Non- Performing Assets Recovery Trust (NPART ) v Amen Economic Stone Quarry Company Limited (Civil Appeal 18 of 1998)

Court of Appeal · [1999] UGCA 57 · 1999 Appeal Dismissed ✦ AI-generated summary ↓ Download

Jurisdiction

Uganda

Case Type

Civil appeal and cross-appeal from a decision of the Non-Performing Assets Recovery Tribunal

Decision

Both the main appeal and the cross-appeal dismissed; Tribunal's findings on liability upheld

The full judgment

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AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions — always read the source judgment before relying on it.

Holding

The Court of Appeal held that in an international sale of goods financed by an irrevocable letter of credit, the issuing bank owes the buyer a contractual duty to ensure that the stipulated documents conform to the order before paying the seller. The bank failed in this duty by paying against defective documents that disclosed discrepancies in weight, item count and invoice numbers, causing delivery of an unsuitable machine. The Court upheld the Tribunal's findings of undue influence in procuring the borrower's signature and the bank's liability for the loss, found no fraud in the loan figure, and confirmed the lorry's seizure for default. It dismissed both the main appeal and cross-appeal, apportioning costs equally.

Facts

The respondent obtained a loan of US$110,000 from Uganda Commercial Bank under a World Bank IDA project to rehabilitate its stone quarry, intending to import a Parker Hunter stone crushing machine from the United Kingdom. After the UK machine's price rose, a bank official recommended a Greek supplier. The respondent's managing director declined without a catalogue and returned to Soroti. The bank official then persuaded the managing director's son, who signed for importation of the Greek machine in his father's name. The Greek machine, when delivered, was found unfit and was refused. The bank had paid the seller against shipping documents containing discrepancies in weight, item count and invoice numbers compared with the pro-forma invoice. When the respondent defaulted, the loan was transferred to NPART, which impounded the respondent's lorry. The respondent sued before the Non-Performing Assets Recovery Tribunal, which allowed the claim regarding the stone crushing machine but dismissed the claim regarding the lorry.

Issues

Whether the importation of the Greek stone crushing machine was occasioned by undue influence exerted by the bank on the borrower.
Whether the issuing bank was responsible for assuring the quality, weight, make and specification of the imported machine and owed a duty to the borrower to ensure the goods conformed to the order.
Whether the borrower was liable to pay the purchase price for the Greek stone crusher and whether the borrower or the bank was obliged to take early steps to mitigate the loss.
Whether the bank fraudulently overstated the loan amount as US$110,000 instead of US$107,000.
Whether the bank was justified in impounding the borrower's lorry for default in servicing the loan.
Whether the Tribunal correctly exercised its discretion in apportioning costs.

Orders

Main appeal dismissed.
Cross-appeal dismissed.
Costs apportioned at 50% in favour of the appellant and 50% in favour of the respondent.

Key headnotes

Documentary Credits — Autonomous but Interconnected Contractual Relations in International Sale of Goods

In an international sale of goods financed by an irrevocable documentary credit, autonomous but interconnected contractual relations exist between the buyer and the issuing bank, between the issuing bank and the confirming bank, and between the confirming bank and the seller.

Issuing Bank's Duty — Verification of Conforming Documents Before Payment

An issuing bank owes the buyer a contractual duty to ensure that the stipulated documents, when presented, conform to the order before effecting payment to the seller, and is liable where it pays against deficient documents that a prudent business agent would have rejected.

Undue Influence — Bank's Pressure on Borrower to Accept Substitute Goods

A bank exerts undue influence where, in its role as a consultant and adviser to its customer, it pressures the borrower to sign for goods without supplying the requested catalogue and emphasises an imminent loan-expiry deadline to overcome the borrower's resistance.

Standard of Proof of Fraud — Higher Than Balance of Probabilities

The standard of proof of fraud, while not proof beyond reasonable doubt, is higher than a mere balance of probabilities; mere repetition of an arithmetical error across several documents does not per se prove fraud.

Costs — Appellate Interference with Trial Court's Discretion

An appellate court will interfere with a trial court's discretionary award of costs only where the court acted on a wrong principle or the award is so manifestly high or low as to occasion a miscarriage of justice.

Legislation cited (1)

Bank of Uganda (Pre-shipment Inspection of Imports) Regulations No. 90 of 1982 reg. 7

Cases cited (1)

United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1 AC 168

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