Stahlco Holdings Ltd v Mission Aviation Fellowship Europe (CIVIL APPEAL NO.2 OF 2001) [2002] UGCA 16 (22 January 2002)

Full Case Text

#### THE REPUBLIC OF UGANDA

### IN THE COURT OF APPEAL OF T]GANDA AT KAMPALA

### CORAM: HON. JUSTI(lE C. M. KATO. JA. HON. . IUSTICE A. E. N. MPAGI-BAHIGEINE. JA. HON. . II,]STI('E A. TWINoMT]JUNI, JA.

## (. IVIL APPEAI, NO.2 OF 2OOI

## M/S STAHLCO HOLDINGS LTD ::::::::::::: APPELLANT

#### \.[-RST S

# M/S I\,I ISSION AVIATION } FELI,OWSHIP EI-]ROI'E RESPONDENT o

lAppeal liom the judgement and Decrcc in the High ('ourt of Kampala (Ntabgobn P..l) dated (r.10.2000 in H. C. C. S No.779 of 19961.

## JUDGMBNT OF A. E. N. MPAGI-BAHIGEINE, JA

This appealarises from the judgement and orders of the High Court (Hon Ntabgoba P. J) dated 6.10.2000. disnrissing the appellant's suit and allowing the respondent's counter-claim.

The background of the appeal is that dr"rring February 1994, M/S Stahlco Holdings Ltd, hereinafter referred to as the appellant, agreed with M/S Mission Aviation Fellowship Europe, hereinafter referred to as the respondent, to construct for the latter a hangar, a pit latrine and a generator-shed on the latter's land at Kajjansi. The

specificatiorls were given in the contract and the total price of U\$56070 was agreed upon.

The appellant starled the work but before completion the respondent unilaterally repudiated the contract on the ground that completion had been delayed and what had been done so far was shoddy and not in accordance with the drawings and specifications therein. The respondent thereafter employed another firm to complete the job.

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The appellant therefore filed suit seeking to recover the following reliefs:

- (a) Specral damages of US\$24685 or the equivalent in Uganda Shillings IUC. SH.] with interest at 35o/o from date of filing sLrit till payment in full. - (b) General darrrages for breach of contract with interest at 35o/o fronr date ofjudgment till payment in full and - (c) Costs of the suit with interest at 35o/n from date of judgement till payment in full.

The appellant denied that there were any agreed specifications as regards the materials to be used, contending that it was the respondent conlpany which wanted the appellant company to do a cheap job and that. therefore, the repudiation of the contract was

unwarranted. The respondent also counter-claimed special danrages of U\$3 l,'782 or the equivalent in general damages for breach of contract and interest at the rate of 35Y, on the reliefs counter-claimed.

The learned Principal Judge, dismissing the appellant's case and allowing the respondent's counter-claim, made the following awards:

- (a) Special damages of Shs.21,692,2571: with interest thereon at Sh\35% from date of filing suit till payment and full; - (b) General damages of Shs.16,000,000/: with interest thereon at 35'/n from date of judgement till payment in full costs of the suit with interest thereon at 35 %o from the date of judgement till payment in full.

'l-he appcal to this court is based otr the followittg six gror-ruds:

- "1. THAT the Learned trial Judge erred in larv and lact when he held that Appellant had acted in breach of contract and that the Respondent was entitled to terminate the said contract. - 2. THAT the Learned trial Judge erred in law and lact in having lbund that the Respondent had got some benelit liom the Appellant's lvork he lailed to set off and/or deduct the value of the said benelit fiom the

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alvard that he subsequently made in lavour of the Respondent.

- THAT the Learned trial Judge erred in law and in lnct in so lar as he erroneously awarded: -t - a) lnterest on the decretal sum at the excessive rate of 35(Zr p.a: - b) lnterest on costs at the illegal and excessive rate of 35'lt p.a. and when there was no prayer in respect of the interest on costs; - THAT the Learned trial Judge erred in law and fact in that he erroneously awarded special damages of Shs.21,692,257l- inclusive of C. T. L. which had not been specilically pleaded or specifically proved. o l0 4 - THAT the Learned trial Judge erred in law and fact in as much as he erroneously awarded General Damages of Shs.16,000,000/: rvhich were excessive in the circumstances. 5 - THAT the Learned trial Judge erred in law and lhct in that he lailed to properly evaluate the evidence adduced and came to the rvrong conclusion that: 6 - a) The appellant had not proved its case; - b) The respondent had proved his counterclaim.

