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Quality Procurement Services Ltd v Nile Bank Limited (HCT-00-CC-CS-0221-2005) [2007] UGCommC 49 (29 November 2007)
.RTF of original document
THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA HOLDEN AT KAMPALA
COMMERCIAL COURT DIVISION
HCT-00-CC-CS-0221-2005
Quality Procurement Services Ltd Plaintiff
Versus
Nile Bank Limited Defendant
BEFORE: THE HONOURABLE MR. JUSTICE FMS EGONDA-NTENDE
JUDGMENT
1.
The plaintiff is a customer of the defendant at one of its branches in Kampala. It had both a local and dollar account with the defendant.
On or around April 2004 it desired to transmit a sum of US$8,400.00, by way of an irrevocable letter of credit to Jute Heavens Ltd
in Dacca, Bangladesh. On the instructions of the plaintiff, the defendant issued a confirmed letter of credit in favour of Jute Heavens
Ltd on 19th February 2004. It was for purchase of one container of gunny bags for the plaintiff.
2.
This letter of credit was never communicated to Jute Heavens Ltd, and it is not contested that it was a failed transaction. The plaintiff
contends that the failure of this transaction was due to the negligence of the defendant, and as a result it was compelled to transfer
money by Telegraphic Transfer to complete its transaction with Jute Heavens Ltd at additional cost.
3.
The plaintiff again in March 2004 instructed the defendant to issue another irrevocable confirmed letter of credit in favour of Maico
Jute and Bag Corporation for the sum of US$16,800.00 for the purchase of two containers of gunny bags. The defendant purported to
issue on 10th March 2004 an irrevocable confirmed letter of credit as instructed with an expiry period of 60 days. It turned out when it purported
to issue the said instrument, that instrument had errors which by the time they were rectified the instrument had expired. It is
contended for the plaintiff that the errors and delay in correcting the same were due to the negligence of the defendant.
4.
By reason of the aforesaid negligent acts of the defendant the plaintiff was compelled again to transfer the funds to the beneficiary
by Telegraphic Transfer at additional cost and greater risk. The funds were intended to purchase gunny bags. The failure of the defendant
to issue the said instruments led to the suppliers of the plaintiff shipping the goods in question late by three months leading to
loss of income and business by the plaintiff. At the same time the plaintiff was compelled to send its Managing Director to Dhaka,
Bangladesh for which the plaintiff suffered additional expenses.
5.
The plaintiff therefore claims from the defendant special and general damages. The special damages are for un reversed LC processing
of charges of Shs.135,000.00, communication costs on phones, emails, faxes for Shs125,000.00, TT charges of US$101.61, return ticket
to Bangladesh for follow-up of US$1744.00, hotel bills for 3 days, upkeep, and other charges on Bangladesh trip of US$450.00, loss
of earnings/income for 3 containers delayed for 3 months of US$12,500.00 and lost income on use of and or in forfeited interest on
the funds with held by the defendant from the plaintiff in respect of the LCs of US$857.95.
6.
The plaintiff further claims general damages for loss of goodwill from the plaintiff’s customers, exposure of the plaintiffs
business to risky transactions, breach of contract, negligence, frustration and or disruption of business and inconveniences suffered.
The plaintiff further claims interest at court rate and costs of the suit.
7.
The defendant opposes the plaintiff’s action and contends that it does not lie, and ought to be dismissed. The defendant accepted
that the plaintiff is its customer and that it received the instructions to open the said letters of credit from the plaintiff. However,
it contends that the failure of the said transactions was due to the failure of its correspondent bank in New York, Citibank, to
advise the beneficiaries of the LCs in time. Secondly that the defendants SWIFT mode of communication with Citibank broke down which
occasioned more delays as a result of the failure of communication between the defendant and Citibank.
8.
The defendant contended that it shall adduce evidence to show that it acted it acted diligently and the failure of the transactions
was due to circumstances beyond its control. The defendant further contended that the plaintiff knew that it was utilizing the services
of Citibank and that the defendant did this on the account and risk of the plaintiff.
