What you need to know:
- The Court of Appeal referred the matter back to the Commercial Division of the High Court so that the substance of the dispute is heard and determined on merit
The Court of Appeal has set aside a ruling in which the Commercial Division of the High Court had ordered UAP Insurance to pay $1.81m (Shs6.8b), plus costs, arising from a dispute for payment of a performance bond that had been executed in favour of National Housing & Construction Company.
In an appeal judgement by a Coram of three judges led by Justice Richard Butera, the Court of Appeal also referred the matter back to the Commercial Division of the High Court for retrial so that the substance of the dispute between UAP Insurance and National Housing is heard and determined on merit.
The other judges included Justice Catherine Bamugemereire and Justice Stephen Musota.
On July 15, 2011 National Housing entered into an agreement with NH-MKP Builders for the construction of condominium flats in Naalya, Kampala at a contract sum of $18.13m (Shs67.8b). NH-MKP Builders, subsequently sub-contracted MKP Builders on July 22, 2011 to conduct the construction works.
However, pursuant to requirements of the main contract, NH-MKP was required to obtain a performance bond in favour of National Housing that would guarantee compliance to contract obligations.
NH-MKP subsequently, on November 11, 2011, entered into an agreement with UAP Insurance for a performance bond of $ 1.81m (Shs6.7b), which would be payable to National Housing in the event of failure by the contractor to meet performance specifications under the contract.
The bond would remain tenable until April 17, 2013 but on February 4, 2013, National Housing filed a demand for payment of the performance bond, citing failure of the main contractor - NH-MKP – to perform as required by the contact.
However, after a series of correspondences, court documents indicate, UAP declined to pay the claimed sum, “arguing that the bond and demand were vitiated by fraud and illegality”. National Housing subsequently sued UAP seeking an order for payment of the disputed sum.
In a November 18, 2013 ruling delivered by Justice B Kainamura J, court agreed with National Housing and ordered UAP to pay the sum under dispute, plus cost of the suit.
However, dissatisfied with the decision, UAP appealed the ruling on grounds that the trial Judge had erred in law when, despite conceding to the fact that there were triable issues, proceeded to issue a judgment without granting UAP’s application for leave of court to file a defense.
Therefore, UAP argued that because the trial Judge had failed to grant its application for leave of court, the triable issues, among which include fraud, had not been tried on their merits.
Indeed in a ruling delivered on Wednesday, Justice Butera agreed with UAP, noting that once the trial Judge had established there were triable issues, the only option available was to allow a defense so that the matter could be heard on merit.
Thus, he ruled, that in issuing a summary judgement “without permitting [UAP] an opportunity to adduce evidence and prove its case [amounted] to locking [UAP] outside court”.
“For those reasons, I would allow the appeal, set aside the High Court Ruling … and refer this matter back to the High Court so that the substance of the dispute is heard and determined on merit,” Justice Butera ruled in a judgement that was agreed to by the other two members of the panel including Justice Bamugemereire and Justice Musota.