Mr. John Mary Mugisha, learned counsel for the appellant, argued grounds one and six together stating that the learned Principal JLrdge disregarded the evidence of PWI on record, which was that there were no other estimates than those specified in the contract Ex. Pl. 2A. 28 and 2C. He erroneously held that the drawings fomed part of the contract, which was not so. Mr. Mugisha contended that the drawings were not the basis of the estimates. He asseiled that they were peripheral and were submitted after the parties had concluded the agreement, though the initial letter Ex. Pl stated "detailed drawings attached". He pointed out that the job started withor.rt drawings and when the drawings were subsequently submitted they involved further expeuses which the respondent was not prepared to ureet. He also argued that since there were no bills of quantities, everything remained in the appellant's discretion. The appellant had to operate with difficulty within the money bracket agreed. In his view, therefore, the learned Principal Judge was wrong in holding that the drawings formed and were part of the contract, that the respondent was entitled to tetminate the contract on the grounds that the plans and specifications therein had not been complied witlr, that the appellant had exhibited very poor workmanship and the work had neither been completed within the stipLrlated six months nor in a reasonable time thereafter.

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Mr. Bernard Bamwine, leanted counsel for the respondentf, sLrbrrritted that the leamed Principal Judge properly evaluated the evidence and correctly concluded that the appellant acted in breach of the building contract. The respondent was therefore entitled to teminate the contract. He pointed out that there was overwhelming evidence to justify the Principal Judge's holding that the plarrs/drawings formed part of the contract and that on the whole the respondent was entitled to unilaterally terminate the contract.

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The lcarnecl Prirrcipal Judge held:

"M1' holding is that both the letter of 1.2.94 and the other letters as well as exhibits P3, P4 and P5 provided specilications which were part of the building contract.

. The agreed specifications, I have held are those contained in the various letters as well as the drawings. The plaintiff did not construct the structures of the hangar, latrine and generatorshed in accordance rvith the agreed specilications.

. I think that in the circumstances Mr. Chortey rvas.iustilied to terminate the contract."

I observe from the letter dated 1.2.1994. Ex. Pl, by the appellant to the rcspondent, titled "Estimate" that it set out various specitications at a total price of US Dollars of 49,710 for one hangar at l(ajjansi. At the end it read:

"Detailed drawings attached." This letter was signed by R. Schopf, (PWl) who testified:

"When I embarked on the work, it was according to the drawings and under the supervision of Jeremy Mc Klelvin I was given an architetural plan for the work. It is the same as what was adduced by the del'endant. This is the one (shown Ex. P3(a) and P3(b)."

Indeed the record indicates that by his letter of 17.5.94, the respondent's Mr. Mc Kelvie invited PWI to the site saying:

"Finally I need to peg out the site itself and this needs to be done this week. Can you meet me there on Thursday 19th May at 9.00 with tape measure and plans so that we can set it out?" Ex P.56.

This clearly dispels any doubt that the work had started without plans/drawings. PW I is a mechanical engineer and a partner in the

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appellant company. He nrust have beetr conscious of what he was saying. He later explained:

". For the lbundation we dug the trench put concrete slab according to the plan drawing . . ." " ln the drawings wooden puritans and steel were recommended as alternative.tt

Still later. he stated:

" The wall plates lvere not provided in the drawings. I lelt the choice to my lbreman to employ or not to employ hoof balls as in the drawings. ."

In re-exanrination he clarified:

"The basis of the construction are according to the drawings i.e. the materials used and the size. Basically there was not much departure liom the drawings because there was no major departure. (sic) I concluded no lurther supplementary agreement with M. A. F."

20 In view of this, tlterefore, there could not lrave been any further estimates as claimed by Mr. Mugisha. The learned Principal Judge did not err.

