. 186, guarantee is defined as:
"A secondary agreement in which one person (the guarantor) will become liable for the debt of the principal debtor if the principal debtor defaults ...It also requires independent consideration."
It is, so to say, a promise made by a guarantor to
a creditor that if the debtor does not pay a debt, the guarantor will
pay it. Clearly,
the promise is by the guarantor to the creditor. It
is not to the principal debtor, much as it is being made in his
favour. Needless
to say, the debtor would have agreed with the
guarantor on terms of such guarantee, as happened in this case. But
that does not in
any way confer privity to the creditor on the
guarantee.
The learned authors of Halsbury’s Laws of
England, 4th Edn, (Re issue) Vol. 20 at page 56 define it
thus:
"101. Guarantee. A Guarantee is an accessory contract by which the promisor under takes to be answerable to the promisee for the debt, default or miscarriage of another person, whose primary liability to the promisee must exist or be contemplated."
They state further that as in the case of any
other contract, its validity depends upon the mutual assent of the
parties to it; their
capacity to contract; and consideration, actual
or implied. As regards the principal debtor, they state:
"103. The principal debtor. The person primarily liable to the creditor for the obligation guaranteed is usually referred to as the principal debtor. Although sometimes bound by the same instrument as his guarantor, the principal debtor is not a party to the guarantor’s contract to be answerable to the creditor: there is not necessarily any privity between the guarantor and the principal debtor; they do not constitute one person in law, and are not as such jointly liable to the creditor, with whom alone the guarantor contracts."
In short, the common law position, with which
I agree entirely, is that even though a principal debtor may
sometimes be bound by the
same instrument as a guarantor, the
principal debtor is not a party to the guarantor’s contract with
the creditor. There is therefore
not necessarily privity of contract
between the guarantor and the principal debtor, and they are not
generally jointly liable to
the creditor.
Learned Counsel for
the plaintiff have argued that the guarantee agreement is contained
in a set of three documents: the guarantee
itself, P. Exh. 1; the
letter of offer, D. Exh. V; and the Mortgage Deed, P. Exh. X1. With
the greatest respect to them, I do not
agree with them on this point.
In my view, the guarantee contract constitutes a contract between the
defendant herein and Kobil Uganda
Ltd, while the offer letter and the
mortgage deed constitute another contract in its own right between
the plaintiff and the defendant.
The plaintiff in his plaint makes no
reference to the offer letter and the mortgage deed as constituting
the contract on which his
claim is based. However, the offer letter,
D. Exh. V, sets out terms upon which the defendant would issue the
guarantee and how the
plaintiff would relate to the defendant. The
terms were subject to his acceptance and he accepted them. It is a
contract in its own
right, the breach of which would entitle the
innocent party to remedies under it. As I understand the plaintiff’s
claim, it is
not based on that contract, D. Exh. V and P. Exh. X1,
the Mortgage Deed, considered together. His claim is based on P. Exh.
1, the
guarantee agreement between the defendant and Kobil Uganda
Ltd, to which he furnished no consideration. He could only be privy
to
it upon furnishing independent consideration to it. The only
consideration he is on record to have furnished was for the contract
between himself and the defendant Bank. He is clearly a stranger to
the Guarantee Deed, P. Exh. 1. As a stranger to it, he cannot
take
advantage of it.
I would accept Mr. Musisi’s argument on
this point.
In the guarantee deed, P. Exh. 1, the Bank
promised to Kobil Uganda Ltd that if the plaintiff defaulted on the
credit terms, it (the
Bank) would pay on his behalf. When his cheque
to them bounced and he took the Bank on its undertaking, it paid
Shs.100m to Kobil
Uganda Ltd, without argument. That was the Bank’s
responsibility under the guarantee, as between itself and Kobil
Uganda Ltd. If
the Bank had paid less than Shs.100m to Kobil Uganda
Ltd, or nothing at all, it would have been in breach. Even then, that
would
have been as between the defendant and Kobil Uganda Ltd, and
not as between the plaintiff and the defendant. In these
circumstances,
Court is unable to find that the defendant breached
the terms of the guarantee agreement of March 13, 2006. Accordingly,
I would
answer the first issue in the negative. I do so.
