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Court of Appeal Saves UAP Insurance From Paying National Housing UGX 7b

UAP Insurance Company Limited is breathing with a sigh of relief after the Court of Appeal sitting in Kampala quashed an order by the High Court to pay National Housing and Construction Company Limited 6.788 Billion Shillings over a breach of contract.

UAP insurance was dissatisfied with the ruling of Commercial Court judge, Billy Kainamura who in 2013 refused to grant them leave to defend a suit in which National Housing was claiming the money.

In July 2011, National Housing signed a contract with NH-MKP Builders Limited (NH-MKP) for the construction of condominium apartments in Naalya at a cost of $ 18.13 million. NH-MKP also signed a subcontract with M/S MKP Builders SDN BHD to undertake the construction.

According to the contract, M/S NH-MKP Builders Ltd was required to obtain a performance bond in favor of National Housing as security for compliance with its obligations in the contract. In November of 2011, M/S NH- MKP Builders Ltd executed a Performance Bond with UAP Insurance in favor of National Housing in which it was agreed that UAP pays 6.7 Billion Shillings upon demand without needing to prove or show grounds or reasons for its demand for the money agreed upon.

In February 2013, National Housing made a demand but UAP insurance declined to pay saying that it was not liable for the Performance Bond. This is what forced National Housing to rush to court in Civil Suit No. 427 of 2013 seeking to recover the money secured by the bond. UAP filed an application for leave to appear and defend, arguing that the Bond and the demand were vitiated by fraud and illegality.

However, in his November 2013 ruling, Judge Kainamura rejected the application and instead ordered that UAP pays the bond money and also meet the cost of the suit. Dissatisfied, UAP appealed the ruling arguing that the Judge erred in law and fact in holding that there were no triable issues raised for them to defend themselves.

In a unanimous judgment written by Justice Richard Butera, the Court held that, although summary procedures are provided for in the rules governing court, it is important to balance the need to expeditiously dispose of commercial cases with that of ensuring that a party that has adduced evidence to show that there are triable issues or that they have a good defense is not locked out.

“Fortunately, in cases where the court may have some doubt as to the strength or veracity of the proposed defense, it may proceed to grant conditional leave. The essence is that a person is not denied the all-important need of being heard. It is my view that once the court established that there were triable issues, the only option available to the learned trial Judge was to allow the application and give time to the appellant to file its defense so that the matter could be heard on merit.

Butera added, “That did not happen. It does not matter that the learned Judge may have correctly resolved the said issues. Doing so without permitting the appellant an opportunity to also adduce evidence and prove its case would amount to locking the appellant outside court. It equally does not matter that the triable issues may not eventually be decided in the applicant’s favor. Ultimately, what is important is that a party is accorded the right to be heard,” Butera’s judgment reads in part.

Consequently, he set aside the high court ruling and allowed UAP’s application for leave to challenge the suit. The judge also ordered that the high court retries the matter so that the substance of the dispute is heard and determined on merit. He also ordered National Housing to pay the cost of the suit not only in the Court of Appeal but also in the High Court. The other justices on the panel were Catherine Bamugemereire and Stephen Musota.

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