Tanzanite Corporation v Uganda Telecommunications Corporation Ltd (Civil Appeal No. 44 of 2003) [2004] UGCA 45 (5 February 2004)

Full Case Text

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

#### HON. JUSTICE A. E. N. MPAGI-BAHIGEINE, JA. CORAM: HON. JUSTICE C. N. B. KITUMBA, JA. HON. JUSTICE C. K. BYAMUGISHA, JA.

### CIVIL APPEAL NO. 44 OF 2003

#### TANZANITE CORPORATION :::::::::::::::::::::::::::::::: APPELLANT $10$

Versus

### UGANDA TELECOMMINICATIONS LTD. ::::::: RESPONDENT

[Appeal from the judgment and decree of the High Court of Uganda sitting at Kampala (Stella Arach Amoko, J.) dated 19th December 2002 in Civil Suit No. 710 of 20001

## JUDGEMENT OF KITUMBA, J. A.

$\overline{a}$

$\overline{5}$

$15$

This is an appeal from the judgment of the High Court in HCCS No.710 $20$ of 2000 whereby the judge partially dismissed the appellant's suit against the respondent for breach of contract and prayers for special and general damages resulting there from, interest and costs of the suit. She entered judgment in favour of the appellant for US dollars 260,000 interest at 8 per annum from the date of filing the suit till payment in full and half of 25 the costs of the suit.

The following are the facts leading to the appeal. The appellant is a limited liability company registered in Uganda. The respondent is also a limited liability company engaged in telecommunication business and was the second defendant at the trial. The respondent was sued jointly and severally with Uganda Post and Telecommunication Corporation Ltd.

$\mathbf{1}$

whicl-r was the first del'endant. The respondent took over some assets and Iiabilities of the first defendant relating to telecommunication. The appellant through its Chairman/Managing Director, Frank Batamula, PWl, entered into negotiations with the first defendant to sell telephone sets. This was in response to H. E. the President of Uganda, visit to Washington DC in 1992 during which he solicited tbr local investors. The negotiations resulted into the commitment letter dated 61711993, exhibit P2. On 271911994 the appellant made a formal offer to supply to the first def'endant 10,000 Model TA - 101 telephone sets at US S 44.75 per set. This offer was a proforma invoice Nurnber 94l09ll0l which was produced at the trial as exhibit P3. According to the appellant's pleadings on 2311211994 the first defendant made a counter offer to purchase 30,000 telephone sets of the same model, on terms quoted on the profbrma invoice. The first defendant accepted the terms and signed the proforma invoice on the 2llll95.

The appellant started rnobilising funds to buy raw materials and workshop rnachinery to assemble the 30,000 telephone sets. It established a workshop at Kisugu Karnpala and made orders abroad for the supply of raw materials. The appellant also obtained a loan from The Co-operative Bank Ltd which was guaranteed by the appellant. All these were done in order to supply telephone sets to the respondent. It is alleged that the respondent breached the contract by taking only 3,000 telephone sets. Consequently the appellant was left stranded with unsold telephone sets and unused materials in Kampala and in Hong Kong and an unserviced bank loan. The appellant averred that the respondent's breach of contract caused it loss of the following. ll) l5

(a) loss of profit on 27,000 sets - US \$ 722.50

- (b) loss of unused materials- US \$ 260,000 and - (c) the unpaid bank loan Shs. I08,683.330, of US \$67,505

which totalled up to US dollars 1,049,755. The appellant claimed for special darnages in the above sum. The appellant also claimed for general darnages from the respondent for inconvenience and loss of business opportunities in the region. The appellant also prayed for interest of 25o/o p.nl. on special and general darnages frorn the time of filing the suit till payment in full and costs of the suit.

The first defendant did not file a written statement of defence because it was not served. The respondent pleaded in its written statement of delbnce that the correspondences between the two parties were mere negotiations and were not a contract between the appellant and the first defendant fbr the supply of 30,000 telephone sets. The respondent pleaded in the alternative that the telephone sets which were brought and fully paid fbr had serious technical shortcornings and were shunned by the respondent's customers. The respondent disclaimed liability tbr any loss and inconvenience allegedly suffered by the appellant.

The respondent contended that a prudent businessman would not set up a f'actory to manufacture or assemble goods on the basis of a contingent rnarket of a single custorner. It contended further, that the appellant's loss was self imposed because he should have sold the telephone sets to

other customers. The respondent also averred that the alleged letter exhibit P5 did not amount to a loan guarantee.

