Sanitation Africa Limited v Lutheran World Federation (Civil Suit 745 of 2021) [2024] UGCommC 278 (25 March 2024)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA IcoMMERCtAL DMSIONI

## CIVIL SUIT NO. 745 OF 2O2I

## SANITATION AFRICA LIMITED : : : : : : : : : : : : : : : : : : : : : : : : : : : :PLAINTIFF VERSUS

## LUTHERAN WORLD FEDERATION: : : : : : : : : : : : : : : : : : DEFENDANT

## BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI JUDGMENT

#### PLAINTIFF'S CASE

On 29'r'December 2020,the defendant placed an advertisement calling for bids for the supply and installation of a transmission and distribution water pipeline in Kyangwali, Kiziranfumbi Town Council, Kikuube District. The plaintiff submitted a bid and on 25th February 2021 received a letter informing them of the defendant's decision to award a contract on the basis that the plaintiff was the successful bidder.

On 25'h February 2021, a contract was signed between the plaintiff and defendant for the supply and installation of a transmission and distribution water pipeline in Kyangwali Kiziranfumbi Town council, Kikuube District at a total quoted price of Ugx 595,848,900/:. As per terms of the said contract, the works were to commence on I't March 2021 and end on 31" May 202 I with the plaintiff mobilizing all necessary machinery, equipment and material for the works.

The plaintiff proceeded to pre-finance and mobilize all the necessary machinery, equipment and material for the works with the knowledge of the defendant by executing undertakings or agreements as well as making deposit payment with various suppliers.

The defendant failed or ignored to handover the site in spite of several calls and reminders from the plaintiff. The defendant in several occasions kept rescheduling

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and postponing dates for handover of the site at the expense and detriment of the plaintiff.

On 6th May 2021 , the defendant cancelled the contract for convenience in accordance with general conditions of contract sub clause 53(i). As a result of the said cancellation, the plaintiff made a claim of compensation for expenses incurred in the process of obtaining a bank guarantee, reserving necessary machinery, equipment and materials as per the contract terms and conditions but the said claim was not honored in which case, the plaintiffholds the defendant liable for breach ofcontract.

The plaintiffprayed for an order directing the defendant to pay as special damages Ugx 209,876,7351: being the amount outstanding at the date of filing this suit; general damages; aggravated damages; interest on general and aggravated damages at26oh per annum from the date of cancellation of the contract (6th May 2021) until payment in full and costs of the suit.

#### DEFENDANT'S CASE

The defendant denied the plaintiff s claim and averred that sometime in March 2021, the plaintiff and the defendant executed the contract for supply and installation of water transmission and distribution pipeline in Kizaranfumbi Town Council, Kikuube District. The contract was frustrated by the Project Affected Persons who declined to handover the site for the project works, a fact which was promptly communicated to the plaintiff by the defendant.

Further that the contract had not been commenced and had not become effective since the Administrative Order to commence works had not been issued by the defendant's Engineer in accordance with sub clause 24 of General Terms and Conditions of Contract. Therefore, the contract could not commence and its execution was frustrated by circumstances beyond the defendant's control, including but not limited to, failure to access the site due to third party Project Affected Persons claims.

Due to the aforementioned, lack ofaccess to site, the contract could not be varied or modified within the intent and framework of sub clause 28 of the General terms and

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Conditions of the Contract. The contract was cancelled in accordance with sub clause 53 of the General Terms and Conditions of Contract. Sometime in May and June 2021, in good faith and without prejudice to its rights, the defendant offered the plaintiff first priority as a bidder for a new contract at a new site and had several meetings with the plaintiff who declined to offer the same or similar rates for new works. The Defendant prayed that the plaintiff's suit is dismissed the costs.

During the hearing the plaintiff presented 2 witnesses namely; Samuel Malinga (PW1), director of the plaintiff and Seye Oyesola Ogunrotimi (PW2), the Chief Executive Officer of COMQUESTS PROJECTS LTD. The defendant presented Paul Orikushaba (DW1), the Programs Coordinator in the defendant. Both counsel for the parties agreed to file written submissions which are on court record.

## REPRESENTATION

The Plaintiff was represented by M/s Engulu & Co. Advocates while the Defendant was represented by M/s Verma & Partners.

## **JUDGMENT**

During the scheduling conference the parties agreed on the following issues for determination by this Court:

- 1. Whether the defendant is liable for breach of contract - 2. Whether the contract was frustrated - 3. What remedies are available to the parties?

Whether the defendant is liable for breach of contract

## Whether the contract was frustrated

I have carefully read the pleadings and listened to the testimonies of the witnesses in this matter as well as considered the submissions of counsel therein and will proceed to handle both Issues 1 and 2 since they are intertwined.