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CoLrpled with the foregoing is the evidence of Richard Muyomba (PW2) a building contractor at the site who testified:

"l laid down the prolile of the buildings according to the plans submitted and approved by Mpigi Municipal Counci!-

. In this case I rvas guided by the plans and the nature of the place where the building was to be constructed."

o lo He identified the plans:

"l cannot remember whether these are the plans but Exh. P.3(b) is the one. The stamp states "approved on 9.3.94."

PW2 added:

"When I am given a job with no bills of quantities I use the plan and its details. . ."

Mr. Mugisha's contention that lack of bills of quantities gave the appellant a wide discretion is therefore untenable. Since Ex. P2A, P2B and P2C from the appellant to the respondent and all dated 4.3.94 stipulated specifications and estimates for the hangar extension, generator-house and 2 pit latrines, they had to be l0 cor.nplied with unless otherwise instructed by the respondent, which was never proved.

It is however apparent from the record that PWI contradicted himself fronr tirne to tinre irr art attentpt to exonerate the appellant, for exanrple when he stated at pp.45 of the record:

"l did not lbllow the drawings because it was not my basis. I drew it later This drawing is irrelevant to the structure. . the drawing was made lbr the Mpigi Council."

It is thereforc clear that there was overwhelming evidence of the drawings arrd specifications therein fotming and being part of the building contract as correctly found by the learned Principal Judge.

The learned Principal Judge further found that the appellant did not comply with the specifications, produced shoddy work and did not conform to the time franre of the contract thus entitling the respondent to temrinate the contract.

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Regarding the shoddy job done, Mr. Mugisha contended that the appellant found it difficult to fit in the money agreed as more money was needed to accommodate the drawings and that tlre respondent preferred a cheap job.

Mr. Banrwine in reply pointed out that seeking a reduction in price should not and does not lrrean producing low quality work.

Orr this aspect the learned Principal Judge found:

"Mr. Phillip Chorley gave the particulars of the shoddl' rvork at p.52 of the proceedings. And I have detailed his account of the entreaties to Mr. Roland Schopf to give a break-down of the linishing programme. I have also detailed Roland Schopl's ignoring the entreaties and evading the giving of a response. I think that, in the circumstances, Mr. Chorley lvas justitied to terminate the contract."

I entirely share the Principal Judge's assessntent of the evidence in vie"v ol'PWl's adnrission of executirtg low quality work when he said:

"lf I had been given U\$I0,000' I would have done a better work I demanded it and it was denied. I met him and explained the mix was on the lloor 25 cm hardcore 2 x l00m reinlbrced concrete of which I would use 1.2 on last layer. But he did not

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accept. I rvanted US10,000 if I rvas to put a stronger cement mixture. I would not have used a higher ratio because it rvould have increased the price and not because it rvas correct."

By stating the above the appellant unwittingly put the blame squarely on its head. PWlknew before hand what was required of him by the respondent. In this regard I can do no better than refer to the well established principles in building contracts cited by the lcarned Principal Judg c. - Thorn vs London Corporation (1876)l

## App. Cas 120 at l32z

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"The builder belbre he made his tender ought to have inlbrmed himself of all the particulars connected with the work and especially as to the practicabilitl' of executing every' part of the rvork contained in the specification."

The learned Principal Judge also relied on: The Law of Building ancl Engineering Contracts by Alfred A. Hudson, 7tr' Edition at page 146. r.vhere it is stated: 20

> "Where the work contracted for is required to be in accordance with the signed documents (such as specilications) and plans, an obligation devolves upon the contractor to tbllow what is provided lbr

in the contract and to use only such materials and qualitv ol'workmatrship :ts are specilied."

Having regard to the above principles, the appellant escape liability. can hardly

It is also vital to consider the testimony of Eddie Mukasa, DW3, a qualified Civil Engineer/Designer (Diploma in Building Constructiort l9l4\ who had since worked with a number of repr"rtable fimrs. He is the one who drew the plans and visited the site at Kajjansi. He testified:

> "l expected a mixture of 1.2.4 of cement, sand and aggregate 4.(sic) That is the standard mixture lbr concrete lloor. The mixture 1.3.6 is for mass concrete and not for re-enlbrced concrete.tt

He clarified:

"Mass concrete is concrete used where there is no structural steel. Re-inlbrced concrete is where there is structural steel and in this case structural steel provided in the lloor slab."