The tbllowing issues were agreed upon for deterrnination by the Courl:

- *1.* Whether there was a contract between the parties for the *supply of 30,000 telephone sets or not.* - If so, whether the $2^{nd}$ Defendant breached the contract. $2.$ - If so, whether the Plaintiff suffered any damages as a $3.$ result of the breach. - Whether there was a guarantee of the loan from the Co- $4.$ operative Bank Ltd. to the Plaintiff by the 1st Defendant. - $5.$ *Whether the Plaintiff is entitled to the remedies sought.*

The learned trial judge resolved issues number one to four in the negative. She resolved the fifth issue partly in favour of the appellant. She awarded it US dollars 260,000 for the cost of unused material, interest at 8% per annum from the date of filing the suit till payment in full and half of the

Dissatisfied with the findings of the learned trial judge the appellant has filed the following grounds of appeal namely: $20$

- *1.* The learned trial judge erred in law and in fact in finding that there was no contract between the appellant and the **Uganda Posts and Telecommunication Corporation for the** supply by the appellant of $30,000$ telephone sets. - $2.$ The learned trial judge erred in fact and in law in finding that there was no breach of contract on the part of the respondent and/or its predecessor the Uganda Posts and **Telecommunication Corporation.**

$\overline{4}$

$\mathsf{S}$

$10$

$15$

costs of the suit.

$3.$ The learned trial judge erred in law and fact and did not take into account proper principles in her treatment of the appellant's claim for general and special damages thereby arriving at the wrong decision to reject the claims for loss of profits and the unpaid bank loan.

The appellant prayed court to allow the appeal and to set aside part of the judgment of the trial court which is to the effect that there was no breach of contract. The appellant also prayed court to make the following orders:

- the respondents pays the unpaid bank loan, loss of profits $(a)$ in damages for breach of contract as the court deems fit. - $(b)$ Interest on damages from the date of the High Court judgment. - $(c)$ *Costs of the appeal and in the court below.*

The respondent has also cross appealed on the following grounds:

*1.* That the learned trial judge erred in law and fact in finding 20 that there was a contract between the Appellant and UP & $\&$ *TC for the supply of 10,000 telephone sets.*

> $2.$ That the learned trial judge erred in law and fact in finding that the Appellant had proved the loss for unused materials worth US \$ 260,000, and as such it was entitled to special damages in the said amount.

$15$

$10$

$\mathsf{S}$

- The learned judge erred in fact when she held that the $3.$ purchase of unused materials worth US\$260,000 was based on orders for phone sets placed by the Cross Appellant. - $4.$ The learned trial judge erred in law and fact in failing to hold that the order for 20,000 phone sets from Hong Kong was purely an act of speculation by the Respondent to the cross appeal; for which the Cross-Appellant cannot be held liable. - $10$

$5$

$5.$ The judgment and order for payment of US\$260,000 goes against the weight of evidence.

It prayed court to allow the cross-appeal and to set aside –

$15$

- the order of payment of US dollars 260,000 $(a)$ - the judgment of the learned trial judge that the $(b)$ appellant/respondent to the cross-appeal had a contract to supply 10,000 telephone sets to Uganda Posts and **Telecommunication Corporation and substitute it with an** order that there was no contract, and - $(c)$ To order the appellant to pay the costs of the cross appeal.

During the hearing of the appeal the appellant/cross respondent was represented by learned counsel, Mr. Ebert Byenkya and learned counsel Mr. William Byaruhanga appeared for the respondent/cross appellant.

Counsel fbr the appellant argued the grounds of appeal consecutively. I will handle the grounds in the same order.

On ground one Mr. Ebert Byenkya, learned counsel for the appellant, contended that the learned trial judge was wrong not to find that there was a contract between the appellant and the respondent for the former to supply 30,000 telephone sets to the latter. Counsel argued that the pro fbrma invoice, exhibit P3, was issued by the appellant on 27th September 1994 and was accepted, confirrned and signed by the Managing Director of the respondent on 2li l/1995. On 23'd December, 1994 before signing the pro forma invoice the Managing Director of the respondent wrote to the appellant a letter, exhibit P4, undertaking that they would purchase 30,000 telephone sets at US \$ 44.75 per set, under the terms of the pro fbrma invoice. Counsel reasoned that by Exhibit P4, the appellant made a counter otfer to buy 30,000 telephone sets. He submitted that if exhibit P3 and P4 were read together by the learned trial judge,, and she had properly applied principles of statutory interpretation, she should have fbund that there was a contract for the supply and the purchase of30,000 telephone sets. He argued that the counter offer was signed by both pafties on 2lllll995 signifying acceptance by both parties of the new tenns. He contended that Exhibits P3 and 4 had to be read together as one agreelnent. He relied on Timmins Vs. Moreland Street Properfy Co. Ltd. 1958 Ch. I10. l0 li t0

ln reply Mr. Williarn Byaruhanga, learned counsel for the respondent,opposed the appeal and supported the leamed trial judge's finding that there was no contract for the supply of30,000 telephone sets by the appellant to the respondent. He contended that exhibit P3 was merely a pro fonna invoice specifying the terrns and conditions upon :5

which the pulchases Dictionarv 7'h Edition had to be made. bv Brvan A. Garner He relied on Black's Law where a pro fbrma invoice is o delined as Ibllows:

# '1. Made or done as a formality

- 2, (Of an invoice or financial statement) provided in advance to describe items predicts results or secure approval ". - In his view Exhibit P3 fitted the above description of a pro fonna invoice Counsel submitted that when the appellant wished to buy telephone sets they complied with the conditions of the pro forma invoice. The pro lbrrna invoice was an invitation to treat. The respondent made an offer by issuing a local purchase order. He argued that there was no L. P. O. issued in respect of 30,000 telephone sets. He contended that Exhibit P4 sirnply informed the appellant of the respondent's capacity to purchase and did not in any way change the contract. By Exhibit P4 the appellant was accepted as a vendor subject to the conditions which were laid out in exhibit P2. The respondent's leamed counsel contended further that the telephone sets were not accepted because they had technical faults. l0 t5 l0

In herjudgernent the learned trial judge dwelt at lengthy on the first issue which is actually the first ground of appeal. She considered Exh. P3 which the l't defendant wrote to the appellant inforrning hirn that they would buy his products. The l" defendant stated in the last paragraph of that letter as fbllows:

"In line with the Government Policy of supporting local industries, I would like to inform you that the corporation will also be obliged to purchase from your corporation provided

your products mcct the required UPTC technical specifications and :rre competitive in price and after sale service."

She held that this was an invitation to treat. She considered Exh. P3 the pro forma invoice dated 27 l9ll994 for the supply of 10,000 of telephone sets, which was signed by the Managing Director of the t'irst defendant . She found that the Managing Director accepted and confirmed its contents. She considered the letter, Exh. P4, which I must reproduce here tbr the sake of clarity. It reads:

l(l

## "Dear Sirs.

We have received your Pro forma Invoice No.94109/101 offering to furnish single line model TA-l0I telephone sets to UP & TC and your subsequent inquiry on our demand market.

This is to confirm that the UP & TC has reviewed this proposal as well as the technical specifications submitted and agrees to purchase l0 model TA-l0l single line telephone sets from the Tanzan ite Corporation.

We have the capacity to purchase up to 30,000 telephone sets at US \$ 44.75 per set under the terms of this Pro-forma Invoice. It is also very likely that we will have additional need of telephone sets beyond this initial order. As the Tanzanite Corporation is a local supplier in Kampala, rve will also acquire additional units by local purchase order from your warehouse, when necessary.

We are pleased to welcome you as an approval vendor to the tiP & TC and are looking forward to reviewing the other products and services that you will be offering in future.

Yours faithfully,

## E. W. Senrp:rla Mbuga MANAGING DIITECTOII''

The learned trial judge in her evaluation ofthe letter said that it was clear. She held that the letter exhibit P4 just acknowledged the receipt of the appellant's pro forma invoice and confirrned that it had reviewed the proposals contained therein. According to her the letter informed the appellant that it had the capacity to purchase up to 30,000 telephone sets on the same terms as were stipulated in the pro forma invoice. The appellant was further informed that the respondent would, when need arises, acquire additional telephone sets by issuing to the appellant local purchase orders.

She concluded that both the oral evidence of PWI and the documentary evidence did not show that there was a contract between the appellant and the respondent for the supply of 30,000 telephone sets. There were separate contracts independent contracts between the two parties. The respondent would raise a pro forma invoice indicating the price, the quantity and other specitications. The appellant would then accept by signing the pro fbrma invoice below the statement "Accepted and confirmed as above by Uganda Posts and Telecommunications Corporation." Delivery would comrnence after acceptance of the order at intervals and quantities to be determined by the buyer. The leamed l0

IO trial judge fbund that such contlacts included Exhibit P3 which was signed on 2l" January, 1995 for 10,000 sets, Exhibit P6 signed on 5'r' May 1995, for 500 sets and Exhibit P7 signed 29'hsepternber 1995 for 10,000 sets. This makes a total of25,000 telephone sets, they referred to the pro forma invoice.

l()

With due respect to the learned trial judge, her conclusion was not correct when one looks at the evidence which was adduced. I note that exhibit P3, the pro forma invoice, is dated 27rh September 1994 and contains the offer by the appellant to sell to the respondent 10,000 telephone sets at US \$ 44.75 per set. It was accepted by both parties on 2l" January 1995. Belbre that the Managing Director of the respondent wrote to the respondent the letter, exhibit P4, dated 23'd December, 1994. In that letter he acknowledged receipt of Exhibit P3 and the terms stated therein. He went on to state in paragraph 3 of the letter as follows:

"We have the capacity to purchase up to 30,000 telephone sets at US \$ 44.75 per set under the terms of this Pro-forrna Invoice. It is also very likely that we will have additional need of telephone sets beyond this initial order As Tanzanite Corporation is a local supplier in Kampala, we will also acquire additional units by local purchase order from your warehouse, whenever necessary." (underlining mine)

I arn of the considered view that by exhibit P4 the respondent made a counter offer to buy 30,000 telephone sets fi'om the appellant. This is what the respondent ref-erred to as "this initial order." In case the lespondent needed rnore than the 30,000 sets it would rnake orders fiom l5

the appellant by issuing local purchase orders. Those are ref'erred to as "additional units."

Counsel for the respondent here and in the court below argued that pros lorma invoice is not a contract but a mere fbrrnal offer. That would be the case ordinarily. However, in the appeal before this court the formal offer was made on the pro-forma invoice. It was detailed in nature and was signed by both parties specifying their acceptance to be bound by the terms stated therein. Then Exhibit P4 that was written before the signing r0 of Exhibit P3 made close reference to Exhibit P3. I accept counsel for the appellant's submission that Exhibit P3 and P4 should be read together. I arn of the view that there was a contract between both parties. When one considers Exhibit P3 that was signed on 2l't January, l995,for 10,000 sets, Exhibit P6 sighed on 5'r'May 1995, fbr 500 sets and Exhibit P7 rs signed 29'r'septernber, 1995 for 10,000 sets. This makes a total of 25,000, which rnust be part of the 30,000 telephone sets, which the appellant was to supply to the respondent. Ground I succeeds.

On ground 2 counsel complained that the learned trial judge was wrong to flnd that there was no breach of contract by the respondent or its predecessor. Counsel submitted that according to the testimony of PWI the appellant assembled telephone sets but the respondent refused to take delivery of the same. The learned trial judge sumrnarily dealt with the first and the second issues as they were framed at the trial and came to the wrong conclusion that there was no breach of contract. l0

The respondent's learned counsel supported the learned trial judge's finding that there was no contract for the supply of 30,000 phones.

Alternatively if there was a contract the appellant did not accept delivery because the phones were defective.

Counsel fbr the respondent has contended that his client refused to take delivery of the telephone sets because they were defective. The respondent's witnesses Elly Onyango Wadunda, DWl, and Wornusini Francis testifred that the appellant's telephone sets had some faults. PWI was called to the telephone workshop and given some telephone sets about I5-20 for lepairs. However, all the respondent's witnesses did not know the terms of the contract between the appellant and the respondent. According the evidence of PWI the appellant supplied the phone sets to the respondent with a twelve months warranty in writing. In case the telephone sets had any problem they had to be returned to him for repair and this was brought to the attention of the respondent's lnanagernent. l lll

It is rny considered view that the respondent regarded the faults that were in the telephone sets as breach of a warranty. This is indeed shown by its letter exhibit D2 dated 5'l'November, 1996 to the appellant's Managing Director which reads as fbllows:

### "Dear Sir,

### RC: FAULTS ON TANZANITE TELEPHONE SETS

As you are aware, UPTC has been having trading relationship rvith your company for quite some time, culminating with the recent supply of telephone sets. Holvever, for purposes of improving on the relationship and of the product, it has been deemed necessary to make you aware of the nature of faults so fnr identified with these sets, namely:

- Failure to transmit I - Failure to dial out when switched from "tone" to DP mode. 2 - Wrong pulsing (wrong number transmission) 3

It is therefore suggested that you get in touch with the office of DMD/T and a Chief Supplies Officer for purpose of finding ways and suggestion on improvement of the product quality. Yours faithfully,

## G. W. NYEKO CHIEF SUPPLIES OFFICER

The remedy, which the respondent had for breach of warranty, was not to refuse delivery ofthe telephone sets. Section 52 ofthe Sale ofGoods Act [Cap 82] provides: r5

#### 52 ll.emedl for breach of u arr:rnt1'

- l{) - (l) Where there is a breach of warranty by the seller, or where

the buyer elects, or is compelled, to treat any breach ofa condition on the part of the seller as a breach of warranfy, the buyer is not by reason only of the breach of warranfy entitled to reject the goods; but he or she may -

(a) set up against the seller the breach of warranty in diminution of extinction of the price; or

l.l

# (b) maintain an action against the seller for damages for the breach of warranty."

The respondent wrongly breached the contract. Ground 2 has merit and succeeds. 5

On ground 3 counsel for the appellant contented that the leamed trial judge 'was wrong to reject the appellant's claim for special and general damages. On this ground he argued about the profits for the undelivered 27,000 telephone sets and the bank loan.

