[2024] UGHCCD 149

#### **THE REPUBLIC OF UGANDA**

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

#### **(CIVIL DIVISION)**

#### **CIVIL SUIT NO.127 OF 2019**

# **TRADE MARK EAST AFRICA LIMITED:::::::::::::::::::::::::::::::::: PLAINTIFF VERSUS**

# **NATIONAL ORGANIC AGRICULTURAL MOVEMENT OF UGANDA LIMITED (NOGAMU)::::::::::::::::::::::::::::::::::::DEFENDANT BEFORE: HON. JUSTICE SSEKAANA MUSA**

#### **JUDGMENT**

The plaintiff's claim against the defendant is for a refund of the sum of \$ 72,980 an interest thereon at 11% per annum, general damages for breach of contract, and costs of the suit.

The Plaintiff established the Trade mark East Africa Research and Advisory Fund (TRAC) in 2012 and contracted with Nathan Associates London Limited (NALL) to implement and manage the TRAC Fund under a contract that commenced in May 2012 and was to act as the Plaintiff's agent to manage the TRAC FUND among others.

In March 2013, the Defendant and NALL signed a Grant Agreement where the Defendant was to receive USD 227,828 (Two hundred twenty-seven thousand eight hundred twenty-eight US Dollars) to purchase eight fruit dryers. Between March 2014 and December 2015 the Defendant received reimbursements totaling USD 227,493 (Two Hundred twenty-seven thousand four hundred ninety-three US Dollars to purchase five fruit dryers.

The Plaintiff avers that the Defendant breached the Agreement when it failed to contribute from its resources their portion of the cost of the fruit dryers, it received funds from another organization called SIDA to purchase six dryers which was never declared to Plaintiff as required by the Agreement, continued to represent that the consortium resources had not changed and dishonestly claimed reimbursement of funds from the Plaintiff for purchase of the six dryers using the documents and accountabilities of the second donor(SIDA) that advanced USD 72,980 (Seventy-two thousand nine hundred eighty US Dollars) to the Defendant yet it had never declared this alternative source of funds but claimed the cost of this cost of the fruit dryers from the Plaintiff.

The Defendant contends that the Plaintiff knew about the expansion of the capacity of the dryers and that the USD 72,980 (Seventy-two thousand nine hundred eighty US Dollars) was not misappropriated but used as the project implementation, that it co-funded the project through a loan from Stanbic Bank since the defendant is an NGO and not a profit making entity and therefore it contributed to the cost of procuring the fruit dryers using a loan from Stanbic Bank.

The Defendant further contends that the TRAC project was to procure the eight dryers but due to small capacity of the dryers, the defendant sought to expand the capacity which was undertaken by SIDA and the Plaintiff's officials knew about the expansion project therefore there was no dishonesty on the Defendant's side.

The Audit report was procured in an unprofessional way, the auditors did not interview the officials of the defendant who were in charge of the TRAC project and that the auditors did not understand how the TRAC and SIDA projects came about and for what purposes neither did they see the documents involved in the expansion project.

The parties were directed to file a joint scheduling memorandum and the same was filed with agreed facts, issues and documents which the defedant's counsel refused to sign but it was adopted by court.

## *Agreed facts*

- 1. The parties agreed that the Defendant was a beneficiary of the Trade mark East Africa Research and Advisory Fund (TRAC). - 2. The TRAC Fund was set up to support the scaling up of the export of Uganda's organic dried fruit to international markets in which the Defendant a consortium of Uganda organic fruit processors and exporters is involved. - 3. Between 2013 to 2015 the Defendant pursuant to the grant agreement requisitioned for and was paid the sum of USD 227,828 (Two hundred twenty-seven thousand eight hundred twenty-eight US Dollars) to purchase eight fruit dryers.

