[2024] UGCommC 192

## THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA

## [COMMERCIAL DIVISION]

## **CIVIL SUIT NO. 0298 OF 2021**

#### ALLIES DBT AFRICA LIMITED =================PLAINTIFF

#### **VERSUS**

#### THE ATTORNEY GENERAL OF UGANDA ========DEFENDANT

## Before Hon. Lady Justice Patricia Kahigi Asiimwe

## Judgment

#### Introduction

$\mathbf{1}$ The Plaintiff brought this suit against the Defendant for a declaration that the Defendant breached the contract for procurement of protective body armour entered with the Plaintiff; special damages of UGX 15,055,905,678; general damages; interest on special damages at the commercial rate of 26% per annum from the date of breach till payment in full; interest on general damages at 8% per annum and costs of the suit.

## Plaintiff's Case

On 2^nd November 2017, the Plaintiff and Uganda Police Force $2.$ entered into $\mathbf{a}$ contract vide Procurement Reference UPF/SUPLS/2017-2018/CFC/00002 for the supply of protective body armour for specialised forces at a total contract price of UGX 14,496,457,098 exclusive of taxes.

Under the contract, the protective body armour was to be procured $3.$ and delivered to the Uganda Police Force in 3 phases over 3 years. The Plaintiff delivered phase 1 and was paid. However, the Uganda Police Force declined to initiate the procurement process for phases 2 and 3. The Plaintiff is stuck with goods for the $2^{nd}$ and $3^{rd}$ phases since they cannot be sold because they were made to the specifications required by the Uganda Police Force and continue to attract demurrage.

## Defendant's Case

The goods in issue were to be delivered to the Uganda Police Force 4. within 3 years and each phase was supposed to be initiated by the Uganda Police Force. The Plaintiff delivered the supplies under phase 1 and was paid. Phases 2 and 3 were to be subsequently supplied after issuance of notice by Uganda Police Force to the Plaintiff and no notice was given for the supply of phases 2 and 3.

## Representation

$\mathbf{A}$

The Plaintiff was represented by M/s Jabo & Co. Advocates and 5. Birungi & Co. Advocates and the Defendant was represented by the Attorney General's Chambers.

## Issues

- The issues for resolution are as follows: 6. - Whether there is a legally enforceable contract between $\mathbf{I}$ . the Plaintiff and the Defendant; - Whether there was breach of the said contract and if so, $\mathbf{H}$ . whether the Defendant is liable; and - $\mathbf{III}$ . What remedies are available to the parties?

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# Plaintiff's Evidence

- At hearing the Plaintiff called one witness, Charles Roscoe $7.$ Nsubuga, the Vice President/Director of the Plaintiff. He testified that in August 2017, the Plaintiff being a classified contractor of the Uganda Police Forces was invited to bid by direct bidding for the supply of protective body armor for specialized units vide Procurement Reference Number: UPF/SUPLS/2017-2018/CFC 00002. On 2^nd November 2017, the parties signed the contract which had been cleared for signature by the Solicitor General. - Under the contract, the body armour was designed according to 8. specific requirements and each specification varied with the unit of the forces. - $9.$ The Plaintiff ordered for the manufacture of the items to be supplied in phase 1 from High Com Armour Solutions in the USA. The company procured the items for the production of the entire order. The Plaintiff proceeded to order for the manufacture of the remaining items for phases 2 and 3 because the production line is busy and requested the Uganda Police Force to initiate the procurement processes which they neglected or refused to do. The said items are stored in storage facilities where they continue to attract demurrage. - 10. The Plaintiff has suffered loss of business equivalent to the unexecuted part of the contract whose estimated value is UGX. 11,597,165,678, incurring demurrage and storage costs of UGX. 2,920,000,000, bank charges at UGX. 538,740,000, reputation loss with its partners in the USA.

