East African Underwriters v Civil Aviation Authority (Civil Appeal 8 of 2002) [2003] UGCA 12 (27 November 2003)

### **THE REPUBLIC OF UGANDA**

### **IN THE COURT OF APPEAL OF UGANDA AT KAMPALA**

# **CORAM: HON. JUSTICE G. M. OKELLO, JA. HON. JUSTICE S. G. ENGWAU, JA. HON. JUSTICE A. TWINOMUJUNI, JA.**

### **CIVIL APPEAL NO. 8 OF 2002**

### **Between**

#### **EAST AFRICAN UNDERWRITERS: APPELLANT**

#### **AND**

### **CIVIL AVIATION AUTHORITY: RESPONDENT**

#### **[Appeal from the Ruling of the High Court of Uganda (Byamugisha, J.) As she then was, in Misc. Application No. 127 of 2001 arising from HCCS No. 1504 of 2000]**

#### **JUDGMENT OF G. M. OKELLO, JA.**

This appeal is against the Ruling of the High Court of Uganda (Byamugisha J. as she then) dated 27-4-2001 in Misc. Application No. 127 of 2001 arising from HCCS No. 1504 of 2000.

The appellant, an Insurance Company, had executed a performance bond with the respondent in favour of Busy Bee International (U) Ltd. (BBI (U) Ltd.), a limited liability company, which carried on the business of airline operations in Uganda. Under the bond, the appellant undertook to bind itself to pay the respondent 10 million Uganda shillings for landing, control and other navigation services provided by the respondent to BBI (U) Ltd., if the latter defaulted to honour its side of the contract with the respondent. Under the contract, the respondent was to render to BBI (U) Ltd landing control and other navigation services while BBI (U) Ltd agreed to pay respondent's fees for those services rendered.

The respondent in fact rendered the requisite services to BBI (U) Ltd for flights on 30 July 8th and 9th August 1999. BBI (U) Ltd issued to the respondent cheques worth over 12 million Uganda shillings to pay for those services. The cheques were dishonoured. The respondent notified BBI (U) Ltd. and the appellant of the dishonour. When BBI (U) Ltd took no steps to make good the dishonoured cheques, the respondent sought to recover the claim from the appellant under the performance bond. In the correspondence that passed between the appellant and the respondent about the settlement of the respondent's claim, the appellant agreed to settle the claim. Two of the letters in which the appellant made the admission were written "*without prejudice".*

The respondent filed the head suit to enforce the performance bond. As the suit was pending the respondent filed Misc. Application No. 127 of 2001 under O.11 r 6 of the Civil Procedure Rules for orders that judgment be entered in his favour upon admission of the appellant of its indebtedness to the respondent in the sum of 10 million shillings.

Appellant resisted the application. It was its contention that the letters containing the admission were written *"without prejudice"*. The contents of those letters therefore cannot be used against the author and not admissible. The trial judge heard the application and held that the letters were admissible and the admission therein was clear and binding. She accordingly entered judgment for the respondent in the sum of 10 million Uganda shillings as claimed with interest thereon at the rate of 45% p.a. from 22nd October 1999 till payment in full. The appellant was aggrieved by that decision and appealed to this court.

There are six grounds of appeal framed as follows:-

- **(1) The learned trial judge erred in law and fact when she held that the appellant had admitted indebtedness.** - **(2) The learned trial judge erred in law and fact when she failed to rule on admissibility of letters written "without prejudice" by the appellant.** - **(3) The learned trial judge erred in law and fact when she ignored the appellant's submission that the indebtedness, if any, had been discharged by the respondent's failure to give notice of dishonour to M/s Busy Bee International (U) Ltd. as provided by law.** - **(4) The learned trial judge erred in law and fact when she failed to find that services were not rendered to the insured M/s Busy Bees International (U) Ltd. but to M/s Bogol Air Services Ltd., a stranger to the Insurance Bond.** - **(5) The learned trial judge erred in law and fact when she failed to find that the appellant's promise to pay under the Bond was conditioned upon the respondent's proof that M/s Busy Bees International (U) Ltd. had failed to pay for services rendered to it and** - **(6) The learned trial judge erred in law and fact when she awarded interest at 45% per annum which was unreasonably too high, unsubstantial and not in any way admitted.**

Counsel of the respondent filed a written submission under rule 97(1) of the Rules of this court. Counsel for the appellant however, made oral submission. On grounds 1 and 2 which were argued together. Mr. Patrick Furah learned counsel for the appellant. Criticised the trial judge for not addressing her mind to the fact that the letters in which the purported admission was contained were written *"without prejudice"*. He argued that had he done so the learned trial judge would have found that the appellant had made no admission. He submitted that letters written "without prejudice" are intended to safeguard the position of the author involved in negotiation with a view to settling their dispute. The contents cannot be used against the author.

For the respondent it was contended that the trial judge was right to find the letters admissible because the appellant did not state why they (letters) were written "without prejudice". He relied on **Tomlin v Standard Telophones and Cables Ltd. (1969) 3 ALL ER 201**.