## *Proposed Issues*

- *1. Whether the defendant breached the grant agreement with the plaintiff?* - *2. Whether the defendant is laible to refund US\$ 72,980 to the plaintiff?* - *3. What remedies are available to the parties?*

*Order 15, rule 5(1)* of the *Civil Procedure Rules SI 71-1* gives court powers to amend issues, therefore the issues for determination are as follows;

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

#### *Representation.*

The plaintiff was represented by *Mr. Joseph Luswata* whereas the defendant was represented by *Ms. Juliet Oyum Otto.*

The plaintiff led evidence of 2 witnesses who testified in court by way of witness statements who were duly cross examined and the defendant led evidence of 2 witnesses who were duly cross examined.

The parties were directed to file written submissions, the Plaintiff filed their submissions whereas the Defendant did not. However, Court has considered all the evidence on the court file.

#### **DETERMINATION.**

#### *Whether the Defendant is liable for breach of contract?*

The plaintiff's counsel submitted that, Section 33 of the Contracts Act 2010 which provides that parties to a contract shall perform or offer to perform their respective promises unless the performance is dispensed with or excused under this Act or any other law.

It is his contention that both the plaintiff and the defendant were under a statutory and contractual duty to perform their obligations under the Grant Agreement lest they would be held in breach.

Breach of contract is the bearing of the obligation which a contract imposes which confers a right of action for damages on the injured party. It entitles him to treat the contract as discharged if the other party renounces the contract or makes the performance impossible or substantially fails to perform his promise, the victim is left suing for damages, treating the contract as discharged or seeking a discretionary remedy. See *Ronald Kasibante vs. Shell Uganda Ltd HCCS No.542 of 2006[2008] ULR 690.*

Counsel for the plaintiff submitted that Clause 5 of the Grant Agreement made it a condition that the fund manager would make disbursements of the grant in the arrears following submission of satisfactory invoices and accepted attainment of five (5) agreed milestones as was set out in Annexure C to the Grant Agreement. Further contends that it was confirmed at trial when DW1(Chariton D. B Namuwoza) testified that SIDA Funds were obtained and used in the purchase of the dryers but when she was cross examined if there was any proof to show that the fund manager knew about the funds being obtained from SIDA or any addendum was signed to allow the acquisition of funds from SIDA or the consent of the fund manager was obtained, all questions were answered in the negative.

Further submitted that Clause 7 of the Grant Agreement required that the consortium resources that were detailed in Annexure C and amounting to the equivalent of USD 173,802 be made available for utilization on the part of the defendant and its consortium partners prior to the commencement of the project, in signing in signing the agreement the defendant warranted that those consortium resources were identified and available for utilizations for the project ,free and unencumbered by any obligation to any third party to repay and unconditionally committed to the project subject to any conditions approved by Nathan Associated London LTD.

Therefore, this clause clearly required cost sharing of the USD 173,802 between the defendant and the project partners; Bio fresh limited, Bio Uganda Limited, Jali Organic Association, RUCID Limited and Africa 2000 Network (A2N), Sulma foods Limited , Flona Commodities Limited.

It is provided for in clause 12(c ) of the Grant agreement that Nathan Associates London Ltd would immediately terminate the Agreement and pay no further grant after termination if the defendant failed to inform Nathan Associates Ltd in writing within a reasonable time of any funding received in relation to the project to assist towards or otherwise defray the costs of the project in addition to those already disclosed to Nathan Associates London Ltd.

It was testified by PW1 (Kennedy Kamau Waituika) in paragraph 9 of the witness statement where the Audit report copy exhibited as PEXH2 established that the defendant had obtained funding from another donor, called SIDA Uganda which it used to purchase the fruit dryers, thereby committing double dipping that is obtaining funds from two sources for the same purpose.

Counsel for the submitted part of the TRAC Funds were misappropriated by the defendant and that the accountability for the said funds was not honest since the evidence on record clearly shows that there is no accountability for the sum of USD 72,980

During cross examination, the Defendant witnesses failed to prove that there was any communication from the defendant to the Fund manager or Plaintiff of this additional funding.

The plaintiff and defendant signed the Grant Agreement in 2013 and a year later in July 2014,the Defendant got into another grant Agreement with the embassy of Sweden (SIDA ) for a project known as '*the SISOTU project'* for the procurement of seven fruit dryers which is the same project being funded bt the TRAC fund since the beneficiaries under both Grant agreements were the same which was a violation of the contract.

