Wakilii

Starlite Engineers Ltd v National Housing and Construction Co. Ltd (HCT-00-CC-CS 289 of 2013)

High Court · [2015] UGCOMMC 195 · 2015 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for breach of contract and reimbursement of VAT payments
Decision
Judgment entered in favour of the Plaintiff for reimbursement of VAT payments with interest at court rate and costs; claims for general, exemplary, and aggravated damages dismissed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

A contractor who fails to follow contractual procedures for extension of time works outside the agreed period when the original completion date passes. Where a contract expressly provides that VAT shall be paid by the employer to the contractor, and the contract price is stated separately from VAT, the employer must reimburse the contractor for VAT paid to URA even though the contractor is the taxable person under VAT Act s.5(a). Termination under a contractual convenience clause is lawful where supported by legitimate commercial reasons including delays, poor workmanship, and misuse of materials.

Outcome

Judgment entered in favour of the Plaintiff for reimbursement of VAT payments with interest at court rate and costs; claims for general, exemplary, and aggravated damages dismissed

Facts

National Housing and Construction Co. Ltd awarded Starlite Engineers Ltd a contract for supply of labour services to construct two blocks of flats in Bugolobi. The contract commenced 27 April 2011 with intended completion 23 July 2012 for UGX 737,618,750. The contract provided that VAT would be paid by the Defendant to the Contractor. By 23 July 2012 the works were incomplete. The Plaintiff continued working until 13 June 2013 when the Defendant suspended work and subsequently terminated the contract citing delays, declining deployment levels, poor workmanship, and misuse of materials. The Plaintiff paid VAT to URA and sought reimbursement from the Defendant, arguing the contract obliged the Defendant to pay VAT. The Defendant contended the contract price was VAT-inclusive and that extension of time had not been granted through proper contractual procedures. Certificates 23, 24, and 25 remained unpaid at the time of suit, though the Defendant paid these amounts including interest before trial.

Issues

  1. Whether the Defendant unlawfully terminated the contract?
  2. Whether the Defendant is liable for VAT as claimed by the Plaintiff?
  3. Whether the Plaintiff is entitled to the remedies sought?

Orders

  • An order of reimbursement of all monies paid by the Plaintiff to URA in satisfaction of the relevant VAT obligations, that is, UGX 113,273,472.
  • Interest on the reimbursement amount at court rate from date of judgment until payment in full.
  • Costs of the suit to the Plaintiff.
  • Claims for general damages, exemplary damages, and aggravated damages dismissed.
  • Claim for interest at commercial rate on outstanding sums dismissed.

Rules and key headnotes

Contract Law — Extension of Time — Procedural Requirements — Implied Extension
Where a written contract prescribes a specific procedure for extension of time requiring the contractor to request an extension and receive a written response within 21 days, mere continued performance beyond the original completion date without following that procedure does not create an implied extension of the contract period.
Contract Law — Termination — Lawful Termination for Convenience and Breach
A contract clause permitting the employer to terminate for convenience is validly exercised where the employer can demonstrate legitimate commercial reasons including the contractor's delays beyond the agreed completion date, declining deployment levels, poor workmanship, and misuse of the employer's materials, even where the contractor is permitted to continue working after the original completion date.
Tax Law — VAT — Liability to Pay Tax Authority versus Contractual Reimbursement Obligation
Under VAT Act s.5(a) the taxable person making the supply is liable to pay VAT to the Uganda Revenue Authority. However, where parties to a contract expressly agree that VAT will be paid by the employer to the contractor and the contract price is stated separately from VAT, the employer is contractually obliged to reimburse the contractor for VAT paid to URA notwithstanding that the contractor is the person liable to pay tax under the statute.
Contract Law — Interpretation — Conduct of Parties — VAT Treatment in Payment Certificates
Where a contract states a contract price separately from any mention of VAT and includes a clause providing that VAT shall be paid by the employer, and the employer processes payment certificates which clearly exclude VAT without objection, the conduct of the parties demonstrates that VAT was to be handled separately from the contract price and the employer was obliged to pay it to the contractor.
Contract Law — Payment Obligations — Interest on Late Payment — Calculation Commencement Date
Where a contract provides that payment shall be made within 30 days of receipt of an invoice supported by a payment certificate, time begins to run from the date the invoice accompanied by the certified payment certificate is submitted, not from the date of certification. Interest on late payment accrues from the 31st day after the invoice submission date.
Damages & Quantum — General Damages — Contributory Conduct — Exclusion of VAT from Payment Certificates
Where a plaintiff contractor fails to include VAT in payment certificates despite knowing it was their statutory responsibility to ensure VAT was paid, and subsequently suffers delay in receiving reimbursement from the defendant employer, the plaintiff's contributory conduct in neglecting to include VAT in the certificates disentitles them to general damages for that delay.
Damages & Quantum — Exemplary and Aggravated Damages — Requirements for Award
Exemplary damages are limited to cases of oppressive, arbitrary or unconstitutional action by public servants or corporations, profit-motivated wrongs where the defendant calculates that gains will exceed damages, or where statute provides for them. Aggravated damages require evidence of exceptional harm. A commercial dispute over VAT reimbursement and contract termination based on performance concerns does not fall within these categories.

Legislation cited (1)

  • VAT Act Cap 349 s.5(a)

Cases cited (7)

  • Green Boat Entertainment Ltd v City Council of Kampala (HCCS 580 of 2003)
  • Stroms v Hutchinson [1905] AC 515
  • Addis v Gramophone Co. Ltd [1909] AC 488
  • Uganda Revenue Authority v Wanume David (CACA 43 of 2010)
  • Rookes v Barnard [1964] AC 1129
  • Cassell & Co. Ltd v Broome [1972] 1 All ER 801
  • Uganda Revenue Authority v Stephen Mabosi (SCCA 16 of 1995)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Starlite Engineers Ltd v National Housing and Construction Co. Ltd (HCT-00-CC-CS 289 of 2013) [2015] UGCommC 195 (25 April 2015)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.