There is no ambiguity in all the excerpted evidence, and when looking at the letter Ex. Pll dated 25.1.1995 from the appellant to

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the respondent, I find it difficult to adopt any other conclusion than the one reached by the Principal Judge. The letter Ex. Pl I reads:

"Thank you lbr your letter of 23.1.95. It is quite understandable that you are upset because of the repeated delavs in the construction of the hangar. But you have to try and understand my position. Since this is a non prolit making project, I have to save money where ever possible. This is also the reason why I cannot give you a contract programme. The whole situation would of course change if you release me of my promise to stick to the price rve agreed on the date of the original invoice. As you are aware of since the dollar has lost about 201\, of its value against the USH.''

The lettcr leaves no doubt that the respondent acknowledged his dilatory tactics while trying to trininrise the costs, thus ending up with a shoddy job.

Regarding the time factor, the record indicates that the parties DW I,, DW2 and PW I agreed that the contract time would be six rnonths and that conrpletion rvould be by November 1994. This discLrssion was confirmed by the letter dated 24.10.94 from the appellant to the respondent-Ex. P7. which reads in part: 20

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\$'ould be justilied in relusing to allow the contractor to proceed I'urther. . ."

I agree entirely with the learned Principal Judge's finding that the respondent was entitled to tenninate tlre contract.

Mr. Mugisha's other contplaint was that the learned Principal Judge did not consider his written submissions. This is not correct as is evident at pp.194 of the record. where the Principal Judge obscrved:

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"Although Mr. Mugisha learned counsel lbr the plaintilT does not dispute the above statements of law, he argues that in the contract between these two parties, the architectural drawings were not part of the specilication. How, he argues, could the drawings be part of a contract that was entered into on 1.2.1994 when they were approved later by the Mpigi District Authorities. ."

He then procceds to analyse the evidence in detail.

Mr. Mugisha also took issue with the Principal Judge's misdescription of the lunctiott of a hangar when he said that it was lor the purpose of receiving and accontntodating aircrafts which land on and take off from them. Witlr respect to counsel this opinion had no bearing to and did not affect his eventual assessnlent ofthe evidence as presented to court. There is no way I can fault the finding of the learned Principal Judge. He exhaustively dealt with the evidence before him. Grounds otre and six would fail.

Concerning grounds two and five, Mr. Mugisha argued that the learned judge erred when he failed to set off and or deduct the berrefit the respondent had got from the appellant's work, and that the general damages of Shs. 16,000,000/: he awarded were excessive in the circuntstances.

Mr. Bamwine pointed out that there was no need for deduction since the appellant had been partly paid in advance. It had received U\$24,855 i.e. 50'% on the hangar leaving a balance of U\$24,885; the full price of U\$4800 of the generator shed and pit latrine had been paid. However the container roofing was never completed, and the floor and the roofon the hangar still needed repairs.

Thc learned Principal Judge held: 20

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"l entirely agree with counsel's conclusions as a lair analysis of the breaches committed by the plaintifi. I rvould answer the third issue in the negative, namely, that the plaintilT is not entitled to any of the remedies sought. . In lact the plaintilT rvas too luckl- to have been paid part of the agreed contract price in advance. Had this not been the case. it is doubtf ul rvhether it rvould have recovered lbr even quantum merit."

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It is not clear what berrefit Mr. Mugisha had in mind, that the respondent had derived from the contract, which still required to be paid for. At the time of the termination of the contract on25.4.95, the work was in an unsatisfactory state. The letter of termination Ex. D l0 reads:

> "l wish to notif.v you that as liom today I am terminating your work with us at the Kajjansi hangar.

> The reason is this that your performance to date, despite several promises from you, has been unsatisfactory slow. I visited the site yesterday and today to lind nobody working on site.

> Also some of the work has been out to an ..,,onnpnroht" standard and requires attention.