Regarding the profits counsel criticised the leamed trial judge for failing to take into account the proper principles when deciding the appellant's claim fbr damages. He subrnitted that there was no need for documentary evidence to have been adduced by the appellant to prove his loss of profits on the 27,000 telephone sets which the respondent refused to take. He argued that PWI gave oral evidence that he lost profit on the 27,000 telephone sets and his evidence was not challenged in cross-examination. He subrnitted that in a case of sale of goods where the buyer fails to accept the goods the loss, which the buyer is entitled to receive, is the estirnated loss. In suppoft of the subrnission he relied on section 49 (2) of the Sale of Goods Act. ti l()

Counsel subrnitted that special danrages in cases of contract mean the damages which are foreseeable from the breach of contract. They are different frorn special damages in cases of tort. In support of his subu.rissions he relied on Victoria Lauud ry (Wiudsor) Ltd. V Newman Ind ustries Ltd. 19.,19 Alt E. R 997. Counsel argued further that if in the opinion of the learned trial judge the special darnages fbr loss of protits l5

on the undelivered telephone sets had not been proved she should have awarded general damages. He referred the court to the authority of e Benedicto Musisi Vs Attornev General High Court Civil Suit No.622 of 1989.

> In reply Mr. Byaruhanga disagreed and supported the learned trial judge's finding on the issue of the alleged loss of profits. He submitted that all the authorities quoted by counsel are not applicable to the present appeal. In these authorities there were existing contracts but in the instant appeal there were no contract for the supply of 30,000 telephone sets.

When dealing with the issue whether the appellant was to be awarded special darnages or not the learned trial judge made reference to some authorities and among them were the following:-

r: Kibimba lLice Companv Ltd Vs [. Jmar Salluni Surrreme Court Civil Appeal No. 7lll998 llonham Vs Hvde Park Hotel Ltd 44 T. I. R. l0 (1943) 148. All these authorities state that one who seeks special damages from court must plead and strictly prove them. It is not enough fbr a party to sirnply tell court that he/she suffered so much darnages and prays that such an amount should be awarded. She held that in the instance appeal the appellant had not proved any special damages suf-fered because of the respondent's failure to accept the delivery of 27,000 telephone sets. She further stated that the appellant had not suft-ered any special damage in respect of the 27,000 telephone sets because there was no breach of contract.

I find that the learned trial judge considered the correct principles on proof of special darnages. However, she did not consider the fact that the

case befbre her was sale of goods. Section 49(2) of the Sales of Goods Act provides:

"49. Action for non acceptance

- (l) Where the buyer wrongfully neglects or refuses to accept and pay for goods, the seller may maintain an action against the buyer for damages for nonacceptance. - (2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events, from the buyer's breach of contract. )

Regarding loss of profits on the 27,000 phone sets was not challenged in cross examination. In his evidence PW I stated that the loss of protits on 27,000 sets was US \$ 722,259. That in my view, is the estimated loss.

On the unpaid bank loan counsel for the appellant criticised the learned trial judge fbr rejecting to award the appellant shs.108,683,330i= ofthe loan which they guaranteed to the Co-operative Bank. Learned counsel contended that during trial in the High Court the issue had been framed as if the appellant had sued on a contract ofguarantee. Counsel argued that by their letter, exhibit P5, the respondent encouraged the appellant to borow money fiom The Co-operative Bank Ltd. When they failed to take the phones the appellant was left with an unpaid loan. In counsel's view, this was a direct and natural consequence ofthe respondent's actions.

l{)

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In reply Mr. Byaruhanga for the respondent argued that the respondent did not guarantee the appellant to secure the loan frorn the bank. Besides, there was no evidence to show that the loan liability of the appellant

related to the telephone sets. He argued that in case it was a guarantee it should have been the bank and not the appellant to sue. He prayed court to dismiss this ground of appeal.

The point of the loan guarantee was in fact the fourth issue during trial in the High Court. The learned trial judge dealt with this issue at length. The letter exhibit P5 which is the basis ofthe guarantee states:

### "Dear Sir,

### PURCHASE OF TA-IOI SINGLE LINE TELEPHONE SETS

The Uganda Posts & Telecommunications Corporation (UPTC) h:rs contracted with Tanzanite Corporation (U) of Kampala to provide single line telephone sets to meet its needs.

