Court name
Court of Appeal of Uganda
Case number
Civil Appeal 20 of 2002
Judgment date
1 September 2004

Eladam Enterprises Ltd v SGS (U) Ltd & Ors (Civil Appeal 20 of 2002) [2004] UGCA 1 (01 September 2004);

Cite this case
[2004] UGCA 1










ELADAM ENTERPRISES LTD::::::::::::::::::::::::::::: APPELLANT


  1. S.G.S(U)LTD

2. S.G.S (K) LTD


[Appeal from the judgment of the High Court of Uganda sitting
at Kampala (
Arach-Amoko J) dated 11th
February 2002 in HCCS NO.187/98]


The appellant herein, by its amended plaint filed in the High Court
on the 15th December 1998, sued the three respondents
jointly and severally for special and general damages for breach of
contract. The facts
that led to the institution of the action as
accepted by the trial judge are the following. In 1995, the appellant
got a tender to
supply army uniforms to the Ministry of Defence. It
contracted a Kenya based textile company Rift Valley Textiles Ltd
(Rivatex) to
supply 175 bales of suiting fabric for the making of the
uniforms. The materials were worth US. $ 168,000. This was in
with the Proforma Invoice No.13/95 dated 05/07/95(Exhibit
P.3). The invoice described the materials to be supplied as 67%
33% cotton and the shade as UG B R421. At the time
material to this appeal, the third respondent was the Inspecting
Authority appointed
for the inspection of all imports whose value
exceeded US. $ 10,000. This was in compliance with The Bank of Uganda
Inspection of Imports) Regulations, 1982
(S.I.No.90/82). The duties of the Inspecting authority was to inspect
the goods and satisfy
itself that all the requirements have been
complied with and then issue a Clean Report of Findings certifying
that the goods have
passed all the necessary inspection requirements.
The appellant duly paid the sum of US $1,368 as inspection fee
through the first
respondent. The second respondent carried out the
physical inspection of the goods and issued the reports.

The appellant contended that the respondents failed and or neglected
to carry out proper inspection of the goods in accordance with
agreed terms and conditions of the pre-shipment inspection contract.
The particulars of negligence were tabulated as follows:

  1. The respondents failed and or neglected to inspect the first
    consignment of 6,377 metres as the proforma invoice came without an
    accompanying inspection report. As a result of this failure, the
    appellant alleged that it was penalised by the Uganda Revenue
    Authority in the sum of Ug.shs 497,818/=

  2. The second consignment of 30 bales (17,087 metres) was described as
    67 % polyester and 33% cotton plain weave dyed fabrics and
    colour described as U/Brown. The delivery time, the description of
    the goods, the colour was not in accordance with the agreed
    The report was marked exhibit P.12.

  3. The third consignment of 10, 800 metres were described in the report
    (exhibit P.18) as 67% polyester and 33% cotton plain weave

  4. The fourth consignment of 20 bales was also described in the report
    (exhibit P.26) as in the above reports.

  5. The 5th consignment of 33 bales was loaded and shipped to
    Jinja on 4th November 1995.

  6. The 6th consignment of 18 bales was loaded on 9th
    November 1995 and sent to Jinja, whereas the inspection report was
    dated 10th November.

  7. The failure to carry out the pre-shipment inspection in time led to
    delay in delivery of the goods and a loss of 105 working days.
    appellant carried out laboratory tests on the materials and the
    results indicated that the fabric was not UGB 421 and the materials
    were not suiting fabric.

As a result of the above breaches, the appellant alleged that it
suffered loss and damaged that were particularised under special
general damages. The particulars of special damages were stated to be
the following:

  1. Loss of profits amounting to Ug. Sh.s 43,275,190/=.

  2. Expenses on laboratory analysis and mailing charges - Ug.shs.332/=.

  3. Loss of profit for 105 days of production lost Ug.shs.

  4. Cost of labour during idle time Ug.shs. 32,067.000/=.

  5. Costs of shortage in quality supplied Ug.shs. 49,834,239/=.

General damages were claimed for breach of contract, negligence,
inconvenience, loss of time, reputation and goodwill. The appellant
also claimed interest at the rate of 23% on special damages from
December 1995 till payment in full and on general damages at court
rate from the date of filing the suit till payment in full.