Both parties agreed that it is not in dispute that there was a contract between the plaintiff and the defendant dated 25th February 2021. What is in dispute between the parties is whether the said contract was breached by the defendant or was it frustrated and in what manner.

In the case of Future Stars Investments (U) Ltd v Nasuru Yusuf HCCS 12 of 2017 Honorable Justice Mubiru had this to say about contracts entered into by parties:

"It is trite that the court does not make a contract for the parties. The explicit terms of the contract are always the final word with regards to the intention of the parties. The court will not improve the contract which the parties have made for themselves, however desirable the improvement might be. The guiding principle was stated in F. A Tamplin Steamship Co. Ltd v Anglo Mexican Petroleum Products Co. Ltd [1916] 2 A. C 297 at p.403. The court's function is to interpret and apply the contract which the parties have made for themselves"

In the case of Howard & Co. (Africa) Ltd v. Burton [1964] EA 540 Sir Daniel Crawshaw, J. A., stated that *the onus of proving frustration is on the party alleging it*, and if that is proved, the onus is upon the other party to prove that it was selfinduced.

The doctrine of frustration is in all cases subject to the important limitation that the frustrating circumstances must arise without fault of either party. The defence of frustration can, therefore be defeated by proof of fault, and the burden of proving fault lies on the party alleging it (Halsbury's Laws of England, Third Edition, Vol. 8 page 188).

Further, at **page185** the doctrine of frustration operates to excuse further performance where (1) it appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist, or that some particular person will continue to be available, or that some future event which forms the foundation of the contract will take place, and (2) before breach, performance becomes impossible, or only possible in a very different way to that contemplated, without default of either party, and owing to a fundamental change of circumstances *beyond the control and original contemplation of the parties...*

*The application of the doctrine of frustration does not depend upon the intention of* the parties, or their opinions or even knowledge, as to the event which has brought about the frustration, but upon its occurrences in such circumstances as to show it to be inconsistent with the further prosecution of the adventure.

Keeping the above in mind, I have had an opportunity to carefully study the contract between the plaintiff and defendant and observed that while Articles A.3 and A. 4 of the said contract provide that the contract shall commence on 1st March 2021 and that the completion date shall be 31st May 2021, Article A.15 which provides for "entry into force and duration" states that:

"The contract shall enter into force and effect after signature by both parties of this Contract and on the date which the contractor provides the Performance **Guarantee to the Buyer** in accordance with A.21 above. The contract shall remain into force and effect until the end of the liability period as defined in the General Terms and Conditions for Works Contracts- Ver2 2012 and the issue by the Buyer of the Certificate of Final Completion." (emphasis mine).

"Enter into force and effect" in a contract refers to the point in time when the terms and conditions of the contract become legally binding and enforceable upon the parties involved. This typically occurs when both parties have signed the contract or when any specified conditions or requirements outlined in the contract have been fulfilled.

"**Take effect**" has been defined by the Black's Law Dictionary, seventh edition, as to become operative or executed; to be in force; to go into operation".

Article 23.1 of the General Terms and Conditions for Works Contracts- Ver2 2012 (which appears to be the clause referred to in Article A.15 above) further provides that:

"If specified in the contract, and as guarantee for his proper and efficient performance of the contract, the contractor shall on signature of the contract provide the Buyer with a performance guarantee issued for the benefit of the **Buyer**. The amount and character of such performance guarantee shall be indicated in the contract."

Applying the above to the contract in issue, the same appears to have been signed and stamped by the contractor on 2nd March 2021 after which they were required to return the same to the defendant latest within three working days from date of receipt (see the first clause in PX5). It is not clear on which date the defendant signed because no date is indicated on its stamp in the contract but it may be assumed they signed on the $2^{nd}$ March 2021 or within the three days from date of receipt.

According to email communication referred to in PX9, page 37 of the plaintiff's trial bundle and the testimony of PW1, it is evident that the Performance Guarantee was presented by the plaintiff to the defendant on 15th March 2021 having been

reminded to provide the same on 1lth and subsequently 15s March 2021 by the defendant. This then meant that the contract in issue could only come into force and be of effect on l5th March 2021 when the Performance Guarantee which was a specific requirement in the contract was provided by the plaintiff. In other words, the date on which the contract between the parties in this matter took effect from is l5th March 2021 when the Performance Guarantee was submitted and not 2nd March 2021 when it was only endorsed by both parties.

