CORPORATE AND COMMERCIAL PRACTICE MODULE 3

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EMPLOYMENT LAW
Article 40 of the constitution of Uganda. Allows every person to practice his
profession.
Section 2 of the Employment Act Cap 226, defines an employee to mean
anyone who has entered into a contract of service excluding a member of the
Uganda People Defence Forces.

Sect 2 of the employment Act Cap 226 defines an employer to mean any
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person or group of persons including a corporation for whom an employee works or
has worked under a contract of service.
Section 2 of Employment Act Cap 226 defines a contract of service to mean any
contract, whether oral or in writing, whether express or implied, where a person
agrees in return for remuneration, to work for an employer and includes a contract
of apprenticeship.

THE CONTRACT OF EMPLOYMENT

Section 2 of Employment Act Cap 226 defines a contract of service to mean any
contract, whether oral or in writing, whether express or implied, where a person
agrees in return for remuneration, to work for an employer and includes a contract
of apprenticeship Justice Kanyeihamba in Tinyefuza v Attorney General.
Court stated that Employment general is hierarchical. There is dominance and
subordination, superior and inferior and master and servant. This is historical, that
is employee had no rights and was hence a subject. Employment is about wage
labour/money terms. There is no payment in kind. Its frequency is agreed to weekly
or monthly. How the employee applies their money is not the business of the
employer.
In Mason v Provident Clothing & Supply Co Ltd ([1913] AC 724) Mason was a
canvasser employed by a clothing and supply company having branches all over
England, which carried on business on what was described as a check and credit
system.
It was held that an agreement by Mason that he would not within three years after
the termination of his employment be in the employ of any person firm or company
carrying on or engaged in a business the same as or similar to that of his employers
or assist any person employed or assisting in any such other business within

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twenty-five miles of London was unenforceable as being wider than was reasonably
necessary for the employers’ protection
Characteristics of a contract of employment.

i. Control; manifests in how the work is to be done, at what time, exhibiting a

certain form of character including the dress code, salary scale etc
ii. Right to terminate; generally an employer has a right to terminate.
3 Previously there was no obligation to give reasons for termination, but now the law
emphasizes procedural fairness. iii. Notice; generally in a contract of
employment, termination is preceded by a notice. Notice arises as a result of
contract or as a result of law.
iii. Summary termination and summary dismissal; in summary dismissal,
you are very disgraceful person and affects entitlement under Pensions Act. Before
you summarily dismiss, you must be sure about the justification of the dismissal.

DISTINCTION BETWEEN EMPLOYEE AND INDEPENDENT CONTRACTOR

In the case of Charles Lubowa V Scovia Ayikoru V Victoria Seeds LDR No.
185/ 2016
The distinction between an employee and an independent contractor is that an
independent contractor is a person who works under a contract but who is not in the
same state of dependence on the employee, he controls the means and the manner
in which work is performed. He has an independent business and he is free to
delegate work to other workers of his or her own choice without the knowledge or
consent of the employer and he normally provides the tools and equipment and
supplies to the job.
An employee is subjected to the organization’s procedures and is expected to
perform part of the regular business of an employer and he must follow specific
instructions on how to perform work

CONTRACTS OF EMPLOYMENT UNDER COMMON LAW:

It was protectionist in nature, elements of control, power to hire and terminate.
Read Art 43 and 40 of the Constitution

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It is pertinent to distinguish a contract of service from a contract for services in
that in the former, the Employment Act Cap.226 applies to all employees
employed by the employer under a contract of service.
The importance of distinguishing a contract of service from a contract for services is
that the former involves an employee-employer relationship while the latter
involves an independent contractor-employer relationship. The extent of rights and
liabilities of the employee as against the employer, especially in matters of
4 vicarious liability differ from an independent contractor who would personally incur
any liabilities that may arise during the execution of the contract, but an
employee’s torts committed in the course of work are vicariously imputed to the
employer.
In Godfrey Kyamukama v Makerere University Business School Labour
Dispute Reference No. 147 of 2019 court defined a contract for services as
where the employer contracts another to perform a specified duty where the
contractor is specialized and possesses skills and resources as to perform the work
that the employer would ordinarily subject him or her to direction, control and
supervision. Here if anything goes wrong, the independent contractor is liable.

Factors that courts take into account when determining whether person
concerned was an employee or independent contractor.
1. Control Test
The traditional criterion of distinguishing an employee from an independent
contractor is the right and degree of control. In many cases a servant has been seen
as anyone subject to command of employer in what to do, and how, time & place
and equipment etc.- express or implied. If contract gives employer extensive control
over work to be done it is a contract of service absent strong indication to contrary
from other factors of relationship.
It was first established in the authority of Yewens v Noakes, where Bramwell LJ
stated: ‘A person was an employee if his employer has the right to control not only
what work he does but the way in which that work is done.’
“A servant is a person subject to the command of his master as to the manner in
which he shall do his work.’.
This test was furthered in the case of Performing Rights Society v Mitchell and
Booker, which stated that, ‘the final test, if there is to be a final test, and certainly

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the test to be generally applied, lies in the nature and degree of detailed control
over the person alleged to be a servant.’
Lord Thankerton in Short v J W Henderson Ltd [1946] 62 TLR 427 identified
many key features that would show that the master had control over the servant.
These included the power to select the servant, the right to control the method of
working, the right to suspend and dismiss, and the payment of wages.
Such a test is virtually impossible to apply accurately in modern circumstances.
5 Nevertheless, there are circumstances in which a test of control is still useful, in the
case of borrowed workers.
Mersey Docks & Harbour Board v Coggins and Griffths (Liverpool) Ltd
[1947] AC 1
Here the test was applied when a crane driver negligently damaged goods in the
course of his work. In this case the Harbour Board hired a crane and the crane
driver out to stevedores to act as their servant. Under the contract between the
Board and the stevedores the crane driver was still to be paid by the Board and only
they had the right to dismiss him, but for the duration of the contract he was to be
regarded as the employee of the stevedores. The Harbour Board was still held to be
liable for his negligence, however, since he would not accept control from the
stevedores.
In the case above Lord Porter gave a very clear explanation of the control test:
‘the most satisfactory [test] by which to ascertain who is the employer at any
particular time, is to ask who is entitled to tell the employee the way in which he is
to do the work upon which he is engaged & it is not enough that the task to be
performed should be under his control, he must control the method of performing
it.’
The integration or organisation test
Lord Denning in Stevenson Jordan and Harrison Ltd v McDonald and Evans
[1969] 1 TLR 101 established this test. The basis of the test is that someone will
be an employee whose work is fully integrated into the business, whereas if a
person’s work is only accessory to the business then that person is not an
employee.
Lord Denning proposed that 'It is often easy to recognise a contract of service when
you see it, but difficult to say wherein the difference lies. A ship's master, a
chauffeur, and a reporter on the staff of a newspaper are all employed under a

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contract of service; but a ship's pilot, a taxi-man, and a newspaper contributor are
employed under a contract for services. One feature which seems to run through
the instances is that, under a contract of service, a man is employed as part of the
business and his work is done as an integral part of the business whereas, under a
contract for services, his work, although done for the business, is not integrated into
it but is only accessory to it.'
The economic reality or multiple test or entrepreneur test
6 The courts in recent times have at last recognised that a single test of employment
is not satisfactory and may produce confusing results. The answer under this test is
to consider whatever factors may be indicative of employment or self-employment.
In particular, three conditions should be met before an employment relationship is
identifed:
a) The employee agrees to provide work or skill in return for a wage.
b) The employee expressly or impliedly accepts that the work will be subject to
the control of the employer.
c) All other considerations in the contract are consistent with there being a
contract of employment rather than any other relationship between the
parties.
This test was first established in the case of Ready Mixed Contcrete (South East) Ltd
v MPNI
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National
Insurance [1968] 2 QB 497
The case involved who was liable for National Insurance contributions, the company
or one of its drivers. Drivers were used under a new contract under which they
drove vehicles in the company colours and logo that they bought on hire purchase
agreements from the company. Under the contract they were also obliged to
maintain the vehicles according to set standards in the contract. They were only
allowed to use the lorries on company business. Their contracted hours, however,
were fexible and their pay was subject to an annual minimum rate according to the
concrete hauled. They were also allowed to hire drivers in their place. Although it
might be seen to have operated unfairly on the claimant, the drivers were held to
be independent. The case is important because McKenna J developed the above test
in determining their lack of employment status.

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Lord McKenna commenced by categorising the facts of case into either self-
employment or employment. Lord McKenna then examines the facts against three
conditions that required building a contract of employment. Firstly, the skills
provided must be in exchange with wages. Secondly, control elements should exist
on the employer (resembles control test). Thirdly, the contract provision must be in
consistent with the control of service. As in this case, Lord McKenna J held, due to
the freedom of delegation, the contract between the plaintiff and defendant was
7 contract for service (self-employment).
All of these are useful in identifying the status of the worker but none of them is an
absolute test or is definitive on its own.
Some of the guiding principles include’
i. Control
ii. Ownership of tools
iii. Loss of profits
iv. Benefit test or who is the owner of the
business
You must consider the whole contract as a whole and all the tests in determining
the type of contract it is.

OUT-SOURCING/ RECRUITMENT CONTRACTS

Sourcing contracts are formal agreements between a buyer (typically a company or
organization) and a supplier (a vendor or contractor) that outline the terms and
conditions for the procurement of goods or services. In the case of CIVIL SUIT NO.
0094 OF 2009NATIONAL SOCIAL SECURITY FUND V MTN UGANDA LTD AND
UNISIS INVESTMENTS UGANDA LTD Contract staff shall mean an applicant and
employee of UNISIS who shall be vetted and where successful, deployed to work at
MTN Uganda in terms of an employment agreement signed between the said UNISIS
Contract staff and UNISIS, a template of which is attached hereto as Appendix B”.

Key Elements of Sourcing Contracts:

1. Scope of Work: A clear description of the goods or services to be provided.
2. Pricing and Payment Terms: The agreed-upon price, payment schedule, and
method of payment.
3. Delivery and Lead Time: The expected delivery date, lead time, and any
associated penalties for late delivery.
4. Quality Standards: The specified quality requirements for the goods or services.

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5. Warranty and Liability: The supplier's warranty obligations and liability for any
defects or damages.
6. Termination and Cancellation: The conditions under which the contract can be
terminated or cancelled.
7. Dispute Resolution: The process for resolving disputes or disagreements between
the parties.

8 Benefits of Sourcing Contracts:

1. Clear Expectations: Establishes clear expectations for both parties.
2. Reduced Risk: Minimizes the risk of misunderstandings or disputes.
3. Improved Communication: Encourages open communication and collaboration.
4. Cost Savings: Can help to reduce costs through negotiated pricing and terms.
5. Increased Efficiency: Streamlines the procurement process and reduces
administrative burdens.

Other Categories of worker.

APPRENTICES

Regulation 2 of the Employment Regulations defines an Apprentice a worker who is

engaged primarily for the purpose of receiving training in a trade or profession.

Section 2 of the Employment Act defines a Contract of Apprenticeship to mean a

contract of service—

(a) where there is an obligation on the employer to take all reasonable steps to
ensure that the employee is taught, and acquires, the knowledge and skills of that
industry, by means of practical training received in the course of the employee’s
employment; and

(b) Where there is a provision for formal recognition of the fact that the
employee has acquired the knowledge and skills, intended to be acquired when the
employee has done so.

Regulation 36 of the Employment Regulations 2011 provides for a contract of

apprenticeship.

a A person with a minimum age of 17yrs qualifies as an apprentice for a

designated trade. (subsection 1)

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b An apprentice shall enter into a 3 months probationary contract of
apprenticeship shall be with the employer which shall be registered with the
Commissioner of labour. (Subsection 2)

c The contract is in the form prescribed in Part A of the 13 th Schedule

( Subsection 3)

d After the probationary period is completed, the apprentice can enter into a
contract of apprenticeship within 21 days but this contract should not exceed
3 years.(Subsection 4)
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e The said contract shall then be submitted to the Commissioner. ( Subsection
5)

Apprentices

Regulation 8 of the Employment (Employment of Children) Regulations provides

that a child from the age of 12 to 17 years engaged in educational training and
apprenticeship programs which are in the list of hazardous work shall first be
approved by the commissioner before they can take part in such work.

CASUAL WORKERS

Section 2 of the Employment Act defines a casual employee to mean a person who
works on a daily or hourly basis where payment of wages is due at the completion
of each day’s work.

Regulation 39 of the Employment Regulations provides for Contracts of Casual

employees.

 A person shall not be employed as a casual employ for more than four
months. Subsection (1)

 If the person is engaged for more than 4 months, he or she is entitled to a

written a contract and shall cease to be a casual employee. All rights and
benefits enjoyed by other employees shall apply to him or her. Subsection 2

In Simbi (Steel Makers)(Pvt)Ltd v Shamu and Ors SCCA 479 of 2014, court held that
repeated re engagement of employees on short term contracts, where work of a
permanent nature is available constitutes casualization of Labour which is
prohibited under the Labour Act. It emphasized that where a short term contract is
repeated for more than six weeks in any period of four consecutive months, it
becomes a contract of permanent employment.

 An employment card shall be issued to the casual employee and retained by

him or her except at the employee’s request and shall not be taken from him
or her except for purposes of marking by the employer which is to be done on

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each day worked or in the case of the day to be counted as worked on the
next working day. Subsection 3

 Where an employer lays of a casual employee and then rehires him or her,
the service shall be regarded as continuous. Subsection 4

CHILDREN

Article 257(1) of the Constitution, Section 2 of the Employment Act and Regulation 2
of the Employment (Employment of Children) Regulations defines a child to mean a
10 person below the age of eighteen years.

Section 31(1) of the Employment Act a child under the age of twelve years shall not
be employed in any business, undertaking or work place.

Section 31(2) of the Employment Act and Regulation 3 of The Employment

regulations A child under the age of fourteen years shall not be employed in any
business, undertaking or workplace, except for light work carried out under
supervision of an adult aged over eighteen years.

Regulation 4 of the Employment (Employment of Children) Regulations states the

work considered to be light to include; sewing, attending to and serving guests,
sweeping, cleaning the floor and organizing the house, cleaning and polishing
shoes, washing clothes, cleaning places where animals are kept, making purchases
in the markets or shops, looking for firewood, cleaning the toilet and bathroom,
helping out in the garden, and preparing family meals.

A child shall not be employed in any employment or work which is injurious to his or
her health, dangerous or hazardous or otherwise unsuitable. Section 31(4) of the
Employment Act

Regulation 6 of the Employment (Employment of Children) Regulations. Designated

list of hazardous work not permitted for employment of children is in the first
schedule.

Working hours for children

Section 31(5) of the Employment Act and Regulation 12 of the Employment

(Employment of Children) Regulations prohibits employment of children at night
between the hours of 7pm and 7 am.

Regulation 10 states that a child aged between 15 and 18 years who has completed
his education or does not attend school may work up to 7 hours a day but shall not
exceed 35 hours per week

Regulation 11 also prohibits over time employment of a child between the ages of
15 to 17 years.

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Medical Examination of a Child-Regulation 13

1. A child must undergo medical examination before engaging in any job.

2. Examination to be done every after 6 months

3. After undergoing medical examination, child shall be issued with medical

certificate.

WOMEN

11 Article 33 of the Constitution

Maternity Leave Section 55 of the Employment Act

1. A female employee shall as a consequence of pregnancy have a right to 60

days leave from work on full wages thereafter referred to as maternity leave.
Four weeks shall follow the child birth or marriage.

2. Female employee who becomes pregnant has a right to return to the job she
held immediately before her maternity leave or to a reasonably suitable
alternative job on terms and conditions not less favorable than those which
would have applied had she not gone on maternity leave.

3. In the event of sickness arising out of pregnancy or confinement, affecting

either the mother or the baby, and making the mother’s return to work
inadvisable, the right to return mentioned in subsection (2) shall be available
within eight weeks after the date of childbirth or miscarriage.

4. A female employee is entitled to the rights mentioned in subsections (1), (2)

and (3) if she gives not less than seven days’ notice in advance or a shorter
period as may be reasonable in the circumstances, of her intention to return
to work

5. The notice above shall be in writing if requested by employer.

Regulation 42 of the Employment Regulation 2011 provides for expectant mothers;

1. An expectant employee shall not as a consequence of pregnancy be

obliged to perform work which is harmful to her health.

2. An employer has a duty to provide an expectant employee with any of the

following options

a). flexible hours of work

b). lighter work load; and

c) Alternative arrangements of work

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TERMS IN THE CONTRACT OF EMPLOYMENT
Terms of contract of employment may be divided into three:
i) Terms expressly agreed by the parties either orally or in writing
ii) Terms implied into the contract by judges.
iii) Terms inserted into contract of employment by legislation (terms implied by
statute)
TERMS IMPLIED BY COMMON LAW
Implied terms are unspoken intentions of the parties that fill in the gaps left by the
agreed upon express terms. Therefore, these terms are inserted into the contract of
employment to give it business efficacy and to interpret the express terms or as
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default rules. For business efficacy, read the case of Jones v Associated
Tunnelling Co Ltd [1981] IRLR 477 where court devised an implied term to allow
the employer some necessary flexibility to relocate employees in order to comply
with the needs of „business efficacy‟, but the implied term also placed a limit on the
employer‟s discretion in order to prevent unreasonable hardship for the employee.
The terms may be based on a custom in the trade that is notorious and reasonable.
They may be based on fact where judges insert the implied term to fill in the gaps in
the self-regulation provided by the express terms of the contract. They may be
implied by law as default rules that serve as a regulatory framework that normally
applies to and shapes an employment relationship unless the express terms provide
something to the contrary.
The list of terms implied by law is extensive. Lord Turker, in the case of Lister v
Romford Ice and Cold Storage Co Ltd [1957] AC 555, 594, observed:
Without attempting an exhaustive enumeration of the duties imposed in this way
upon a servant, I may mention: (1) the duty to give reasonable notice in the
absence of custom or express agreement; (2) the duty to obey the lawful orders of
the master; (3) the duty to be honest and diligent in the master‟s service; (4) the
duty to take reasonable care of his master‟s property entrusted to him and
generally in the performance of his duties; (5) to account to his master for any
secret commission or remuneration received by him; (6) not to abuse his master‟s
confidence in matters pertaining to his service.

i. Obligation to pay wages

The obligation to pay wages to the employee by the employer includes: timely
wages; payment
in full amount and payment in monetary terms. The payment has to be as agreed.
Browning v Crumlin Valley Collieres Ltd (1926) 1 KB 522

ii. Obligation to provide work

A contract of employment implies that there is work to be done whenever an
employee is
engaged, or at least, there is a specific task for which he/she has been engaged by
the employer.