The first respondent filed a written statement of defence in which it
averred in paragraph 3 thereof that the suit was bad in law
in that
it did not disclose a cause of action against it. It was further
averred that the first respondent was not a party to the
that was being complained of directly or indirectly. It was averred
in paragraph 4 that it was the second respondent which
issued the
inspection report and as such the contract was made between the
appellant and the second respondent.

In paragraph 6 it averred that it received payment from the appellant
on behalf of the second respondent and its role was limited
to acting
as agent only in so far as the transmission of the funds was required
and not as to the performance of the inspection.

The second and third respondents in their joint written statements of
defence also denied any wrongdoing. On the first consignment
of the
goods that was allegedly not inspected, the respondents averred that
the appellant instructed the supplier to ship the goods
carrying out pre-inspection of the goods. It undertook to pay the

On the other consignments, it was averred that the second respondent
carried out the inspection and discovered that there were defects,
which it brought to the attention of the appellant. The respondents
further stated that by various correspondences dated 5th
September 1995(exhibit P.14); 18th September'95 (exhibit
P.22) and 5th October'95 (exhibit P.22) the supplier of
the materials undertook to replace all the defective materials
supplied by it. It was further
averred that a representative of the
supplier came to collect the materials but discovered that the
appellant had used up all the

They denied that the appellant suffered any loss and if such loss
occurred, it was not occasioned by any breach of duty or negligence
on their part. In particular the second respondent contended that its
duty was to inspect the goods put at its disposal and was not
supposed to ensure delivery of the same. It was further averred that
the second respondent carried out inspection of all consignments
pointed out the defects, which it brought to the attention of the
appellant. They prayed for the dismissal of the suit with costs.

At the commencement of the trial, the following issues were framed
for court's determination: -

  1. Whether there was a contract between the appellant and the first
    respondent and if so, what were the terms?

  2. What were the terms of the contract between the 2nd
    and 3rd respondents?

  3. Whether the respondents were in breach of any of its terms.

  4. Whether the appellant/plaintiff suffered any loss and/or damage.

  5. Whether the appellant/plaintiff was entitled to the reliefs

The appellant called three witnesses to prove its claim. The
respondents called a total of four witnesses. At the end of the
the learned trial judge answered the first issue in the
negative and dismissed the suit against it with costs. The second,
and fourth issues were answered in the affirmative. She found
that there was a breach of contract by the second and third
in that they failed to carry out proper inspection of the
goods. She found that as a result of the failure, the appellant
damage for which the second and third respondents were
liable. She awarded the sum of Ug. Shs 352,000/= as special
damages; shs 50 million as general damages. The two sums to
carry interest at the rate of 15% from the date of judgement till
payment in full.
She awarded the appellant costs of the suit.

Being dissatisfied with the judgement and the orders made, the
appellant/plaintiff filed the instant appeal. The memorandum of
filed on its behalf contains the following grounds: -

  1. In view of the evidence, the learned trial judge erred in law and
    fact when she held that there was no breach of contract by the

  2. The learned trial judge erred in law and fact when she failed to
    evaluate evidence on record and held that the appellant failed to
    prove the special damage claimed in the plaint.

  3. The learned judge erred in law and fact when in reaching her
    decision she failed to take into account and give effect to the
    facts or facts not in dispute.

It was proposed to ask the court for an order that:

  1. the appellant's appeal be allowed.

  2. Special damages disallowed in the lower court be awarded to the

  3. The appellant be awarded costs of the appeal here and below.

The second and third respondents filed a cross-appeal premised on the
following grounds:

  1. The learned Judge having held that the pre-shipment inspection
    was to be carried out by the second respondent erred in law and fact
    when she at the same time included the 3rd respondent
    when she held that 2nd and 3rd respondents did
    not carry out a proper inspection.

  2. In view of the respondents' evidence particularly D.W.4 and D.W.5
    the learned trial judge came to the wrong decision when she held
    that the second respondent did not carry out proper inspection.