# Defendant's evidence

11. The Defendant called one witness, SP Mukasa Robert, a Legal Officer attached to the Procurement and Disposal Unit in the

Uganda Police Force. He testified that the contract was a three financial year contract resulting in multi-year expenditures commitment. The supplies were to be delivered in 3 phases in 3 years, and each phase was supposed to be initiated by the Uganda Police Force.

12. Phase 1 was initiated by issuing a notice specifying the list of supplies required under phase 1 totaling UGX. 2,899,080,751 which was delivered and paid for. Uganda Police Force did not initiate phases $2$ and $3$ .

#### Resolution

$\phi^{\text{B}}$

Issue 1: Whether there is a legally enforceable contract between the Plaintiff and the Defendant

- Counsel for the Plaintiff submitted that the contract is valid since 13. it fulfills all the ingredients of a valid contract which include capacity to contract, intention to be legally bound and there was consideration. - Counsel for the Defendant argued that the contract between the 14. Plaintiff and the Defendant is illegal and therefore not enforceable at law because the contract was not approved by Parliament as required under Section 23 of the Public Finance Management Act 2015. - Counsel for the Plaintiff contended that once the Parliament 15. approved the National Budget for 2017/2018, it approved the multiyear contract between the parties because the Treasury Instructions of 2017 provided for multiyear contracts and that Parliament does not have to approve the multiyear contracts each year. Counsel for the Plaintiff further submitted that the Budget Framework Paper FY 2018/2019-FY 2022/2023 shows that there were budgetary items for protective wear under the Uganda Police

Force vote 144 item 224005. Counsel further submitted that once an activity is provided for in the Budget Framework paper and such activity is approved in the annual budget, Parliament has approved the multiyear commitment.

Counsel for the Defendant submitted that extracts from the 16. Budget Framework Paper FY 2018/2019-FY 2022/2023 and the extracts from the Treasury Instructions do not demonstrate Parliament's Approval of the financial commitment of the money in the contract at the time of entering into the contract.

I have considered the submissions of both parties and resolve this issue as follows:

$17.$ In the present case, the contract in issue provides under the Special Conditions of Contract clause reference GCC 16.1 as follows:

| | The structure of payments shall be: 3 years period | | | |-----------------|----------------------------------------------------|---------------|---------------| | F/Y | 2017/18 | 2018/19 | 2019/20 | | $\frac{0}{0}$ | 20% | 50% | 30% | | Amount | 2,899,291,420 | 7,248,228,549 | 4,348,937,129 | | Total<br>amount | 14,496,457,098 | | |

18. From the above therefore the parties entered into a multiyear contract thus falling under section 23 of the Public Finance Management Act, 2015. The provision provides as follows:

# Multi-year expenditure commitments.

(1) A vote shall not enter into a contract, transaction, or agreement that binds the Government to a financial commitment for more than one financial year or which results in a contingent liability, except where the financial commitment or contingent liability is authorised by Parliament.

(2) Parliament may, in the annual budget, authorise a vote to make a multiyear expenditure commitment, and where Parliament authorizes, the annual budget shall indicate the commitment approved for the financial year and the approved multiyear commitments.

(3) For avoidance of doubt, subsection (2) shall only apply where the multiyear commitment is consistent with the objectives of the Charter for Fiscal Responsibility and the Budget Framework Paper.

(4) The Minister shall for every financial year submit to *Parliament a report on the performance of the multiyear* commitments made.

- Under section 23 (1) no government entity can enter into an 19. agreement that results in a multiyear commitment without approval of the Parliament. - I have also reviewed the National Budget Framework Paper, as 20. submitted by counsel for the Plaintiff and provision was made for uniforms, beddings, and protective gear. The provision is so general that one cannot tell whether the items in issue were included under this item. It should be noted that the extracts submitted only cover FY 2019/20. That notwithstanding it should be noted that a National Budget Framework Paper is not the final approved budget. I have also reviewed the Treasury Instructions of 2017 and under them, Accounting officers were given instructions on how to handle multiyear contracts. This does not

$\mathcal{R}_{-}$ prove that the procurement in issue was approved by Parliament as submitted by counsel for the Plaintiff.