ln order to induce the Co-operative Bank to provide the requested financing to the Tanzanite Co-operation, and to ensure security of this financing, UP & TC guarantees that it will purchase the contracted telephone sets from Tanzanite Corporation (U) and that UP & TC rvill pay for the telephone 9s!s in thc follorving manner:

l-.lPTC will guarantee and pay the amount due to Tanzanite Corporation directly to the Co-operative Bank Ltd. which will satisfied all or part of its financing outlay to Tanzanite Corporation (U) from these funds. The balance of the funds will be disbursed by the bank into the dem:rnded account held by Tanzanite Corporation (U) at the bank. UPTC requires the telephone sets in the near future to fulfil its telecommunications

commitment to the nation. The Tanzanite Corporation has been selected to provide these telephone sets as local Ugandan

### man ufactu rer of tyre- accepted telephone products, Yours faithfully.

### E. W. Sempala Mbuga MANAGING DIRECTOR''

She held that the letter was simply to induce the bank to provide financing to the appellant. In her view it was not a guarantee because a guarantee means that the respondent would have to pay the loan in case the appellant failed to do so. She also held that a guarantee is normally witnessed by a deed but there was none in the instant appeal

With due respect, I disagree with the learned trial judge's evaluation of the evidence on the issue of the guarantee and the conclusion reached. Counsel for the appellant has argued that the respondent encouraged the appellant to take the loan and I agree. Exhibit P5 was to induce the bank to advance the rnoney to the appellant for the purpose of acquiring materials to assemble the phones. The appellant produced in court exhibit Pl0, which is a letter from the Co-operative Bank Ltd, dated2T'h April 2000 dernanding for 108,683,330. This was the unpaid loan. The respondent breached the contract and the appellant was left with non-paid loan, which continued to attract interest. Such damage must have been in contemplation of both parties at the time they entered into the contract. Ground 3 too succeeds.

I now tum to the cross appeal by the respondent. Counsel for the respondent/cross appellant argued ground one of the cross appeal separately and the rest of the grounds jointly. I shall deal with the grounds in the same order.

Counsel's complaint in ground 1 is that the learned trial judge was wrong to flnd that there was a contract between the appellant and Uganda Posts and Telecornmunications for the supply of 10,000 telephone sets. Counsel for the cross appellant reiterate his submissions in the main appeal that a pro forma invoice is not contract. Mr. Byenkya for the cross appellant supported the learned trial judge's finding.

I have already elsewhere in this judgment dealt with this ground when considering ground I of the main appeal. There was a contract between the cross appellant and cross respondent for the purchase of 30,000 telephone sets. Ground one of the cross-appeal has no merit.

Mr. Byaruhanga's complaint in ground 2-5 of the cross appeal is that the judge was wrong to award special damages of US dollars 260,000 to the cross respondent for unused materials. Counsel submitted that the cross respondent did not base the order for raw materials fronr Hong Kong on the order for phones, which were made by the cross appellant. He further contended that the cross respondent had not adduced satisfactory evidence to prove that the order for raw materials was made for the purpose of assernbling phones. He referred to exhibit Dl custom entry fbms where one of the boxes of the cross respondent's goods it referred to as a gift box and another one as a completed set. Counsel submitted that PWI in his evidence could not tell the location of his workshop for assembling telephone sets. Besides, there was nobody frorn his workshop l0 that testilled in court so as to corroborate his story. He argued that PW l's evidence was contradictory. He testified that he ordered for his raw materials from a company called Goodwell Technology. However exhibits P8 and P9 are from Goodwell Cornmunications Ltd. Counsel argued that the cross appellant should not be held liable for the crossrespondent's damages for unused materials because according to exhibit D2 which is a letter dated 5'r'November 1996 from the cross appellant to the cross respondent that the telephone sets were faulty. A reasonable businessman would not have continued to order fbr materials as late Decernber 1998 which is apparently the date when his bank account was debited for US dollars 260,000 for the raw materials.

Mr. Byenkya disagreed. He contended that the leamed trial judge had properly evaluated the evidence and reached the correct conclusion on the issue of special damages for unused raw materials.

It is appreciated that PW1 was the only witness who testified for the cross respondent. There is no number of witnesses required in law to prove a fact. PW I f'ailed to describe the exact location of his workshop but explained that streets in Kampala are not named and numbered. This is indeed true in this country and failure to tell court the exact location of his workshop does render his evidence incredible. I note that according to the evidence, which was adduced by the cross appellant at the trial, a cornplaint was made to the cross respondent about the faulty telephone

sets. However, the cross respondent remained as an approved vendor of the cross appellant, hence the purchase of I,000 telephones on 1311199, by the cross appellant from the cross respondent. The 10,000 telephone sets, which the cross appellant had contracted for, were already assembled but there was a balance of 20,000 telephone sets to be :i

assembled. The cross respondent had obligation to fulfil the contract. I am ofthe considered view that the cross appellant was responsible for the cross respondents unused raw materials. Counsel for the cross appellant's argument that PW2's evidence is not credible because Exhibits P8 and P9 give the name of the exporting company as Goodwell Communication Ltd. and Pwl testified that he imporled raw materials frorn Coodwell Technology is untenable. PW I was not cross examined on the diff-erences about the name of his suppliers of raw materials. The leamed trial judge was, therefore, right to find that special damages of unused rnaterials worth US dollars 260,000 had been proved.