> > lused us severe delays which has with considerable extra unplanned be employing another contractor to

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complete the building works the costs of which we will be deducting from your linal payment. This termination is to take place immediately. I will be ordering a replacement exhaust system lbr the generator which was damaged at Kajjansi by your men. I need you to lbrrvard all the manuals and tool kit lbr the generator."

In view of thc above Icatmot but agrec with the conclusiotr reached by the Principal Judge. Indeed his finding was supported by law lo see Sumpter vs Hedges (1898) QB 673 at 674 where the plaintifl a burlder entered into a contract to build two houses and stables on the defendant's land for a lump sum. When the buildings were still in an unfinished state, the plaintiff informed the defendant that he had no nroney, and was not going on with the work any more. On appeal it was held that the learned trialjudge was correct by finding that thc plaintiff had abandoned the contract. Under such circumstances what was the respondent expected to do'l He could not keep the structures unfinished. lt was held that where there is a contract to do work for a lump sum, until the work is completed the 20p ricc of it carrnot be recovered - Also see Emden & Gill's Building Contractor and Practice page 129., a passage relied orr

by thc Principal Judge which reads:

"A contract to construct the whole building or rvorks in consideration of payment of a lixed sum of money! :rnd contracts of this variety are liequently called "lumpsum" contracts, so that if a builder undertakes a lvork of specilied dimensions and materials and he deviates thereliom, he cannot recover upon a quantion valebant lbr lvork, labour and material."

On the above principles the appellant cannot claim and is not entitled to any quantunt nreruit.

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I now tum to the counter-claim by the respondent.

Conceming the issue of general damages of Shs.16,000,000i: awarded, the learned Principal Judge considered the natural or probable consequences of the appellant's breach of contract, which are narrated irr the termination letter-Ex. Dl0. This involved the low quality work which had to be repaired, upgraded and made good: the time lost and the non use of the buildings structures together with the costs incurred in servicing the air-crafts in Nairobi as the Civil Aviation Authority would not allow the respondent access to their facilities in Entebbe.

In lris lettcr dated 29.12.94 to Pw I - Ex. D6. DW2 said inter alia:

"Progress on the hangar has come to a complete standstill and little progress has been made since the beginning of November. I lind this unacceptable as this delal'is norv costing us money in unnecessary maintenance trips to Nairobi when we should be carrying out maintenance at Kajjansi."

On 23.1.95 he wrote:

"l am not prepared to accept this situation any longer fbr everl' week that the hangar is not completed lbllorving the arrival of the lirst airplane at Kajjansi, I will deduct U\$200 liom the linal account. Your delays to the building are already starting to cost the MAF Uganda Programme and I do not see why we should pay lbr your incompetence. "

In his cvidence he (DW2) testrlled:

"This pro.iect is a year late and it has cost us a great deal in non-revenue llying. Yet, our air cralt is kept in Nairobi. It cannot be maintained at Entebbe airport because C. A. A cannot allow us."

Tlre leamed Principal Judge considered all the above relevant factors. - It was however not shown by Mr. Mugisha that he

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proceeded upon some misunderstanding of the evidence or had put a wrong value on ceftain parts of it. I therefore think that he exercised his discretion judiciously and it is undesirable that this court should interfere with the award of Shs.16,000,000/: as general damages.

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Concerning ground 3 that the rate of interest of 35oh awarded on general and special damages and costs was very excessive, Mr. Banrwine conceded that this offended Section 27(2) Civil Procedure Act, as regards the costs and submitted that it should not exceed 6ul'. He. however, contended that the rate of 35oh should be maintained on the decretal sums as it was reasonable.

It shoLrld be bom in rnind that the award of interest is discretionary and cor.npensatory depending, upon the various circumstances of the case. The court may award what is fair and reasonable in light of the circumstances of the case. - see Sietico vs Noble Builders, SC. Civil Appeal No.3l of 1995. I consider the rate of 20"/n adequate on the award of general damages from the date of judgrrrent till payrnent in full.

I now turn to ground No.4 that the special damages in the counter clainr. anrounting to Shs.2 1,692.2571: inclusive of CTL, had neithcr been specially pleaded nor specifically proved.

