Bank of Uganda v Banco Arabe Espanol (Civil Appeal 23 of 2000) [2000] UGCA 40 (20 October 2000)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE COURT OF APPEAL OF UGANDA AT KAMPALA

### CIVIL APPEAL NO.23 OF 2000

## BANK OF UGANDA :::::::::::::::::::::::::::::::::::

#### **VERSUS**

# BANCO ARABE ESPANOL :::::::::::::::::::::::::::::::::::: (Appeal from a judgment of the High Court of Uganda at Kampala (C. K. Byamugisha, J.) dated $22/2/2000$ in H. C. C. S. No.527/97)

# CORAM: HON. MR. JUSTICE C. M. KATO, JA HON. MR. JUSTICE S. G. ENGWAU, JA. HON. LADY JUSTICE C. N. B. KITUMBA, JA.

## JUDGMENT OF C. M. KATO, J. A.

This is an appeal against the judgment of the High Court dated 22/2/2000. It was entered against the appellant for a sum of US \$ 1,762,374.51 as principal and interest on a loan of US\$ 1,000,000, plus Ug. Shs.20,000,000/= being general damages for breach of contract with interest at 18% per annum.

The brief facts giving rise to this appeal are as follows.

On 11/11/1987 the Uganda Government signed a loan agreement with the respondent in Madrid, Spain. The loan was for US\$ 1,000,000 The appellant's representative George Nteeba signed the same agreement on behalf of the appellant as a guarantor. The loan was to be repaid in 7 installments on the following dates: 11/10/90, 11/4/91, 11/10/91, 13/4/92, 13/10/92, 13/4/93 and 13/10/93. The respondent was to reimburse or release the loan money to the Uganda Government within 180 days from the date of signing the agreement, but that date was extended to 11/10/89.

On 21/5/91 the first installment was paid together with accrued interest amounting to US\$ 195,914.43; prior to that date the borrower had on 24/7/90 paid US\$ 52,767.36 as interest. After the payment of 21/5/91 no further installment was paid by the borrower despite several demands for payment. The respondent eventually made demands to the appellant to pay the debt in his capacity as a guarantor, still no payment was made. The respondent finally sued the appellant as a guarantor under Clause 18 of the agreement. In its defence the appellant denied liability to pay the debt. It gave a number of reasons one of which was that its liability was limited to causing the borrower pay the debt. The other reason was that the contract had been frustrated by Uganda Government's policy of liberalisation of coffee trade and dealing in foreign currency. The trial judge rejected the defences and entered judgment in the terms already stated, hence this appeal.

There are 6 grounds of appeal. The main ground is the first, the other 5 grounds were argued in the alternative. The grounds are:

- 1. The Learned Trial Judge erred in law in holding that the Loan Agreement was enforceable against the Appellant as guarantor although it was not executed under Seal. IN THE ALTERNATIVE TO GROUND 1 ABOVE; - 2. The Learned Trial Judge erred in law and in fact in holding that the Appellant's liability was not discharged by the variation of the draw down date for the loan by the Respondent and the Government of Uganda without the consent of the Appellant as guarantor and outside the scope of Clause 4 of the Loan Agreement. - 3. The Learned Trial Judge erred in law and in fact in holding that the Appellant's liability was not discharged by the several renewals and extensions of the repayment dates for the various loan installments. granted by the Respondent to the Government of Uganda, without the consent of the Appellant.

- 4 The Learned Trial Judge erred in law and in fact in holding that the failure by Respondent to make prompt and contemporaneous demands upon the Appellant on default by the Government of Uganda in payment of each of the six unpaid installments of the loan did not amount to a waiver or release of the Appellant's liability. - 5 The Learned Trial Judge erred in law and in fact in holding that the liability of the Appellant under Clause 18 of the Loan Agreement was personal. - 6. The Learned Trial Judge erred in law and in fact in holding that the Appellant's obligations as guaranter were not extinguished by frustration at law.

Although the learned counsel for the appellant Mr. Masembe

Kanyerezi had at first indicated to argue ground 6 before ground 5, he ended by arguing the grounds in the order they are indicated above. I propose to deal with them in the same order, starting with the first ground.

