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

Eladam Enterprises Ltd v SGS (U) Ltd & Ors (Civil Appeal-2002/20) [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 accordance with the Proforma Invoice No.13/95 dated 05/07/95(Exhibit P.3). The invoice described the materials to be supplied as 67% polyester, 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 (Pre-Shipment 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 the 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 the colour described as U/Brown. The delivery time, the description of the goods, the colour was not in accordance with the agreed terms. 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 dyed.

  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. The 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 and 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. 261,607,500/=.

  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 contract 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 without carrying out pre-inspection of the goods. It undertook to pay the penalty.

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 fabrics.

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 and 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 sought.

The appellant called three witnesses to prove its claim. The respondents called a total of four witnesses. At the end of the trial, the learned trial judge answered the first issue in the negative and dismissed the suit against it with costs. The second, third and fourth issues were answered in the affirmative. She found that there was a breach of contract by the second and third respondents in that they failed to carry out proper inspection of the goods. She found that as a result of the failure, the appellant suffered 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 appeal 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 first respondent.

  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 admitted 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 appellant.

  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 namely:

  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 of 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. I 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 appellant paid for any of the goods that was allegedly inspected by the second respondent. The only evidence of payment that was properly documented was the inspection fee that was paid to the first respondent through Bank of Baroda. Be that at may, the process of pre-shipment inspection of goods is commenced by an application being made to Bank of Uganda by the person intending to import such goods. This 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 other 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 and 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 adjustments to the quality, quantity or price of the goods, as the case may be, the Inspecting Authority may issue a Clean Report of Findings 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 are about five Clean Reports of Findings issued in a document with the letterheads of Societe Generale de Surveillance S.A Geneve SUISSE, 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 Authority.

(2) For purposes of this regulation,"Societe Generale De Surveillance S.A." includes all its subsidiaries, affiliates, agents 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 Inspecting 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 the 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, submitted 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 and 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 first respondent. He stated that she reviewed the operational structure of the S.G.S. group of companies and the testimony of Eyasu Sirak (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 trial judge stated in her judgement that there was no complaint against the first respondent, in my opinion, the appellant had a complaint 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 Rivatex 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