9.
The defendant further contended that the telegraphic transfers were safe and secure means of transfer of funds and that the plaintiff’s
managing director’s trip to Bangladesh must be in the ordinary course of business of the plaintiff for which the defendant
should not be liable. The defendant further denied the loss of income and other special damages claimed by the plaintiff.
10.
At the trial of this matter the plaintiff called 5 witnesses. The defendant called no witness, in spite of being provided with the
opportunity to do so. Three issues were framed by the parties in this case. Firstly whether the defendant was negligent. Secondly
whether the plaintiff suffered any damage. And lastly whether the defendant was liable for this damage.
11.
PW1 was the Managing Director of the plaintiff. He testified that the company had accounts with the defendant. The plaintiff instructed
the defendant to raise two LCs at different times in February and March 2004. The defendant did this and informed the plaintiffs.
When the plaintiff checked with the beneficiaries the beneficiaries in Bangladesh denied receipt of the LCs. After protracted querries,
verbal and written communication between the parties, the defendant’s servants suggested to the plaintiff that the beneficiaries
were probably not ready to send the goods and were just buying time, and that is why the plaintiff was being informed that the LCs
had not been communicated.
12.
As the witness was not sure who was telling the truth he decide to travel to Dhaka, Bangladesh and investigate the matter. He left
Entebbe on the 27th March 2004 for Dhaka and left Dhaka on the 30th March 2004 after confirming that the two LCs had indeed not been communicated to the beneficiaries and that the beneficiaries had
the goods ready to be shipped.
13.
In the course of his testimony the court drew the witness’s attention to the fact that by the time he left for Dhaka, the defendant
had already reversed the first LC, as per exhibit P.23, and the value had been put back on the plaintiff’s account soon thereafter,
the witness was evasive if he travelled well knowing that the LC to Jute Heavens Ltd had already been reversed and its value put
back on the plaintiffs account.
14.
PW2 was John Kimuli, the operations/administrative manager of Kampala Domestic Store Ltd. He testified that he knew the plaintiff
company. Since 1998 the plaintiff has been supplying their company with jute bags. In March/April 2004 they ordered 70 bales of gunny
bags. This is one container load. The plaintiff failed to supply the said bags to them, and they notified them in writing that the
order is withdrawn. The company had to get from alternative sources at great expense.
15.
PW3 was Lutakoome, a business manager with the plaintiff. He is in charge of imports. He testified that the plaintiff had accounts
with the defendant. The plaintiff instructed the defendant to open two letters of credit for 2 of its traditional suppliers of gunny
bags. When they complained to the defendant that the said LCs had not been communicated to the beneficiaries the defendant’s
officers assured them that the LCs had been communicated, and that the reason the beneficiaries were denying receipt of the same
must be that they were trying to ‘buy’ time.
16.
The communication between the plaintiff and defendant over the subject was both verbal and in writing. The witness tendered several
written communications on the subject. Maico Jute, the beneficiary of the second LC when he received the LC advised amendments which
the plaintiff notified the defendant but the amendments were not effected. In both verbal and written overtures to the defendant
the witness requested for amendments to be made but to no avail.
17.
In the meantime in order to keep supplying some of their customers they had to purchase goods on the local market quite expensively.
At the same time some orders were lost. The company lost goodwill with many of their customers. Some of their customers like Kyagulanyi
Coffee and Ugacof abandoned their firm completely and no longer place orders with them.
18.
The consignments that they had intended to buy with the said 2 LCs were lost. They placed a fresh order with Jute Heavens Ltd who
they paid by way of telegraphic transfers. The plaintiff was not able to obtain supplies from Maico Jute. The plaintiff claims interest
for the period the money for the LCs was held by the defendant. This period was 30 days for the first LC and 69 days for the second
LC.
19.