The gist of Mr. Kanyerezi's argument on ground one was that the appellant could not be held liable on an agreement which was not executed under the appellant's seal. According to him failure to have the agreement executed under seal rendered the agreement unenforceable against the appellant bank, as it was against the bye-laws of the appellant in particular paragraph $3(e)$ of the bye-laws. In support of his argument he also relied on the following authorities: Chitty on Contracts 22nd Ed. Volume 1 pages 190-195, A. R. Wright and Sons Ltd. v Romford Borough Council [1957] 1 QB 431 at pages 435 and 437.

On his part, Mr. Justine Semuyaba, on behalf of the respondent, submitted that the bye-laws made by the Bank of Uganda were not relevant to this case because in the agreement it was specifically agreed in Clause 16 that the contract would be governed by the English law. According to him, under the Corporate Bodies' Contracts Act 1960 a colitract entered into rvithout the seal ola corporate body is not rendered invalid by leason only of, lack of a seal on the contract. He also subuiitted that cases quoted by the appellant's counsel rvhiclr were decided befole 1960 rvere not relevant to this case.

AlthoLrgh this issLre of irrvalidity of the contract due to absence of the seal was never pleaded b), the appellant in his written statement of defence and rvas uot franred as an issue, tlie learned trial judge using her discretion under Order l3 rules 3 and 5 ofCivil Procedure Rules, decided to deal with the matter after it had been raised by Mr. Bossa who testified on behalf of the appellaut. Afier considering the rnatter at length, she carne to the conclusion that the colltract was valid and she proceeded to give her reasons u4ry she thought so. I agree with her holding on this issue.

In Clause l6(a) of tlie loan agreelnent which was signed by the representative of the appellant, all the pafties agreed that the law to govem tlie operation of the agreernerlt was the English Larv. The relevant part of Clause 16(a) vr4rich rvas tendered by the respondent in these proceedings as. Ex. P1 reads a,s follows:

"This agreeurent shall be governed b),and construed in accordance rvith E.nglish larv, and the parties hereto irrevocably subnrit to thc uon-exclnsive jurisdiction of English conrts.. .,. ."

Thele is no doubt tliat the \*,ord "ltarties" used in the Clause s,as iutcndcd to irrclLrde the a1;1;cllant. since tlrrs rvas a triparlite ils.-ecnrent The parties h'eel1, nn6 cleallS, 6hs5g the English lau, to govern their deahngs. I aglee rr ith N{r Semr-r1'aba's contention that paragraph 3(e) of Banh of Uganda b),e-larvs rvhich requiles all agreements of guarantee to

bear the Bank's seal is not applicable to the present case. The law to be followed on this nratter is to be found rn Corporate Bodies'Act 1960, an English statute which does not require a seal to be endorsed on a contract in order to nlake it valid. Cases decided belore this Act was enacted rnust be viewed with caution. Clause l6(a) of the agleernent put the Uganda lara,s out of application wlren interpretation of tlris agreenrent is in issue Although the Clar.rse totally excluded the application ol Uganda lan,s, it gave the courts in this country discretionary jurisdiction to hear cases involving the agreernent, by using the plrase "non-exclusive jurisdiction of English courts". If it was the intention of the parties to apply the Uganda law they would have used the salne expression used rvlien deciding on the jurisdiction.

I agree with Mr. Kanyerezi's submission that the condition and enforcernent of a contract is governed by law, but I do not agree with hirl when he says that the law to be follorved here is the bye-laws rnade by the Banir of Uganda, the parties opted orrt of that law under Clause 16(a) of the agreement. I have not been persuaded by his argurnent that Mr George Nteeba was incapable of signing the agreernent on behalf of tlie appellant. The leamqd trial judge porrectly held that tlie power of -ttorney given to Mr. Nteeba by the appellant ivas intended to bind the appellant in lnatters concerning the loan agteement. The deed authorising Mr. Nteeba to act on behalf of the appellant rvas sealed and it gave hirn powers to sign the agreement (see Ex. P3).

Iier decision is bacl<ed b1, the opinion of the Attornel, Gener al (lrx Pa ) in particular paraglaphs 5-8 u'hich read as follos,s.

