Cairo International Bank vs Sadique [2011] UGSC 27

Supreme Court · 2011 Appeal Dismissed ✦ AI-generated summary ↓ Download

Jurisdiction

Uganda

Case Type

Second appeal to the Supreme Court from a Court of Appeal decision that reversed the High Court's dismissal of a summary suit on a bank guarantee

Decision

Appeal dismissed; the Court of Appeal's judgment in favour of the respondent upheld, with the interest rate reduced to 10% per annum from the date of the High Court decision.

The full judgment

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Holding

The Supreme Court dismissed the bank's second appeal, upholding the Court of Appeal's finding that the guarantee was enforceable. The condition precedent requiring tax clearance certificates concerned the assets sold, not the respondent or his companies personally, and was in any event superfluous because the capital assets were disposed of before 1 April 1998 and attracted no tax under section 166(7) of the Income Tax Act. As the guarantee did not specify the form of demand, the respondent's unchallenged oral demands sufficed. On interest, however, the award of 18% from the date of filing the suit was varied: interest was reduced to 10% per annum running from the date of the High Court decision.

Facts

On 3 March 1998 the respondent and Victoria Quarries and Aggregate (U) Ltd sold land, developments and machinery comprised in Kyadondo Block 195, Plot 190 to Ayosama Ltd for US$500,000. Ayosama Ltd paid half the price; the balance of US$250,000 was to be paid by the appellant bank in twelve monthly installments from 10 June 1998 to 10 May 1999 under a letter of guarantee dated 6 March 1998. The guarantee was accompanied by an undated condition precedent stating that payment would be made only on production of written clearance from the Uganda Revenue Authority of all taxes payable in respect of the quarry assets, and after three calendar months. The principal debtor defaulted. The respondent demanded payment, including by repeated oral demands at the bank, but the appellant declined to pay, insisting the respondent personally produce tax clearance certificates. The respondent filed a summary suit to recover the guaranteed sum.

Issues

Whether the Court of Appeal erred in holding that the respondent and his companies were not required to produce tax clearance certificates as a condition precedent to enforcement of the guarantee.
Whether the Court of Appeal erred in awarding interest of 18% per annum on US$250,000 from the date of filing the suit.

Orders

Appeal dismissed with costs to the respondent in the Supreme Court and in the two courts below.
Fifth issue (interest) allowed in part.
Interest on US$250,000 reduced from 18% to 10% per annum, running from the date of the High Court decision.

Key headnotes

Contract Law — Guarantees — Construction of a Condition Precedent

A condition precedent in a guarantee requiring production of tax clearance certificates in respect of the assets sold does not oblige the beneficiary to produce personal tax clearance certificates for himself or his companies, and a guarantor cannot avoid liability by demanding compliance with conditions wider than those the instrument actually imposes.

Contract Law — Guarantees — Form of Demand

Where a guarantee does not stipulate the form a demand must take, an oral demand is sufficient to trigger the guarantor's obligation, and unchallenged evidence of such demand must be accepted.

Civil Procedure — Award of Interest — Civil Procedure Act s.27

The rate of interest and the date from which it runs are matters within the court's discretion under section 27 of the Civil Procedure Act, but an award must conform to the pleadings; where the plaint claims interest only from the date of judgment, the court may not award interest from the date of filing the suit, and a higher rate unsupported by evidence will be reduced.

Civil Procedure — Appeals — Reframing Grounds as Issues without Leave

Grounds of objection set out in a memorandum of appeal under Rules 79 and 82 cannot be reduced to or reframed as "issues" without the leave of court, and Rule 98 bars argument on any basis not specified in the memorandum without such leave.

Legislation cited (10)

Income Tax Act s.166(7)
Income Tax Act s.18(1)(a)
Income Tax Act s.22(1)(b)
Civil Procedure Act s.27(2)
Civil Procedure Act s.27(3)
Rules of the Supreme Court r.79
Rules of the Supreme Court r.82(1)
Rules of the Supreme Court r.98(a)
Rules of the Supreme Court r.17
Rules of the Supreme Court r.83(3)

Cases cited (5)

Twiga Chemical Industries v Viola Bamusedde t/a Tripple B. Enterprises (Civil Appeal No. 16 of 2004)
Milton Obote Foundation v Kenon Trading (Civil Appeal No. 25 of 1995)
Bank of Baroda v Kamugino (Civil Appeal No. 10 of 2004)
Kimani v Attorney General (1969) EA 503
SIETCO Vs Noble Builder (U) Ltd- Sup. Court Civil Appeal

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