THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 128 OF 2012

(ARISING OUT OF CIVIL SUIT NO 89 OF 2012)

MMK ENGINEERING LTD…..........................................  APPLICANT/DEFENDANT

VS.

MANTRUST (U) LIMITED  .......…...............................  RESPONDENT/PLAINTIFF

BEFORE HON. JUSTICE CHRISTOPHER MADRAMA

RULING

The Applicant’s filed this application under order 36 rules 4 and order 52 rules 2 of the Civil Procedure Rules for orders that the Applicant be granted leave to defend the suit and for costs of the application to be provided for.  The application is supported by the affidavit of Mike Owori the Applicants managing director.

The grounds in the notice of motion are that the Applicant is not indebted to the Respondent in the sum of Uganda shillings 99,630,000/= as claimed in the plaint. The Respondent is indebted to the Applicant for money arising out of the use of the Applicant’s materials at the site and its equipment and machinery in the execution of the contract.  The Applicant contends that the Respondent breached the contract by doing substandard work, which necessitated the Applicant to spend money to rectify.  On the 30^th of January, 2012, the Respondent got wall tiles worth Uganda shillings 9,000,000/= from the Applicant and it was agreed that payment thereof would be offset from the final sum under the agreement. The Applicants claim for penalty does not arise as the Respondent breached the contract.  The Respondent is liable to the Applicant for the indemnity arising out of the breach of contract under clause (8) of the agreement.  The payment of the contract sum was dependent on the final pay from the client, which up to date has not yet been done, thus making this claim premature.  Finally that the contract is not enforceable as both parties are labouring under a false impression and entered into the subcontract contrary to the provisions of the main contract not to subcontract without the consent of Uganda Roads Authority.

The affidavit in support sworn by Mr. Mike Owori is also to the same effect. It avers that the Applicant is not indebted to the Respondent at all as the money that was due under the subcontract was paid in full.  That after the signing of the agreement in issue, the Applicant and the Respondent agreed that the Respondent uses the Applicant’s materials, machinery and equipment at a site with a view to offset the costs from the final payment on the completion of the contract.  The Respondent performed part of the contract and the Applicant has been paying her on account, waiting for the assessment of the money for the materials, equipment and machinery to make the final payment.  In spite of persistent requests for the Applicant to assess the material for machinery and equipment, the Respondent has consistently dodged the meeting in a bid to frustrate the assessment.  During the execution of the contract, the Respondent lost or caused the loss of the Applicants concrete mixer, water pump, contract vibrator and metre runner all valued at shillings 16,000,000/=.

The Respondent in breach of contract did a substandard work and did not complete the work on time. The Applicant was entitled to indemnity.  The Applicant is entitled to a set off or payment from the Respondent for the money spent on rectifying the substandard work, general damages, replacement of machinery and equipment lost.  The Applicant got wall tiles worth Uganda shillings 9,000,000/= which was meant to be offset from the final payment under the agreement.  It was an implied term of contract that the payment of the consideration was to come from the payment of Uganda National Road Authority which has not yet been effected partly due to forces beyond the powers of the Applicant and also due to the breach of contract by the Respondent.

The Respondent is not entitled to Levy a penalty on the amount due to the Applicant because the Respondent breached the agreement by performing substandard work.  Secondly the Respondent did not complete the work in time.  Thirdly the Respondent converted and caused the conversion/disappearance of the Applicant’s machinery and equipment.  The agreement has been affected by force majeure that is the delay in payments by Uganda National Roads Authority consequently discharging the Applicant from any further obligations. 