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However, this obligation does not extend to the details of the actual work to be
done. Sometimes,
for one reason or another, it is possible that upon engagements, there may be no
ready work for
the employee to do. Absence of work does not relieve the employer of his/her
obligation to pay
wages to the employee.
Collier v Sunday Referee Publishing Co [1940] 2 KB 647 (QB)

14 iii. Willingness to serve

Within the terms of contract, the employee must be ready and willing to serve. This
implied
term means and includes consistent attendance at his or her workplace. Therefore,
only
excusable absence must be entertained. Excusable absence may include: obtaining
prior
permission; immediately reporting to the employer as soon as the circumstances
arise that the
employee cannot report to work; sickness of the employee and a problem relating
to a member of
the family or death.
This implied term also extends to an obligation to obey reasonable orders of the
employer. The
courts will look at the general terms of the contract, efficacy and fair balance of
obligations, and
respect of human rights.
Ottoman Bank v Chakarian [1930]AC 277

iv. Co-operation
The obligation means and includes an employee exhibiting reasonable levels of
cooperation.
Cresswell v Board of Inland Revenue [1984] ICR 508 (QB)

v. Fidelity/Mutual trust and confidence

Employees are expected to serve their employers with fidelity and in good faith to
avoid as much
as possible engaging themselves in business competing with their employer‟s.
The employee is also not expected to disclose information to members of the public
without
consent from the employer or directly to another competitor. The courts have
treated this
implied term, generally, strictly against the employer. Before an employee can be
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responsible for information that he comes across during his time at office, it must
be proved that:
a) Disclosure is in bad faith;
b) Intended to injure the reputation of an employer and
c) The reason for the restriction must be reasonable in the circumstances
On the other hand, an employer must also act responsibly and in good faith.
Eastwood v Magnox Electric plc [2004] UKHL 35, [2005] 1 AC 503

vi. Working for one employer

15 An employee cannot serve two masters at a go.
British Syphon Co Ltd v Homewood [1956] 2 All ER 897, [1956] 1 WLR 1190

vii. Duty to compensate employees for injuries suffered. The employer is

expected to
indemnify the employee in respect of any injuries that an employee suffers in the
course
of employment. This common law duty has been incorporated in legislation in
Uganda.
Workers Compensation Act
Wilson & Clyde Coal Co.Ltd v English (1938) AC 57

viii. Employer to take reasonable care of the health and safety of

employees
Employer‟s liability to the employee arises from an implied term in the contract
which presupposes that the employer besides providing the work will provide the
place where the work will be done.
To the extent that the employer is to provide the place where the work is to be
done, it means
that the employer is liable under common law but also now in statute (Occupational
Safety and
Health Act, to ensure that such work place is reasonably safe for the employee to
carry out work.
In Groves v. Lord Wibourne [1898] 2 QB 402, the HOL confirmed the existence
of an employer‟s general duty of care in tort with regard to the safety of his
employees. The duty was
affirmative in nature and could not be discharged merely by delegation.
In Wilson and Cylide Coal Co. Ltd v. English (1937) 3 All ER, Lord Wright
observed that the
employer‟s responsibilities in employer-employee contract related to the following:
1. The provision of competent fellow workers
2. The provision of safe materials and a proper system of work
3. The provision of a safe workplace
4. The provision of safe equipment (relates to heavy machinery)

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With regards to the duty to provide a safe workplace and a safe working system, it
is still open to
the employer to plead and he can avoid and minimise liability, that is, that in the
circumstances
he took reasonable steps to ensure safety of his employees. Essentially, this means
that the duty
is based on fault (based on tort). The common law duty of care is based on the tort
of negligence
established under the case of Donoghue v Stevenson [1932] AC 562 where
16 Lord Macmillan
observed that “the categories of negligence are never closed.” Therefore the
employer‟s duty
was spelt out in several cases following the ruling in Donoghue v Stevenson.
The duty, therefore, to provide a safe workplace is intended to protect, the
employee from
injuries which he or she may suffer in the course of employment, but also disease
he or she may
acquire in the course of employment (the duty is preventive in nature).
In regards to disease, the liability continues even after the employee has ceased to
be an
employee, as long as the disease suffered by the employee can be traced back to
his employment.
Donoghue v Stevenson [1932] AC 562
Wilson and Cylide Coal Co. Ltd v. English (1937) 3 ALLER HOL

ix. Reasonable competence, skill and care

This is term is implied on the employee. An employee is expected to act with
reasonable
competence, skill and care. Whereas the employer is obliged to provide a
reasonably safe place
of work, there is a corresponding duty on the employee to act with reasonable skill
and care.
To be successful in the defence of contributory negligence, the employer should
show that the
employee did not do his part, either arising from negligence or complete disregard
of instruction.
The employer will only be liable to the extent of the injury for which the employee
did not
contribute.

xi. Termination of Employment

Much as the employer has an inherent right to terminate the services of an
employee, he must do

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so reasonably. Reasonable notice must have either been agreed upon by the parties
at the time of entering into a contract or as provided for in the default rules under
the legislation. Noncompliance with the requirement of reasonable notice would
suggest that the termination was either unfair or unlawful.
Reasonable notice has been interpreted to mean not only giving notice but in some
cases, depending on the nature of the complaint against the employee, he/she must
be heard before
he/she is terminated.
Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 594
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TERMS IMPLIED BY STATUTE/LEGISLATION
Employment Act, 2006
i. The employer shall afford the employee reasonable rest
ii. There are also expected to adhere to the notice periods of termination
iii. Equal opportunity
iv. Protection from sexual harassment
v. Reparation
vi. Obligations to transport the deceased employee, including their belongings and
immediate family
vii. Respect the contractual holidays and statutory holidays
viii. In case of termination, unless it is because of gross misconduct, to give the
employee
a fair hearing.

Labour Unions Act, 2006

i. Recognize duly registered labour unions for purposes of collective bargaining
ii. Cooperate with the labour union.

The National Social Security Fund Act and Income Tax Act
Obligation to make certain remittances on account of the employee for purposes of
social
security and for the purpose of compliance with tax

Constitution of the Republic of Uganda, 1995

See Chapter 4: Obligations to respect human rights

Workers Compensation Act

The Workers Compensation Act provides for compensation to workers for injuries
suffered and
scheduled diseases incurred in the course of their employment.

Occupational Safety and Health Act

Occupational Safety and Health Act, 2006 imposes duties on persons, most
generally employers,

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requiring them to conduct their operations to the standards required by the
legislation or incur
criminal liability. S.13 of the Act imposes a duty on the employer for the protection
of
employees. The employer must take all practical and reasonable measures to
ensure the safety of
workers and the general public from dangerous aspects of the employer‟s
undertakings.

18 EXCLUSION OF IMPLIED TERMS

Exclusion of the Provisions of the Employment Act
An agreement which excludes any provision of the Employment Act is void and of
no effect,
except if the exclusion is permitted under the Act (s.27 of Employment Act).
Permissible
exclusion includes:
1. Members of the UPDF
2. Provisions of working hours for persons in Managerial positions (s.51)
3. Provisions of working hours for persons working in family establishments
employing not
more than 5 members (s.51).
Based on the common law doctrine of freedom of contract, parties should be free to
exclude any
implied term by express terms. However, implied terms may not be so easily
excluded from the
agreement. Implied terms under the contract of employment are meant to help in
shaping effective and fair obligations between the employer and employee.

EMPLOYMENT CONTRACT

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE EMPLOYMENT ACT CAP 226

AND IN THE MATTEROF THE CONTRACTS ACT CAP 284

EMPLOYMENT CONTRACT

This employment contract is made between MK Power Industries ltd hereafter

referred to as the employer and ……………………………. (Hereafter referred to as
the employee) the ………day of…………..20………

The contract covers the assignment of (NAME OF THE EMPLOYEE) in the position
of General Manager in MK Power Industries ltd (MKPI).

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In consideration of the above, MK Power Industries ltd (MKPI) and (name of
the employee) have agreed upon the terms and conditions stated in this contract
as follows;

1. TERM OF EMPLOYMENT

The term of employment shall commence on the……………..day of …………..20……

for 4 years period and is renewable until this contract is terminated earlier as
provided in Clause 2 of the contract.

19 2. TERMINATIONOF THE CONTRACT

This contract may terminate upon any of the following events;

2.1 Upon attainment of the age of 60 by the employee.

2.2 Three months after written notice of termination to MK Industries MKPI by the
employee, which notice may be given without or with cause.

2.3 Three months after written notice of termination to the employee by MK Power
Industries which notice may be given with or without cause.

2.4 Voluntary or Involuntary dissolution of the employer.

2.5.1 The employee and Mk Power Industries specifically understand and agree that
employment is at the mutual consent of the parties and that either party may
terminate employment at will.

2.5.2 COMPENSATION UPON TERMINATION

If this agreement is terminated, the employee shall be entitled to compensation

earned before the date of termination of this contract plus any accrued vacation
benefits both computed prorate up to and including effective date of termination.

2.5.3 Such compensation shall include any provident fund and severance payments
owed to the employee at the time of termination.

3. DUTIES OF EMPLOYEE

3.1 As a General Manager, the employee will be the head of the Multi Sector t
Technical support and capacity building Program Team.

The Employee’s specific responsibilities are established through the employee’s job
description and through periodic and annual reviews of the employee’s work.

3.3 LOCATION

The employee will be based in Kampala and shall be linked to MKPI’S regional
offices by telephone and emails.

ALPHA
4. HOURS OF WORK

The employee will work for 48 hours per week. The schedule of working hours will
conform to the schedule of MKPI ltd Multi sector Technical support and Capacity
building program and will generally be a five day work week.

4.1 The employee is considered to be a full time employee and in a salaried

position rather than paid on an hourly or daily basis.

5. SUPERVISION.
20
The employee’s direct supervisor will be the deputy director for coordinating
structures in MKPI ltd.

6. COMPENSATION

6.1 Base salary

Beginning the………..day of………………..20………….. Salary is payable in the local

legal tender.

The employee’s annual base salary is UGX……………………………

6.2 PAY PERIOD

Salary will be paid on a monthly basis normally on the 28 th day of the last working
month.

6.3 SALARY INCREASE

Salary increment may be recommended by the employee’s supervisor and

approved by the Director.

7. DISPUTE RESOLUTION

In case of a dispute arising out of the contract, the dispute shall be referred to the
labour officer who will act as the mediator between the parties.

If the dispute is unresolved, the parties shall submit to the jurisdiction of the courts
of Judicature in Uganda.

8. LAW APPLICABLE/GOVERNING LAW

The contract shall be governed by the Employment Laws of Uganda.

9. BENEFITS

9.1 Vacation: MKPI ltd provides 10 vacation days per year for employees who have
completed a 60 days probation period.

ALPHA
9.2 Holidays: the employee is entitled to paid time off for official holidays
observed by the project.

10. GENERAL PROVISIONS

10.1 This agreement constitutes the entire contract between the parties and
supersedes all prior discussions.

10.2 The contract may be amended by the parties. However any amendments to
the contract must be in writing and signed by both parties
21
IN WITNESS WHEREOF, the parties have executed this contract
this………………..day of……..20………..

MK POWER INDUSTRIES LTD

………………………………………………………

Authorized representative

Designation………………………………..

Name……………………………………………

Date……………………………………………….

EMPLOYEE

SIGNATURE………………………….

NAME…………………………………..

DATE…………………………………….

RIGHTS OF EMPLOYEES

1. Right to be given work by the employer.

An employer is under the obligation to provide work to the employee unless
hindered by any circumstances stated in the Act as per Section 39 of the
Employment Act cap 226.
An employee is still entitled to his agreed wages even where the employer
has failed to provide work.
2. Right to be paid.

ALPHA
An employee is entitled to wages and as such shall be paid in legal tender.
Section 40 of the Employment Act cap 226 prescribes how, when and
where the payment shall occur.
Section 43 states that this payment shall be paid directly to the employee
unless a given third party gets written permission of the employee to receive
the payment on their behalf.
Section 44 provides that no an authorized deductions will be made from the
wages of an employee and these include deductions meant to be direct
payment to the employer for the purpose of obtaining or retaining their
22 employment.
3. Right to weekly rest.
Section 50 of the Employment Act states that an employee shall not work
for more than six days without rest. The Employee is still entitled to payment
for the rest day.
4. Right to reasonable working hours.
Section 52 of the Employment Act states that the maximum working
hours for employees shall be forty eighty hours per week.
Subsection 8 states that where excess hours are worked, the employee
shall be remunerated accordingly.
5. Right to annual leave and public holidays.
An employee shall be entitled to a holiday with full pay once in every
calendar year at a rate of seven days in respect of each period of a
continuous four months’ service, to be taken at such time during such
calendar year as may be agreed between the parties as per Section 53 of
the Employment Act.

An employee shall be entitled to a day’s holiday with full pay on every public
holiday during his or her employment or, where he or she works for his or her
employer on a public holiday, to a day’s holiday with full pay at the expense
of the employer on some other day that would otherwise be a day of work.
6. Sick pay
Section 54 of the Employment Act provides that an employee who has
completed not less than one month’s continuous service with an employer
and who is incapable of work because of sickness or injury is entitled to sick
pay.
Section 54(1)(b) states that where the sickness continues for more than
one month, the employer is entitled to terminate the contract of service.
7. A right to maternity leave for female employees.
Section 55 of the Employment Act states that a female employee shall as
a consequence of pregnancy have the right to a period of sixty working days
leave from work on full wages hereafter referred to as ‘maternity leave of
which at least four weeks shall follow the childbirth or miscarriage.
8. Paternity leave for male workers.

ALPHA
Section 56 of the Employment Act states that a male employee shall
immediately after the delivery or miscarriage of a wife, have the right to a
period of four working days’ leave from work yearly herein referred to as
paternity leave.

Subsection 2 states that the male employee shall be entitled to his full
wages during the said paternity leave.
9. Right to receive adequate notice provided by the law in certain
circumstances.
23 Section 57 of the Act states that an employee is entitled to notice before
termination unless it is inform of summary dismissal under section 68 of the
Act.
The notice given must be in writing and shall be in a form and language that
the employee is reasonably expected to understand.
10. Right to form and join a trade union.
Article 40(3) of the Constitution of the Republic of Uganda 1995 as
amended states that every worker has a right to form or join a trade union
of his or her choice for the promotion and protection of his or her economic
and social interests.
Article 29 of the Constitution states that every person shall have
freedom to associate which includes the freedom to form and join
associations or unions, including trade unions.

Section 3 of the Labour Unions Act recognizes the right to join a labour
union, assist in running the union, bargain collectively through a
representative of their own choosing and engage in lawful activities for
purposes of collective bargaining or any other mutual aid practice
11. Right to clean, healthy and conducive work environment.
Section 12 of the Occupation Safety and Health Act Cap 231 states that it is
the responsibility of the employer to take as far as is reasonably practicable,
all measures for the protection of his or her workers and the general public
from the dangerous aspects of the employer’s undertaking at his or her own
cost.

Section 46 of the act prescribes the standards of what amounts to a clean

and healthy working environment ranging from suitable room temperature in
workplace buildings, good ventilation e.t.c
12. Right to refer disputes to the Labour officer.
Section 2 of the Labour Disputes (Arbitration and settlement) Act
cap 227 states that a party to a dispute who could be an employee may
report the dispute in writing to a labour officer.
13. Right to Social security.

ALPHA
An employee under private service employment is entitled to NSSF
contributions from their employer and from their salary as well. As per the
NSSF Act Cap 230.

TERMINATION OF THE CONTRACT OF EMPLOYMENT

24
Section 21 defines termination of employment as
“the discharge of an employee from an employment at the initiative of the
employer for justifiable reason other than misconduct, such as expiry of
contract, attainment of retirement age, etc…”
The same section says that “termination” has the meaning given by section 642
which states the instances under which termination is deemed:
"(a) Where the contract is ended by the Employer with notice.
(b) Where a contract of service, being a contract for fixed term or task,
ends with the expiry of the specific term of the completion of the
specified task and is not renewed within a period of one week from
the date of expiry on the same terms or terms not less favourable to
the employee.
(c) Where the contract of service is ended by the employee with or
without notice, as a consequence of unreasonable conduct on the
part of the employer, but before the expiry of the notice.
(d) Where the contract of service is ended by the employee, in
circumstances where the employee has received notice of
termination of the contract of service from the employer but before
the expiry of the notice”.
As distinct from “termination of employment”, section 23 defines “dismissal from
Employment" as “the discharge of an employee from employment at the
initiative of his or her employer when the said employee has committed
verifiable misconduct
The contract of employment as to be terminated in accordance with the law and the
contract of employment. In the absence of express proceedings on termination, it
has to be in accordance with the law. Common law presumes that they must be
expressed reasonably. Termination can be with or without notice. It can be with or
without a hearing. In some cases, termination can even be summary.

1 Employment Act Cap 226

2 Ibid
3 Ibid

ALPHA
The supreme court of Uganda has held in Barclays Bank of Uganda Vs Godfrey
Mubiru4; Kanyeihamba JSC,

“where a service contract is governed by a written agreement between

the employer and the employee, as in this case, termination of
employment or service to be rendered will depend both on the terms of
the agreement and on the law applicable”.

In Dennis Rogers Buwembo v Hutchins Cancer Research Institute in Uganda

25
LD CLAIM NO. 046 OF 2015 the court elaborated on the circumstances that may
lead to an employee or employer legally terminating the contractual relationship
between the two by stating that

Generally speaking the contract will always provide for the exit of either
of the parties out of the contract. For as long as the exit clauses in the
contract do not conflict with the provisions of the Employment Act or any
other law, the said clauses if complied with, will form the legal termination
of the contract.

