Wakilii

Dr. Maj. Rtd Anthony Jallon Okullo v Attorney General (Civil Appeal No. 3 of 2020)

Supreme Court · [2025] UGSC 32 · 2025 Appeal Partly Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Second appeal to the Supreme Court from a Court of Appeal decision (sitting as first appellate court) arising from a High Court civil suit for breach of contract.
Decision
Appeal substantially allowed; Court of Appeal decision set aside; compound interest restored, and the Appellant awarded USD 790,262 special/liquidated damages and UGX 500,000,000 general damages, with interest.

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Cited — treatment unverified cited in 6 (treatment unverified) Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

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Holding

The Appellant contracted with Government for medical services with 24% compound interest on delayed payment; Government paid only the principal after 25 years. The Supreme Court, by majority, held that section 26(1) of the Civil Procedure Act empowers a court to interfere only with the rate of agreed interest, not its type, so the Court of Appeal erred in substituting compound with simple interest. The 24% compound rate over 25 years was nonetheless harsh and unconscionable; the rate was reduced to 9% compound, yielding USD 790,262 as special/liquidated damages. The Court of Appeal's reduction of general damages was set aside and UGX 500,000,000 restored. The appeal was substantially allowed.

Facts

In 1988 the Ministry of Defence contracted the Appellant, a medical doctor, to treat an ailing former rebel leader at Government expense, agreeing to pay later. The Appellant treated the patient in Uganda and abroad until the patient died, and conducted a post-mortem at Government's request. He submitted invoices totalling USD 93,150. The parties agreed the sum would carry 24% compound interest per annum to cater for delay and currency fluctuation. Government took 25 years to pay only the principal, in two instalments in 2011 and 2012, leaving the accrued interest outstanding. Using his own funds, the Appellant had earlier mortgaged and later lost his house, attributing this to the delay. He sued in the High Court, which upheld compound interest but reduced the rate to 15% and awarded UGX 500,000,000 general damages. The Court of Appeal substituted simple interest at 6% and reduced general damages to UGX 50,000,000. The Appellant appealed to the Supreme Court.

Issues

  1. Whether, under section 26(1) of the Civil Procedure Act, a court's discretion to interfere with agreed interest extends to varying the type of interest (compound to simple) or is limited to varying the rate only.
  2. Whether the Court of Appeal was right to apply section 26(1) of the Civil Procedure Act instead of section 26(2), which the trial judge had applied.
  3. Whether the compound interest rate of 24% per annum agreed upon by the parties, and the 15% rate imposed by the trial court, were harsh and unconscionable.
  4. Whether the Court of Appeal injudiciously interfered with the trial court's discretion and relied on extraneous and irrelevant considerations.
  5. Whether the Appellant was entitled to general damages for breach of contract in addition to the interest awarded.

Orders

  • Pursuant to section 26(1) of the Civil Procedure Act, the court has no power to vary the compound interest agreed upon by the parties.
  • The decision of the Court of Appeal is set aside.
  • The Appellant is awarded special/liquidated damages of USD 790,262, which accrued as compound interest.
  • The Appellant is awarded UGX 500,000,000 as general damages.
  • The special/liquidated damages shall bear simple interest at 15% per annum from the date of the High Court judgment until payment in full.
  • The general damages shall bear simple interest at 6% per annum from the date of the High Court judgment until payment in full.
  • The Appellant is awarded two-thirds of the costs of this appeal and full costs in the lower courts.

Key headnotes

Contract Law — Interest — Section 26(1) Civil Procedure Act — Scope of court's discretion limited to rate, not type, of agreed interest
Under section 26(1) of the Civil Procedure Act, a court's discretionary power to interfere with interest agreed upon by contracting parties is restricted to varying the rate of interest where it is harsh and unconscionable; it does not extend to altering the type of interest, such as substituting compound interest with simple interest.
Contract Law — Penalty Clauses — Codification of common law penalty rule in section 26(1) Civil Procedure Act
Section 26(1) of the Civil Procedure Act is a codification of the common law principles on penalty clauses; a court may interfere with an agreed interest rate only where, applying the freedom-of-contract and penalty-rule principles, the rate is shown to be harsh and unconscionable rather than compensatory.
Damages & Quantum — Interest as compensation — Commercial transactions attract higher, commercial rates of interest
Interest awarded on a sum wrongfully withheld is compensatory and equivalent to damages for deprivation of the use of money; in commercial transactions, particularly in foreign currency, the court awards interest at commercial rates to restore the innocent party to the position it would have occupied had the contract been performed.
Contract Law — Commercial transaction — Professional services rendered for a fee using one's own funds
Professional medical services rendered for an agreed fee, including the use of the provider's own funds, constitute a commercial transaction; interest agreed in anticipation of default on such a transaction is properly assessed at commercial rates and is not, by reason only of being compound interest, a penalty.
Damages & Quantum — General damages for breach of contract — Relationship between interest and general damages
Where interest already compensates a claimant for the monetary loss flowing from delayed payment, an award of general damages for breach of contract addresses distinct non-monetary loss such as anguish and anxiety; the court is divided on whether such general damages must accordingly be modest, but the claimant must prove a causal connection between any claimed consequential loss and the breach.
Statutory Interpretation — Literal versus purposive construction of section 26(1) Civil Procedure Act
The majority construed section 26(1) of the Civil Procedure Act literally as confining the court to varying the rate of interest, while minority opinions favoured a purposive or holistic construction permitting the court to consider both rate and type of interest in assessing whether the resultant interest is harsh and unconscionable.
Civil Procedure — Section 26(1) versus 26(2) and (3) Civil Procedure Act — Interest agreed by parties versus interest on court-decreed sums
Section 26(1) of the Civil Procedure Act governs interference with interest agreed by the parties to a contract, whereas sections 26(2) and (3) confer discretion over interest on monetary awards decreed by the court; a trial judge dealing with agreed contractual interest should proceed under section 26(1).