The affidavit in reply is sworn by the director of Mantrust (U) Limited Mr. Ratib Muyomba.  He deposes that the Applicant has not shown any sufficient cause to be granted leave to appear and defend civil suit number 89 of 2012.  The Respondent reiterated its earlier assertion that the Applicant is indebted to it in the sum of Uganda shillings 99,630,000/= arising from breach of contract.  Secondly that the Respondent contends that the Applicant has no right to any monies claimed as the use of its machinery and payment thereof was not encompassed in the agreement entered into by both parties.  He deposes that the Respondent had always sought audience with the Applicant in a bid to obtain its final payments upon conclusion of the contractual works, but the Applicant had been evasive.  Furthermore that the Applicants concrete mixer, water pump, contract vibrator and metre runner are in the possession of its employee Mr. George Owino.  The Applicant is not entitled to any set off, general damages as all works done by the Respondent was supervised by the Applicant and were up to standard, hence the honouring of previous payments by the Applicant.  The contract was executed between the Applicant and the Respondent and its enforceability was not hinged on the ability of a third party to issue payments to the Applicant.  The Respondent concluded all its assigned duties in time and it has further never converted the Applicant’s machinery, which is evidently in its own possession. The inability to make payments cannot be force majeure as envisaged in the contract.  Consequently the deponent asserts that the Applicant has no plausible defence to the Plaintiffs claim.

At the hearing of the application learned Counsel Bernard Mutyaba appeared for the Respondent while learned Counsel Cranmer Tayebwa represented the Applicant.

Submissions of the Applicant

Learned Counsel for the Applicant submitted that the grounds are of the application are as stated notice of motion and affidavit in support. They raise triable issues to worthy of consideration and leave to defend ought to be granted. He relied on Moluku Interglobal vs. Bank of Uganda [1983] HCB 54 and Nile Bank Ltd [1994] KALR 778. He submitted that where the Applicant raises bona fide triable issues in an application for leave to defend, the court cannot grant a summary judgment. The application raises triable issues and leave should be granted.

Respondent’s submissions.

In reply Mutyaba Barnard opposed the application on the ground that it raises no triable issues. He relied on the affidavit in reply of Mr. Ratib Muyomba. The gist of the Respondent’s claim is contained in the contract of 20^th December 2010. Clause 11 of the contract attached as Annexure A to the plaint, the second 11(a) gives directions on when payment ought to be done. Payments were supposed to be done within 3 months. The affidavit in reply says work was done. The Applicant Company submitted certificates of completion to UNRA. Annexure B indicates that payments were made in the main contract but the subcontractor has not been paid. The application raises issues not in the contract. As far as paragraph 3 of Mr. Owori’s affidavit is concerned, this is oral evidence seeking to alter the contract terms and is barred by S. 92 of the Evidence Act and should be disregarded.

Learned Counsel submitted that the contract was executed way back and the Respondent completed its part on 20^th February 2011. Since then, they have been demanding payment. If there were issues of substandard work, why did they choose to bring them now even after being sued? He submitted that the claims were an afterthought and court should disregard it. The application presents no triable issues. The sum claimed is admitted. They only say some things were not right. If the application is to be allowed, the contested sum of about 17m, that is their counterclaim in paragraphs 19 and 20. He prayed that if the application is allowed, it should be allowed on the disputed sums and judgment entered on the other sums. He prayed that the application is dismissed with costs or that court grants leave conditionally as prayed for.

Rejoinder by Applicant

In rejoinder learned Counsel Cranmer Tayebwa submitted that the Respondent’s affidavit discloses bona fide triable issues of law and fact. Nowhere is liability admitted. It is claiming money for loss of machinery. He contended that it is proper that these matters are referred for trial.

Ruling

I have carefully listened to the submissions of learned Counsels for both parties and perused the notice of motion, affidavits for and against the application and the plaint.