Broadly speaking, an employer has an inherent right to dismiss an employee. And

courts, as held by OKELLO, J in Kayondo v The Co-operative Bank 5 cannot
order an employer to employ an employee when he or she does not wish to. Court
cannot declare that a contract between an employee and an employer still exists in
circumstances where the employer wants it terminated. Such an order cannot be
specifically enforced. Therefore, an employer can terminate the contract of an
employee at any time. Initially, an employer was not even required to give reasons
to the employee for dismissal.

In STANBIC BANK LTD v KIYIMBA MUTALE6 Supreme Court held that there is
freedom of contract and courts cannot enforce specific performance of a normal
contract of service. The employee, however, expects to be protected from unfair
and unwarranted breaches of the contract of employment by the employer. When
an employee is wrongfully terminated, the court should use its powers under article
126 (2) (c) to award adequate compensation.

“The position of the law is that an employer may terminate the

employee’s employment for a reason or for no reason at all.
However, the employer must do so according to the terms of the
contract. Otherwise he would suffer the consequences arising
from failure to follow the right procedure of termination. A
termination is effective even when wrongful because courts
cannot force an employer to keep an employee forever. The

4 SCCA NO.1 OF 1998

5 (1990) 1 K.A.L.R 83
6 [2011] UGSC 18

ALPHA
employer would have to contend with a claim for damages for
wrongful dismissal
In the absence of express proceedings on termination, it has to be in accordance
with the law. Common law presumes that they must be expressed reasonably.

Termination can be with or without notice. It can be with or without a hearing. In

some cases, termination can even be summary. In Mary Pamela Sozi v The
Public Procurement & Disposal of Public Assets, 7 court held that an employer
cannot unreasonably and without justification terminate the contract of the
26 employee just because there is a clause in the employment contract that allows for
payment in lieu of notice. As such, common law has laid down different modes
under which termination of a contract of employment ought to be done.

On the other hand in dismissing an employee, the employer must establish that
there is verifiable misconduct on the part of the employee. It is our view that
verifiable misconduct includes but is not limited to abuse of office, negligence,
insubordination, and all those circumstances that impute fault on the part of the
employee which include incompetence MODES OF TERMINATION:

1. By consensus.
This can be reached at any time during the course of employment.

Birch and Humper v The University of Liverpool 8 Here, the University

introduced a retirement scheme under which any retirement could only take place
with mutual agreement of both employer and employee. Absence of such mutual
agreement entitled the employees to claim for redundancy payments. The
appellants applied for early retirement and it was granted. They then sued arguing
that their employment had been terminated by the employer alone and so were
entitled to redundancy payments. Court of Appeal held that an employee cannot be
said to be dismissed by the employer if the contract of employment has been
terminated by consensus or mutual agreement of both the employer and employee
jointly.

Nuwemugizi v National Water & Sewerage Corporation 9 In this case, the

plaintiff was asked to voluntarily retire after attaining mandatory retirement age. He
accepted to do so without any verbal or written protest, and even took all his
emoluments, retirement benefits and payment of 3 months in lieu of notice. He
later sued arguing that his employment had been unlawfully terminated. Court
dismissed the suit on the grounds that the plaintiff had voluntarily retired which in
effect was termination by consensus.

7 HCCS NO.63 OF 2012

8 [1985] IRIR,165
9 (Civil Appeal no. 26 of 1993)

ALPHA
It is important to note that termination by mutual consent (meaning that there was
no dismissal for statutory purposes) is in general treated warily by tribunals and
courts because it is capable of completely undercutting employee rights since the
employee will be deemed to have voluntarily left employment. However, this mode
of termination still does exist

2. By way of dismissal,
S. 2 defines dismissal as “the discharge of an employee from employment at
the initiative of his or her employer when the said employee has
27 committed verifiable misconduct 10
As interpreted in Florence Mufumba Vs U.D.B11 that in dismissing an employee,
the employer must establish that there is verifiable misconduct on the part of the
employee. It is our view that verifiable misconduct includes but is not limited to
abuse of office, negligence, insubordination, and all those circumstances that
impute fault on the part of the employee which include incompetence.

Dismissal must be in accordance with the law and the contract of employment.

In Barclays Bank of Uganda Vs Godfrey Mubiru 12, the Supreme Court

pronounced itself on dismissals, where it is stated that where a contract is governed
by written agreement between the employer and employee, termination of
employment services to be rendered will depend both on the terms of the
agreement and on the law applicable

Dismissal requires notice, however where there is no notice, it is referred to as

summary dismissal. This is referred to in Ssection. 65(1)(c)13 which states that an
employment may be terminated where the contract of service is ended by the
employee with or without notice, as a consequence of unreasonable conduct on the
part of the employer towards the employee;

Summary dismissal.
This is provided for under S. 68 and 70 of the Employment Act

Ssection.68 (1)14 Summary termination shall take place when an employer

terminates the service of an employee without notice or with less notice than that
to which the employee is entitled by any statutory provision or contractual term.
And an employer is entitled to dismiss summarily, and the dismissal shall be termed
justified, where the employee has, by his or her conduct indicated that he or she
has fundamentally broken his or her obligations arising under the contract of
service.

10 Employment Act Cap 226

11 Civil Appeal no..241 of 2015
12 SCCA NO.1 OF 1998
13 Employment Act Cap 226
14 Ibid

ALPHA
The case of Bank of Uganda Vs Betty Tinkamanyire, 15 and S. 69 of the
Employment Act cap226 are to the effect that an employer is entitled to dismiss
summarily, and the dismissal shall be termed justified, where the employee has, by
his or her conduct indicated that he or she has fundamentally broken his or her
obligations arising under the contract of service.

Barclays Bank v Godfrey Mubiru 16[Justice Kanyeihamba]. In this case, the

respondent had been employed by the appellant from 1969 until 1990 when he was
summarily dismissed after several warning against him for breach of duty,
28
negligence and gross incompetence. He was in the habit of lending more money to
borrowers in excess of his powers, to the detriment of the bank. He sued for
wrongful dismissal and High Court found in his favor. On appeal to the Supreme
Court, Justice Kanyeihamba held that when an employee is in breach of a
fundamental term of his employment or guilty of sufficient misconduct, he or she
may be dismissed summarily without notice, and, before the expiration of a fixed
period of employment. He went ahead to say that summary dismissal is without
notice and dismissal without notice also implies dismissal without a right to be
heard first.

The conduct of the employee here is viewed as sufficiently serious to justify

immediate termination of employment without notice. In this respect, if you are
dismissed with disgrace, you may not be entitled to pension. Ordinarily, summary
dismissal may not suffice if the employee has made a mistake once. However, one
act of disobedience or misconduct can justify dismissal only if it is of such a nature
which goes to show in effect that the employee is repudiating the contract or one of
its essential terms.

John Eletu v Uganda Airlines17 . The plaintiff was summarily dismissed due to
gross negligence. He brought this action on the premise that his summary dismissal
was unlawful. In distinguishing summary dismissal from termination, Manyindo, J
held that under the former, the employer gives no notice whereas in the latter, he
must give notice or pay in lieu of such notice. The principle behind payment in lieu
of notice being that an employer is normally under no obligation to provide work for
his employer even if the employer is entitled to notice. The judge further gave
examples of conduct that would repudiate a contract or amount to a substantial
breach i.e. disobedience of lawful orders, misconduct, drunkenness, immorality,
assaulting fellow workers, incompetence and neglect. Such conduct would warrant a
summary dismissal.

Constructive dismissal

15 SCCA of 12 of 2007
16 SCCA NO.1 OF 1998
17 (1984) HCB

ALPHA
This arises out of the implied term that an employer should not conduct himself in a
manner calculated or likely to destroy or seriously damage the relationship of trust
between him or her and the employee.

If this relationship is damaged, this can lead to constructive dismissal, irrespective

of the fact that the employer had no intention of repudiating the contract as held in
Woods v WM Car Services (Peterborough) Ltd 18. In this case, the employer
asked the employee to accept a pay cut and also work longer hours. She was told
that failure to comply would lead to a dismissal. She resigned and sued the
employer arguing that her resignation amounted to constructive dismissal.
29
Lord Denning, in Western Excavating (ECC) Ltd v Sharp19 (1978) QB 761 after
considering both the tests of unreasonableness and the contract test, was in favor
of the latter as the correct test for constructive dismissal. It states;

The contract test

If the employer is guilty of conduct which is a significant breach going to the root of
the contract of employment, or which shows that the employer no longer intends to
be bound by one or more of the essential terms of the contract, then the employee
is entitled to treat himself as discharged from any further performance. If he does
so, then he terminates the contract by reason of the employer’s conduct. He is
constructively dismissed. The employee is entitled in those circumstances to leave
at the instant without giving any notice at all or, alternatively, he may give notice
and say he is leaving at the end of the notice. But the conduct must in either case
be sufficiently serious to entitle him to leave at once. Moreover, he must make up
his mind soon after the conduct of which he complains; for, if he continues for any
length of time without leaving, he will lose his right to treat himself as discharged.
He will be regarded as having elected to affirm the contract.
Constructive dismissal may involve;

a) Progressive withdrawal of benefits from an employee’s office

b) Hostility by the employer
c) Reduction in pay
d) A series of minor incidents of harassment over a period of time which
cumulatively amount to repudiation (Woods case, supra). This is what
courts have progressively referred to as the ‘last straw’ doctrine.

e) Failure to respond to an employee’s complaint about lack of adequate

safety equipment

f) Undermining the authority of senior staff in front of subordinates

g) Failing to protect an employee from harassment from fellow employees

18 [1982] ICR 693

19 (1978)QB 761

ALPHA
h) Imposing a disciplinary penalty that is out of proportion to the offence
i) The conduct seen above amounts to constructive dismissal and can
warrant a resignation from the employee.
Under constructive dismissal, it suffices to say that the employee can terminate the
contract without notice by reason of the employer’s conduct such as hostility, etc.
The employee may treat words by an employer to constitute dismissal. In the same
vein, the employer may construe the resignation of the employee from the
employee’s resultant conduct, either expressly or impliedly, even where the
30 conduct is confusing or words used by the employee are ambiguous. In Sovereign
House Security Services Ltd v Savage20 , a security officer was told that he was
to be suspended pending police investigations into theft of company money.
Savage told his employer that he was ‘jacking it in.’ The Court of Appeal agreed that
the employer was entitled to treat these words as amounting to a resignation.

Where words are unambiguous, court will always find that there is a resignation and
not a dismissal. However, courts have to give an allowance for words used by the
employee in the heat of the moment in response to the employer’s hostility or
conduct. In the same vein, an employer’s hostile utterances in the heat of the
moment cannot be said to amount to constructive dismissal. In Tanner v Kean21
where the employee continued to use the company vehicle for personal business
yet the employer had loaned him some money to buy his own private car, the
employer in annoyance uttered words like “you are a tight bastard. I lent you
money to buy a car but you are too tight (mean) to put juice (fuel) in it. You are
finished with me.” Court held that these were words said in the heat of the moment
and should not have been treated by the employee to amount to a constructive
dismissal.

However, some words, even when said in the heat of the moment cannot be
excused. In Palmanor Ltd v Cedron22 , the manager of a nightclub while wrongly
accusing the applicant of being late for work abused him thus, “you are a big
bastard, a big cunt, you are pig headed, you think you are always right.” When
Cedron objected to use of this kind of language by the manager, the latter
responded, “I can talk to you in any way I like, you big cunt. And if you leave me
now, don’t bother to collect your money, papers or anything else. I will make sure
you don’t get a job anywhere in London.” Cedron resigned and claimed constructive
dismissal. SLYNN, J in finding for the applicant held that ‘there comes a time when
the language is such that even if the person using it is in a state of anger, the
employee cannot be expected to tolerate it.’ Therefore, heat of the moment will not
always suffice as a defence to allegations of constructive or wrongful dismissal.

20 (1989) IRLR 115

21 (1978) IRLR 160
22 [1978] IRLR , 303

ALPHA
Care has to be taken here in order to understand fully whether conduct or words
amount to a resignation on the side of the employee or a dismissal on the side of
the employer. For example, subsequent conduct or later events may be relied on by
themselves to give effect to the dismissal. These later events have to be genuinely
explanatory of the acts or words alleged to constitute the dismissal or resignation
already contemplated. Reason for dismissal;

Despite the employer having the right of dismissal, it must not be exercised
arbitrarily without any reason whether dismissal is by notice or not.

31 In OKELLO NYMLORD V RIFT VALLEY RAILWAYS23 it was held That the right of
the employer to terminate the contract of service whether by giving notice
or incurring the penalty of paying compensation in lieu of notice for the
duration stipulated or implied by the contract cannot be fettered by the
courts. But that this does not mean that an employer can unreasonably terminate
an employee’s contract because there is a provision of payment in lieu of notice as
was in the case under common law. This is because under Section. 68 (1) of the
Employment Act Cap 226, it is provided that:-

“in any claim arising out of termination, the employer shall prove the
reason or reasons for the dismissal and where an employer fails to do so,
the dismissal shall be deemed to have been unfair within the meaning of
S. 71
The requirement for reasonable grounds has been reiterated on several occasions
by the Industrial Court.

In the case of FLORENCE MUFUMBA VS UGANDA DEVELOPMENT

CORPORATION24expounded on sections 2 and 68(1)25 as it held:
“In our considered opinion whether the employer chooses to “terminate” or
“dismiss” an employee, such employee is entitled to reasons for the dismissal or
termination. In employing the employee, we strongly believe that the employer had
reason to so employ him/her. In the same way, in terminating or dismissing the
employee there ought to be reason for the decision.”
However the Uganda court of Appeal reasserts that the employer has a
right to terminate an employee without a reason by issuing notice or
payment in lieu of notice in BANK OF UGANDA V JOSEPH KIWANUKA & 4
OTHERS26 and Stanbic Bank Uganda limited v Nassanga Saphina Kasule
C.A.C.A No181 of 2021 court held that there is no requirement for a reason to
be given by an employer for termination of services of an employee provided that
the requisite notice is given or payment in lieu of notice made. The standing
23 [2014] UGHCCD 52
24 (LDC 138 OF 2015)
25 Employment Act Cap 226
26 Civil Appeal no. 281 of 2016

ALPHA
position of the law that an employer can end an employment relationship by
termination with notice in accordance with the period prescribed in the employment
Act or payment in lieu to notice where an employer need not to prescribe the
reason for the termination .
Fair hearing;
An employer must comply with the principles of natural justice while dismissing an
employee.

In Ridge Vs Baldwin & Others27 , one of the leading authorities on termination of

employment relationships, it was held that even if the respondents had power of
32
dismissal without complying with the regulations, they were bound to observe the
principles of natural justice. It was held in that case that a decision reached in
violation of the principles of natural justice, especially the one relating to the right
to be heard, is void and unlawful.

In Jabi Vs Mbale Municipal Council 28 it was held that it is a fundamental

requirement of natural justice that a person properly employed was entitled to a fair
hearing before being dismissed on charges involving a breach of a disciplinary
regulations or misconduct. The court further held that it was perhaps a different
case if the employee was on temporary terms, but an employee on permanent
terms is entitled to know the charges against him and to be given an opportunity to
give any grounds on which he relied to exculpate himself. Where that was not done,
it could properly be said that the dismissal was wrongful.

The right to a hearing is guaranteed by the Constitution of the Republic of Uganda

under article 28 and Article 42 and S.67 of the Employment Act.

In ALEX METHODIOUS BWAYO v DFCU BANK LIMITED 29 court stated its view
to be that, the basics of a right to be heard must of necessity include;

1) Notice of allegations against the employee to be served on him within

reasonable time to allow him prepare his defence.

2) The notice has to set out clearly what allegations against the plaintiff are
and what his rights are at the oral hearing. Such rights would include the
right to respond to the allegations against him orally or in writing; the
right to be accompanied at the hearing and the right to cross-examine the
defendant’s witnesses or call witnesses of his own. The plaintiff should be

27 [1964]AC 40
28 [1975] HCB 191
29 Civil suit no. 78 of 2012

ALPHA
given a chance to appear and present his case before an impartial
committee in charge of disciplinary issues of the defendant.

30
Court laid down some principles in Isaac Nsereko V MTN that;

“……. It is an elementary principle in our system of the administration of justice

that a fair hearing, within a reasonable time, is ordinarily a judicial investigation
and listening to evidence and arguments, conducted impartially in accordance with
the fundamental principles of justice and due process of law of which a party has
had reasonable motion as to the time, place, and issues or charges, for which he
33 has had a reasonable opportunity to prepare, at which he is permitted to have the
assistance of a Lawyer of his choice as he may afford and during which he has a
right to present his witnesses and evidence in his favour, a right to cross-examine
his adversary’s witnesses, a right to be appraised of the evidence against him in
the matter, so that he will be fully aware of the basis of the adverse view of him for
the judgment, a right to argue that a decision be made in accordance with the law
and evidence

3. By Repudiation.
It’s the outright breach of a fundamental term in the contract. This breach even
extends to implied terms in the contract. However, where an employer introduces
new rules at his premises for a legitimate purpose and which rules apply to all
employees, the fact that the new rules affect one employee as opposed to the rest
of the employees, will not amount to repudiation of the contract under an implied
term of the employer providing a conducive working environment for the employee.

In Dryden v Greater Glasgow Health Board, 31 the applicant smoked 30

cigarettes a day and her job was such that she could not leave the premises during
the day in order to partake of a cigarette. The employer had set aside smoking
place, which he later withdrew. Dryden resigned, claiming constructive dismissal,
and arguing that the employer had repudiated the contract. Court dismissed the
appeal on the grounds explained above.

4. By frustration. Here, blame for termination of the contract cannot be

apportioned to either the employer or the employee.