PW4 was Enos Mugisha. He is an accountant with the plaintiff. He is the one who filled in the forms requesting for the 2 LCs to be
issued. On the first transaction the defendant charged a commission of US$26.76. On the second LC the defendant charged a commission
of US$39.87. There were other charges imposed of US$15.87 on 18th May 2004, US$15.87 on 20th May 2004, and Shs.135,840.00.
20.
On 17th March 2004 the defendant credited back the value of the first LC for US$8,400.00. The second LC was credited back to the plaintiff’s
account on 20th May 2004. However, the charges that the defendant had imposed were never reversed.
21.
PW4 further testified that they lost some good customers like Simba Café E A Ltd. He testified that the company makes US$2,500.00
on each container. In communicating with the defendants and their suppliers by phone and fax the plaintiff spent Shs120,000.00. The
plaintiff had to incur costs for an air ticket for the Managing Director to travel to Bangladesh.
22.
PW5 was Mpagi Bintubizibu who currently runs a forex bureau and money transfer business at Uganda House. Formerly he worked with Uganda
Commercial Bank and was in charge of its foreign division for 4 years. He is familiar with issuance of LCs. An LC once issued should
ordinarily be communicated in 2 to 3 days. In a case of delay it should not take more than 7 days.
23.
That was the testimony of the witnesses in addition to the documentary evidence they tendered in. I shall now turn to a discussion
of the evidence issue by issue following the agreed issues.
Whether the defendant was negligent?
24.
It is not in question that the defendant failed to comply with the plaintiff’s instructions to open the said letters of credit
and communicate them to the plaintiff’s suppliers. The defendant acknowledged its failure and explained it in the following
terms, in Exhibit P 19, a letter from the Managing Director of the defendant, to the Managing Director of the Plaintiff.
‘20 May 2004 Dear Mr. Kanunura, Letters of Credit No. 05NB/2004 and No. 06NB/2004 We refer to your letter regarding LCs Nos. 05NB/2004
and 06NB/2004 dated 3 May 2004. We have now investigated this matter and are in a position to respond. On application for the two
LCs, we should have advised that the duration of 30 days for LCs was a short time because under normal circumstances, LCs should
have a duration of 60 days. As a result of this, the amendments to the LCs could not be effected, resulting in these LCs expiring
before presentation of documents. As a result of this oversight on our part, we sincerely apologise and in compensation, are prepared
to pay you interest on the funds held and not available to you. Under LC No. 05NB/2004, your account was debited on 23 February 2004
and a refund was effected on 17 March 2004, giving a total of 24 days at the interest rate of 1%. Under LC No. 06NB/2004, your account
was debited on 10 March and a refund was effected on 20 May 2004, giving a total of 69 days at the interest rate of 1%. The total
interest of USD.43.40 will be credited to your account as soon as you confirm that this arrangement is acceptable to you. In future,
we shall ensure that such an oversight does not re-occur and we thank you for continuing to do business with us. Yours sincerely,
Richard Byarugaba Managing Director.’
25.
The defendant accepts that the failure of the two transactions was the result of an oversight of the defendant. However, the explanation
provided is at variance with the facts. The letter seems to suggest that both LCs had a validity period of 30 days which was not
the case. Only one LC had an expiry period of 30 days. The letter seems to suggest that both LCs needed amendment, and 30 days was
not enough time within which to amend the same. One LC had an expiry period of 60 days and the defendant failed to effect the amendments
before the expiry of the same.
26.
In its Written statement of defence the defendant asserts that it acted promptly but it is Citibank that did not advise the letters
of credit to the beneficiary in time. The defendant further contended that its swift communication system broke down and could not
therefore communicate with Citibank in time. These two positions are contradictory in so far as one admits delay while the other
asserts prompt action. Notwithstanding that the defendant has not, in any case, called any evidence in support of those allegations.
Neither has the defendant adduced evidence as it contended it will, in its written statement of defence that it acted diligently
in carrying out the instructions of the plaintiff.