)

- $\overline{3}$ . . . . . . . . . . . . . . . . . . . . - $\overline{4}$ . . . . . . . . . . . . . . . . . . . - $5$ Under the Bank of Uganda Act (Act 5 of 1966) the Bank of Uganda is a body corporate capable of entering into an agreement and has a common seal which may be duly authenticated by the Governor and Secretary of the Bank. - 6. In accordance with the laws of Uganda, an Agreement signed by a donor, of a Power of Attorney is as valid and effective as if it were Signed by the donor of such Power of Attorney. - $7.$ In my considered opinion the Agreement was Concluded and executed for and on behalf of the Government and the Bank of Uganda by their Respective Attorneys in accordance with the Laws - Furthermore in my considered opinion the Agreement is 8. valid and constitutes legally binding and enforceable obligations on the Government and the Bank of Uganda in accordance with the terms and conditions thereof and there are no more legal requirements to be fulfilled to make the Agreement more binding on the Government and the Bank of Uganda."

Mr. Kanyerezi attacked this opinion on a number of grounds one of them being that the Attorney General was not acting on behalf of the appellant bank so the appellant cannot be bound by his opinion. According to him, for the bank to be bound, the opinion should have been given by an independent counsel and not a counsel who was acting for the borrower.

With due respeot to the learned courtsel, tliis argument is not sr-rpllofted by evidence. In his testilnony, Mr. Bossa who was a sole ivitness for the appellant did not say that the Attorney General had no power to give an opinion on behalf of the appellant All he said r.r'hen under cross-exa nr ination and re-exaurinatiou was that the Attorney General did not address the issue at hand aud that he did not agree rvith solne aspects of his (Attorney General's) opinion. That is not the sarne thing as saying that the Attorney General was not acting on belialf of the appellant when he gave his opinion. I ani of tlie vierv that the Attorney General was acting on belialf of the appellant when lre gave his opinion about the legality of the agreement and his opinion is binding on the appellant.

Another complaint raised by the appellant's counsel was that the Attorney General's opinion was given on 22112/87 and yet the agreetnent was signed on I I /1 I /87, rvhich means the opinion was given about a Inonth and half later. The answer to this argrnient is to be found in Clause 3 of the agreenrent which reads:

''3 This agreement rvill enter iuto full force and effect as of the date on rvhich ARESBANK receives a legal opinion, satisfactory to the Ban-li, about the legality, validity and enforceabily of this AgleerneDt."

My understanding of this clause is tliat although tlie contract u,as signed on II/l 1i87 it could not be operational until the opinion of the Attornel, General about the legality of the agreernent '!vas received. The clause made the Attorney, General's opinion a condition precedent. The contract rernained in abeyance ur.rtil the respondent received the opinion in

February 1988 according to the evidence of Fernando Marques (PWl) This cornplaint cannot be sustairred

Before taking leave of this ground of appeal, I lrave found it necessary to point out that the telex signed by Mr. Walusirnbi, Ag Director Extelnal Managernent officer on behalf ol the appellant dated l5l2l9l leaves no doubt as to the liabilitv of the appellant to pay the respondent. The telex reads as follows:

" t657' 43754 AREB E 61059 UGABANK UG

l5 Fcbnrary I99l

TO: BANCO ARABE ESPANOL S,A MADRID, SPAIN

FROM: BAi. NK OF UGANDA

THIS REFERS TO LOAN AGREEMENT DTD II NOV 1987 FOR USDT I. OOO,OOO-OO FOR PURCHASE OF PP BANK WAGONS, AND TRTELEXES DEMANDING PAYMENT OF PR]NCIPAL AND INTEREST AMOUNTING TO USDI43.643,73 DUE ON 28 JAN 9I STP

WE DO NOT DESPUTE THE CLAIM THE DELAY IN PAYMENT IS BEING CAUSTD BY OUR PRECARIOUS FOREIGN EXCHANGE POSITIONSTP WE A,IIE HO\IEVER. DOING EVERYTHING IN OUR MEANS TO ENSURE THAT PAYMENT IS EFFECTED IN DUE COURSE STP

REGARDS

J Y K WALUSIN,IBI AG, DIRECTOR. EDMO BANK OF UGANDA'

I do not aglee u,ith Mr. Kauyerezi's interpretation of tliis telex that it was only saying that the clairn by the respondent against the bonower rvas valid. The contents of tlie telex are clear and Mr. Walusimbi was definitely writing on behalf of the appellant rot the borrower. The holding of the learned trial ludge as to the purpose of Walusirnbr's telex is quite correct and it was not irrelevant as Mr. Kanyerezi would like rne to believe.