In Morgan v Manser32 [1948]a music hall artiste was called up for service in the
army and his contract of employment was accordingly held to be frustrated. It was
held that

If there is an event, or change of circumstances, which is so fundamental as to be

regarded by the law as striking at the root of a contract as a whole and beyond

30 HCCS NO.156 OF 2012

31 (1992) IRLR
32 [1948] 1 K.B. 184

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what was contemplated by the parties, and such that to hold the parties to the
contract would be to bind them to something to which they would not have agreed
had they contemplated that event or those circumstances, the contract is frustrated
by the event immediately and irrespective of the volition or the intention or the
knowledge of the parties as to that particular event, and even though the parties
have continued for a time to treat the contract as still subsisting. In those events,
the court will grant relief and pronounce that the contract has been frustrated,
either by implying a term to that effect, or otherwise. The belief, knowledge and
intention of the parties is evidence, but evidence only, on which the court can form
34 its own view whether the changed circumstances were so fundamental as to strike
at the root of the contract and not to have been contemplated by the parties

For frustration to suffice, courts have put down principles upon which such can be
construed.
In Paal Wilson & Co. A/S v Paternreederei quoted in Williams v Watsons
Luxury Coaches Ltd,33 court laid down essential principles that must be
present in order to frustrate a contract. The first is that, there must be some
outside event or extraneous change of situation, not foreseen or provided for by
the parties at the time of contracting, which either makes it impossible for the
contract to be performed at all, or at least renders its performance something
radically different from what the parties contemplated when they entered into it.
The second essential factor is that, the outside event or extraneous change of
situation concerned, and the consequences of either in relation to the
performance of the contract, without either the fault or the default if either party
to the contract.

Generally, under the doctrine of frustration in employment law, the extraneous

factors have been found to majorly be two event, i.e. imprisonment and illness.

As such, in Shepherd & Co. Ltd v Jerrom 34 , the applicant entered into an
apprenticeship contract with the defendant for four years. However, after only 21
months, he was sentenced to a minimum of 6 months in jail. When he was released,
his employers, the defendants, refused to take him back and he complained of
unfair dismissal. On appeal, BALCOMBE, L.J held that a custodial sentence imposed
upon an employee is capable of frustrating a contract of employment. It does not
matter whether the termination of the contract is labelled a frustrating event,
repudiatory conduct, a breach going to the very root of the contract, or impossibility
to perform the contract. What matters is that the contract of employment is brought
to an end by strenuous factors, none of which can be blamed on either party.
However, the party alleging frustration should not be allowed to rely upon the
frustrating event if that event was caused by that party, or at least where it was
caused by the party’s fault.

33 (1990) IRLR, 164

34 1986 IRLR

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In Poussard v Spiers35 In this case, Madame Poussard entered a contract to
perform as an opera singer for three months. She became ill five days before the
opening night and was not able to perform the first four nights. Spiers then replaced
her with another opera singer. She sued for full payment as per the contract. Court
held that Madame Poussard was in breach of a condition and Spiers were entitled to
end the contract. She missed the opening night which was the most important
performance as all the critics and publicity would be based on this night.

Similarly, in Notcutt v Universal Equipment Co (London) Ltd, the applicant

begun working for the employer in 1957 under a contract which permitted
35 termination on one week’s notice and provded no remuneration during periods of
sickness. In 1983 he suffered a coronary attack and by July 1984 it was clear he
would not be able to work again. Accordingly he was given 12 weeks’ notice of
termination. It was held that the agreed contract had ended due to frustration prior
to the notice period by reason of his illness.

Compulsory military service and such service as under a state of emergency will
also lead to frustration of the contract, without blame on either party. This may also
be considered as an extraneous factor, even if it falls outside the ambit of
Shepherd & Co. Ltd (supra).

In Morgan v Manser36, a music hall artiste was called up for service in the army
and his contract of employment was accordingly held to be frustrated.

5. Economic dismissal.
Economic dismissal arises out of the idea that it is unreasonable for an employer to
keep you employed if they can no longer financially sustain you. The employer
reserves the right to restructure depending on the available resources. Economic
dismissal consists of realigning or changing employment structure, reduction of
offices, staff, etc., to make the company more sustainable.

The question that normally arises here is that of how fair the process is, to avoid
issues of bias, victimization, etc. What is the criteria? Generally, the employer has a
right to re-size the scope of his business. In some cases, the employer may be
required to offer alternative employment. The most important consideration here is
that the job is not less (i.e. the quantum of work has not reduced), but rather the
method of doing the work has changed or the terms are different. In the former
case (amount of work reducing), this amounts to a redundancy situation and the
employer will be liable to pay damages. Court in Lesney Products Ltd v. Nolan37
held that "Nothing should be done to impair the ability of employers to re-organize
their workforce and their terms and conditions of work so as to improve efficiency."
Therefore, the second case (change of method) automatically leads to an economic

35 (1876) 1 QBBD, 410

36 [1948]1 KB 184
37 [1977] ICR 235

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dismissal. This is because re-organization by the employer ordinarily amounts to a
fair dismissal under economic grounds.

Case of new technology

North Riding Garages Ltd v Butterwick 38. In this case, new methods of work
which involved less engineering and more paperwork were introduced by the new
employers after take‐over of the garage business. The workshop manager Mr.
Alexander Butterwick, was unable to adapt to new methods and standards required.
A new workshop manager was engaged after the dismissal. Court held that where
36 new technology is introduced and the old employee fails to adapt, he or she can be
dismissed on economic grounds. In this case, the new manager's duties were not
identical to those of the dismissed one. Therefore, the termination could not be said
to have been wrongful. WIDGERY, J went on to say that "an employee who remains
in the same kind of work is expected to adapt himself to new methods and
techniques and cannot complain if his employer insists on higher standards of
efficiency than those previously required." But if the ne methods alter the nature of
the work required to be done it may follow that no requirement remains for
employees to do the work of the particular kind which had been superseded and
that they are truly redundant.

However, before dismissing an employee on economic ground, the employer must

show that the demand for work done by the employee has reduced or stopped
completely. In Murphy v. Epsom College39 a plumber was tasked to maintain
heating installations, which were replaced, meaning he was not qualified to
maintain them. Employer employed a new resident heating engineer and dismissed
Murphy. Court of Appeal held that the dismissal was due to redundancy;
employment of resident engineer for particular type of work reduced the demand
for plumbing work which Murphy was able to do.

Economic dismissal triggers the obligation to compensate. It must be stipulated in

the contract and if not, then the employer must be reasonable. However, alternative
employment if taken will affect the amount of damages.

6. By way of notice.
The general principle at common law is that either party to a contract can bring it to
an end by giving notice to the other. Once notice is given, it cannot be withdrawn
unilaterally. It must be with knowledge and consent of the other party to whom it
was directed. If a contract is for a fixed period of time, the position of the law is that
the employment cannot be lawfully terminated before the end of that period unless
the employee is in breach of contract or the contract itself provides for prior
termination by notice. The length of notice to bring a contract to an end should be
agreed to by both parties. If no notice is expressly agreed then the law requires that

38 (1967)
39 [1984] IRCR 271

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‘reasonable notice’ should be given, with the length depending on factors such as
the seniority and status of the employee.

In Jabi vs Mbale Municipal Council40 it was held that it is generally accepted

that a dismissal is wrongful if it is made without justifiable cause and without
reasonable notice. The notice required might be determined from th e contract of
service itself or custom or any written regulations governing the employment of
which the plaintiff was a party.

In Barclays Bank of Uganda v. Godfrey Mubiru 41 , the employment contract

37 had a provision enabling each party to terminate the contract. The Supreme Court
thus held that if the dismissal had not been summary dismissal, which the
circumstances of the case justified, the employee would have been entitled to one
month’s notice or one month’s payment in lieu of notice.

“In my opinion, where any contract of employment, like the present, stipulates that
a party may terminate it by giving notice of a specified period, such contract can be
terminated by giving the stipulated notice for the period. In default of such notice
by the employer, the employee is entitled to receive payment in lieu of notice and
where no period for notice is stipulated, compensation will be awarded for
reasonable notice which should have been given, depending on the nature and
duration of employment. .”

Apart from the contractual provision on notice, the Employment Act entitles an
employee to minimum notice which takes precedence over any lesser notice by
contract___ Section 57 (5)42. This notice has to be in writing an in the language the
employee understands. According to Section . 58,43 except for summary dismissal
and mandatory retirement by age, no employer shall terminate the contract of an
employee without giving notice to the employee. Section . 58(3) (a)44 notice
should not be;

a) less than two weeks, where the employee has been employed for a period of
more than six months but less than one year;

b) less than one month, where the employee has been employed for a period of
more than twelve months, but less than five years;

c) less than two months, where the employee has been employed for period of
five ,but less than ten years; and

40 [1975] HCB 191

41 Civil Appeal of 1998
42 Employment Act Cap 226
43 ibid
44 ibid

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d) less than three months where the service is ten years or more.
In practice, however, the best mode is for the employee to accept payment in lieu
of notice. This serves both the parties, but especially the employer. It is not wise for
the employer to allow dismissed employees to work out their notice. Such workers
lack motivation and they may try to revenge against the employer for the dismissal.
Payment in lieu of notice is therefore treated as if it payment for damages for
wrongful dismissal. In Bank of Uganda vs. Betty Tinkamanyire 45 it was held
that;

38 “…the party unlawfully dismissed was entitled to monetary value of the

period that was necessary to give proper notice of termination which is
commonly known in law as compensation in lieu of notice and that
party is also entitled to damages for breach of contract

7. Termination by death or insolvency

Section 28 of the Employment Act provides that where the employer’s personal
or legal position formed the basis of the employment relationship with the
employee, the death of an employer shall cause the contract of service to terminate
one month from the employer’s death, unless it is otherwise legally terminated
within the period.

Section 2946 of the above act is to the effect that the bankruptcy or winding up of
the employer’s business shall cause the contract of service of any of the employee
to terminate one month from the date of the bankruptcy of winding up order. As in
HAS MWESIGWA&

TUMWESIGYE V UGANDA CONSOLIDATED PROPERTIES LTD 50 SCCA 7 OF

2002, the employer company was closed pursuant to the government policy of
Reform and Divestiture . Consequently the letter from the directors terminating the
appellant’s employment in the respondent company was a mere formality as the
company had already been closed by the government. In the result the appellant’s
employment was abnormally terminated by the government which closed the
respondent company. The appellants were entitled to a severance allowance.
According to Section 41 Employment act Cap 226, upon an employee’s death
His/her heirs or legal representative shall be entitled to the wages and any other
remuneration due to the employee at the date of death

45 SCCA no.12 of 2007

46 Employment Act Cap 22650
SCCA NO 7 OF 2002

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At common law47, death would bring the contract of employment to an end, whether
it is the death of the employee or employer. When death occurs the employee is
discharged from further performance, the result of an implied condition that the
continued existence of the parties is an essential part of the control. Death
terminates the contract. But in practice most employees will be employed by non-
human beings which do not die48.

Partnerships: in the case of a partnership where a partner dies and there is a

39 consequent dissolution of partnership the contract of employment will be
discharged

8. Termination by expiry of contract

Under s.64 (1) (b) of the Employment Act Cap 226, termination shall
be deemed to take place where the conduct of service, by being a contract for a
fixed term or task, ends with the expiry of the specified term or the completion
of the specified task and is not renewed within the a period of 1 week from the
date of expiry on the same terms not less favorable to the employee

9. Termination by the labour officer

This arises where the employer fails to pay wages or is otherwise in breach of the
employment contract and the employee complains to the labor officer, the contract
can be declared as terminated by the labor officer on application by the employee
that the employer has failed to pay wages under section 30(1) of the
Employment Act

10. Termination on attaining retirement age

The law doesn’t deem it necessary for the employer to inform the employee that
the latter is about to lose his job because attaining the retirement age.

Section 12 of the pension Act49 provides that an officer shall retire on attaining the
age sixty years., the education service commission, require an officer to retire from

47 Online notes (Nish school of law)

48 Graham’s article, “The effects of liquidation on contracts of service”, 1952 vol. 15, Modern Law Review
from page 48

49 Cap 286

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the service of the government at any time after the officer attains the age of fifty-
five years.

Hon. Gerald Kafureeka Karuhanga V Attorney general 50 court concluded

that under the 1995 Uganda constitution , a chief justice who has vacated office by
way reason of having attained the mandatory age of retirement which is seventy as
per article 144 is not eligible for re appointment as the chief justice of the
Republic of Uganda and therefore the re appointment of Hon .justice Benjamin
40
Odoki after termination of his contract of service by attaining the mandatory age of
retirement was inconsistent with the Uganda constitution of 1995 as amended.

11. Section 70. Unfair termination

(1) An employee who has been continuously employed by his or her employer for at
least thirteen weeks immediately before the date of termination, shall have the
right to complain that he or she has been unfairly terminated.

(2) A complaint made under this section shall be made to a labour officer within
three months of the date of dismissal, or such later period as the employee shall
show to be just and equitable in the circumstances.

(3) No complaint under this section may be made by an employee whose services
have been terminated or who has been dismissed under a probationary contract.

(4) The right of an employee to make a complaint under this section shall be in
addition to any right an employee may enjoy under an agreement between an
employer or group of employers and a labour union.

(5) Where court finds that a dismissal is unfair, the court May (

a) Order the employer to reinstate the employee;

(b) Order the employer to pay compensation to the employee.

(6) The court shall require the employer to reinstate or re-employ the employee
unless-
50 Constitutional petition no.39 of 2013

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(a) The employee does not wish to be reinstated or re-employed;

(b) The circumstances surrounding the dismissal are such that a continued
employment relationship would be intolerable;

(c) It is not reasonably practicable for the employer to reinstate or re-employ the
employee; or

41 (d) The dismissal is unfair only because the employer did not follow a proper
procedure.

72. Criteria for unfair termination

(1) A termination shall be unfair for the purposes of this Part where (
a) the termination is for any of the reasons specified in section
74; or
(b) it is found out that in all the circumstances of the case, the employer did not act
in accordance with justice and equity in terminating the employee from service.
(2) In deciding whether it was just and equitable for an employer to terminate the
services of an employee, a labour officer shall consider-
(a) code of discipline set out in Schedule 2 to this Act;
(b) The procedures adopted by the employer in reaching the decision to dismiss the
employee, the communication of that decision to the employee and the handling of
any appeal against the decision;
(c) The conduct and capability of the employee up to the date of termination;
(d) the extent to which the employer has complied with any statutory requirement
connected with the termination, including the issuing of a certificate under section
60 and the procedural requirements set out in section 65; and
(e) The previous practice of the employer in dealing with the type of circumstances
which led to the termination.

12. Collective termination

(Under S.64 of the EA, an employment contract may be terminated.
Section 2 of the EA, defines what termination of employment mean
Under S.88 (2) of E.A, the employer has a duty to ensure continuity of employment
however where it is not possible then the employer may terminate in accordance
with the law.
Under S.80(1) of the E.A, if the employer contemplates termination of not less than
10 employers over a period of not more than 3 months for reasons of an economic,
technological structural or similar nature then that is collective termination.
Economic reasons, the employer is financially distressed and if nothing is done
might be declared insolvent and any of the insolvency proceedings may happen
that is receivership, administration or liquidation and therefore to avoid these, the
company must lay off some workers so as to cut costs and stay afloat.
Technological reasons, the employer has acquired new efficient technology to
perform a given tasks there by rendering the present employees doing that task
surplus.

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PROCEDURE.
1. Notify the employees affected of the pending termination. Notice periods in S.57
of the E.A are applicable. BEN KIMULI V SANYU 2000.
2. Notify the representative of the Labor union if the employees affected are
unionized as per S.80 (a) of E.A and the minimum period for such notice is four
weeks before the 1st termination.
3. Notify the commissioner for Labor in writing of the reasons for the
termination ,the number and categories of workers likely to be affected and the
period over which the termination are intended to be carried out. S.80(b) of E.A
Reg 44(a) of the employment Regs 2011 states that the notice must be in form
42 prescribed in Part A and B of the 6 the schedule.

REMEDIES FOR WRONGFUL TERMINATION:

Once the dismissal of an employee has been found to unlawful by court, the next
question then becomes what remedies accrue thereto. Sections 69, 75, 77, and
70 of the Employment Act introduce a mechanism for complaint in case of unfair
termination.

The remedies are provided for in THE EMPLOYMENT ACT CAP 226 and under
common law.

1. Payment in lieu of notice. Pursuant to S.57 (1) of the employment act, an

employment contract cannot be terminated by an employer without giving notice to
the employee. Where such notice is not issued, then under S.57(5), the employee
who is terminated is entitled to payment in lieu of notice that her or she ought to
have been given. In BANK OF UGANDA V BETTY TINKAMANYIRE Tseseko jsc
held that ‘in my opinion where any contract of employment like the present
stipulates that a party may terminate it by giving notice of the specified period,
such a contract can be terminated by giving the stipulated notice for the period. In
default of such notice by the employer, the employee is entitled to receive payment
in lieu of notice and where no period for notice is stipulated, compensation will be
awarded for reasonable notice which should have been given depending on the
notice and duration of employment.

Payment in lieu of notice can be viewed as an ordinary way of giving notice.

The payments would be as follows:

 No notice pay for staff who have worked for less than six months.
 Two weeks pay for an employee who has worked for more than six months
but less than one year.
 One month pay where an employee has worked between one year and five
years
 Two months’ pay where an employee has worked between 5 years and 10
years

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 Three months’ pay where an employee has worked for 10 years or more.
2. Reinstatement.

In instances of unfair termination, an employee has the remedy of reinstatement

when ordered by a court pursuant to S.70 (5) (a) of E.A. in ordering the remedy
court must under subsection 6 give due regard to whether the employee does wish
to be reinstated, whether the circumstances surrounding the termination are such
that a continued employment relationship would be intolerable and whether its
reasonably practicable for the employer to reinstate the employee.
43
Courts are however very unlikely to issue this remedy despite the same being
available to an aggrieved party under the act. In STANBIC BANK V KIYEMBA
MUTALE SCCA N0.2 OF 2010, JUSTICE KATUREEBE held that it is trite law that
normally an employer cannot be forced to keep an employee against his will.