  3. The learned trial judge erred in law and fact when she held that
    there was colour variation when there was no evidence to suggest
    that the sample shown to court came from the consignment which was
    inspected by the second respondent.

  4. The learned trial Judge erred in law and fact when she awarded
    the appellant the sum of shs 50 million as general damages.

The respondents proposed to ask this court for the following orders

  1. the finding that there no proper inspection by the second and third
    respondents be reversed.

  2. The finding that the second respondent cleared materials with colour
    variation be reversed.

  3. The order granting general damages of shs 50 million to the
    appellant be reversed.

Both advocates filed written submissions. Before I deal with the
submissions, I consider it important to set deal with the issue
the contract to inspect the goods in question. When I read the record
of the proceedings and the submissions of both counsel filed
in this
court, they all seem to state that the contract to inspect the goods
was oral. To me this is not legally correct. The inspection
of goods
whose value exceeds US $ 10,000 is a legal requirement. The
provisions of S.I.No.90/82 govern the inspection of such goods.
shall now examine the said regulations and determine whether the
respondents or any of them breached them. Regulation 1(1) states
as follows:

"No payment shall be made in or outside Uganda by or on
the authority of the Bank of Uganda, or any licensed bank in Uganda,
to the
credit of any person, in respect of goods subject to
pre-shipment inspection under these Regulations, unless and until a
Clean Report
of Findings issued under regulations 5 of these
Regulations in respect of such goods, is presented together with the
relevant shipping
documents to an authorised bank".

The wording of this regulation is clear and unambiguous and speaks
for itself in that no importer of goods can pay for the same until
and unless the Inspecting Authority has issued a Clean Report of
Findings. There was no evidence in this case to show that the
paid for any of the goods that was allegedly inspected by
the second respondent. The only evidence of payment that was properly
was the inspection fee that was paid to the first
respondent through Bank of Baroda. Be that at may, the process of
inspection of goods is commenced by an application being
made to Bank of Uganda by the person intending to import such goods.
is provided for under regulation 3(1) of the regulations.
The appellant made such an application and Bank of Uganda issued
the relevant order for inspection of the goods in the form of Import
Declaration: Form E (exhibit P.4).

The duties of the importer and the seller are spelt out under
regulation 4, which states as follows:

"Where the Bank of Uganda issues an inspection order under
regulation 3 of these Regulations, it shall be the duty of the person
intending to import the goods into Uganda to ensure that the seller
of such goods,

  1. gives no less than fourteen days' notice to the Inspecting
    authority prior to the proposed date of pre-shipment inspection;

  2. provides the inspecting authority with full inspection access
    to the goods.

  3. provides the Inspecting Authority with all necessary
    facilities for carrying out quality and quantity inspection and
    price comparisons,
    and conducting all such tests, analyses and other
    processes as may be required in the circumstances;

  4. Makes all the necessary arrangements for the handling,
    presentation, unpacking and repacking sampling, shop-testing and any
    thing required in connection with the inspection of the goods;

  5. Provides the Inspecting Authority with a copy of the pro-forma
    invoice, indent, purchase agreement, sale note, price list, tender
    papers and any other document relevant to the importation of the
    goods, which the Inspecting Authority may consider necessary;

  6. Submits to the Inspecting Authority a copy of the final
    settlement invoice covering the goods;

  7. Complies with such other conditions as may be prescribed".

Regulation 5 governs the issuance of reports by the
Inspecting Authority.

It provides as follows:

"(1) Where after inspection of the goods the Inspecting
Authority is satisfied that all the necessary requirements have been
complied with, the Inspecting Authority shall issue to the seller of
the goods a "Clean Report of Findings" which shall
be a
document certifying that the goods have passed all the necessary
pre-shipment inspection requirements".

(2) Where the inspection of goods reveals any discrepancies or
anomalies, the Inspecting Authority shall issue to the seller of the
goods a "No-negotiable Report of Findings" which shall be a
document describing the discrepancies or anomalies ascertained
such Report shall not be acceptable for document negotiation".