**"The words contained in the letter of 22nd October to the effect that "We are processing your claim" and the one of 16th December to the effect that "We therefore agree to settle your claim" clearly show a define commitment and a clear admission that the respondent would pay. The letters were not proposing anything new. They were re-stating what the bond said."**

This is a case of judgment on admission under O.11 rule 6 of the Civil Procedure Rules. The pertinent issue here is therefore whether the trial judge was right to find that the appellant had admitted indebtedness when such an admission was contained in letters written *"without prejudice"*. The question whether the contents of a letter written *"without prejudice"* can be admitted in evidence against the author was considered in the English case of **Tomlin** (supra).

In that case, the plaintiff suffered an accident in the course of his employment. His solicitor and his employers' Insurance, during negotiations came to an arrangement that liability would be accepted on 50% basis. The insurers estimated that the damages assessable would be British pounds 625 and offered to pay that amount. This was rejected as unrealistic and inadequate.

In one of the letters exchanged between the plaintiff's Solicitor and the Insurers, the Solicitor wrote that the plaintiff would agree to settle his case on a 50/50 basis as you propose and accordingly this leaves only the question of quantum to be disposed of. This letter was not refuted and in at least four letters written subsequently, the insurers had referred to the arrangement for 50/50 as an "agreement. All the letters from the insurers were headed *"without prejudice"*.

It was contended at the hearing that the correspondence headed "without prejudice" did not create a binding agreement between the parties since it only constituted negotiations for settlement of the liability and damages and was not partial settlement as to liability only and was therefore not admissible.

Held:-

- **(i) Letters were admissible as it was not possible to determine without looking into the correspondence whether there was a binding agreement.** - **(ii) On the proper construction of the letter written by the defendant representatives there was a definite and binding agreement on a 50/50 basis even though the question of operation was left for further negotiations.**

It is clear from the above case that each case must be decided on its own peculiar facts. On the facts of the above case, the letters of the insurers though written *"without prejudice"* were found to be admissible to determine whether there was any binding agreement between the parties. On their proper construction, the letters showed that there was a binding agreement between the parties on the basis of settlement of the liability on a 50/50.

In the instant case, there is no dispute that the appellant executed a performance bond with the respondent in favour of BBI (U) Ltd. Under the bond, the appellant had agreed to pay the respondent 10 million Uganda shillings if BBI (U) Ltd failed to perform its obligation under its contract with the respondent. Under that contract, the respondent was to render to BBI (U) Ltd navigation services and BBI (U) Ltd agreed to pay for the same a reasonable fee.

The respondent rendered the requisite services to BBI (U) Ltd worth over 12 million Uganda shillings BBI (U) Ltd issued the respondent cheques to pay for those services. When presented to the Bank, the cheques were dishonoured. The respondent notified BBI (U) Ltd. and the appellant of the dishonour. When BBI (U) Ltd did not take steps to make good the dishonoured cheques, the respondent asked the appellant to honour its obligation under the bond by paying it 10 million Uganda shillings since BBI (U) Ltd had defaulted. In the correspondence that passed between the appellant and the respondent, the appellant accepted to settle the respondent's claim under the bond.

In the letter dated 22/10/1999, the appellant said in part that:-

**"We are processing of our claim and shall revert to you very shortly. In the meantime we are requesting you to report the matter to the police since issuing cheques without having sufficient funds constitutes a criminal offence and let us know the police reference number etc as soon as possible."**

The respondent reported the matter to police and gave the appellant the police reference number of the case in a letter dated 10/11/1999.

In another letter dated 3/12/1999 the appellant against reassured the respondent that:-

## **"We shall process your claim further after receipt of your advice."**

The respondent gave the requisite advice that the appellant proceeded to process the respondent's claim. This was contained in the respondent's letter of 6/12/1999 not written without prejudice.

In yet another letter of 16/12/1999, the appellant told the respondent in part that:-

**"We regret to note that Mr. Whiting has not kept his promise and has not paid the debt owed you. We therefore agree to settle your claim under the Bond and request you to return the endorsed Discharge voucher duly signed together with the following so as to enable us to send you our cheque………."**

The appellant's letters dated 22/11/1999 and 16/12/1999 were written *"without prejudice"*. Like in **Tomlin's case** (supra), without looking at those letters it is not possible to determine whether the parties had any definite agreement following the negotiations which went between them... To that extent the letters are, on the facts of this case, admissible. Their proper construction would determine an agreement if any, between the parties. For those reasons I am satisfied that the trial judge was right to admit those letters.

The proper construction of those letters shows that the appellant's proposal was to settle the respondent's claim under the bond. He placed no contrary proposal on that admission. He requested the respondent to report the matter to the police and the respondent complied.

In **Tomlin** (supra), it was stated that a letter written *"without prejudice"* was to protect the writer's position, if the terms he proposes are not accepted. If the terms proposed in the letter are accepted, a complete contract is established and the letter although written "without prejudice" operates to alter the old state of things and establish anew one.