3. Compensation

Under S.70 (5) (b) of the employment at, the court if satisfied that the employee
was unfairly terminated may order the employer to pay compensation to the
employee. Under S.77 (1) an order of compensation must include a basic
compensatory order equal to the employees four weeks wage. Pursuant to S.77 (2),
the compensatory order may include additional compensation which according to
sub-section 3 must not exceed an amount amounting to the employees 3 months
wage. In OKELLO NYMLORD V RIFTVALLEY RAILWAYS (U) LTD (SUPRA), Musota j held
that where an employer unlawfully terminates the services of an employee the
latter is entitled to compensatory orders under the E.A

4. Severance allowance.

Subject to S.87 (a), an employee is entitled to a severance allowance from the

employer where the employee was unfairly dismissed.

Musota j in OKELLO NYMLORD V RIFTVALLEY RAILWAYS (U) LTD (SUPRA)

held that where an employer unlawfully terminates the services of an employee, the
latter is entitled to not only compensatory orders but also severance allowance or
pay under the E.A.

DAMAGES
Generally, damages are the most likely remedies that court will grant. On the issue
of damages, the point was made in Ahmed Ibrahim Bohlm v Car & General
Ltd51where it was held that it is now recognized that courts in East Africa can award
punitive and or exemplary damages in torts and contracts, employment contracts
inclusive (emphasis added).

51 SCCA No.12 of 2002

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The remedy for an employee who considers his/her tenure to have been
prematurely terminated is provided under Section 77 of the Employment Act
Cap 226.

What amounts to unlawful dismissal was considered and determined in Jabi vs

Mbale Municipal Council52 where it was held that it is generally accepted that a
dismissal is wrongful if it is made without justifiable cause and without reasonable
notice. The notice required might be determined from the contract of service itself
or custom or any written regulations governing the employment of which the
plaintiff was a party.
44
In Bank of Uganda vs. Betty Tinkamanyire53 was settled as a trite matter of
course that a court of law should not use its powers to force an employer to retake
an employee it no longer wishes to continue to engage. However, depending on the
circumstances, an employee who is unfairly or unlawfully dismissed, as in this case,
should be compensated adequately in accordance with the law. In that case, the
damages that the respondent/cross appellant was entitled to were those equivalent
to payment of two months’ salary in lieu of notice.

By way of definition, damages are the pecuniary recompense given by process of

law to a person for the actionable wrong that another has done him. Lord Greene
MR, in Hall Brothers SS Co. Ltd V. Young defined the term damages thus:

“Damages’ are sums which fall to be paid by reason of some breach of duty or
obligation, whether that duty or obligation is imposed by contract, by the
general law, or legislation.”

Except where statutory damages are stipulated, the rules and principles that govern
the award of damages in civil cases are entrenched in the common law and these
principles owe their validity to the provisions of section. 14(2)54.

The general principle is that an employee wrongfully dismissed is entitled to be

compensated fully for the financial loss that may be suffered as a result of the
dismissal, subject to the duty of the dismissed employee to mitigate loss. A person
who is wrongfully dismissed should mitigate his damages by obtaining alternative
employment. Thus the damages awarded must thus take into consideration the fact
that the plaintiff has an obligation to mitigate the same..

Certain factors have to be taken into consideration in the assessment of

damages.
1. Breach of contractual provision on notice.

52 [1975] HCB 91
53 SCCA no.12 of 2007
54 Judicature Act Cap 13

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Mulenga JSC in Gullabhai Ushillingi v Kampala Pharmaceutical Ltd55
established as a primary consideration in the assessment of damages the issue of
whether or not the contract provided for termination upon notice.

The learned justice further concurred with the learned Justices of Appeal that in the
event of wrongful termination by the employer, the employee in a “fixed time”
contract would be entitled to recover as damages, the equivalent of remuneration
for the balance of the contract period, and where notice was required; the
wronged employee would be entitled to recover as damages, the equivalent of
remuneration for the period stipulated in the contract for notice. He added that this
45 law was premised on the principle of restitutio in integrum. That damages are
intended to restore the wronged party into the position he would have been in if
there had been no breach of contract. He further stated that thus in the case of
employment contract for a fixed period which is not terminable, if there is
no wrongful termination, the employee would serve the full period and
receive the full remuneration for it. And in the case of the contract
terminable on notice, if the termination provision is complied with, the
employee would serve the stipulated notice period and receive
remuneration for that period, or would be paid in lieu of the notice.”

In Barclays Bank of Uganda v. Godfrey Mubiru 56 ), the employment contract

had a provision enabling each party to terminate the contract. The Supreme Court
thus held that if the dismissal had not been summary dismissal, which the
circumstances of the case justified, the employee would have been entitled to one
month’s notice or one month’s payment in lieu of notice.

“In my opinion, where any contract of employment, like the present, stipulates
that a party may terminate it by giving notice of a specified period, such
contract can be terminated by giving the stipulated notice for the period. In
default of such notice by the employer, the employee is entitled to receive
payment in lieu of notice and where no period for notice is stipulated,
compensation will be awarded for reasonable notice which should have been
given, depending on the nature and duration of employment.” Thus, in the
case of Lees v Arthur Greaves Ltd, (1974) I.C.R. 501, it was held that
payment in lieu of notice can be viewed as ordinary giving of notice….
The right of the employer to terminate the contract of service, whether
by giving notice or incurring a penalty of paying compensation in lieu
of notice for the duration stipulated or implied by the contract cannot
be fettered by the courts. An employee is entitled to full compensation
only in those cases where the period of service is fixed without
provision for giving notice

2. Malice or arrogance of the employer.

55 SC Civil Appeal no.6 of 1999

56 SCCA No.1 of 1998

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In Ahmed Ibrahim Bholm Vs Car and General Ltd 57 another consideration for
assessment of damages was laid down as, the malice or arrogance on the part of
the defendant which increases the injury suffered by the plaintiff for example, by
causing him humiliation or distress.

3. Length of time between the dismissal and the employee finding another
job.
In Uganda Revenue Authority Vs Wanume David Kitamirike, 58, the court also
46 considered the time which might reasonably be expected to lapse before the
respondent would, in the ordinary course of things, be likely to obtain similar
employment to that which he/she lost by his wrongful dismissal. Having fixed that
period, she/he will be given a sufficient sum to reimburse him for the loss sustained,
calculated on the basis of the emoluments he/she was enjoying at the time of such
loss.

It was further held that the common law principles that damages are not awardable
for injury to feelings or reputation by reason of unlawful dismissal or termination of
contract of employment or for causing plaintiff have more difficulty in obtaining new
employment have over time been interpreted so as to make employment law keep
pace with economic and other social developments of modern society. That courts
are now, awarding damages, for other consequences of employment, in addition to
the traditional damages that the plaintiff is entitled to recover by way of
payment of salary in lieu of termination notice, where the employment
contract is terminable by notice, or by way of remuneration for the
remainder of the contract period, where the employment contract is not
terminable by notice. [Emphasis added]

The Plaintiff has an entrenched common law duty to mitigate the loss suffered as far
as is reasonably possible. This rule was ably articulated by Cockburn CJ in the
landmark case of Frost v. Knight thus:

“In assessing damages for breach of performance, a court will of course take
into account whatever the plaintiff has done, or has had the means of doing,
and as a prudent man, ought in reason to have done, whereby his loss has been,
or would have been, diminished.”

In Tumusiime Fidelis v Attorney General 59 it was held that damages must be

reduced by reason of the plaintiff’s failure to take any steps such as getting another
job, to mitigate the loss.

57 SCCA NO.12 OF 2002

58 CACA NO.43 OF 201
59 Civil Suit no.88 of 2003

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The plaintiff carries the ultimate burden to prove, on a balance of probabilities, that
he discharged this duty. However, if the defendant contends that the loss proved by
the plaintiff could have been minimized or avoided altogether by the taking of some
step which the plaintiff could reasonably have taken but did not take, the onus is on
the defendant to make out that contention on the evidence.

Thus in the Wanume case (supra), the Plaintiff was awarded 100,000,000/= for the
embarrassment and inconvenience by loss of a well-paid job and the opportunity to
work up to a retirement age of 55 years. On discovering the mistake that had
been done to the respondent, the appellant had not thought it fit to recall the
47 respondent and reinstate him in his former position or some other alternative
position. By the time of the hearing of the case, the respondent had laboured to
obtain alternative employment in vain. All these aggravating factors were the basis
of the award.

No right of payment under the contract after termination.

In, Stanbic Bank Ltd V Kiyimba Mutale60 the Supreme Court was held that It is
trite that where a contract of the employment has been terminated, the employee
has no right to claim payment under the contract.

Court relied on these authorities;

This was stated by this court in the case of Bank of Uganda Vs Betty
Tinkamanyire61 the respondent had been awarded, inter alia, commuted pension
she would have received had her termination been lawful and the number of
months she would have worked up to retirement age. This court held that such
awards are unlawful and Kanyeihamba JSC (as he then was) stated in his lead
judgment at P.7 thus;

"The contention that an employee whose contract of employment is

terminated prematurely or illegally should be compensated for the
remainder of the years or period when they would have retired is
unattainable in law. Similarly, claims of holidays, leave, lunch allowances
and the like which the unlawfully dismissed employee would have enjoyed
had the dismissal not occurred are merely speculative and cannot be
justified in law. I would confine the compensation for the unlawful
dismissal of the appellant to the monetary value of the period that was
necessary to give proper notice of termination which is commonly known
in law as compensation in lieu of notice ".
In the case of Rugundu Vs International Law Institute the appellant whose
contract was terminated before it commenced claimed for the _ money and other
benefits she would have earned from the contract. The court held that an employee
whose contract is terminated receives nothing in regard to the contract. This court

60 [2011] UGSC 18
61 Supreme Court Civil Appeal No. 12 of 2007

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quoted with approval the following statement from Vires Vs National Dock
Labour Board62 .

"It has long been settled that if a man employed under a contract of
personal service is wrongfully dismissed, he has no claim for
remuneration due under the contract after repudiation. His only money
claim is for damages for having been prevented from earning his
remuneration. His sole money claim is for damages and he must do
everything he reasonably can to mitigate them.

48

62 [1956]1 QB 658

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RECRUITMENT OF UGANDAN MIGRANT WORKERS AND NECESSARY
REQUIREMENTS

Establishment of a recruitment agency and a recruitment agency is a company

duly licensed by the Ministry to recruit migrant workers for employment abroad and
this is provided for under Regulation 3 of the Employment (Recruitment of
Ugandan Migrant Workers Abroad) Regulations, 2021. Therefor where
individual wishes to engage or invest in such business, he or she should have a
company that will run activities of recruitment of the intended labor, a person or his
or her agent or messengers shall not engage in the business of operating a
recruitment agency unless he or she is in possession of a valid recruiting permit
49 issued by the commissioner.

Recruitment Permit. This means that for one to operate a recruitment agency,
they should be in possession of a recruiting permit and this is provided for under
Section 37 (1) of the Employment Act Cap

Regulation 4 of the Employment (Recruitment of Ugandan Migrant

Workers Abroad) Regulations, 2021 provides that a person who wishes to
transact business as a recruitment agency in Uganda shall apply to the Ministry for
a license.

Under regulation 6 the following are not eligible to be licensed as

recruitment agencies—
(a) travel agencies or sales agencies of airline companies;
(b) companies whose directors or shareholders are engaged in
the business of operating travel agencies;
(c) political, religious or cultural organisations;
(d) companies that have been declared insolvent; and
(e) companies whose directors have a criminal record related to illegal recruitment
or trafficking in persons.

Regulation 5 of the same regulations provides that to be granted a license to

operate as recruitment agency, the applicant shall be a company incorporated
under the companies Act, all the shareholders and the directors of that
Company should be Ugandan and for the company to apply, it shall have a
minimum authorized capital of fifty million Uganda shillings.

Regulation 7 (1) of the Employment (Recruitment of Ugandan Migrant

Workers Abroad) Regulations, 2021 is to the effect that a company proposing
to transact or carryon business as a recruitment agency shall apply in writing to the
Ministry for a license and the application shall be accompanied by a non-refundable
application fee of one hundred thousand Uganda shilling

Regulation 8 of the employment (recruitment of Ugandan migrant workers

abroad) regulations 2021 provides for factors to be considered for grant of
license by the ministry and these include;
the financial history and status of the applicant,
the proposed management system of the applicant for purposes of competence and
integrity,

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capital structure of the applicant for adequacy purposes,
to ascertain whether directors, shareholders do not have a criminal record and
any other Matter which the ministry may regard as relevant to the application and
lastly the minister shall before granting a license

The Ministry shall then within 45 days after receipt of an application consider an
application under regulation 9 of the same regulations

Under regulation 10 of the same regulations 2021 provides that if it is satisfied

that the applicant complies with the requirements of these regulations, the Ministry
shall grant a license to the applicant on payment of a fee of two million Uganda
50 shillings and that the license shall be valid for two years from the date of issue.

Provisions on Application for a Recruitment Agency Licence (Regulation 7)

1. Application Process: A company intending to operate as a recruitment agency

must apply in writing to the Ministry, accompanied by a non-refundable fee of UGX
100,000.

2. Application Requirements: The application must include the agency’s name and
address, details of employees involved in recruitment (including bio-data and
passport photos), and information on directors and shareholders.

3. Publication Requirement: Before submission, the applicant must publish a notice

of the application in a widely circulated newspaper.

4. Supporting Documents: The application must be accompanied by:

- Certified copies of the certificate of incorporation and memorandum & articles of
association.
- A UGX 100 million bank guarantee.
- Proof of payment of the application fee.
- Individual tax returns and bank statements for directors and shareholders (for
the past year).
- Proof of publication of the application.
- Certificate of attendance at a pre-licensing seminar.
- Evidence of minimum capital of UGX 50 million and an account balance of at
least UGX 10 million.
- Clearance of directors, shareholders, and employees by relevant security
agencies.

5. Undertakings by the Applicant: The applicant must provide a verified undertaking

to:
- Offer pre-departure orientation to migrant workers.
- Ensure workers are qualified and possess necessary documentation.
- Confirm employment contracts comply with legal standards.
- Inform workers of their rights and responsibilities.
- Allow workers to review and receive copies of their contracts.
- Be accountable for claims and liabilities arising from the licence.
- Adhere to international labor standards.
- Take responsibility for the actions of its staff.

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- Deploy at least 50 migrant workers within one year.

6. The Ministry may request further information or clarifications from the applicant if
necessary.

NB: (Regulation 11) Circumstances for refusal to grant a license include;

(a) to a company that has a derogatory record held by the Internal Security
Organisation or the Ministry;
(b) to a company whose shareholders, directors or employees are guilty of carrying
out illegal recruitment of a migrant worker; or
51 (c) to a company whose directors or shareholders were involved with a recruitment
agency whose licence was previously revoked by the Ministry for contravention of
these Regulations.

(2) Where the Ministry refuses to grant a licence, it shall, in writing, state the
reasons for the refusal to grant the licence.

Provisions on Revocation of a Recruitment Agency Licence (Regulation 14)

1. Grounds for Revocation: The Ministry may revoke a recruitment agency’s licence
if the agency:
- Violates the regulations.
- Fails to operate for six months or more.
- Engages in misrepresentation, including deceptive advertisements or submission
of false documents.
- Induces employed migrant workers to leave their jobs, except to rescue them
from oppressive conditions.
- Influences others to reject job applications from migrant workers.
- Alters employment contracts or official documents without Ministry approval.
- Falsifies travel documents.
- Coerces migrant workers into unfair arrangements.
- Unjustifiably withholds workers' salaries or remittances.
- Misrepresents facts to renew its licence.
- Recruits workers for jobs harmful to public health or morality.
- Has been suspended at least three times during the licence period.

2. Before revoking a licence, the Ministry must issue a notice stating the reasons
and grant the agency an opportunity to be heard.

3. If a licence is revoked, the Ministry must:

- Post a notice at the agency’s premises.
- Publish the revocation in a widely circulated newspaper.

FOREIGN AGENCIES.
Accreditation and Revocation of Foreign Recruitment Agency
Accreditation (Regulation 17)

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Foreign recruitment agencies seeking to recruit Ugandan migrant workers must
operate through a licensed Ugandan recruitment agency. To ensure compliance
with Ugandan laws and safeguard the rights of migrant workers, foreign recruitment
agencies must undergo an accreditation process overseen by the relevant Uganda
Mission in their country of operation. This accreditation is subject to renewal and
can be revoked if the agency fails to adhere to the set regulations.

Accreditation Process
1. Application Requirements: A foreign recruitment agency must apply for
accreditation through the Uganda Mission in its country and submit:
- English translations of incorporation documents.
52 - A valid trade and labour licence (or their equivalent).
- Names, contacts, and physical addresses of the agency and its officials.
- Physical address of accommodation centres for migrant workers.
- Proof of a complaints-handling mechanism and designated complaints officer,
preferably a Ugandan.

2. Inspection and Renewal: The Uganda Mission must inspect the agency’s premises
and accommodation centres before granting accreditation. Accreditation is valid for
two years and can be renewed after re-inspection.

Regulation 18. Non-Transferability: Accredited foreign recruitment agencies

cannot transfer their accreditation to another agency or company.

Revocation of Accreditation (Regulation 19)

The Uganda Mission may revoke accreditation if the foreign recruitment agency:
- Ceases recruitment activities for six months or more.
- Transfers its accreditation, in violation of the regulations.
- Charges migrant workers fees or accepts payments before securing employment
for them.
- Charges fees higher than those prescribed under the regulations.
- Obstructs or attempts to obstruct inspections.
- Publishes unauthorized job advertisements in Uganda.

These provisions ensure that foreign recruitment agencies operate transparently,

uphold ethical recruitment practices, and protect the rights of Ugandan migrant
workers.