27.
In the result there is no credible explanation why the defendant failed to issue and communicate to the beneficiaries the 2 LCs as
instructed by the plaintiff. I am satisfied that the defendant was grossly negligent in failing to carry out the plaintiffs instructions
of issuing and communicating to the beneficiaries stipulated the 2 LCs that the plaintiff paid for.
What is the extent of damage suffered by the plaintiff?
28.
The plaintiff has claimed special damages for loss of earnings under two heads. Firstly it claims that lost earnings for the delayed
delivery of 3 containers for three months at the rate of US$2,500.00 per month per container. Secondly it claims lost income in the
use of or forfeited interest of the value of the LCs which was withheld from the plaintiffs for the period of 24 days for US$8,400.00
and 69 days for US$16,800.00 which it has put at US$857.95.
29.
It appears to me that you cannot claim both of these two items at the same time. If there are claimed it can only possibly be in the
alternative. For if there is a claim for lost earnings for delayed delivery of the ordered goods, this presumes that the money for
which interest is being claimed under the second head was actually applied to purchase the goods in question, and no claim can arise
for none use of the same as it was used. The claim for damages arising from the delay in delivery of the ordered goods arising from
the conduct of the defendant would be sufficient to cover the loss suffered by the plaintiff. You can not actually apply your funds
to something and at the same time claim that you have been prevented from using the same for which you claim interest. The defendant
would be hit twice in respect of one loss.
30.
As was noted by Newbold, P., in East African Navigators Ltd v Mohanlal Mathuradas & Bros, [1968] E A 535 at page 541,
‘A person who sues for breach of contract is only entitled to recover the amount of the loss which he has sustained from such breach,
and the defendant is only liable to make good that loss once.’
31.
No evidence has been adduced by the plaintiff to show that the goods that it had ordered by way of the 2 LCs arrived three months
later or at all. The evidence from PW1 and PW3 was that there were fresh contracts, and only with Jute Heavens Ltd. PW3 testified
that no order was subsequently made or delivered from Maico Jute and Bag Corporation. There is no evidence that the order from Jute
Heavens Ltd of one container was delivered at all, let alone three months from the time it would have been due. Mention was made
of paying these suppliers by Telegraphic Transfer but no evidence was adduced with regard to actual movement of the goods ordered.
32.
I am not sure why the consignment from Jute Heavens Ltd should have been delayed for three months when the LC was reversed after 24
days into the life of the Letter of Credit. The time lost would have been about 30 days with regard to this transaction, and if more
time was lost as suggested by the claim, for which lost earnings are claimed, it has to be shown that this further loss of time was
the result of the defendant’s negligence, which has not been done in this case.
33.
Those are not the only problems with this claim for lost profits. The plaintiff has not shown by evidence, that the sum of US$2,500.00
is the net profit, it was to have made on each of the imported containers. The plaintiff’s accountant, PW4 talked of this figure,
and stated that these figures are in his head. He could hardly remember though the number of containers the company imported for
the year 2006! One way of proving lost earnings may be to derive the same from previous trading accounts in respect of the same item.
Accounts had to be provided to demonstrate the lost earnings. A court can hardly rely on a matter of proof of this nature of figures
in one head’s head, be he an accountant with a razor sharp memory.
34.
The claim under this head is for US$12,500.00. However, simple arithmetic would suggest that a claim for US$2,500.00 per container
for 3 containers for 3 months would result in a total claim of US$22,500.00. Maybe nothing substantial turns on this. It may have
been just a typo kind of error. However special damages must be specifically pleaded and proved. The plaintiff has failed, in my
view, for the reason I have endeavoured to give, to prove this head.
35.