The background of the application is that the Respondent Mantrust (U) Limited filed a suit under order 36 of the Civil Procedure Rules against the Defendant/Applicant.  The Plaintiffs claim in the suit against the Applicant is for recovery of Uganda shillings 99,630,000/= arising out of breach of contract, and costs of the suit.  It is indicated that the Plaintiff executed a contract with the Defendant/Applicant who had been contracted by Uganda National Roads Authority, as a subcontractor.  The Plaintiff was sub contracted to install 1082 marker posts along a 108 KM stretch of road and also to cast 1270 marker posts along a 127 kilometre stretch of road.  The total consideration was Uganda shillings 232,510,000/= and a copy of the contract was attached.  Upon completion of the contract the Plaintiff submitted completion certificates to Uganda National Roads Authority.  However the Defendant continuously violated its obligations under the contract to avail payments to the Plaintiff for works done.  The plaint avers that the Defendant is presently indebted to the Plaintiff in the sum of Uganda shillings 81,000,000/= being the outstanding contractual sum left unpaid upon completion of works and an additional penalty at court rate amounting to Uganda shillings 18,630,000/=.  In the prayers the Plaintiff seeks payment of Uganda shillings 99,630,000/= and costs of the suit.

The agreement between the parties was executed on the 20^th of December 2010.  Clause 3 of the contract provides for the obligations of the contractor.  The contractor is to obtain the necessary approvals and permissions from Uganda National Roads Authority with regard to the execution of the subcontract and the works therein; to supervise the works of the subcontractor at all times to ensure compliance with the provisions of the main contract and to submit completion certificates to Uganda National Roads Authority at the end of every week and for avoidance of doubt submission shall be done by the end of every Monday of the week following. For purposes of ensuring quick and timely processing of payments for the works executed during the duration, to issue cheques of the amount due to the subcontractor at the time of submitting completion certificates, which cheques shall always serve as security for the payment of amounts due.  To make prompt payments to the subcontractor upon completion of works done by the subcontractor. To provide and make available all works records and payment statements to the subcontractor.  Under clause 8 of the agreement, it is provided that the subcontractor will be liable to the extent of defects in the works executed by it under its own supervision.  However, in circumstances where the works are executed under the supervision of the contractor, the contractor will be liable to that extent.  The contractor undertook to indemnify the subcontractor for any loss or damage it will suffer from any defects or liability that may accrue from the contractor supervised works.

Clause 12 provides for dispute resolution and reads as follows:

“The Parties shall endeavour to settle any dispute arising out of the execution of the subcontract or its constitution amicably.

1. In the event of failure to arrive at an amicable solution, the parties shall refer the matter to a competent court of law to determine the extent of liabilities as against both parties and to make orders that shall be binding on both parties.
2. Where the dispute involves payments or substandard works, it shall be referred to the relevant courts of law.

PROVIDED ALWAYS that the party aggrieved by the decision may be at liberty to appeal against such a decision in a higher court with competent jurisdiction.”

According to Odgers’ Principles of Pleading and Practice in Civil Actions in the High Court of Justice Twenty-Second Edition pages 71 – 78 the principles for leave to defend include the following:

1. The Applicant must show the court that there is an issue or question of fact or law in dispute which ought to be tried.

2. Where the Defendant shows that there was such a state of facts as leads to the inference that at the trial of the action he may be able to   establish a defence to the Plaintiffs claim, he ought not to be debarred of all power to defeat the demand made upon him.

3. Where the defence that is proposed is doubtful as to its good faith, the Defendant may be ordered to deposit money in court before leave is  granted.

4. Whenever there is a genuine defence either in fact or in law, the Defendant is entitled to unconditional leave to defend.

5. General allegations however strongly may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any Court ought to take notice.

6. The Defendant may in answer to the Plaintiffs claim rely upon a set off or counterclaim. A setoff is a defence to the action. Where it is a counterclaim, and there is no connection with the Plaintiff’s cause of action, the Plaintiff may be given leave to obtain judgement on the claim provided that it is clearly entitled to succeed upon it and will be put to unnecessary expense in having to prove it. It is within the courts discretion to stay execution up to the anticipated amount of the counterclaim pending the trial of the counterclaim or further order.