Be that as it may, Sarah Aloko the procurement officer of the defendant, on 3'd March 2021 communicated to PW1 informing him and others that the site handover for the works had been scheduled for 9'h March 2021 starting at 10 am at Kaigo Kizirafumbi Town Council Kikuube District. On 8th March 2021, the said Sarah communicated to PWI and others informing them about the postponement of the joint site handover to a date that would be communicated during that week to allow for stakeholders involved to carry out complete clean up on community land issues. On l5th March 2021 at 10:28 am, another communication was sent to PWl by Sarah informing the plaintiff that the joint site handover had been rescheduled for 18th March 2021 and in the same email, the plaintiff was reminded to submit their Performance Guarantee as earlier communicated by 19th March 202l.lt is notable that by all these dates mentioned above, the plaintiff had not yet submitted their Performance Guarantee and therefore, the contract in issue was not yet in force, operational and of effect.

On l5'h March202l at2.34 pm, the plaintifls director, PW1, forwarded a copy of the Performance Guarantee to the defendant whose representative requested for an original copy as well to which PWI replied that it would be delivered the next day i.e. on l6th March 2021. By the submission of the said Performance Guarantee on l5th March 2021, the contract between the parties is construed to have become enforceable and operational.

On l6s March 2021., PWl was again communicated to by the defendant's official informing the plaintiff of further postponement of the joint site handover that had been planned for l8'h March 2021 to another date during that week. On 24th March 2021 at 8:39 am, PWl and others were invited for a meeting at the offices of the defendant the next day at l0:00 am for a situation briefing and update regarding the Kyangwali works (emphasis mine). On the same day at 12.03, in response to an email dated 23'd March 2O2l at I I :40 am from PWI to the defendant inquiring about expected pipe and fittings price changes effective 25th March 2021 by Gentex, supplier of the same; and seeking guidance whether the plaintiff should place the

order for the pipes before the said increment is implemented or wait until site handover etc., the defendant through the said Sarah Alowo sent an email inviting PWI for a meeting over the same on 25'h March 2021 al their head offices at 10 am and added that "but as it is now please do not place orders for pipes and fittings, our meeting tomorrow will inform the next steps. "

On 25th March2O2l, the Ag. Country Representative of the defendant wrote to PWI making reference to the contract for construction and installation of water transmission and distribution pipeline in Kyangwali Kikuube District as well as the meeting held with PW1 on 25s March 2021 Ntd informed him thus:

"Following the delay in Joint site handover for the works to completely take off, this letter is to notify you of a force merjure situation (as detailed in clause 56 of the General terms and Conditions), that LWF the contracting authority is facing and subsequently has halted the smooth site handover for all the works to kick start.

Much as the situation is being resolyed the Kikuube District officials, RDC CAO, OPM, we are not certain of what the outcome of the final meeting scheduled for Friday 26'h March 202 I will be. Reference is made to your email dated 23'd March 2021 , LII/F hereby request you to pul on hold any undertaking for the execulion of lhis contract until furlher notice.

Dependant of the outcome of the meeting dated 26tt' March 202 1, LWF will communicate either to proceed with the contract or its cancelation due to factors that may not be avoidable... " (emphasis mine).

In a further letter dated 29th March 2012 from the Ag. Country Representative of the defendant to the plaintiff, reference was made to contract in issue as well as the situation update meeting that was held with the plaintiff on 25t March 2021 at the defendant's office, and the ptaintiff was informed verbatim as follows:

"The force merjure situation (as detailed in clause 56 of the General terms and Conditions) and as communicated during our meeting on 25th March 202 1 has continued to halt the smooth kick off of works, the anticipated meeting held by the Kikuube District fficials, RDC CAO, OPM and Land lord on Friday 26h March 202 I with regards to the same did not yield much results.

And so, as such LWF hereby requests you to fufther put on hold any undertoking for lhe execulion of this conlract until further notice.

LWF will communicate the way forward before close of business l't April 202 1." (emphasis mine).

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On I't April 2021, Kikuube District Local Government wrote to the defendant informing them of the change of Kizirafumbi water system source and tank site from Kaigo village to Kisambo village following a District Council meeting held on 3l.t March 2021 ( minutes of the meeting are on page 26 of the defendant' trial bundle) which agreed "to start afresh with designs for the piped water project to have the origin (water source) be placed at Kisambo within the district land while the reservoir tank be placed at Kiziranfumbi Secondary school in order to fit in the project period as the district engages the community to ofer the land..."

Following attempts by the defendant to make new financial offers of the revised bills ofquantities in order to have the plaintiffand other contractors participate in the new process of making an addendum to the original contract or restart a new tender process altogether resulting from change of sites works for the Kyangwali project; the defendant informed the plaintiff the requirements and bills of quantities had significantly changed making the possibility of a variation of the contract in accordance with the General conditions of contract sub clause 28 impractical. The original contract PO. NO. PO000 1977 I was subsequently cancelled on 6th May 202 I for convenience in accordance with sub clause 53(i) of the General conditions of contract.

