UGANDA, Kampala | Real Muloodi News | The Court of Appeal has ordered a retrial of a dispute between UAP Insurance and National Housing & Construction Company over a performance bond.
The Commercial Division of the High Court had previously ordered UAP Insurance to pay $1.81m (USh6.8b), plus costs.
However, in a judgment by a panel of three judges led by Justice Richard Butera, the Court of Appeal set aside the ruling and referred the matter back to the Commercial Division of the High Court for retrial.
The court stated that the substance of the dispute between UAP Insurance and National Housing should be heard and determined on merit.
Background
On July 15, 2011, National Housing signed an agreement with NH-MKP Builders for the construction of condominium flats in Naalya, Kampala.
The contract sum was $18.13m (USh67.8b), and NH-MKP Builders subcontracted MKP Builders on July 22, 2011, to carry out the construction works.
NH-MKP was required to obtain a performance bond in favour of National Housing that would guarantee compliance with contractual obligations.
NH-MKP then signed an agreement with UAP Insurance for a performance bond of $1.81m (USh6.7b), payable to National Housing if NH-MKP failed to meet performance specifications under the contract. The bond would remain tenable until April 17, 2013.
Dispute
On February 4, 2013, National Housing filed a demand for payment of the performance bond, citing the failure of the main contractor NH-MKP to perform as required by the contract.
After a series of correspondences, UAP Insurance declined to pay the claimed sum, alleging that the bond and demand were vitiated by fraud and illegality.
National Housing subsequently sued UAP Insurance, seeking an order for payment of the disputed sum.
The Commercial Division of the High Court ruled in favour of National Housing on November 18, 2013.
Justice B Kainamura J ordered UAP Insurance to pay the sum under dispute, plus the cost of the suit.
However, UAP Insurance appealed the ruling on grounds that the trial judge had erred in law. UAP argued that the judge had issued a judgment without granting its application for leave of court to file a defence, despite conceding to the fact that there were triable issues.
UAP also claimed that the triable issues, including fraud, had not been tried on their merits.
Court of Appeal Ruling
In a ruling delivered on Wednesday, March 15, 2023, Justice Butera agreed with UAP Insurance, noting that once the trial judge had established that there were triable issues, the only option available was to allow a defence so that the matter could be heard on merit.
The court ruled that issuing a summary judgment without permitting UAP an opportunity to adduce evidence and prove its case amounted to locking UAP outside court.
The judgment was agreed to by the other two members of the panel, including Justice Catherine Bamugemereire and Justice Stephen Musota.
The Court of Appeal’s ruling in the UAP and National Housing dispute has set a precedent for the handling of future cases. The decision ensures that all parties have a fair chance to present their evidence and that disputes are determined on merit.
The case highlights the importance of performance bonds in ensuring that contractors meet their contractual obligations. It also emphasises the need for transparency and adherence to due process in dispute resolution.
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