It was stated in the defendant's witness statements of both DWI and DWII that the funds from SIDA complemented the TRAC funds and the plaintiff knew about the expansion project therefore there is no dishonesty on the defendant's side.

Counsel for the plaintiff further submitted that Clause 13(a) of the Grant Agreement provides that Nathan Associates London Limited would immediately terminate the agreement and at its discretion require all or any part of the Grant to be repaid if any claim of it was based on misleading information or falsified documentation or which was made in respect of costs which have not actually been incurred after that the date on which Agreement was made and discharged by payment by the defendant consortium partners on or before the date of claim.

Additionally, PWII testified that the claims for reimbursement in exhibits 4,5,6,7 and 8 were fraudulent and in breach of the grant agreement because the accountability provided by the defendant as justification for the reimbursement was for money obtained from another donor(SIDA). #### *Analysis*

### **Sec. 33 (1) of the Contracts Act 2010** which states that

" *the parties to the contract shall perform or offer to perform, their respective promises, unless the performance is dispensed with or excused under this Act or any other law"* which provision gives the parties room to dispense from the mode of performance of a contract as long as it is allowed under the Act.

#### **Section 67 of the Contracts Act 2010 which states** that

"*Where any right, duty or liability would rise under agreement or contract, it may be varied by the express agreement or by the course of the dealing between the parties or by usage or custom would bind both parties to the contract".*

The said variation must be agreed upon between the parties and once it is denied by one of the parties, then such variation cannot stand in the eyes of court unless proved against the party in denial. The law takes an objective rather than a subjective view of the existence of agreement and so its starting point is the manifestation of mutual assent by the parties to one another.

Agreement is not a mental state but an act, and as an act, it is a matter of inference from conduct. The parties are to be judged, not by what is in their minds, but by what they have said or written or done. *See Makubuya Enock v Songdoh Films (U) Ltd & Another HCCS No. 349 of 2017*

The parties to any contract and the court are bound by the terms or conditions in a contract, whether parole or written, between contracting parties. The courts lack the power to add or subtract from the terms of contract of parties and parties thereto are not allowed to unilaterally alter them. This has acquired the sobriquet and mantra of sanctity of contract which is expressed in the maxim, *pacta sunt servanda*, which means the nonfraudulent agreement of parties must be observed. *See Golden Const. Co Ltd v Stateco (Nig) Ltd (2014) 8 NWLR (pt 1408) p. 171.*

The plaintiff in his evidence clearly shows that the agreement between the parties had clear terms about disclose any other funding towards the project. According to PExh 1 clause 12(c) provided;

"Nathan Associates London Ltd may immediately terminate this agreement and shall be under no obligation to pay any further Grant in respect of the period after termination if:

*(c) the Organization fails to inform Nathan Associates London Ltd. In wrinting within a reasonable time of any other funding received in relation to the project to assist towards or otherwise defray the costs of the Project in addition to those already disclosed to Nathan Associates London Ltd"*

The plaintiff witness PWI testified that through an audit discovered that in 2017 the defendant had fraudulently procured fruit driers mainly on account of "double dipping". This arose after they had obtained funding from another donor called SIDA Uganda which ot used to purchase the fruit dryers, thereby committing double dipping, which means obtaining funds from two sources for the same purpose.

The defence witness in his testimony stated that they informed the plaintiff's agents about the need to buy bigger dryers and that the funds from SIDA were given to complement the TRAC funds which were not enough to buy the bigger dryers. There was no dishonesty and the plaintiff knew about the expansion of the capacity of the dryers project.

It is not in dispute that the defence of the defendant is that the agreement was varied upon communication from them to the plaintiff. It is clear this was a major variation which had to be clearly agreed upon and ought to have been in writing as envisaged under the contract. The defendants have not adduced any written document to confirm the variation of the original contract from specific dryers to bigger capacity which required extra funding from SIDA.