(Regulation 23) Clearance of migrant workers;

(1) A recruitment agency that wishes to place migrant workers abroad shall seek
clearance from the Ministry by submitting the following—
(a) for each migrant worker, a certificate of good conduct from Interpol;
(b) a pre-departure orientation training report;
(c) the approved job order;
(d) for each worker, a copy of his or her passport;
(e) a copy of the contract of employment;

Employment of foreign workers and requirements

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Sect 2 of Employment Act defines a migrant worker as a person who migrates
from one Country to another with a view to being employed by another person.
Sect 36(2) of the employment Act Cap 226 provides that a person shall not
employ a person whom he or she knows to be unlawfully present in Uganda.
Sect 59 of Uganda (Citizenship & Migration Control) Act bars any foreign
National without an entry permit, certificate of permanent residence or special pass
from being employed in parastatals, public service, by a private person or to
engage in Private business in Uganda.
In Ahmed Ibrahim v Car and General Ltd SCCA No.12 of 2002. The Supreme
court noted that failure to comply with the Immigration laws make an employment
53 contract illegal.
Application Requirements.
This shall be done by logging into the Immigration Portal and filling entry permit
form contained in Form 1 A of the Uganda (Citizenship & Migration Control)
Regulations 2004.
Must attach passport size photo of the person to come into the country.
Must make Photocopies of their valid passport and other Valid documents to
establish identity and Nationality.
Must attach all academic qualifications of the applicant
Employee must have a certificate of good conduct from his own home police or
Interpol.
The Company must present a valid Tax clearance certificate.
Applicant must have in possession an appointment letter.
The employee must attach a cover letter from the Company.
The Company must give a statement as to proof of failure to employ a Ugandan
Citizen for example lack of expertise needed by the Company.
Upon Completing the application form, a six-digit application Id is automatically
generated as the ref number.
Upon approval and payment of the necessary fees, an approval letter is generated
and provided to the applicant.
Report to the Immigration office for biometric capture with all documents uploaded,
payment receipts, approval letters and passport.
When the office is satisfied with the requirements presented by the applicant, it
shall issue the entry permit to the worker.
The employer shall file a return of employees who are non citizens every 6 months
as per Regulation 19(1) of the Uganda (Citizenship & Migration Control)
Regulations 2004.
From the facts to Obtain a valid work permit for Mr. Hakan as a foreign
employee, MK Power Industries Limited should comply with all labor laws governing
the employment of expatriates.

Employment of foreign workers and requirements

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Sect 2 of Employment Act defines a migrant worker as a person who migrates
from one Country to another with a view to being employed by another person.
Sect 36(2) of the employment Act Cap 226 provides that a person shall not
employ a person whom he or she knows to be unlawfully present in Uganda.
Sect 59 of Uganda (Citizenship & Migration Control) Actbars any foreign
National without an entry permit, certificate of permanent residence or special pass
from being employed in parastatals, public service, by a private person or to
engage in Private business in Uganda.
In Ahmed Ibrahim v Car and General Ltd SCCA No.12 of 2002. The Supreme
court noted that failure to comply with the Immigration laws make an employment
54 contract illegal.
Application Requirements.
This shall be done by logging into the Immigration Portal and filling entry permit
form contained in Form 1 A of the Uganda (Citizenship & Migration Control)
Regulations 2004.
Must attach passport size photo of the person to come into the country.
Must make Photocopies of their valid passport and other Valid documents to
establish identity and Nationality.
Must attach all academic qualifications of the applicant
Employee must have a certificate of good conduct from his own home police or
Interpol.
The Company must present a valid Tax clearance certificate.
Applicant must have in possession an appointment letter.
The employee must attach a cover letter from the Company.
The Company must give a statement as to proof of failure to employ a Ugandan
Citizen for example lack of expertise needed by the Company.
Upon Completing the application form, a six-digit application Id is automatically
generated as the ref number.
Upon approval and payment of the necessary fees, an approval letter is generated
and provided to the applicant.
Report to the Immigration office for biometric capture with all documents uploaded,
payment receipts, approval letters and passport.
When the office is satisfied with the requirements presented by the applicant, it
shall issue the entry permit to the worker.
The employer shall file a return of employees who are non citizens every 6 months
as per Regulation 19(1) of the Uganda (Citizenship & Migration Control)
Regulations 2004.
From the facts to Obtain a valid work permit for Mr. Hakan as a foreign
employee, MK Power Industries Limited should comply with all labor laws governing
the employment of expatriates.

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OCCUPATIONAL SAFETY AND HEALTH

At common law, if employers fail to discharge their responsibilities and an employee

thereby suffers an injury, the employer will, through vicarious liability incur civil
liability to the employee for damages due to the breach of direct duty of care
towards employees. The common law rules therefore ensure that injured employees
are able to receive compensation. Contrast this with the employer's statutory
responsibilities which are primarily intended to prevent accidents occurring in the
55
first place, a failure to discharge these responsibilities leads to liability. However, it
is important to note that an employer is not vicariously liable for the torts of his
independent contractors.

Employers liability is to the extent of employees acting in the course of their

employment when they are performing the duties which they have been employed
to perform. Performing these duties in an unauthorised manner, or even in a
manner that has been expressly prohibited by their employer, will not normally take
them outside the course of their employment. This was discussed in Century
Insurance Co v NIRTB [1942] A.C 509 where court stated that the employee was
the driver of a petrol tanker. He lit a cigarette whilst he was transferring petrol from
his tanker to the underground storage tank and threw the match, which was still
alight, onto the ground. An explosion and fire ensued which caused damage to the
garage. The driver's employer was vicariously liable for the loss. The act (of lighting
the cigarette) was a negligent way of doing that which he was employed to do
(transferring petrol into the tank). He was therefore acting in the course of his
employment, even though he was doing so in an unauthorized manner.

In general, therefore, as long as an employee performs his duties, he does not

cease to be acting in the course of his employment merely because he performs
them badly. However, there comes a point where an employee performs his duties
so badly that the manner of performance then takes him outside the course of his
employment.

Common law emphasized the Employer's Direct Duty of Care

Employers owe a common law duty to take reasonable care of their employees. This
duty is owed in tort and also in contract, under an implied term in every contract of

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employment. It is a personal non-delegable duty. This means that the employer will
remain liable, even if he has delegated the performance of the duty to someone
else. It requires the employer to provide four things for his employees:

Competent Fellow Employees. This duty overlaps with the principle of vicarious
liability. If an incompetent colleague injures an employee then the employer will be
directly liable for the injury if the colleague's incompetence is due to the employer's
negligence. This will be the case, whether or not the incompetent colleague was
56
acting in the course of his employment. The duty requires employers to recruit
capable staff and to provide adequate training and supervision to ensure that they
are performing their tasks competently. This was discussed in Hawkins v Ross
Castings Ltd [1970] Mr Hawkins was badly injured when a colleague accidentally
spilled molten metal onto his legs. The colleague was a 17-year-old Asian youth who
spoke very little English and had not been trained in the task of carrying and
pouring molten metal which held that the employer was liable for Hawkins' injuries.
He was in breach of his duty of care as he had failed to provide a competent fellow
employee to work with him. The duty also requires employers to dismiss employees
who are known to represent a danger to their colleagues.

A Safe Place of Work. This duty applies in respect of the employer's own
premises but also to other premises where his employees work. General Cleaning
Contractors v Christmas [1953] A.C. 180 Christmas was a window cleaner
working for a window cleaning contractor. The firm provided safety belts for its
employees but on one building there were no hooks to attach to the belts. The firm
was aware of this situation. Christmas was injured while cleaning windows on that
building. A defective window sash fell onto his fingers and caused him to lose his
grip. As a result, he fell to the ground and suffered serious injuries. He sued his
employer for failing to provide a safe place of work. It was held that the employer
was liable. It was aware of the danger surrounding the lack of hooks on the building
and should not have continued to send its employees to work there.

Safe Plant and Equipment. All machinery, tools and equipment used by the
employee must be reasonably safe for use. Bradford v Robinson Rentals [1967]
A van driver was required to make a long journey during some extremely cold
weather. His employer knew that the heater in the van was broken but insisted that

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the driver make the journey. The driver suffered frostbite. Held the employer was
liable for the driver's injuries. He had breached his duty to provide safe plant and
equipment.

A Safe System of Work. This duty relates to safe working methods. It is a very
wide duty and includes a number of issues including the layout of the workplace,
warnings about potential hazards, the provision of safety equipment and training &
supervision in its use. Employers must warn employees about potential hazards that
57
they would not otherwise be able to avoid. However, they are entitled to assume
that employees have some common sense and so do not have to warn them of all
dangers. Johnstone v Bloomsbury Health Authority [1991] 2 W.L.R. 1362
CA.Johnstone was a junior doctor working for the Health Authority. His contract
required him to work 40 hours per week and to be on call for a further 48 hours per
week. As a result he suffered ill health through overwork. He claimed that, by
requiring him to work an excessive number of hours, the Health Authority was in
breach of their duty to provide him with a safe system of work. The authority was
held liable. The express term in the contract about working hours had to be read in
the context of the employer's implied duty to take reasonable care for the health of
employees.

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THE OCCUPATIONAL HEALTH AND SAFETY LAW IN UGANDA.

Occupational Health and safety law in Uganda is governed by the; The Constitution
of the Republic of Uganda 1995, The Occupational Health and Safety Act No. 9 of
2006, ILO Conventions 87 and cases.

The Constitution recognizes the importance of good working environment of all

workers and their rights. Article 34(4) of the Constitution pronounces itself that
58 children are not supposed to do work that is likely to be hazardous or interfere with
their education, health, physical, mental spiritual or moral development and Article
39 gives workers a right to a clean and healthy environment while article 40(1)
empowers Parliament to enact laws to provide for the rights of persons to work
under satisfactory, safe and healthy conditions.

The general duties, obligations and responsibilities of employers are laid

out in the Occupational Safety and Health Act (Section 12-25 of the OSHA).
This Act imposes duties on the employer owed both to workers and the general
public. These duties are categorized as general duties variously but become more
specific depending on the category of employers i.e. manufacturing, suppliers,
chemical and hazardous industries etc

The overriding duty of care is imposed on the employer by S.12(1)(a) OSHA as it

is the responsibility of an employer, to take, as far as is reasonably practicable, all
measures for protection of his or her workers and the general public from the
dangerous aspects of the employer’s undertaking at his or her own cost. Wilson and
Clyde V English

Duty to ensure working environment is kept free from any hazard due to pollution
under Section 12(2) OSHA

Duty to prepare a written Statement of Safety and Health Policy under Section 13(1)
OSHA

Duty to also participate in worker’s in Health and Safety S.16 OSHA

Duty to consult safety Representatives S14(2) OSHA

Duty to establish a Safety Committees S15(1) OSHA.

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Employers duty to supervise health of workers, S.20.

Employers duty to monitor and control release of dangerous substances in

environment, S.17(1)
OSHA
Duty to provide protective gears S18 OSHA
Duty to other persons other than workers under S22 OSHA
Duty to display guide safety precautions under S 24 OSHA
59
Duty to provide safe premises under S25 OSHA
Duty not to penalize workers for compliance with the OSHA (S 37 OSHA)
Duty to fence dangerous equipment.

WORKERS DUTIES (PART VI SEC.34-38 OSHA)

S.34 OSHA imposes on the employee, the duty while at work to take responsible
care for the health and safety of himself/herself and others who may be affected by
his/her acts or omissions at work.

Employees are further required to report dangerous situations to their immediate

supervisors where they have reasonable grounds to believe there is an imminent
danger to life and health in the premises.-S.35 OSHA

Duty not to endanger premises or working environment under Section 99 OSHA

Workers also have a duty to corporate with employer

RIGHTS OF WORKERS

The OSHA however specifically and unequivocally stipulates the employee’s right to
move away from a dangerous situation under S.36 OSHA

The right not to lift heavy loads likely to cause injury.

Right not to be punished as result of anything done under the Act as provided under
S.37 OSHA and any dismissal in this regard would be rendered wrongful.

NOTE: Duties of the employer constitute rights of the workers

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60

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WORKER’S COMPENSATION UNDER COMMON LAW

an employer was liable for injuries resulting from workplace accidents only when an
employee could prove that the accident was a result of the employer’s negligence.
The principle of negligence refer to the case of Donoghue v. Stevenson [1932]
AC 562 and Wilson and Cylde Coal Co. Ltd v.

English (1937) 3 ALLER HOL; [1938] AC 57

The employee had to prove that the injury was caused as result of the
61 negligence of the employer which was hard to prove and therefore the
employer had no responsibility towards the employee.

Proving negligence of the employer was difficult because the employers relied on
the three defences of;

Contributory negligence Negligence if the workers own negligence contributed to

his injuries; If an employee was injured through negligence of the employer but was
partly at fault, the employee was guilty of contributory negligence.

Common employment (fellow-servant doctrine) if an accident was caused by

the negligence of a fellow worker the injured worker could not recover from the
employer.

The doctrine of common employment was discussed in the case of Priestly v.

Fowler (1837) 3 M & W 1. An action against a butcher for the negligence of
another employee in overloading his cart resulted in injury to the claimant. Liability
was rejected because the claimant and the negligent employee were both
employed by the butcher, and it was not thought appropriate for the law to
intervene in the work relationship.

Voluntary assumption of risk if an employee knew or should have known of the

inherent risks involved. The doctrine provided that an employee who knew, or
should have known, of unsafe conditions of employment assumed the risk by
remaining on the job.

These three defences exempted an employee from paying damages for employee
accidents.

The defence of volenti non fit injuria and common employment were held to be
inapplicable to claims based on civil action of breach of statutory duty which were
widely applied to factory (ies) legislation.

A claim for breach of some duty imposed by statute will succeed without the
employee proving that the employer was negligent.

This was brought about by the decision in Groves v. Wibourne (Lord) [1898] 2
QB 402 and Wilsons & Clyde v. English [1938] AC 57.

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In Wheeler v New Merton Board Mills [1933] 2 KB 669, the court held that
the employer was in breach of the term of the factory workshop Act 1901
in leaving the dangerous machine without a fence and unguarded, and the
employer’s knowledge of the danger was not a defence to the employer’s
liability in respect of this breach. Thus the employer’s liability for the
injury was upheld.

ELEMENTS OF LIABILITY

Under common law, there were three bases for imposing liability upon an
62 employer.

These are where the employer was liable –

■ for the breach of duty by another employee who was acting in the course of

employment (vicarious liability)

■ for breach of a primary duty owed directly by the employer to the injured
employee,

the duty being placed on the employer by judges (breach of common law duty).
(Read Wilson and Cylde Coal Co. Ltd v. English (1937) 3 ALLER HOL; [1938]
AC 57)

■ for breach of a primary duty placed on the employer by Parliament (breach of

statutory duty). (Read Groves v Wimborne (Lord) [1898] 2 QB 402 and
Nsubuga Tony v. Spencon Services Ltd, HCCS No. 13 of 2014)

BREACH OF COMMON LAW DUTY

Partly as a means of evading the defence of common employment which previously

limited the scope for vicarious liability, judges imposed duties directly upon
employers.

There are four such duties. The employer must provide:

■ competent staff

■ adequate plant and equipment

■ a safe place of work, and

■ a safe system of working

The case of Groves v. Lord Wibourne [1898] 2 QB 402, the HOL confirmed the
existence of an employer’s general duty of care in tort with regard to the safety of
his employees. The duty was affirmative in nature and could not be discharged

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merely by delegation. The doctrine of common employment which focused on the
negligence of the employee was therefore irrelevant to the claim.

The case of Wilson and Cylde Coal Co. Ltd v. English (1938) AC 57; [1937]
All ER 62

introduces what came to be known as the ‘four-fold duty of care’. Lord Wright
observed that the employer’s responsibilities in employer-employee contract
related to the following:-

63 1. The provision of competent fellow workers

2. The provision of safe materials and a proper system of work

3. The provision of a safe workplace This component envisages physical premises

(Safety of the employee and issues to do with health)

4. The provision of safe equipment (relates to heavy machinery)

WORKER’S COMPENSATION UNDER THE ACT

The employee or his/her representative must give notice to the employer

about the injury as soon as possible

Under Section 9 (duty to give notice to employer) there is a duty on the

employee in person or through a representative to give notice to the employer
about the accident suffered for which compensation is set within a period of one
month from the time the accident occurred or within a period of three months in
case of the symptoms of disease showing. This can be done individually or through
a representative.

There is a provision, however, under the section and the requirement will be
dispensed with if it can be the shown that the employer was in the know of the
accident or aware about the symptoms of the disease, in this case the employee
will be exempted from this obligation.

Form of notice to the employer. The employees are required to use a prescribed
form when notifying the employer provided for under the Workers Compensation
Regulations (Regulation 2 & First Schedule of the Regulations).

 The employer must report the accident or disease to the labour officer.

Section 10 requires that once that notice has been made by the employee about
the accident or disease, the employer is in turn required to make a report of the
accident or about the symptoms of the disease as soon as possible.

Section10 (2) provides for the circumstances where death occurs from the
accident. There is a penalty for non-compliance under section10 (3)

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The employers are required to use a prescribed form when notifying the labour
officer provided for under the Workers Compensation Regulations (Regulation 3,
First Schedule of the Regulations, Form II).

 The employer has to arrange for medical examination and treatment of

the injured employee after the occupational accident

Section 11 provides for an obligation on the employer to arrange for treatment as

soon as possible by a qualified medical practitioner after he or she has been notified
of the accident at the the employer’s cost.
64
A medical practitioner is defined under s.1(p) as a medical practitioner registered
under the Medical and Dental Practitioners Act.

Section 11(3) is a penalty for failure to appear for medical examination on the part
of the worker or failure to follow medical/clinical prescription.

 The employer and worker may negotiate and agree on the amount to be
paid for compensation (compensation by agreement)

Section 12 of the Workers Compensation Act gives room for the

employer/employee to negotiate compensation. However, this has to be done with
written approval of the labour officer.

However, any agreement between the employer and employee must comply with

section 12(2) of the Act. It should not be an amount below that which will be
payable under the Act.

The employer has a duty to show that the employee understands the terms of the
agreement.

If subsequently, the employee discovers that the agreement was dubious, he/she
can apply to court within three months and the court can review the terms of the
agreement. S.12 (3)

 The employee or employer can dispute the assessment of disability by

the medical practitioner.

Section 13 of the Act provides for situations where there is a dispute of

assessments by the medical practitioner either by the employer or employee.

The procedure is to request the labour officer to refer the dispute to the medical
arbitration board. The Medical Arbitration Board is set out in s.13(4). According to
s.13 (3) the decision of the MAB shall be final.