It is, however, not in dispute that the plaintiff was denied use of its funds for the period it has stated of 24 days and 69 days
for the respective values of the LCs. The funds were not applied for the purpose the plaintiff had intended. The plaintiff would
thereby be entitled to damages for none use or interest rate. The plaintiff has claimed US$127.04 and US$730.45 respectively at bank
interest. The bank interest rate is not stated in the pleadings. Neither was it adduced in evidence. To that extent the method of
arriving at these figures has not been proven, and the interest rate itself is not proven.
36.
I must state that I am of the view that there is enough evidence to prove that the plaintiff is entitled to compensation under this
head but what is lacking is proof that the sum claimed is the sum due under the said head. However, even if this claim has failed
as a special damage item, it may succeed in the form of general damages for none use of its money. It shall be considered under that
specie.
37.
There is the claim for the cost of the air ticket, accommodation, communication, transport and other expenses on the trip by PW1 to
Dhaka, Bangladesh. In his testimony PW1 stated that he travelled to Dhaka because on the one hand the suppliers in Dhaka were telling
him that they had not been advised of the LCs having been opened in their favour and on the other hand the defendant’s servants
were telling it that the LCs had been effectively communicated, and probably its suppliers were only buying time when they asserted
they had not received the LCs. For this reason, and to find out if really the goods ordered were available in Dhaka, PW1 decided
to fly to Dhaka.
38.
The defendant in its written statement of defence stated that this trip was not called for. However it has adduced no evidence to
support its position. Nevertheless there is one point that gives me some disquiet. In his testimony PW1 stated that he decided to
travel because both of the LCs were still being held up, and that the bank had been assuring him that the LCs had been transmitted
to the beneficiaries. He travelled on or around the 27 March 2004. Prior to his travel, the defendant had instructed its correspondent
bank in New York to cancel the LC for US$8,400.00. The instructions were communicated in an email dated 16th March 2004 which was copied to the plaintiff. The plaintiff tendered this email in evidence.
39.
It is therefore clear that 10 days before departure of PW1 the defendant had reversed the first LC and its equivalent value returned
to the plaintiff’s bank account on 17th March 2004. PW1 ought to have been aware by the 27th March 2004 that there was no purpose in travelling to check on whether this LC had been received or not in Dhaka. Nevertheless he
testifies that his first business in Dhaka was to go to officials of Jute Heavens Ltd to find out if they had received the LC or
not. In any case by that time, the LC having had a time value of only 30 days, would have expired.
40.
Had PW1 in his testimony not insisted that he wanted to check on whether the LC for US$8,400.00 had been received or not, in addition
to the second one, I would have been more sympathetic to the necessity for this journey. The inclusion of this first LC, which clearly
by the time of the visit had been abandoned, renders suspect the journey and its motivation. It was unnecessary to travel to Dhaka
to check on this LC as it totally failed and its life had in any case expired. The consideration for the same or its value had already
been returned to the plaintiff. The plaintiff did not object to the return of this money.
41.
Was it necessary to travel in respect of the second LC? May be or may be not. This was not the first time that the plaintiff dealt
with these two suppliers. These were among its traditional suppliers of jute bags. They informed the plaintiff that the LCs had not
been communicated. In respect of one supplier the defendant had even returned the value of the LC to the plaintiff 10 days before
travel. I am not satisfied that this journey was a necessary consequence of the defendant’s breach of contract. I would not
award any costs incurred under this head.
42.
That leaves now essentially the bank charges that were not reversed by the bank. The plaintiff is entitled to recover these charges
for LCs as the plaintiff received no value whatsoever from these charges. On the plaint only Shs.135,000.00 is claimed. This sum
or rather the sum of Shs.135,840.00, is reflected in the plaintiff’s statement of account as incurred on the LCs. See Exhibit
P28. I would find this sum proved, while overlooking the none inclusion of Shs840.00 as simply a typo.
43.