- Counsel for the Plaintiff argued that once the budget for FY 21. 2017/2018 was approved then the multiyear commitments were also approved. However, under section 23 (2) of the Public Finance Management Act, 2015 where Parliament approves a multivear commitment, the annual budget shall indicate the commitment approved for the financial year and the approved multiyear commitments. Evidence of the approved multivear commitments was not provided. - 22. Under section 19(1) of the Contracts Act:

(1) A consideration or an object of an agreement is lawful, *except where the consideration or object*—

(a) is forbidden by law; (b) is of such nature that, if permitted would defeat the *provisions of any law;* [Emphasis added]

- 23. In the case of **Makula International Ltd v. His Eminence Cardinal Nsubuga & Anor [1982] HCB 11** cited by counsel for the Defendant it was held that "A court of law cannot sanction what is illegal and illegality once brought to the attention of the Court, overrides all questions of pleading, including any admissions made thereon." - 24. In the case of **Freightage Ltd Vs Spanglett Ltd [1961] 1 QB 374**, it was held as follows:

If a contract is expressly or by necessary implication forbidden by statute, or if it is ex facie illegal, or if both parties know that though ex facie legal it can only be performed by illegality or is intended to be performed illegally, the law will not help the plaintiffs in any way that is a direct or indirect enforcement of rights under the contract; and for this purpose both parties are presumed to know the law.

## 25. In the case of Ojok Alphonse and others Vs. Gulu Municipal Council Civil Suit No. 32 of 2006 Mubiru J held as follows:

*An illegal contract is one that is unenforceable as a matter of* policy because enforcement would be injurious to the best interest of the public. ... As a general rule, a contract which is against the mandate of a statute may not be made the *foundation of any action, either in law or equity.*

- 26. In the case of **Waugh V Morris LR 8 QB 202** on page 208 it was held that "... where a contract is to do a thing which cannot be performed without a violation of the law, it is void, whether the parties knew it or not." - 27. In the case of **Re Mahmound and Ispanhani [1921]2 KB 716** page 729 it was stated that "... the Court is bound, once it knows that the contract is illegal, to take the objection and to refuse to enforce the contract, whether its knowledge comes from the statement of the party who was guilty of the illegality, or whether its knowledge comes from outside sources. The Court does not sit to enforce illegal contracts. ...it is for the protection of the public that the Court refuses to enforce such a contract." - 28. It should be noted that the authority to appropriate funds lies exclusively with the Parliament. Every Financial year, the Parliament through the Appropriation Act determines the amount of money the government shall spend in that year. The Act provides for money to be spent by each Ministry, Department and Agency and Local Government. The Act authorises the Secretary to the Treasury to withdraw the specified amount of money for the Ministries, Departments, Agencies and Local Governments as

$\mathcal{A}$

appropriated by Parliament from the consolidated fund in the particular financial year of reference. If the Government enters into commitments that go beyond one financial year, the Government in effect appropriates those funds thus usurping the powers of the Parliament. Therefore, to prevent such situations Parliament legislated against such practices under section 23 of the Public Finance Management Act.

- 29. In this case, there is no evidence that the multivear commitment under the contract was approved by Parliament contrary to Section 23 of the Public Finance Management Act. Allowing such a contract would be contrary to the purpose of the law. - 30. I am mindful of the holding in the case of **Finishing Touches Ltd** V. Attorney General Civil Suit No 144 of 2010 where the contract in issue was found to be illegal but court went ahead and found that the Plaintiff was entitled to payment for the services delivered. In that case, the Plaintiff provided the services and the court, therefore, held that "It would be unjust for the plaintiff not to be remunerated when the alleged acts of non-compliance were the acts of the defendants' servants." The difference between that case and the present case is that the Defendant consumed the services in issue in the present case, and the Defendant has not taken delivery of the goods. - 31. In conclusion, I find that there is no evidence that Parliament approved the multiyear commitment under the contract between the parties. This issue is therefore resolved in the negative.