I would disrniss the cross appeal and allow the appeal.

I would order the respondent to pay to the appellant the fbllowing:

- (a) Uganda shillings eight million five hundred thousand as general damages for breach of contract. - (b) USD 260,000 loss of unused materials. - (c) Uganda shillings 108,683,330 the unpaid bank loan. - (d) USD 722,259 for loss of profits. - (e) Costs ofthe appeal and the cross appeal to this court and the court below. - (0 Interest on (a) and (d) at 8% from the date ofjudgement till payment in full.

Dated at Kampala tfris .3o'\*.. Aay of . S+k^..,\*+.n ...2004.

# .?)ha\*[#rr-JUSTICE OF APPEAL

-i0

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

$\overline{5}$ CORAM: HON. LADY JUSTICE A. E. N. MPAGI-BAHIGEINE. JA HON. LADY JUSTICE C. N. B. KITUMBA,JA HON. LADY JUSTICE C. K. BYAMUGISHA,JA

#### **CIVIL APPEAL NO.44/03**

#### BETWEEN

TANZANITE CORPORATION: ....................................

#### $15$

$10$

#### AND

UGANDA TELECOM LTD::::::::::::::::::::::::::::::::::::

Appeal from the judgement and Decree of the High Court of Uganda sitting at Kampala (Arach-Amoko) dated 19th December'02 in HCCS No. 710/20001

## JUDGMENT OF BYAMUGISHA, JA

This is an appeal against the judgement of the High Court of Uganda

- dated the 19th December '02 wherein the appellant's claim against the $25$ respondent was partly allowed. I had the benefit of reading in draft form the lead judgment that was prepared by Kitumba, JA. The facts of the case are sufficiently set out and it is not necessary to repeat them. I agree with the orders she has proposed. However, I have a few remarks of my - own to make on the first ground of appeal. 30

The first ground of appeal complained that:

"The learned trial judge erred in law and in fact in finding that there was no contract between the appellant and Uganda Posts and *Telecommunications Corporation for the supply by the appellant of* 35 30,000 telephone sets"

$\mathbf{1}$

ln submitting on this ground Mr Eber-t Byenkya, learned counsel for the appellant, relied on documentary evidence narnely exhibit P.3 and P.4. It rvas his subrnission that the two documents tnust be read together and he criticised the learned trial ludge fbr not doing so

- ) On his part, Mr Byaruhanga submitted that there was no contract fbr the supply of30,000 telephone sets or even 10,000 as alleged by the appellant. He contended that what the parties had, were a series of independent contracts that were characterised by the issuance of a profbrrna invoice, a local purchase order (LPO) lollorved by paynrent. He - l() refemed to the definition of a profbnna invoice as contained in Black's Larv Dictionary that states as follorvs

# " Of invoices or Jinanciul slalenrc,fi provided tn tdvunce to clescribe itents, predict results or secure upproval"

l5 Learned counsel contended that exhibit P.3 did not meet this definition of a corltract and can only be treated as initial offer and not a contract intended to create binding legal lclationslrip

In order to rcsolve the issue ofthe proforrna invoice, Ithink it is

l0 necessary to define what amounts to a contract. A contract can be described as an agreernent between two or more people that is intended to create binding legal relations. For a contract to be valid and legally enforceable the following prerequisites must exist: -

- $(i)$ the parties must have capacity to contract; - intention to contract; the parties must be in agreement; $(ii)$ - valuable consideration; $(iii)$ - legality of purpose and $(iv)$ - $\mathsf{S}$ $(v)$ Sufficient terms that are certain.

To be a good contact, there must be a concluded bargain, and a concluded contract settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Once a contract is valid, it creates reciprocal rights and obligations between the

parties to it. I think it is the law that when a document containing $10$ contractual terms is signed, then in absence of fraud, or misrepresentation, the party signing it, is bound by its terms. This is in line with the provisions of **section 92** of the **Evidence Act**, which provides as follows:

"When the terms of any contract, grant or other disposition of property, $15$ or any other matter required by law to be reduced to the form of a document, have been proved according to section 91 no evidence, of any oral agreement or statement shall be admitted, as between the parties to any instrument or their representatives in interest for

- 20 purposes of contradicting, varying, adding to, or subtracting from its terms; but-(a) Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto, such as fraud, intimidation, illegality, want of due execution, want of - capacity in any contracting party, want or failure of consideration or 25 *mistake in fact or law;"*

Section 4(1) of the Sale of Goods Act governs contracts of sale of goods. It states as follows:

"Subject to the provisions of this Act and of any Act in that behalf contract of sale may be made in writing (either with or without seal or by word of mouth or partly by word of mouth or may be implied from the conduct of the parties".