These principles have been upheld in the Ugandan Courts and I need not belabour them. The Defendant must show a plausible defence to the Plaintiff’s action.

The Applicants application is rumbling and unclear in the sense that in the notice of motion ground 1 thereof he states that he is not indebted to the Respondent the sum of Uganda shillings 99,330,000/= or at all. On the other hand it tries to set up a set off against the claim in the averment that the Respondent is indebted to the Applicant for money arising out of the use of the Applicant’s materials at the site and the equipment and machinery in execution of the contract. Thirdly that the Respondent breached the contract and did substandard work which necessitated the Applicant to spend money to rectify the mistakes. The Applicant also claims that during the execution of the contract, the Respondent lost and or caused the loss of the Applicant’s appliances which are listed in paragraph 6 of the affidavit in support of the application. In paragraph 11 of the affidavit in support of the application, the Applicant avers that the Respondent is not entitled to levy a penalty on the amount due to the Applicant. In this paragraph, it is evident that the Applicant owes some money to the Respondent. The exact amount owing however has not been specified. Secondly paragraph 11 of the affidavit in support of the application indicates that the Respondent could not charge a penalty because the Respondent breached the agreement by performing substandard work. Thirdly the Respondent did not complete the work in time. Fourthly the Respondent wanted or caused the conversion/disappearance of the Applicant’s machinery and equipment. Lastly that the Respondent has not yet completed the work according to the contract. He avers that in view of the above the Respondent is not entitled to summary judgement. Furthermore it is the Applicant’s case that the execution of the contract had been affected by force majeure that is the delay in the payments by Uganda National Roads Authority.

I have considered the affidavit in reply. The Respondent does not indicate that the Applicant has been paid by the employer. In paragraph 7 of the affidavits in reply the Respondent avers that the Applicant is not entitled to a setoff and general damages as works done by the Respondent were supervised by the Applicant and were up to standard. Thirdly that the Respondent concluded all its assigned duties in time and never converted the Applicant’s machinery. Lastly that previous payments had been made on time and there was no force majeure.

Several issues have been raised by both parties and include the following:

1. Was the Applicant paid in full for the contract?
2. Is the Applicant entitled to a set off against the Plaintiffs claim?
3. Is there a need for assessment of money and materials for alleged loss of materials worth Uganda shillings 16 million and for the supply of materials worth Uganda shillings 9 million?
4. Is it an implied term of the contract that payment was to come from Uganda National Roads Authority?
5. Is the Plaintiff entitled to the levy a penalty on the Applicant?
6. Whether the Applicant is entitled to any indemnity?
7. Cheques were supposed to be issued as security for every completed work. However no cheques were attached to the plaint.

In the premises, the Applicant’s application raises triable issues that merit judicial consideration. As to whether the application was brought bona fide and in good faith or as an afterthought is a matter that depends on the proof of whether the Applicant had already been paid by Uganda National Roads Authority. I have also taken into account the fact that not all the claim is disputed. Certain technical issues were raised as to the authority to subcontract the contract before obtaining consent of Uganda National Roads Authority. Can such a defence be raised by the Applicant?

In the premises, the Respondent is given leave to amend the plaint within seven days from today and serve the Applicant.  Conditional leave to appear and defend the claim in the plaint is granted. The Applicant shall deposit a sum of Uganda shillings 50,000,000/= in court as security for payment of the Plaintiff/Respondent to this application under the contract within 30 days from the date of this ruling.

The Applicant is given leave to file a written statement of defence within 21 days from the date of this ruling.  Costs abide the outcome of the main suit.

Ruling delivered in open court this 1^st day of June 2012

Hon. Mr. Justice Christopher Madrama

Ruling delivered in the presence of:

Cranmer Tayabwa for the applicant.

Oloka Columbus representative of applicant

Dennis Kanabi for the respondent.

Ojambo Makoha Court Clerk

Hon. Mr. Justice Christopher Madrama

1^st June 2012