The charges on the dollar account have not been claimed on the plaint, save for the TT charges stated to be the cost for alternative
payment arrangements. The sum claimed is US$101.00 only. These charges were payment for a service that was rendered. The defendant
can not be liable for the same. Perhaps at most he would be liable for the difference, if turned out that TT charges were more than
LC charges, and the TT charges were incurred by reason of the defendant’s default. Unfortunately for the plaintiff it has not
claimed the difference, but the whole. This claim is not maintainable in my view. I decline to grant it.
44.
The plaintiff claimed local communication costs of Shs125,000.00. No evidence was adduced to support this figure as the sum incurred.
This claim fails.
45.
I now turn the claim for general damages. I am left in no doubt that the plaintiff suffered general damages for inconvenience. The
plaintiff was unnecessarily tied down to frequent correspondence and verbal inquiries with no movement towards resolution whatsoever.
The defendant’s servants were far from helpful, providing misleading and inaccurate business information. The plaintiff’s
orders were adversely affected as it could not meet the same either in time or at all. The plaintiff lost business and some goodwill
it had built up over a period. Doing the best I can I would find that the plaintiff is entitled to general damages of Shs8,500,000.00.
Is the defendant liable for this damage?
46.
The defendant in its written statement of defence, paragraph 8 in particular, states that:
‘The defendant in further response to paragraphs 6(a), 6(b), 6(c), 6(d) and 7 will aver that the plaintiff knew that the defendant
was utilizing the services of Citibank in the matter and as such the defendant did that on account and risk of the plaintiff.’
47.
The defendant has not adduced any evidence that demonstrates that the defendant’s failure to perform the contract in question
was due to the fault of Citibank. The defence in another paragraph, 6(e), suggests that that the defendant’s swift communication
system broke down, and this was the cause of the failure to communicate with Citibank. Neither has the defendant adduced evidence
to show that what is contended here was an express term of the agreement between the plaintiff and the defendant. Even if it were
so, the defendant would still have the evidential burden to show that the failure of the contract, was due to Citibank, and not the
defendant. It has not done so in this case.
48.
Behind the application form for LCs there are conditions that are indicated. One such condition is a general exclusion clause. The
defendant did not in its written statement of defence cite this as a ground of defence against liability. Neither was this ground
raised in the issues specifically as a possible defence.
49.
Order 6 rule 1 of the Civil Procedure Rules requires every pleading to state the material facts upon which a party relies for its
claim or its defence. It states in part,
‘(1)Every pleading shall contain a brief statement of the material facts on which the party pleading relies for a claim or defence,
as the case may be.’
50.
Order 8 rule 16 of the Civil Procedure Rules specifically deals with defences. It states,
‘Where the defendant relies upon several distinct grounds of defence or set off founded upon separate and distinct facts, they shall
be stated, as far as may be, separately and distinctly.’
51.
The purpose of these rules is to ensure that by the time a case comes to trial, each party has notice of the case he or she has to
meet, and is therefore able to prepare and to conduct the claim or defence as the case may be on the grounds put forth by the other
party. In case there are facts admitted these could save the time for trial. I take it that the defendant deliberately chose not
to raise and pursue the exclusion clause as a possible ground of defence to the current claim, as is required by the rules cited
above. As such possible defence was not raised on the pleadings, and no amendment was sought during the course of the trial to include
it, I shall give it no consideration whatsoever.
52.
I see no other possible reason why the defendant is not liable to the plaintiff to the extent I have found under issue number 2. I
will therefore enter judgement for the plaintiff for special damages in the sum of Shs.135,840.00 for the un reversed LCs’
charges incurred by the plaintiff, interest at 11% per annum on the US$8,400.00 and US$16,800.00 for the period of 24 and 69 days
respectively being the period the plaintiffs were denied use of their funds; and general damages of Shs.8,500,000.00. Special damages
shall bear interest at court rate from date of filing of this claim till judgment. Decretal amount shall bear interest at court rate
from date of judgment till payment in full. The plaintiff is awarded costs of this action.
Signed, dated, and delivered this 29th day of November 2007
FMS Egonda-Ntende
Judge
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