Since the parties to this case have a document, the duty of the court is to look at the language used in it and then determine whether it meets the

- definition of what amounts to a contract. Exhibit P.3 is in a form of a $10$ letter addressed to the Managing Director of Uganda Posts and Telecommunications Corporation. It is a proforma invoice for the supply of 10,000 Model TA-101 Telephone sets with Tone/Pulse switch at a cost of US $$$ 44.75 per set. It stated the terms and conditions. These were: - Delivery to commence 60 days after acceptance of order at $\dot{1}$ $15$ intervals and quantities to be determined by the buyer. - $\dddot{1}$ . Prices were FOB Kampala Warehouse. - iii. Payment to be in US \$ or Uganda shillings equivalent. - Prices were valid for six months. iv.

$5$

The invoice concluded with the words" accepted and confirmed as above 20 by Uganda Posts and Telecommunications Corporation". The Managing Directors of both corporations signed the invoice on the 21st January'95. Prior to the signing of this invoice, the Managing Director of the respondent wrote exhibit P.4. It was a response to exhibit P.3. The first

$\overline{4}$

paragraph of the letter tefers to the profbrrna invoice and the offer to tirnrish single line model TA-l0l telephone sels. The second paragraph states that the respondent "agrees" to purchase rnodel TA-101 single line teleplrone sets fi'orn the appellant. The third paragtaph states that the i respondent has capacity to purchase up to 30,000 telephone sets at US, \$ 44.75 per set under tlre ternrs of "this profonna invoice". It further states that tlre respondent is "very likely" rvill have "additional need of telephone sets bevoncl this initial orcler"

- t0 To rne, the rvords used in these paragraphs are clear and unambiguous. It \\'as a counter oftbr b1, the buyer rvho infbnned the seller that it had capacitv to purclrase rnore telephone sets at the price quoted by tlre seller in thc prolbrrna invoice. 1-he parauraph also stated that the appellant u,ould have "additional need" oftelephone sets beyond rvhat tlte letter - ts terrned "tlris initial order". I agree rvith the leadludgernent on the interpretalion ol- the letter in that it was a counter-offbr by the respondent Io purclrase 30,000 telephone sets. What did the resporrdeut leave to be deterrninerl rvere the additional needs fbr other telephones. Whereas I aglee u'itlr Mr Bvaruhanga's deflnition of a profonna irrvoice. he dicl not - point out to us rvhat deflciencies existed in the three-proforrna invoices that rvere signed by the parties. Exhibits P3, P6 and P.7 in nry view state It) n'itlr sulllcient particularitl'the intention olthe paftics to be bound by thc

terms set out therein. They were not negotiations but firm commitments to create legal binding relationships. I would agree with the submissions of Mr Byenkya that the learned trial judge with respect was wrong to hold that there was no contract between the parties for the sale and purchase of

30,000 telephone sets. $\mathsf{S}$

> The first ground of appeal would succeed. Consequently I would allow the appeal in the terms of the lead judgment and dismiss the cross-appeal.

Dated at Kampala this. 30th day of Se. 1.2004.

C. K. Byamugisha **Justice of Appeal**

$10$

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

## ( ()lt{\t: HON. . IUSTICE A. E. N. MPAGI-BAHIGEINE, JA HON. JTJSTICE C. N. B. KITUMBA, JA HON. JUSTICE C. K. BYAMUCISHA, JA.

# CIVIL APPEAL NO.44 OF 2OO3

#### TANZANITE CORPORATION :::::::::::::::::::::::::: VERSUS .\Pt,t,lt.t-.{N't'

## U(iAN t)A'il,tLIi( ol\tNtI\t('Al'IoN l,Tt) RESPONDENT

(Appeal fronr thc judgemcnt ard decree of the High Court of Uganda sitting at Kampala (Stella Arach Amoko, J.) dated l9'r' Decenrber 2002 irr Civil Suit No.7l0 of200l)

### JUDGMENT OF A. E. N. MPAGI-BAHIGEINE JA.

I have read the draft judgement of Kitulnba JA. and I support her findings.

Since Byarnugisha JA. also agrees, the appeal is allowed in the tems as proposed by Kitumba JA. white the cross- appeal stands dismissed.

Dated at Kampala this ..5. fl,|:.. day-of . \) \rbhY..2004.

> A,E. N. MPAGI-I}AHIGEINE . IUSTICE OF APPEAL 1