The court must treat as sacrosanct the terms of an agreement freely entered into by the parties. This is because parties to a contract enjoy their freedom to contract on their own terms as long as is lawful. The terms of a contract between parties are clothed with some degree of sanctity and if any question should arise with regard to the contract, the terms in any document which constitute the contract are invariably the guide to its interpretation. When parties enter into a contract, they are bound by the terms of the contract as set out by them.

The court's duty in interpreting contracts made by the parties and not rewriting them for the parties "*A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of the contract unless coercion, fraud or undue influence are pleaded and proved*" S*ee; National Bank of Kenya v Pipe Plastic Sankolit (K) Ltd & Anor [2001] EA.*

The defendant's contention that they informed the plaintiff and altered the earlier contract is unsatisfactory in many respects, is materially inconsistent with the admitted documentary evidence, and is irreconcilable with the inherent probabilities of having agreed to procure the dryers of a specific capacity. The change to a new dryers of bigger capacity ought to have involved signing of a new agreement which would alter the terms of the PExh 1.

An agreement of variation of an existing contract must itself possess the characteristics of a valid contract such as offer, acceptance and consideration. The defence witness alleged that there were emails sent to the plaintiff but they were not tendered in court. These alleged emails would have been the basis of the defence alleged variation of the contract, but in absence of such evidence, there was no variation of the agreement between the parties.

In conclusion, the defendant has failed to support their defense of having informed the plaintiff about the changes to the procurement of bigger size dryers or that they informed the plaintiff of the expansion project and had obtained money from another donor (SIDA). This was a clear breach of contract by the defendant.

# *What are the remedies available to the parties?*

Counsel for the Plaintiff submitted that the Plaintiff is entitled to general damages,interest ,costs and supported his submission with *Article 126(2) (c) of the Constitution of the republic of Uganda 1995 as amended* and that it is a discretionary remedy awarded to an aggrieved party to restore them in the position they would have been if it had not been for the infringement per the case of *Marurui Venkata vs. Bank of India (Uganda)Ltd HCCS No.804 of 2014*

Further submitted that where there is breach of contract, the party that suffers the breach is entitled to receive from the party who breaches the contract, compensation for any loss or damage caused by him or her *S.61 of the Contracts Act 2010*.

The rule of common law is that where a party sustains a loss by reason of breach of contract, he is , so far as money can do it , to be placed in the same situation with respect to damages as if the contract had been performed per the case of *Kibimba Rice Ltd vs. Untar Sazim S. C Civil Appeal No.17 of 1992*.

## *Analysis*

The court has found the defendant liable for breach of contract and this would entitle the plaintiff to damages as a compensation for any loss or damage caused to them.

The essence of damages is compensatory. It is neither to punish the defendant nor confer a windfall on the claimant. It is not also meant to punish the claimant and allowthe defendant to go without repairing the actual loss caused to the claimant. The authors of *Halsbury's Laws of* *England, 4th Edition Volume 12(1) Paragrah 942* explained the function of damages for breach of contract;

*"The normal function of damges for breach of contract is compensatory, damages are not awarded to punish the party or to confer a windfall on the innocent party, but to compensate a party and repair his actual loss."*

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such a breach of contract should be such as may fairly and reasonably be considered either as arising naturally, i.e. according to the natural course of things, from such breach of contract itself or such as may be reasonably be supposed to have been in contemplation of both parties, at the time they made the contract as the propbable result of the breach.

If the plaintiff has suffered damage that is not too remote, he must, as far as money can do it, be restored to the position he would have been in had that particular damage not occurred….this means the plaintiff has to be put in position he would have achieved if the contract were performed, and he is allowed to recover damages on the basis of returning him to the position before the contract was made. The amount of damage adjudged to be due to him must be assessed as at the time the contract was broken. See *Muller v Home Finance [2012] 55 GMJ 69 SC*

The plaintiff in this matter is entitled to a refund of the funds advanced for the project in a sum of \$ 72,980. The plaintiff is awarded interest of 2% per annum from the date of judgment and Costs of the suit.

I so order.

*SSEKAANA MUSA JUDGE 12th September 2024*