Issue 2: Whether there was a breach of the said contract and if so. whether the Defendant is liable

Despite the finding under issue I above, I have deemed it 32. necessary to address issue II.

- Under the Delivery and Completion Schedule in the Statement of 33. Requirements, the contract provided that delivery "will be phased in three deliverable dates as initiated by the entity. Phase Two & Three still form Annex A and B to the contract." - Therefore, under the contract the Plaintiff was supposed to wait 34. for the delivery to be initiated prior to delivery of phases 2 and 3. Both witnesses testified that the delivery was not initiated. - 35. In a letter dated $2^{nd}$ March 2020 (PE 13), the Plaintiff wrote to the Inspector General of Police regarding the contract. It was stated in the letter that the project seemed to have stalled due to budgetary issues at the Uganda Police Force and a request was made for a meeting to discuss the matter. In a letter dated 10^th June 2021 (PE 17) the manufacturer of the protective armour wrote to the Plaintiff advising them to secure the contract from the Uganda Police Force regarding the remaining part of the contract. The author of the letter stated as follows:

As previously stated, we could be prepared in a relatively short period in the coming quarter to complete the delivery and supply of said equipment with an approved contract agreement issued within the next week or so. If not, we unfortunately will need to make alternative arrangements to move these material prior to a financial fiscal year end to avoid issues with our U. S based auditing firm and tax *consequences from a corporate standpoint.*

*I would strongly advise you to seek an approved contract of supply authorization from UPF [Uganda Police Force] as soon* as possible prior to the upcoming holidays. If for some reason you need additional details from our end, please let me know.

We stand ready and able to complete these orders immediately and hope for a quick resolution to avoid finding

$\mathcal{X}$

an alternative buyer for the goods to recoup our heavy investment to date.

- On 13^th July 2020, (PE 12) the Plaintiff wrote another letter to the 36. Inspector General of Police stating in part as follows: "To date, only 20% of this order has come through to us and that order was delivered as per the required schedule. We respectfully request now that the remaining part of the contract is fulfilled, and that the further orders (as per the contract) of 50% (UGX. 7,248,228,549) and 30% (UGX. 4,348,937,129) are now placed so that we can execute the order in its entirety." - From the above letters, the Plaintiff and the manufacturer were 37. aware that there was need for the Uganda Police Force to place orders for phases 2 and 3 before they could be delivered. - The manufacturer undertook to complete delivery and supply of 38. the goods on submission of the contract by the Uganda Police Force. It should be noted that this was after the delivery of phase 1; therefore, the manufacturer was not referring to the contract signed on 2^nd November 2017. There is no record of another contract signed by the parties nor delivery for phases 2 and 3 That notwithstanding based on the claim from the initiated. Plaintiff the goods were manufactured and delivered to the Plaintiff and are in a warehouse incurring demurrage and storage charges. - It is therefore not clear under what circumstances the said goods 39. were delivered since the manufacturer was not willing to deliver until there was a signed contract in place. In addition, the stage at which the goods were at the time of the manufacturer's letter. it was possible for the manufacturer to sell them to another willing buyer. It should also be noted the letter was written after the stated delivery period for phases 2 & 3.

- I therefore find that under the contract the delivery of the goods 40. under phases 2 and 3 was supposed to be initiated by the Uganda Police Force. The initiation was never done. Therefore, there was no breach of contract by the Defendant. This issue is answered in the negative. - Having resolved the issues in the negative, this suit is dismissed 41. with costs to the Defendant.

## Dated this 12^th day of June 2024

Patricia Kahigi Asiimwe

Judge

Delivered on ECCMIS

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