For the reasons given above I find no rnerit in ground one. It must tail.

The second ground of appeal concenrs alterations on the draw dorvn period. Mr. Kanyerezr subrnitted that the learued trial judge rvas rvrong lvheu she held that the alteration on the draw down date was not substantial and was not prejudicial to the appellant's interests. According to hirn the judge applied a wrong test when deterrnining this issue and that had she applied a correct test she would have come to a different conclusion that the alteration had in effect discharged the appellant. He fufther argued that the rnere fact that the appellant was aware of sorne of the alterations was not enough to hold the appellant on the contract. On this point he relied on: Chittv On Contracts 22nd Edition Volunre I rrrgcs 446-,{48 :rnd I:lolrn y I}runlishill Il878l QB 495. Mr. Kanyerezi also contended that although the alteration did not affect the loan sum, it had tlic effect of the appellant rernaining exposed undc: the guarantee for a longer period than it lud expected.

On the other hand, Ntl-r'. Sernuyaba submitted that the judge cor.r'ectly held that the alteration iu drarv dorvn date was not substantial and did uot anlonnt to discharging tlie appellant. He contended that the agreernent did forbid such an extension although it provided for shortening of the time. I-le pointed out that since the appellant rnade payrlleut of U\$ 10,000 as comniitruent fee after the extension of tirne that tneant the appellant rvas agreeable to the altelation and consented to it (alteLation).

The law regarding to alteration in terms of contract between creditor and borrower where such alteration affects the guarantor is summarised in Chitty on Contracts 22nd Edition volume two at page 447 paragraph 1016 as follows:

"Any alteration, however bona fide, by the creditor and the principal, without the assent of the surety, of the terms of the original agreement so far as they relate to the subject-matter in respect of which the surety became responsible for the principal, will exonerate the surety unless it is self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, or unless it is provided for in the guarantee. And when the alteration is not of this trivial character, the court will not, in an action against the surety, inquire as to the effect of it, or allow the question whether the surety is discharged or not to be determined by a finding as to its materiality." (my emphasis)

This principle offers some exceptions when the alteration may not discharge the guarantor even where he has not given his consent. Some of the exceptions are: where it is self-evident that the alteration is unsubstantial, or is not prejudicial to the position of the surety. In the instant case the judge based her decision on these exceptions when she held that the alteration in relation to the draw down date did not discharge the appellant. I agree with her holding on this point and the reasons she gave in support of her decision.

It nray be added here that the issue as to whether or rlot an alteration in tlte contract discharges the guarantor ivill depend on the facts of eaclr individual case. ln the instant case Mr. Fernando MaLques (PWl ) explained as to why it was necessary to extend the date for draw down. The reason was that by the tinre the agreed tirne of 180 days would lrave rnatured the coutract u,ould not have rnatured because some of the conditions precedent had not been fulfilled. Two ofthose conditions were that an opinion of the Attorney General had to be received before the agreemellt was operational The respondent did not receive the opinion until February I988, long after the signing ofthe agreentent. The second condition r.vas that the respondent could only release the US \$1,000,000 after cornrrercial invoices in respect of the railway tffagons had been provided by the supplier. Tlte invoices were not received until October 1989, that was about a year after the agreement had been signed. Witlrout these conditions being fulfilled the agleement relrained un-operational. The extension of tirne for draw dorvn was therefore necessitated by the peculiar circurnstances of this particular agreernent. TIte alteration was not of substantial nature and was not prejudicial to the interests of the appellaut at all