Legislation cited (12)

  • Civil Procedure Act s.26(1)
  • Civil Procedure Act s.26(2)
  • Civil Procedure Act s.26(3)
  • Judicature Act s.7
  • Judicature (Supreme Court Rules) Directions Rule 30(1)
  • Bank of Uganda Act s.33(4)
  • Evidence Act s.55
  • Evidence Act s.56
  • Constitution of Uganda 1995 art.25
  • Constitution of Uganda 1995 art.126(1)
  • Constitution of Uganda 1995 art.134(4)
  • Bank of Uganda (Minimum Interest Rates on Deposits and Maximum Rates on Advances) Instrument No. 11 of 1991

Cases cited (31)

  • Twiga Chemicals Industries v Viola Bamusedde (Civil Appeal No. 16 of 2004)
  • Milly Masembe v Sugar Corporation and Anor (Civil Appeal No. 1 of 2000)
  • Kifamunte Henry v Uganda (Criminal Appeal No. 10 of 1997)
  • Pandya vs. R. (1957) E.A. 336
  • Prem Lata v Peter Musa Mbiyu [1965] EA 592
  • Francis Sembuya v All Ports Services (U) Ltd (Civil Appeal No. 6 of 1999)
  • Interfreight Forwarders (U) Ltd v EADB (Civil Appeal No. 33 of 1992)
  • Premchandra Shenoi & Anor v Maximov Oleg Petrovich (Civil Appeal No. 9 of 2003)
  • Air Consult Architects v A. Bauman (U) Ltd [1994] UGSC 5
  • Willy Owacha v Ringa Enterprises & Anor (Civil Appeal No. 31 of 1994)
  • J.K Patel v Spear Motors Ltd (Civil Appeal No. 4 of 1991)
  • Cavendish Square Holding BV vs Talal El Makdessi [2015] UKSC 67
  • Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
  • Campbell Discount Co Ltd v Bridge [1962] AC 600
  • Printing and Numerical Registering Co vs Sampson (1875) LR 19 Eq 462
  • Sempra Metals Ltd v Inland Revenue Commissioner [2007] 4 ALL ER 567
  • Hadley v Baxendale (1854) 9 Exch. 341
  • Riches v Westminster Bank Ltd [1947] 1 All ER 469 HL
  • Johnson and another v Agnew [1979] 1 All ER 883
  • Tate & Lyle Food and Distribution Ltd v Greater London Council and another [1981] 3 All ER 716
  • Trans Trust S P R L v Danubian Trading Co Ltd [1952] 1 All ER 970
  • Dharamshi vs Karsan [1974] 1 EA 41
  • Excel Construction Company Ltd v Attorney General (Civil Suit No. 3 of 2007)
  • Robert Coussens v Attorney General (Civil Appeal No. 8 of 1999)
  • Crown Beverages Ltd v Sendi Edward (Civil Appeal No. 1 of 2005)
  • Kenya Tourist Development Corporation v Sundowner Lodge Limited [2018] eKLR
  • Anjeline Akinyi Otieno v Makaba Malakasi Farmers Co'op Union Ltd [1998] eKLR, Kenya Court of Appeal
  • Danson Muriuki Kihara v Amos Kathu Gatuigo, Kenyan High Court Civil Appeal No. 11 of 2011
  • Attorney General v Virchand Mithalal & Sons (Civil Appeal No. 20 of 2002)
  • Attorney General v Sam Semanda (Civil Appeal No. 8 of 2006)
  • Nuru Kaaya v Crescent Transportation Ltd (Civil Appeal No. 6 of 2002)
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