(3) Where a seller subsequent to the issuance of a
Non-negotiable Report Findings, makes the necessary and acceptable
to the quality, quantity or price of the goods, as the
case may be, the Inspecting Authority may issue a Clean Report of
in respect of such goods: provided the seller pays all the
expenses of any additional further inspection".

These provisions are also couched in mandatory terms as for as the
issuing of the reports is concerned. In the instant appeal, there
about five Clean Reports of Findings issued in a document with the
letterheads of Societe Generale de Surveillance S.A Geneve
the third respondent. They were marked as exhibits P.12; P.20, P.26;
P.29, and P.34.

The last regulation to consider is regulation 6, which states
as follows:

"(1) The Societe Generale de Surveillance S.A. of 1, Place
des Alpes, Geneva, Switzerland, is hereby appointed the Inspecting

(2) For purposes of this regulation,"Societe Generale De
Surveillance S.A." includes all its subsidiaries, affiliates,
and other authorised representatives thereof".

The purpose of this regulation is to make all the offices
representing the third respondent in any country in the world an
Authority for purposes of the regulations. To me, this
would make the respondents liable jointly and severally for any
breach or
breaches that might occur in the inspection process, that
ca be attributed to them either directly or indirectly.

I will now turn to the submissions of the parties. The appellant
filed two written submissions by different law firms. I shall use
submissions that were filed in this court on 08/04/04. The first
ground of appeal stated that the learned trial judge erred in
law and
fact when she held that there was no breach of contract by the first
respondent. Mr Ntende, learned counsel for the appellant,
that the judge was wrong to hold that there was no contract. Counsel
pointed out evidence that he considered established
a contractual
relationship between the appellant and the first respondent. He
claimed that the appellant had a problem of importing
70,000 metres
of fabrics, which needed pre-shipment inspection. He stated that
through Bank of Baroda, the first respondent was approached
to do
this work and the requisite fee was paid to it and it accepted
payment. Learned counsel contended that the work of the first
respondent was not limited to transmission of money and inspection
documents to the second and third respondents, but it was to carry
out the inspections itself.

He pointed out various instances which he claimed point to the first
respondent as being responsible for the inspection of the goods
therefore liable for failure to carry out the inspection properly.

On the other hand, Mr Peter Mulira, learned counsel for the
respondents, supported the judge's conclusions on the role of the
respondent. He stated that she reviewed the operational
structure of the S.G.S. group of companies and the testimony of Eyasu
(P.W.1); Judith Muwesa (D.W.1); Sarah Mugenyi (D.W.2); Acuci
Emmanuel (D.W.3) and Josephat Kahiri Njogu (D.W.4) before coming to
the conclusion that the inspection had to be carried out by the
second respondent. He invited us to uphold the judge's finding that
there was no cause of action against the first respondent.

In order to resolve the issue raised in the first ground of appeal,
regard must be had to the provisions of the regulations I cited
above. The regulations especially regulation 4 impose obligations on
the importer of goods that are a subject of pre-shipment inspection.
The appellant complained in the plaint that the respondents were in
breach of their statutory duties. Contrary to what the learned
judge stated in her judgement that there was no complaint against the
first respondent, in my opinion, the appellant had a
against all the respondents in that they breached their statutory
duties. In my humble opinion, all the respondents owed
the appellant
a statutory duty to inspect the goods once the appellant fulfilled
its own statutory obligations. The appellant paid
for their services.
It applied to Bank of Uganda for the goods to be inspected through
the first respondent. The testimony of Josephat
Kahiri Njogu (D.W.4)
was instructive on the role of the first respondent. At page 63 of
the record he said:

"I received instructions on the 17/7/95. This was through
an Import Declaration Form "E"- originating from our office
in Uganda. It had a stamp from SGS Uganda dated 13/7/95. The document
had been processed on the 12/7/95. The document was between
Limited of Kenya, and Eladam Enterprises of Jinja, Uganda. It was for
a consigmnent of 70,000 metres of polyester cotton
materials. It was
accompanied by a Proforma Invoice No.13/95 and on top of that the
Proforma Invoice had a description of the materials
which was suiting
fabric 67% polyester and 33% cotton