N&' Walusirnbi's telex sent to thc respondent aduritting liability u,as rvritten on 1512191, lorrg al'ter the altcration betng conrplaine d of in tliis gr.oLrnd had been ser)t to the appellant Ilad the appellant been seliously concerned atrout this altelation it rvould uot have adnritted Irability in that telex. I do not agree rvith \4r. Kanyerezi's submission that thrs telex by Mr. \\/alLrsinrbi rvas irrelevant to the issue of alterations. The docurnent lvas qrrite relevant to the u,lrolc of this case as it adrnitted appellant's liabilitv to pav the respondcrrt iii firct on tliis aclrnission alone the resltondent could have [rcen entitled to judgurent under Order I I rr. Lle 6 of Civil Procedure Rules if the case did not involve some other issues and if the respondent had so wished. In my view this same telex also negated the appellant's contention that it never consented to the alterations in dispute. I am inclined to agree with Mr. Semuyaba's submission that the respondent was well aware of and consented to the extension of the draw down date judging from the conduct of its officials who never objected to the alteration and later on admitted liability. The second ground of appeal must fail.

The third ground is also about alterations, except that here it is concerned with extension of time in connection with the repayment of the debt. It was the contention of the appellant's counsel that the extensions granted to the borrower by the respondent had the effect of discharging the appellant from its liability as a guarantor. He conceded that the appellant was aware of some of the extensions but it never consented to them. He hastened to submit that knowledge of the extensions or alterations without express consent was not enough to bind the appellant, be relied on the authorities of: Molare v Breakshill [1878] QB 495. Polack " Freums' UPWI I OB 569 and Chiny as Contracts Volume 2 $\cdot \cdot$ page 446.

Mr. Semuyaba did not agree that there were any alterations or extension of time for repayment by the respondent. According to him the respondent was only reminding the borrower and the Bank of Uganda of the debt as agreed under Clause 17 of the agreement.

One important matter to be decided upon here is whether or not there were alterations by the respondent in respect of the dates of payment. I have had the opportunity of reading the telexes which the appellant's counsel regard as extensions. After a careful consideration of

these documents I have to agree with Mr. Semuyaba's submission that these were reminders to the borrower and the guarantor; the mention of new dates was only of commercial necessity to inform those concerned as to when the respondent expected the payment after the previous dates had expired. Since these notices did not amount to alteration in the terms of the agreement, the authorities quoted by Mr. Kanyerezi cannot be relied upon. Even if the telexes were to be treated as alterations, they were in favour of the appellant and the borrower as they offered them more time to organise their resources for payments. At any rate the so-called alterations did not alter the loan sum. The judge was right in her finding that the renewals did not discharge the appellant. In view of the reasons stated above and in ground two, this ground too must fail.

The substance of the fourth ground of appeal is that the respondent did not contemporaneously make its demand for payment after each installment fell due. According to the appellant's counsel, the judge was wrong to have dealt with this matter generally. In his view had she dealt with it specifically she would have found that the guarantor was relieved of its obligation by failure of the respondent to make a demand on each default.

It is trite law that mere temporary inaction or forbearance by the creditor to take action against a guarantor does not discharge the guarantor from his obligations: (see Alwi A. Saggay v Abed Ali Algeredi [1961] EA 767). In her judgment the learned trial judge dealt with this issue as follows:

"The agreement as a whole did not specify the period within which a demand had to be made by the plaintiff. The plaintiff notified the principal debtor and the

guarantor through many telexes that a default had occurred. These telexes were sent in line with Clause 7 of the agreement. Admittedly the telexes were not tested in accordance with Clause 18 but they were reminders that a default had occurred and that payment was not being punctually affected. Since the defendant received. all the telexes it was put on notice that the borrower had definited and man or rater the creditor would be calling that the guaranter to pay."

$\mathbf{1}$

This passage shows that the judge specifically dealt with the issue of demand for payment. It has to be emphasized that Clause 18 of the agreement did not specify as to when demand was to be made to the guarantor. According to evidence of Fernando Marques (PW1) and paragraph 7 of the plaint the cause of action against the appellant arose on $24/7/95$ when a telex was sent to the appellant in form of a first demand. In my considered opinion the demand was enough. The respondent's claim could not be defeated by mere failure by the respondent to make demands for payment each time an installment fell due. The appellant's liability to pay fell due on 24/7/1995 when the respondent decided to make a demand for payment but not before that date. The fourth ground cannot succeed.