In the case of Nile Breweries Ltd v. Isabirye David, Miscellenous Application

No. 130 of

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2020 (UGIC), court interpreted several sections of the Workers Compensation Act
relating to the powers of the labour officer under the Workers Compensation Act.
Court observed:

We must say however that the Njeru labour officer was not empowered to entertain
a claim under the Workers Compensation Act and that therefore the decision
relating to injuries sustained by the complainant is void and is hereby set

aside. Under Section 10 of the Workers Compensation Act the labour officer

65 merely receives a report of the accident at work. Under section 12 of the same
Law the labour officer approves an agreement between the employer and the
employee as to what compensation is payable to the employee after the

Employee has attended to medical examination in accordance with section 11 of

the same Act. In case of a disagreement as to what compensation is payable the
dispute is resolved by a Medical Arbitration Board as per section 13 of the same

Act.

Section 14(2) provides: “All claims for compensation under this Act, unless
determined by agreement, except of disputes as to the assessment of
disability under section 13, arising out of proceedings under this Act shall
be determined by the Court, whatever may be the amount involved”

A Labour officer not being any of the judicial officers described in the above
interpretation section of the law, had no capacity to entertain the claim and his
doing so was an illegality.

 An employee can apply to court for compensation if no agreement is

reached.

There is a remedy of the aggrieved party to go to court. The court is defined in s.1
(a) to mean Magistrates Court presided over by a Chief Magistrates Court or
Magistrate Grade 1 having jurisdiction in the area the accident occurred.

S.14 (1), there is a general presumption in the Act that the employer and employee
are expected to meet and agree on the compensation.

The Act gives them a chance of 21 days to discuss the issue of compensation. If no
agreement is reached within 21 days, the employee may make an application to
court to enforce the claim.

Read: Wekesa John Patrick v The Attorney General HCCS No. 130 of 2008

S.14(2) provides that apart from assessment of disability, every other matter arising
out of the Act is determined by court if not determined by agreement.

ALPHA
Section 14 (2) provides: All claims for compensation under this Act, unless
determined by agreement,

and any matter, except disputes as to the assessment of disability under section 13,
arising out of proceedings under this Act shall be determined by the court,
whatever may be the amount involved.” In the case of

Mulindwa Emmanuel V. WBS Television Labour Dispute Claim No. 208 of

2014, court observed that: “jurisdiction relating to compensation for loss occurred
to the worker in the course of his employment is with the exclusive power of the
66 Chief Magistrate’s courts.”

s.14 (3) provides that the court is not bound by the assessment of medical
practitioner or the MAB, there is room to call for new evidence form a person who
has expertise.

S.15 provides another remedy available, the court on its own motion as the case
maybe, can submit any question of law for the decision of the High Court.

s.15 (2) presupposes existence of rules under which court will exercise its powers
under section 15(1).

Appeals

Section 16 (2) also provides for appeals. This right of appeal is qualified. The
section refers to s.12 and s.25. There is no automatic right to appeal to the High
Court on matters arising out of s.12 and s.25.

s.16 (2) also says that you cannot appeal to the High Court if the amount in dispute
is one currency point, except with leave of court.

The other exclusion from appeal is under s.16 (4) where there is a decision of the
courtor where court is merely enforcing the compensation.

s.16(5) provides for the time frame within which to appeal, which is 30 days, but
one can get an extension of time from the court.

 The employee is allowed to bring proceedings to recover damages where

the claim is due to the negligence of the employer (common law duty of
care) or his/her representative (vicarious liability) or breach of statutory
duty of care irrespective of the claim brought under the Act.

S.17 provides for damages and the circumstances should justify a further claim of
damages.

Section 17 (2) in awarding damages the court will take into account the amount of
compensation given to the claimant.

ALPHA
Under section 17(2) there is a forum for one to resolve issues under the Act, so if
you outside the Act, compensation can be reduced. Therefore, proceedings may be
brought but they will affect the costs/compensation that is given to you.

But if the above is done, a judgment made bars any subsequent proceedings of the
same injury independently of the Act.

S.17(5) provides for an appeal if a competent court handled a matter or an

agreement, you cannot begin afresh with the dispute.In the case of Vincent Iga v.
AGIP LTD & Ors [1975] HCB 292, it was held that an injured workman can
67 institute a civil action in tort to recover damages for injuries in respect of which he
had received reparation under the Workmen’s Compensation Act. But if he does so,
he can only receive, from the court award, the difference between the court award
and he award under the Act.

Additionally, in the case of Joseph Kiganda v The Cooper Motors (U) Ltd
[1977] HCB 15, it was observed that once an agreement for compensation has
been reached under section 16(1)of the Workmen’s Compensation Act has been
reached and implemented it is a complete bar to proceedings independent of the
Act and compensation under such agreement is in full and final discharge of the
employers liability.

It was held that it is clear that from the provisons (e) and (d) of section 25 (1)of the
Workmen’s Compensation Act that were a workman entered into an agreement with
the employer

in pursuance of S.16(1) of the Act, such an agreement is a complete bar to

proceedings being instituted independent of the Act. The agreement is a contract
and compensation paid under the agreement is in full and final discharge of liability,
if any, of the employer for the injury suffered by the workman.

S.18 requires the employer to have insurance to cover injuries suffered by its
employees.

S.20 (3) provides that if it turns out that the obligation of the insurer to the
employer is less than the liability of the worker, the worker may prove the
bankruptcy or liquidation, or he/she may recover the balance from the receiver or
manager.

S.20 (4) should be read together with the Insolvency Act; priority in ranking of a
worker’s claim under compensation for an individual.

S. 20(5) provides for the time within which the amount claimed in compensation
should have risen.

See Section 17 (4&5) of the Workers Compensation ActS.22- subcontrators to be as

liable as employer. It includes an issue of indemnification by the employer.

ALPHA
However, where liability is to the subcontractors, there is no bar for an employee to
bring a claim for compensation against the employer directly.

Compensation under the Act cannot be assigned. It has to go to the family (section
23)

S.26 provides for situations where the money has been paid to the labour officer
but is unable to take reasonable steps to pay the worker.

Claims for compensation are addressed to the District Labour Officer as provided for
68 under s.26 (d).

Any agreement or contract where the employee relinquishes the right to

compensation for injuries arising out of and in the course of employment shall be
null and void in so far as it purports to remove or reduce the liability of any person
to pay compensation under the Act (section 21).

OCCUPATIONAL DISEASES

These are compensatable in the same way as injury suffered in course of

employment. It should have caused disability or death.

Nature of employment

1. Should be contacted within 24 months after the previous employment.

2. One can claim compensation for occupational disease after several years of
employment if it can be connected to the employment.

3. For one to successfully plead there should be a certificate by a medical

practitioner.

Section 28 imposes a duty on the employer to report about the disease

immediately upon grant of a certificate by medical practitioner.

Under s.29 liability lies on a person who last employed the person for the last 24
months unless it is shown otherwise.

S.31 gives a presumption as to the cause of an occupational disease.

Read the sections together with the Second Schedule.

The Third Schedule provides for diseases. Under s.32, a minister can amend; i.e
include or remove diseases.

S.33 gives the Minister delegated powers to make necessary changes for the
purpose of the Workers Compensation Act.

ALPHA
S.34 gives penal sanctions for contravention of any provisions for contravention of
any provisions of the Act.

S.35 provides for delegated powers to the Chief Justice to make regulations in the
proceedings in court.

S.36 deals specifically with compensation awarded under the Act to workers and
dependant relatives who are not resident in Uganda, Kenya and Tanzania.

Where the proper person to benefit cannot be identified, then money will be given
69 to the Attorney General and then remitted to the Consolidated Fund.

For compensation to be made under the Act, there should be evidence that you
suffered an injury in an employment or suffered a disease while in the course of
employment.

CASES ON WORKERS COMPENSATION

WEKESA JOHN PATRICK VS AG CIVIL SUIT NO.130 OF 2008

- The principle is quantum of damages

Livingstone Versus Rawyards Coal Co. [1880] 5 App Cases 25, 39 that;
“Where the injury is to be compensated by damages, you are to consider what is
the pecuniary consideration which will make good the sufferer as far as money can
do so, the loss which he has suffered and the natural result of the wrong done to
him.”

While considering the quantum of damages, the following should be taken into
account:

a) Pain and suffering.

b) Disability and loss of amenities.

c) Loss of expectation of life.

d) Loss of earnings

e) Future expenses

Loss of earning capacity.

ALPHA
SPECIALISED CONTRACTS
THE LAW OF SALE OF GOODS

Contract of Sale of Goods

A contract of sale of goods is defined in Section 2(1) of the Sale of Goods Act
(hereinafter abbreviated as SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP
292) as a contract whereby a seller transfers or agrees to transfer the property in
the goods to the buyer for a money consideration called the price.

70
S.2(3) SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 provides that a
contract of sale of goods may be absolute or conditional. Where the transfer of
property in the goods is to take place at a future time or subject to some condition
to be fulfilled, the contract is called an agreement to sell.

Characteristics of a Contract of Sale

The essential characteristics of a contract of sale of goods are the following:

I. There must be two distinct parties to a contract of sale; i.e. the seller and a
buyer.

II. There must be a transfer of property in the goods. The seller must own the
property in the goods, i.e. the legal title to the goods. The seller must agree
to transfer the property in the goods to the buyer.

III. The subject matter of the contract of sale must be goods. S.1 SALE OF
GOODS AND SUPPLY OF SERVICES ACT CAP 292 defines goods to include all
chattels other than choses in action and money, industrial growing crops and
things attached to or forming part of the land which are agreed to be severed
before sale or under a contract of sale. It means every kind of moveable and
immoveable property with the exceptions therein.

IV. The consideration for a contract of sale must be a money consideration called
the price. If the goods are sold or exchanged for other goods, the
transaction is barter trade and not a contract of sale of goods.

The term contract of sale includes both “a sale” and “an agreement to sell”.

Distinction between “a sale” and “an agreement to sell”

Section 2(1) of the Sale of Goods Act provides that a contract of sale of goods is
where the seller transfers or agrees to transfer the property in the goods to the
buyer for a money consideration called the a price while S.2 (5) provides that where
the transfer of the property in the goods is to take place at a future time or subject
to some conditions to be fulfilled the contract is called “an agreement to sell”.

ALPHA
The following are the main points of distinction between a sale and an
agreement to sell:

(i) Transfer of property (ownership)

In a sale, the property in the goods passes to the buyer at the time of making of the
contract. This means that immediately after the sale the seller ceases to be the
owner of the goods and the buyer becomes the new owner of such goods.

71 However, in an agreement to sell, there is no transfer of property to the buyer at

the time of making of the contract. The conveyance of property will wait until the
agreement becomes a sale after the expiry of a certain time or fulfilment of certain
conditions.

(ii) Risk of Loss

The general rule under S.27 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP
292 is that unless otherwise agreed by the parties, the risk of loss passes with
property. Therefore, incase of a sale, if the goods are destroyed, the loss falls on
the buyer even though the goods may never have come into his possession. This is
so because the property in the goods will have already passed to the buyer. Thus,
the general rule is that; “risk passes with property unless the parties intended it
otherwise”.

On the other hand, in case of an agreement to sell, where the ownership in the
goods in yet to pass from the seller to the buyer, and the goods are destroyed, such
loss has to be borne by the seller even though the goods are in the possession of
the buyer. This is so because the property in the goods was still with the seller.

(iii) Consequences of Breach

In a sale, if the buyer wrongfully neglects or refuses to pay the price for the goods,
the seller can sue for the price even though the goods are still in his possession.

In case of an agreement to sell, if the buyer fails to accept and pay for goods, the
seller can only sue for damages and not for the price even though the goods are in
the possession of the buyer. This is so because the property in the goods is still with
the seller therefore he is still the owner of the goods and cannot sue for the price.

(iv) Right of resale

In a sale, the property in the goods is transferred to the buyer and as such the seller
in possession of goods after a sale cannot resale the goods. If he does so, the
subsequent buyer having knowledge of the previous sale does not acquire a good
title to the goods. Because the person who sold to him the goods did not have title
to the goods which such buyer knew about.

ALPHA
In an agreement to sell, the property in the goods remains with the seller and as
such, he can dispose of the goods as he wishes and the original buyer can only sue
him for breach of contract only and not claim for the goods since they still belonged
to the seller who still had the property in such goods.

(v) Insolvency of the buyer before he pays for the goods

In a sale, if the buyer is insolvent before he pays for the goods, the seller in the
absence of the right of possession must deliver the goods to the official receiver or
assignee. The seller is entitled to only the price of the goods. This is so because,
since the property in the goods already passed to the buyer, the goods belong to
72 him and must therefore be handed over to the official receiver.

However, in an agreement to sell, the seller may refuse to deliver the goods to the
official receiver or assignee as the property in the goods still vests in him (the
seller). On the other hand, in a sale if the buyer has already paid the price and the
seller becomes insolvent, the buyer can only claim as a creditor for the price and
not the goods because the property in the goods vests with the seller.

THE SUBJECT MATTER OF THE CONTRACT OF SALE

Section 6, 7 and 8 of SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292
relate to goods being the subject matter of a contract of sale. Goods are defined in
S.1. Under section 6(1) SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292,
the subject matter of the contract may be either existing or future goods. These
may be specific, ascertained or unascertained goods.

(i) Existing Goods

These are goods which are physically in existence and which are in the seller’s
ownership and/or possession at the time of entering into/making of the contract of
sale. They can be seen and touched by the buyer.

Where the seller is in possession of such goods as an agent, it can be said that the
agent has a right to sell them.

Existing goods may again be either “specific” or “ascertained” goods.

(ii) Specific Goods/Ascertained goods

Specific Goods in S. 1 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 are
defined as goods which are identified and agreed upon at the time the contract of
sale is made. In a sell of such goods, property does not pass until the goods are
ascertained. In actual practice, the term ascertained goods is used in the same vein
as specific goods.

ALPHA
(iii) Future goods
These are goods defined by description only, they are goods to be manufactured or
acquired by the seller after the making of a contract of sale. These goods include
those which are not yet in existence and those which though in existence have not
yet been ascertained by the seller e.g. parties may agree to buy whatever crop is
produced from a particular field at a fixed price such crops are future goods but not
specific goods. (Goods that are to be acquired in the future).

(iv) Unascertained goods

These are goods that are not separately identified or ear marked at the time of
73 making the contract but include those goods to be manufactured or grown by the
seller which are not necessarily future goods e.g. if one enters into a contract to buy
100 tonnes of maize growing on a field such goods are not ascertained because
they have not yet been acquired by the seller and property will only pass to the
buyer when the 100 tonnes of maize are harvested, separated from the rest and
specifically ear marked with the buyer’s names and sent to him such goods are
indicated or defined only by description but have not yet been acquired by the
seller.

(v) Contingent goods:

These are goods the acquisition of which by the seller depends upon an uncertain
contingency. They are a type of future goods and therefore a contract for sale of
contingent goods also operates as an agreement of sell and not a sale as far as the
passing of property to the buyer is concerned. It should be noted that a contract of
sale of contingent goods is only enforceable if the event on the happening of which
the performance of the contract is dependent happens. Otherwise the contract
becomes void e.g. X agrees to sell to Y a specific rare painting provided he is able
to purchase it from its present owner. This is a contract for the sale of contingent
goods.

(vi) Perishable goods

Under S. 7 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292, where there is
a contract for the sale of specific goods and the goods perish without the knowledge
of the seller, the contract is void. Section 8 of the Act states that where there is an
agreement to sell specific goods which subsequently without any fault on the part
of the seller or buyer perish before the risk passes to the buyer, the agreement is
thereby avoided.

THE PRICE

The money consideration for the sale of goods is known as the price. Price is an
essential element in every contract of sale of goods. That is, there cannot be a valid
sale without a price.

ALPHA
The price should be paid or promised to be paid in legal tender (money form) unless
the parties agree otherwise. It may be paid in the form of a cheque, bank deposit,
bank draft etc. In actual sense, the mode of payment of the price does not matter
much but the agreement to pay a price in money that is required to constitute a
valid contract of sale.

Under section 9(1) of the SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292,
the price may be expressly fixed by the parties in the contract sale or the contract
may provide for the method in which the price is to be fixed.

74 Where the price is not stated in the contract and no provision is made for its
determination, the buyer must pay a reasonable price S. 9(2). What is reasonable
price is a question of fact, determined upon the circumstances of a given case.

Under section 10(1) of the Act, it’s provided that the price may also be left to be
fixed by the valuation of a third party provided he accepted the duty and performs
it. But if the third party fails to make such valuation, the agreement is said to be
voidable provided that if the goods or part thereof have been delivered to the
buyer, then he must pay a reasonable price.

Where a third party is prevented from making the valuation (to enable him
determine the price) through the fault of the seller or the buyer, the party not at
fault may maintain an action for damages against the party at fault (S. 10 (2).

If no valuer is specified and the parties fail to agree on some form of valuation in
bid to determine the price, sec 9(2) then applies and a reasonable price can be
paid.

In Campbell v. Edwards [1976] 1 Lloyd's Rep. 522, Lord Denning MR said that
it is simply the law of contract that if two persons agree that the price of property
should be fixed by a valuer on whom they agree and he gives that valuation
honestly, they are bound by it (the price fixed by such valuer).

If there is fraud or collusion, of course it would be different. In Arenson v. Carson

A.V.A (1974) 41, Court said that the valuer may be liable if it can be shown that
he adopted a wholly incorrect basis for his valuation.

In Wright v. Frodoor [1967] 1 All ER 433, [1967] 1 WLR 506, Court held that if
the method of valuation used or disclosed is unsound in law, the valuation may be
challenged.

ALPHA
75

ALPHA
FORMALITIES OF THE CONTRACT OF SALE

According to S.5 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 a
contract of sale may be in writing, by word of mouth or partly in writing and partly
by word of mouth (orally) or it may be implied from the conduct of the parties.

CONDITIONS AND WARRANTIES

S.1 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 defines a condition to
76 mean an agreement with reference to goods which are subject of a contract of sale,
but collateral to the main purpose of the contract, breach of which

gives rise to a right to reject the goods and treat the contract as repudiated.