Mr. Bamwine contended that Ex. D14 on record was an invoice by Skanska showing what amounts were paid and requesting for the balance including CTL. He argued that what was important was for the appellant to be infonled of the nature of the claim and that this was clear from the pleadings.

The counter-claim on record indicates the particulars of special damages as follows:

" l. Cost of replacing the lloor in materials and labour at U5\$20,512; and o l(l

# 2. Costs of addition repairs and works on the roof at r-ls\$r r .270."

I am therelbre urrable to find any ambiguity with the above pleading. It was clear enough to infomr the appellant of what the respondent company was seeking to recover.

I have ruled above that the appellant was not entitled to any quantum rrreruit because of the shoddy work done and also lor failing to honour the contractual tinte frame. On account of the above, the respondent employed Skanska to complete the work the appellant tailed to perfbrm. It follows therefore that the respondent l0

paid the balance of the contractual price to Skanska to do the job the respondent had failed to perfomt at a cheaper rate. Skanska was paid Shs.21.692.2571- which was less than the balance that would have been paid to the appellant. It was therefore a cheaper deal, rnay be a blessing in disguise.

I think the learned Principal Judge, with respect, overlooked this aspect of the lxatter. I am., therefore, of the view that the respondent cannot claim a double benefit. The appellant has been penalised for his breach of contract by refusing his claim for quantum meruit and by way of general damages. He cannot be penalised twice over.

The order made by the Principle Judge allowing the respondent special damages of Shs.2 I ,692.2571: is hereby set aside.

Ir.r sunr, I wor-rld dismiss the main appeal with costs to the respondent, with interest thereon al 60/o, from the date of filing suit tillpayment in full.

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o Since the respondent's counter-claim partly succeeds only as regards the general damages, I would order each party to bear its own costs.

Oot- d 'l Dated at Karrpala this day of t002 o t0 A. E. N. MPA IGEIN .tt F APPEAL

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#### THE REPUBLIC OF UGANDA

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

### CORAM: HON. JUSTICE C. M. KATO, JA. HON. JUSTICE A. E. N. MPAGI-BAHIGEINE, JA. HON. JUSTICE A. TWINOMUJUNI, JA.

#### CIVIL APPEAL NO.2 OF 2001

#### M/S STAHLCO HOLDINGS LTD. :::::::::::::::::::::: APPELLANT

#### **VERSUS**

### **M/S MISSION AVIATION ]** <table> FELLOWSHIP EUROPE ::::::::::::::::::::::::::::::::::::

**Appeal from the judgment and Decree in the High** Court of Kampala (Ntabgoba P. J.) dated 6-10-2000 in H. C. C. S. No.779 of 1996

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

I have had the advantage of reading the judgment of my Lord Mpagi-Bahigeine, JA. in draft. I entirely agree with her findings and proposed orders.

Since Twinomujuni, JA. also agrees, the decision of this court is that the appeal is dismissed in the terms indicated in Justice Bahigeine's judgment. So it is ordered.

Day of Januar Dated at Kampala this $\mathcal{L}$ 2002

C. M. KATO **JUSTICE OF APPEAL**

### THE REPUBLIC OF UGANDA

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

## CORAM: HON. MR. JUSTICE C. M. KATO, J. A HON. LADY JUSTICE A. E. N. MPAGI-BAHIGETNE, J. A HON. MR. JUSTICE A. TWINOMUJUNI, J. A

### CIVIL APPEAL NO.2 oF 2001

## M/S STAHLCO HOLDINGS LTD APPELLANT

## VERSUS

### M/S MISSION AVIATION FELLOWSHIP EUROPE. .... RESPONDENT

(Appeal from judgment and Decree in the High Court of Kampala (Ntabgoba P. J.) dated 6/10/2000 in H. C. C. S. No.779 of 1996)

# 25 JUDGMENT OF A. TWINOMUJUNI.

I have had the advantage of reading the draft of the judgment of Hon. Mpagi-Bahigeine, J. A. I agree with it and I have nothing useful to add.

3t) Dated at Kampala this ,a^d day of 002.

//u 35 ST OF APPEAL \_\_-1 (