As to
whether the plaintiff is entitled to the reliefs sought in the
plaint, having held as I have done in issue No. 1 that he cannot
take
advantage of P. Exh. 1, he is not entitled to the reliefs sought. I
would, therefore, order the plaint struck out and dismiss
the
suit.
In the event of a successful appeal, since the plaintiff
had prayed for damages, special and general, I shall try to make an
assessment
of the same.
Starting with special damages, the rule
has long been established that special damages must be pleaded and
strictly proved by the
party claiming them, if they are to be
awarded.
It is submitted by counsel for the defendant that the
plaintiff did not plead special damages in the plaint as the law
requires. Looking
at the plaint as a whole, there is merit in this
submission.
The plaintiff seeks recovery of Shs.403,000,000=.
The first mention of it is in paragraph 3 of the plaint where he
states:
"3. The plaintiff brings the suit inter alia to recover Ug. Shs.403,000,000= (in words) from the defendants ..."
Then in paragraph 4 (h) he states:
"(h) That as a result of the said revocation following the defendants breach of the guarantee, the plaintiff has suffered loss of business and earnings in the sum of Shs.403,000,000= (in words) and continues to suffer loss and damage as interest accrues on the plaintiff’s overdraft facility."
And in paragraph 8 he states:
"8. The plaintiff contends that the defendant is liable to him in the sum of Shs.403,000,000= (in words) being loss of business, general damages, interest thereon and costs of the suit."
He then ends with the usual prayer for the
amount stated above. He does not give any indication in the plaint as
to how he arrived
at that figure of Shs.403,000,000=. In fact, from
the way he has framed his claim, it is as if the amount claimed, that
is, Shs.403m
covers loss of business, general damages, interest and
costs, all put together.
It would appear to me that the
plaintiff must, in a case like this, prove the net income lost as a
result of a breach of contract,
that is, the gross income less
expenses. This must be pleaded and subsequently proved by way of oral
evidence or documents. He did
no produce any records showing his cash
flow at the time. If no accounts were being kept, the plaintiff would
be contented with an
award of general damages. On careful scrutiny of
the plaintiff’s pleadings, his claim of Shs.403m is legally
unsustainable on account
of offending against ordinary rules of
pleading. Besides, it is highly speculative. I would disallow it.
As
regards general damages, these are at large. The quantum would be
within the discretion of Court. Evidence has been led that the
plaintiff suffered inconvenience and has been put out of business.
Learned counsel for the plaintiff suggested to me a figure of
Shs.100m as general damages. I would find that according to their
agreement of February 24, 2006 (on which the claim is not based),
the
plaintiff was under duty to deposit fuel sale proceeds on his account
with the defendant. He had sold fuel for a week, so the
defendant
rightly expected to find money on the account when the cheque came. I
would doubt the plaintiff’s evidence that he did
not discuss with
the defendant’s officials the fate of the cheque before the
defendant finally bounced it. The telephone print
out, though it
discloses not the nature of their conversation, gives the plaintiff
in. They could not have been discussing nothing,
for that long, at
the time when the cheque was in the process of being bounced.
Be
that as it may, given that he had been given guarantee in full
appreciation of the financial difficulties he was experiencing at
the
time, the expectation that there would be the full cheque amount on
the account would in my view, be unrealistic. I would of
course
disregard the plaintiff’s argument that the defendant did not have
cause to worry about the funds being diverted towards
making
improvements on the security. This would be contrary to the
plaintiff’s undertaking to deposit all fuel sale proceeds on
the
bank account. Doing the best I can, and working on the assumption
that the plaintiff would be entitled to general damages, I
would have
awarded him nominal damages in the sum of Shs.5,000,000= (five
million only), if his suit against the defendant had succeeded.
For
the reasons I have given above, the suit is dismissed.
As regards
costs, the usual result is that the loser pays the winner’s costs.
This practice is subject to the Court’s discretion,
so that a
winning party may not necessarily be awarded his costs. I have
considered the nature of the case and the peculiarity of
the issue
before me. I’m inclined to order that each party bears its own
costs. I do so.
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