The appellant's complaint in the fifth ground is that the trial judge was wrong when she held that the liability of the appellant under Clause 18 of the agreement was personal. Mr. Kanyerezi's submission on this issue was to the effect that the appellant's obligation was to cause the Uganda Government to pay the loan but the appellant did not undertake to pay the loan in the event of the borrower defaulting. It was his view that the judge was wrong when she extended the appellant's liability beyond causing the principal to pay. Mr. Semuyaba submitted to the contrary. It was his view that Clause 18 of the agreement imposed an obligation upon the appellant to repay the loan in the event of the Government of Uganda failing to do so.

The law relating to the duty of the guaranter or surety to repay a foun, is that once the principal baseauce default: the guaranter has a duty to repay the least tree Marki v Lep Air Services Ltd. and Another $[1972]$ 2 All ER 393 in particlar at pages 407-409).

In the instant case the appellant Bank bound itself to repay the loan under Clause $18(a)$ of the loan agreement which reads as follows:

> "We, the BANK OF UGANDA (The Guarantor), a banking institution established under the Laws of UGANDA, and being the central bank of the borrower, hereby unconditionally and irrevocably jointly and severally guarantee the due and punctual payment of any and all amounts payable by the BORROWER under the Loan Agreement in accordance with the provisions set forth herein. In the case of any failure by the BORROWER to punctually pay any interest on, or principal of, or any other amount due under the Loan Agreement, We hereby agree on first demand made by tested telex to cause such payment to be made to you in compliance with the obligations of the BORROWER. Payment by the Guarantor shall be made to ARESBANK in the place and in the manner

specified in ARESBANK'S demand, without raising any exception or objection of whatsoever nature, (the State of Israel and the Republic of South African being excluded)."

$\mathbf{1}$

The wording of this clause is clear in its meaning. The learned trial judge correctly held that the appellant was liable to repay the loan when the borrower defaulted. The appellant's liability was not limited to causing the borrower pay. This ground of appeal must also fail.

The sixth and last ground of this appeal is that the learned trial judge erred in law and fact when she held that the appellant's obligation as a guarantor was not extinguished by frustration.

In his forceful submission Mr. Kanyerezi argued that the contract was frustrated by government's liberalisation of coffee trade. According to that policy the proceeds of sale from coffee were not to pass through the appellant Bank for the appellant to channel any money to the respondent as it had been agreed under Clause 18 (b) and (c) of the agreement. He submitted that Clause $4(d)(iii)$ upon which the respondent relied did not concern the appellant but it concerned the respondent and the Uganda government in respect of purchase of railway wagons from a third party called INIRAIL.

On this issue, Mr. Semuyaba, submitted that relevant clauses in the agreement ruled out the issue of frustration and that the learned trial judge was correct in holding that the contract had not been frustrated.

The doctrine of frustration operates as a defence in appropriate situations. In modern times its operation has been greatly limited as may be seen in the following passage taken from Chitty On Contracts 27th Edition pages 1095-1096:

"Although the doctrine of frustration is of respectable antiquity, having been established in its present form in 1863 in Taylor v. Caldwell. It currently operates within rather narrow confines. This is so for two principal reasons. The first is that the courts do not wish to allow a party to appeal to the doctrine of frustration in an effort to escape from what has proved to be a bad bargain; frustration is "not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains.." The second is that parties to commercial contracts commonly make provision within their contract for the impact which various possible catastrophic events may have on their contractual obligations. This, force majeure clauses and hardship and intervener clauses are frequently inserted into commercial contracts. The effect of these clauses is to reduce the practical significance of the doctrine of frustration because, where express provision has been made in the contract itself for the event which has actually occurred, then the contract is not frustrated. Therefore the wider the ambit of contractual clauses, the narrower is the scope of the doctrine of frustration."