From all the fore going, it became clear to this court that not only did the contract in issue become operational on l5rh March 2021 as earlier stated, but also the reasons for the failed attempts to have a joint site handover to the plaintiff were known to the parties as clearly reflected in the email of l6th March 2021 when the defendant thanked PWI and his team for "understanding" when the planned handover for l8s March 2021 was postponed as well as the email of 23d March 2021 from pWl seeking guidance whether they should place orders for pipes before increment of prices or to wait until site handover. Nowhere did the plaintiff seek an explanation for the continued postponement ofjoint site handover in writing nor did they lodge any complaint or invoke any provisions in the contract regarding delays in implementation of works. The email of 24th March 2o2l titled "situation Update" wherein PWI was invited for a situation briefing and update regarding Kyangwali works and the subsequent meeting of 25th March 2021 wherein the plaintiff was notified of a force merjure situation confirmed this position. During the whole period up to 6th May 2021 when the contract was cancelled, the plaintiff was comfortable with and in the know of the situation and even went ahead to participate in meetings that could result in possible variation of the contract or a new tender process altogether.

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To this Court, the frustrating circumstances as seen above arose without fault of the plaintiff and the defendant as the issues relating to refusal by the project affected persons to allow the project to continue on the land upon which the contract was founded (and which were well known to the defendant) hindered the fulfilment of the contract as contemplated by the parties. To this Court, the present suit is a mere afterthought by the plaintiff having been unsuccessful in securing the new contracts at the new sites in Kyangwali.

The above notwithstanding, it is alleged by the plaintiff that they proceeded to enter into a contract for the hire a back hoe on $2^{nd}$ March 2021 for which they paid Ugx 33,750,000/=, signed a contract for the supply of pipes and fittings for the construction project on 3rd March 2021 and paid Ugx 143,835,000/=; and also entered into a loan agreement with Centenary Bank on $10^{th}$ March 2021 for loans to execute the contract with the defendant; all actions notably taken before submission of a Performance Guarantee and subsequent operation of the contract in issue.

The authenticity of the above contentions, however, became highly questionable given the email dated 23rd March 2021 from PW1 seeking guidance on whether they should place orders for pipes before a price increment or wait until site handover. The question that arises is why would the plaintiff send such communication if it had already entered contracts with suppliers and made payment as alleged and not even mention the said contracts, payment and the amounts in the said email.

Further, not only did the plaintiff proceed to enter into the fore-mentioned contracts for the hire and purchase of the equipment above-mentioned before operation of the contract in issue, but also no evidence was adduced by the plaintiff to demonstrate that the equipment was submitted for inspection and approval by the defendant as provided in Article A.12.5 of the contract; and also that with the occurrence of circumstances of force majeure, the plaintiff had been directed by the defendant or its Engineer to employ alternative means to perform its obligations under the contract as provided for in Article 56.3 of the General Conditions of Contract. Instead, evidence on record showed that the defendant had on several occasions notified the plaintiff of the circumstances regarding the dispute in respect of the land on which the water transmission and distribution pipeline was supposed to be installed; and how it was affecting progress of implementation of the contract and also advised the plaintiff to halt any transactions made towards the said implementation till further notice.

Suffice it to note that even the equipment allegedly hired/bought by the plaintiff was not that which was agreed upon in the technical specifications as pointed out by PW1 himself in cross-examination.

That said, I agree with the submissions of counsel for the defendant that this is a proper case for the application of the common law doctrine of "volenti non fit injuria" because the plaintiff received emails instructing them not to purchase equipment or materials until confirmation on site handover; and that contrary to the defendant's express instructions the plaintiff went ahead to procure equipment to which it is seeking compensation. The plaintiff knew the potential dangers/liabilities associated with continued implementation of the subject contract, and by voluntarily assuming the risk by entering contracts of hire and purchase of equipment as well as loan agreements when he knew the dismal situation at hand, they cannot be seen to seek compensation arising from their own misguided actions.

In conclusion, from the facts of this case and fully relying on all the authorities cited by counsel for the defendant regarding to the doctrine of frustration and whose reasoning I fully concur with, I find that the subject contract in this matter was frustrated when the project affected persons refused to hand over the site for the projects works, which fact was made known to the plaintiff when the defendant got knowledge of the same; and which the plaintiff acknowledged and complacently dealt with by not proceeding to take any action towards implementation of the said contract. Neither did the plaintiff adduce any evidence to prove that the said state of affairs was in control of the defendant or had arisen out of negligence or fault of the defendant.

Having held above that the subject contract was frustrated and given the circumstances of this suit wherein the plaintiff undertook to enter contracts and make payments for equipment and obtained loans to implement a contract that had not yet come into effect out of their own volition thereby rendering recovery of the claimed sums of money from the defendant impossible, this suit stands dismissed.

Cost of this suit shall be borne by the plaintiff.

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HON. LADY JUSTICE ANNA B. MUGENYI **DATED**....................................