In the instant case, the appellant's proposal in the letter was to settle the respondent's claim under the bond. This was accepted. On the principle stated in **Tomlin's case** (supra) a complete contract is established despite the fact that the letters were written "without prejudice". I therefore, find no merit on these grounds and I would dismiss them.

In my view, this disposes of the main issue in the appeal except ground 6. Grounds 3, 4 and 5 raise questions depending on evidence. They do not arise because this is a case of judgment on admission.

As regards ground 6 the complaint is that the award of interest at 45% per annum was unreasonably too high and went beyond the commercial rate. Counsel did not state the range of commercial rates.

For the respondent, it was contended that the award of interest was a matter of discretion of the trial judge. The principle is that a person who had been deprived of his money or specific goods while the defendant had the use of it himself should be compensated by an award of interest from the date of filing the suit. He cited **Sietco vs. Noble Builders (U) Ltd. CA 331/95 Supreme Court** (unreported). There, the Supreme Court Wambuzi. CJ. As he then was writing the leading judgment with which the rest of the justices agreed, approved the principle that:-

**"An award of interest is discretionary. It seems to me that the basis of an award of interest is that the defendant has had the use of it himself. So he ought to compensate the plaintiff accordingly."**

Per Lord Denning in **Harbutt's Plastrine Ltd vs. Wayne Tank and Pumys Co. LTD. (1970) 1 QB 447**.

I agree that an award of interest is a matter of discretion of the trial court. Appellate court can only interfere with such an award where wrong principle was applied or where it is so unreasonably high or low as to amount to a miscarriage of justice.

In the instant case, there is evidence of depriving the respondent by BBI (U) Ltd. of the respondent's use of it. On the principle in **Sietco's case** (supra) that entitles the respondent to interest on the amount whose use it was deprived of. The trial judge put the interest rate at 45%. She gave no reason for choosing that figure. Appellant complained that the rate was so high as to amount to a miscarriage of justice since it exceeded the commercial rates. The commercial rates stand between 20-25%.

In the absence of any reason for the trial judge choosing that high rate, well above the commercial rate. I agree that it is so high as to amount to a miscarriage of justice. I would accordingly interfere with it and reduce it to 20%.

In the result, the appeal would be allowed only to the extent of the rate of interest. I would direct that the appellant pays 2/3 of the respondent's costs of this appeal as the appeal is partly allowed. As Engwau and Twinomujuni JJA both agree, the appeal is allowed on those terms.

Dated at Kampala this…….27th…….day of…….. November ….2003.

# G. M. Okello **JUSTICE OF APPEAL**

## **THE REPUBLIC OF UGADNA**

## **IN THE COURT OF APPEAL OF UGANDA**

# **AT KAMPALA**

CORAM: HON. JUSTICE G. M. OKELLO. JA. HON. JUSTICE S. G. ENGWAU. JA HON. JUSTICE A. TWINOMUJUNI

# **CIVIL APPEAL NO. 8 OF 2002.**

## BETWEEN

EAST AFRICAN UNDERWRITERS =======================APPELLANT

## AND

CIVIL AVIATION AUTHORITY ======================= RESPONDENT

(Appeal against the Ruling of the High Court of Uganda At Kampala (Byamugisha. J) As she then was Arising from Misc. Application No. 127 of 2001 From original HCCS No. 150 of 2000).

### **JUDGMENT OF HON. JUSTICE S. G. ENGWAU, JA.**

After reading a draft judgment of Okello, JA I agree with him that this appeal be partly allowed on those terms as proposed by him. I have nothing more to add.

Dated at Kampala this………27th…..day of………November…2003.

HON. JUSTICE G. ENGWAU **JUSTICE OF APPEAL.**

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

## **THE REPUBLIC OF UGADNA**

### **IN THE COURT OF APPEAL OF UGANDA AT KAMPALA**

# **CORAM: HON. JUSTICE G. M. OKELLO. JA. HON. JUSTICE S. G. ENGWAU. JA HON. JUSTICE A. TWINOMUJUNI, JA**

### **CIVIL APPEAL NO. 8 OF 2002.**

## **EAST AFRICAN UNDERWRITERS ……………………………. APPELLANT**

### **VERSUS**

### **CIVIL AVIATION AUTHORITY ……………………………. RESPONDENT**

[Appeal from the ruling of The High Court of Uganda (Byamugisha. J) In Misc. Appl. No. 127 of 2001 arising from HCCS No. 150 of 2000].

### **JUDGMENT OF TWINOMUJUNI, JA.**

I have had the benefit of reading the judgment, in draft, of my Lord, the Honourable Justice G. M. Okello J. A. I agree with the reasoning and the orders made therein. I have nothing useful to add.

Dated at Kampala this………27th…..day of………November…2003.

Hon. Justice Amos Twinomujuni **JUSTICE OF APPEAL.**