This statement of the law shows that contracting parties can easily opt out of the doctrine as was the case in the present case. I agree with

Mr. Sernuyaba's contention that relevant clauses of tlre agreernent urade the doctrine of frustration inoperative. The clauses are. 4(d)(iii), ll and I 8(e ) Tlrey read as follows:

- "4(dxiii) none of the obligation olthe BORROWER under this Agreernerrt shall be impaired by any breach, fiustration or non-fulfillnrent of tlie contract ofor by any uratter of clairn by any person relating to or arising out of the contract and the BANK shall not be concerned in any circurnstances with the contract or any such matter or clairn. - 1 I The BORROWER hereby covenants and undertakes rvith the BANK tliat, fiorn the date of this agreement to the date upon which all n.ronies owing by the BORROWER to the BANK under this agreement are paid in full, it will not create or perurit to subsist. any encumbrance over any of its revenues or assets present or future without the written consent of the BANK. - 18(e) Tlie BANK OF UGANDA guarantees ARESBANK that the foregoing undertaking and instructions will not be in any way rnodified or varied by any person as body or public authority ofany kind, and that they rvill reniain in full force and effect rvith all the payrnent obligations ofthe borrorver hereunder are completely extinguished. "

Iti

![](1__page_18_Picture_0.jpeg)

With due respect, I do not agree with Mr. Kanyerezi when he says that clause 4(d)(iii) does not bind the appellant All the clauses in the agreernent are binding on the appellant.

The act amounting to frustration upon wltich the appellant is relying is that of government's liberalisation policy of coffee trade. By this policy botlr the appellant and Uganda Government lost control over the proceeds of sale of coffee and foreign currency. Even if the doctrine had not been ruled out by the above clauses, still it would not have been proper for the appellant to rely on frustration which was self-induced by both tlie borrower and the appellant's agents. Wlren under crossexamination Mr. Bossa (DW1) adrnitted that under the Bank of Uganda statute, the appellant is supposed to advise the governrnent on financial and econornic policies and that it also acts as government agent in financial matters. In view of this position of tlie appellant, it had a duty to advise the governulent against tlie policy of liberalisation of coffee trade and rnore so since the appellant and the goverrunent irad already committed themselves to paying the respondent out of coffee sales which irad to be channeled tluough the appellant Bank. I find Mr. Abdulgader M. Rag'irei's (PW2's)'testirnony somehow revealing. He stated that although the coffee sales were not available for payrnent of this loan, there rvere other sources frorn which the appellant would have obtained money to repay the loan'as other systems were working." It is not clear as to why the appellant never advised tire goverrunent to resort to sorne other sources in order to hononr its obligation. It has been stated in Chittv On Contracts 27th Edition at nage 1130 thus:

"The essence of frustration is tliat it should not be due to the act or election ofthe party seeking to rely

on it. Thus, a contracting party cannot rely on self-induced frustration; that is on a frustration due to his own conduct or to the conduct of those for whom he is responsible."

The appellant having contributed to the alleged frustration cannot rely on it as a defence. The learned trial judge was justified in rejecting this defence. Like all the other grounds this one must also fail.

In final result, I would dismiss this appeal with costs to the respondent, here and in the court below.

Since Engwau, J. A. and Kitumba, J. A. agree the appeal is dismissed with costs in this court and in the High Court.

Dated at Kampala this 20th day of october 2000.

$C. M.$ Kato JUSTICE OF APPEAL

## THE REPUBLIC OF UGANDA IN THE COURT OF APPEAL OF UGANDA AT KAMPALA. CORAM: HON. MR. JUSTICE C. M. KATO, JA HON. MR. JUSTICE S. G. ENGWAU, JA HON. LADY JUSTICE C. N. B. KITUMBA, JA CIVIL APPEAL NO. 23 OF 2000.

ANK OF UGANDA:::::::::::::::::::::::::::::::::::

## **VERSUS**

BANCO ARABE ESPANOL ::::::::::::::::::::::::::::::::::::

(Appeal from the judgment and decree

of the high court at Kampala (before

Byamugisha, J) dated 22.2.2000 in

HCCS No. 527 of 1997)

JUDGMENT OF C. N. B. KITUMBA, JA

I have read in draft the judgment of Kato, J. A and I agree.

Dated at Kampala this....................................

Les Citurs R. Kitumba

JUSTICE OF APPEAL.