A contract of sale of goods contains various terms or stipulations regarding the

quality of the goods, the price and the mode of its payment, the delivery of the
goods and its time and place of delivery. These terms are however not of equal in
importance. Some terms may be major (very important) stipulation/terms that go to
the very root of the contract, and their breach may frustrate the very purpose of the
contract, while others may be minor terms which are not vital that their breach may
not frustrate the contract or be seen as a breach of the contract as a whole.

In the Law of sales, the major terms are called “conditions” and minor terms are
called “warranties”.

A condition can be defined as a stipulation/term that is essential to the main

purpose of a contract, the breach of which gives the aggrieved party a right of
action against the other party for breach of contract. Such aggrieved party may in
addition maintain an action for damages for the loss suffered (if any) on the ground
that the whole contract is broken and the seller is guilty of nondelivery.

A warranty is a stipulation/term collateral to the main purpose of the contract, the

breach of which gives the aggrieved party a right to sue for damages only and not
to repudiate the contract i.e. a breach of a warranty does not give the aggrieved
party the right to reject the goods but to claim for damages.

Under the SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292, a buyer may
elect to waive the condition or may elect to treat the breach of such condition as a
breach of warranty and not as a ground for treating the contract as repudiated (i.e.
not binding on him any more.).

ALPHA
A condition forms the very basis of a contract of sale, and its breach causes
irreparable damage to the aggrieved party so as to entitle him even to repudiate
the contract, where as a “warranty” is only of secondary importance and its breach
only causes such damage as can be compensated for in damages.

It should further be noted that there are no hard and fast rules as to which
stipulation in a contract is a condition and which one is a warranty. A stipulation
may be a condition though called a warranty in the contract. Court is therefore
guided by and looks at the intention of the parties by referring to the terms of the
77 contract, its construction/interpretation and the surrounding circumstances to judge
whether a stipulation/term was a condition or a warranty.

The most suitable test to distinguish between the two terms is that if the stipulation
is such that its breach would be fatal to the rights of the aggrieved party, then such
a stipulation is a condition and where it is not so, the stipulation is only a warranty.

DIFFERENCES BETWEEN A CONDITION AND A WARRANTY

(i) Regarding Value

A condition is a stipulation/ which is very essential to the main purpose of the
contract where as a warranty is a stipulation/term which is collateral to the main
purpose of the contract and is therefore of secondary importance in the contract.

(ii) Regarding Breach

Breach of a condition gives the aggrieved party the right to repudiate the contract
and also to claim for damages whereas the breach of warranty gives the aggrieved
party a right to claim damages only.

(iii) Regarding treatment of the term

A Breach of a condition may be treated as a breach of warranty if the aggrieved
party so wishes. But a breach of warranty cannot be treated as a breach of
condition.

INSTANCES WHEN BREACH OF CONDITION IS TO BE TREATED AS BREACH

OF WARRANTY:

Voluntary waiver by the buyer

Although on a breach of a condition by the seller, the buyer has a right to treat the
contract as repudiated and reject the goods, he is not bound to do so. He may
elect/decide instead to waive the condition and treat the breach of condition as a
breach of warranty and accept the goods and sue the seller for damages for breach

ALPHA
of warranty e.g. If X agrees to supply Y with 100 yellow Tshirts but supplies white T-
shirts instead. There is a breach of condition and the buyer can reject the goods.
However, the buyer may elect to treat the breach of condition as one of warranty
and accept the goods and sue the supplier for damages.

Acceptance of goods by the buyer

Where the buyer has accepted the goods and subsequently/later gets to know of
the breach of condition, he cannot reject them, but can only maintain an action for
damages (sue for damages). The law in this case treats the breach of condition as a
breach of warranty on the basis of the doctrine of caveat emptor which requires the
78 buyer to examine the goods before accepting them, in bid to ensure that they
comply with the contract.

Where it is reasonable. S.20

EXPRESS & IMPLIED CONDITIONS AND WARRANTIES

Conditions and warranties may be either express or implied. They are said to be
express when they are written/stated in the contract at the will of the parties. They
are said to be implied when the law presumes their existence in the contract
automatically though they have not been put/stated in the contract in express
words.

IMPLIED CONDITIONS
Although the parties may agree on what terms to include in a contract between
them, such terms are normally dictated by the seller who normally has a higher
bargaining power in the contract than the buyer.

However, unless otherwise agreed, the law incorporates into a contract of sale of
goods the following implied conditions which are in away intended to protect the
buyer.

(i) Right to sell;

In every contract of sale of goods, the first implied condition on the part of the seller
is that the seller has the right to sell the goods and that in the case of an
agreement to sell, he will have a right to sell the goods at a time when the property
in the goods is to pass per S. 13 SALE OF GOODS AND SUPPLY OF SERVICES ACT
CAP 292.

Ordinarily, the seller has the right to sell the goods if he is either the owner of the
goods or if he is an agent of the owner of the goods. As a result of this condition, if
the seller’s title turns out to be defective, the buyer is entitled to reject the goods
and to recover the price.

ALPHA
In the case of Rowland v. Durall (1923) 235 N.Y. 338. Rowland purchased a car
from Durall and used the car for several months. Durall had no title to the car and
therefore Rowland was compelled to return the car to the true owner. Rowland
sued Durall to recover back the price, which he had already paid. It was held that
the buyer was entitled to recover the price paid by him for the car despite the fact
that he had used the car for some months.

(ii) Condition in a sale by description

Where the parties enter into a contract of sale of goods by description there is an
implied condition that the goods shall correspond with the description in the
79 contract.

Under S. 14 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 it is provided
that the seller is under an implied condition that the goods correspond with the
description under the contract. It is very important that the goods must correspond
with the description whether it is a sale of specific goods or of unascertained goods.

The fact that the buyer has examined the goods on delivery will not affect his right
to reject the goods if the difference in the nature of the goods from the description
is such deviation that could not have been discovered by casual examination i.e.
where the goods show latent defects.

The description of the goods could cover the quality or characteristics of the goods
e.g. if the good is known by a trademark, a brand name, or type of packing.

In Varley v. Whipp [1900] 1 Q.B. 513 there was a supply of a second-hand

reaping machine. The defendant agreed to buy from the plaintiff such machine
which was stated to have been new the previous year and hardly used at all. This
was a gross misdirection because on delivery, the defendant who had to pay for the
transport charges wrote complaining that the machine was very old and he refused
the machine, to which the defendant took him to court.

The issue before court was whether the sale had amounted to one by description. It
was held by Channel J. that if a man says that he will sell the black horse in the last
stall in his stable and the stall is empty or there is no horse in it but only a cow,
then there is no sell of any good in which property could pass and the buyer relies
on the description. In essence, since the seller described the machine to have been
new the previous year and hardly used at all, a description on which the buyer
relied upon to enter into the contract, then there was breach of the implied
condition as to sell by description when the machine turned out to be very old on
delivery.

(iii) Condition on a sale by sample (Section 17 SALE OF GOODS AND

SUPPLY OF SERVICES ACT CAP 292) When under a contract of sale goods are to

ALPHA
be supplied according to a sample agreed upon by the parties, the implied
conditions are the following: -

That the bulk of the goods to be supplied by the seller should correspond with the
sample as far as quality is concerned and the buyer shall have a reasonable
opportunity of comparing the bulk with the sample.

That the goods shall be free from any defect rendering them unmerchantable which
would not be apparent on the reasonable examination of the sample i.e. there
80 should not be any latent defect in the goods. Where the defect is one that is easily
discoverable by the exercise of ordinary care and the buyer takes delivery of the
goods after inspection, there is no breach of implied condition and the buyer has no
remedy since he ought to have seen such defect on examination and rejected
goods immediately.

In Lorymer v. Smith (1822) 1 B&C1. Two parcels of wheat were sold by sample.
The buyer went to examine the bulk a week after. One parcel was shown to him but
the seller refused to show the other parcel that was not there in the warehouse. It
was held that the buyer was entitled to rescind the contract (i.e. to treat the
contract as not having any legal effect/power/or binding).

In Drummond & Sons v. Van Ingen (1887) 12 AC 284. Some mixed worsted
coatings were sold by sample. The goods when supplied corresponded to the
sample but it was found that owing to a latent defect in the cloth, coats made out of
it would not stand ordinary wear and were therefore unsaleable. The same defect
existed in the sample but couldn’t be detected on a reasonable examination. It was
held that the buyer was entitled to reject the cloth.

(iv) Condition in a sale by sample as well as by description When goods are

sold by sample as well as by description, there is an implied condition that the bulk
of the goods shall correspond both with the sample and with the description. If the
goods supplied correspond only with the sample and not with the description, or
vise versa, the buyer is entitled to reject the goods. The bulk of the goods must
correspond with both.

In Wallis v. Pratt (1911) AC 394 there was a contract of sale by sample of seeds
described as “Common English Sainfoin”. The contract contained a term excluding
all warranties express or implied. The seed was sewn and when the crop was ready,
it was discovered that the seed supplied and the sample shown were a different and
inferior variety known as “giant sainfoin”. It was held that there was a breach of

ALPHA
condition and the exemption did not protect the sellers. The buyer was therefore
entitled to recover damages.

(v) Condition as to fitness for purpose

In most cases, in a contract of sale, there is no implied condition or warranty as to
the quality or fitness for any particular purpose of the goods supplied. This is so
because the rule of law is “Caveat Emptor” which means, “Let the buyer be ware”.

81 However, despite the above, S.15 SALE OF GOODS AND SUPPLY OF SERVICES ACT
CAP 292 provides that there is an implied condition on the part of the seller that the
goods supplied shall be reasonably fit for the purpose for which the buyer wants
them, if the following conditions are satisfied;

a) The buyer should expressly or impliedly make known to the seller the
particular purpose for which the goods are required; and
b) The buyer should rely on the seller’s skill or judgement; and
c) The goods sold must be of a description in which the seller deals in the
ordinary course of his business, whether he is the manufacturer or not.

Therefore, the purpose for which the buyer wants to use the goods must be made
known expressly to the seller, if the goods to be supplied can be used for several
purposes. Otherwise the condition as to fitness will not be implied and the buyer
will have no right to reject the goods merely because they are unfit for the specific
purpose for which he had in mind, if he did not disclose such purpose to the seller.

In Re Andrew Yule & Company, AIR (1932) CAL 877. A buyer ordered for a
Lessian cloth, which is generally used for packing purpose, without specifying the
purpose for which he wanted the same. The cloth was supplied accordingly. On
receiving the cloth, the buyer found that it was not suitable for packing food
products as it had an unusual smell. It was held that the buyer ought to have
disclosed the particular purpose for which he wanted the goods to the seller in
order to make him liable for the breach of an implied condition as to fitness.
Therefore, the buyer had no right to reject the cloth as it was suitable for packing
purposes.

(vi) Conditions as to Merchantability

This condition as to merchantability is only implied where the sale is by description.
It has already been discussed that where there is an implied condition in such
instances/cases, goods supplied should correspond with the description.

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S. 15 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 lays down another
implied condition in such cases, that the goods should be of merchantable quality.
For this condition to apply, it is not only that the sale must be by description but the
following conditions must also be satisfied;

(i) The seller should be a dealer (should deal) in goods of that description
whether he is a manufacturer or not
(ii) The buyer must not have any opportunity of examining the goods or there
must be some latent defect in the goods, which would not be apparent on
reasonable examination of the same (goods).
82
Where the buyer had an opportunity to inspect and examine the goods but he did
not do so, or if he has examined the goods, there is no implied condition as to
merchantability as regards the defects which such examination ought to have
revealed.

The phrase “merchantable quality “means that the goods are of such quality and in
such condition that a reasonable man, acting reasonably, would accept them under
the circumstances of the case in the performance of his offer to buy them for his
own use or to sell them again.

In Grant v. Australian Knitting Mills Ltd (1936) AC 85 where the under wears
supplied contained certain chemicals which could cause skin disease to a person
wearing them next to skin. It was held that because of such a defect, the under
wears were not of merchantable quality and the buyer was entitled to reject the
goods.

(vii) Condition as to wholesomeness

This condition is only implied in contracts for the sale of consumables. In such
cases, the goods supplied must not only comply with the description and be of
merchantable quality but they must also be wholesome i.e. free from any defect
which may render them unfit for human consumption.

In Frost v. Aylesbury Dairy Co. Ltd. (1905) 1 KB 608, F bought milk from a
dairy owner. The milk was contaminated with germs of typhoid fever. F’s wife on
taking the milk became infected and died of it. A was held to be liable in damage.

In Chapreniere v. Massen (1905) the plaintiff bought a bun at a baker’s and

confectionery shop. The bun contained a stone, which broke one of the plaintiff’s
teeth. It was held that the seller was liable in damages because he violated the
condition of wholesomeness.

IMPLIED WARRANTIES

Unless otherwise agreed, the law also incorporates into a contract of sale of goods
the following implied warranties.

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(i) Warranty of quiet possession S. 13 SALE OF GOODS AND SUPPLY OF
SERVICES ACT CAP 292
In every contract of sale there is an implied warranty on the part of the seller that
the buyer shall have and enjoy quiet possession of the goods. If the quiet
possession of the buyer is in any way disturbed by a person having a superior right
than the seller, the buyer can claim damages from the seller.

Since disturbance of quiet possession is only likely to arise where the seller’s title to
the goods is defective, this warranty may be regarded as an extension of the
implied condition, that a seller at the time of selling the goods (entering into a
83 contract of sale), must have title to the goods and therefore the right to sell the
goods.

In Mason v. Birmingham (1949) 2 KB 545, the plaintiff, a lady, purchased a

second-hand typewriter from the defendant. She thereafter spent some money on
its repair and used it for some months. Unknown to the parties, the typewriter was
a stolen one and the plaintiff was compelled to return it to its true owner. It was
held that the plaintiff was entitled to recover from the sellers for the breach of this
warranty, damages reflecting not only the price paid but also the cost of the repair.

(ii) Warranty of freedom from encumbrances

This implied warranty on the part of the seller means that the goods shall be free
from any charge or encumbrance in favour of any third party, which was not made
known to or declared to the buyer before or at the time of making the contract of
sale.

Where the goods are later on found to be subject to a charge and the buyer has to
discharge the same, (to pay for that charge for it to be discharged) there is breach
of this warranty and the buyer is entitled to damages for this breach, from the
seller.

It should be noted that the breach of this warranty will only occur when the buyer
infact discharges (pays) the amount of the encumbrance and he had no notice of
that encumbrance at time of making/entering into the contract of sale.

If the buyer knew/had knowledge of the encumbrance on the goods at the time of
entering into the contract of sale, he becomes bound by the same and he is not
entitled to claim compensation from the seller for discharging the same.

(iii) Warranty to disclose the dangerous nature of goods to the ignorant

buyer
This warranty on the part of the seller is that in case the goods sold are of a
dangerous nature he will have to warn the ignorant buyer of the possible danger. If
there is breach of this warranty the buyer is entitled to claim compensation for the
injury caused to him.

ALPHA
In Clarke v. Army & Navy Co-operative Society Ltd (1903) I KB 155 Romer J.
observed; “I think that apart from any question of warranty, there is a duty cast
upon a vendor, who knows of the dangerous character of goods which he is
supplying and also knows that the purchaser is not, or may not be aware of it, not
to supply the goods without giving some warning to the purchaser of that danger”.

E.g. C purchases a tin of disinfectant powder from A. A knows that the lid of the tin
is defective and if it is opened without special care, it may be dangerous, but tells C
nothing. C opens the tin in the normal way where upon the disinfectant powder
flies into the eyes and causes injury. A is liable in damages to C as he should have
84 warned C of the probable danger.

FACTORS THAT INHIBIT A BUYER FROM ENJOYING LEGAL PROTECTION

UNDER IMPLIED CONDITIONS

(i) The doctrine of caveat emptor

The law retains some aspects of the doctrine. The proviso to S. 15(1) SALE OF
GOODS AND SUPPLY OF SERVICES ACT CAP 292 limits the seller’s liability where a
defect in the goods was one which could have been seen upon a reasonable
examination of the goods. The effect of the proviso to section 15(1) coupled with
massive advertising is that consumers tend to buy goods under their trade names
or patent names, with result that they lose protection of the law under the implied
condition as to fitness for purpose.

(ii) Sellers’ inexperienced

Some sellers are not in position to tell whether or not the goods, which they sell, are
fit for the required purpose. As such, the buyers can hardly rely/ depend on the
seller’s skill and judgment to get goods which suit the required use.

(iii) Limitations concerning examination of goods

Where goods are bought in bulk or where they are pre-packed, examination is not
practical. Expiry dates may also be tampered with while examination of certain
goods requires high technology and/or expertise which may not be available to all
buyers.

(iv) The doctrine of privity of contract

This limits enforcement of a contract to parties to the contract with the result that a
buyer can not sue a manufacturer who would be in a better position to pay off
damages awarded by court. Similarly, where a buyer purchases goods for the
benefit of others, such as members of his or her household, these beneficiaries of
the goods bought cannot sue because they are not privy to the contract.

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(v) Opportunity cost for enforceability
Sometimes the cost of enforcing compliance with the implied terms may out way
the benefit making it hard for buyers;

a. Some of the buyers may also be ignorant of the implied terms

ii. At times the value of goods is so small that court would not be a viable
option of enforcing the terms
iii. Court process is time consuming

Therefore, protection of the buyer by law under implied conditions may be limited
85 and inadequate to a certain extent to be relied upon by some buyers.

THE DOCTRINE OF CAVEAT EMPTOR

This is a major doctrine in the law of sale of goods. It can also be referred to as the
“Maxim of Caveat Emptor” which means that “let the buyer be aware”.

According to this doctrine, it is the duty of the buyer to be careful while purchasing
goods of his required specification. On receiving the goods, the buyer has a right to
examine the goods and ascertain whether they comply with the contract and where
they do not, he can reject them. But where he accepts them and later finds a
defect, which could have been detected upon a reasonable examination, then
caveat emptor comes into play and he cannot reject the goods but can only sue for
damages.

Where such buyer does not make any inquiry regarding the goods he is purchasing,
the seller is not bound to disclose every defect in the goods of which he may be
cognisant (know about). The buyer must examine the goods thoroughly and
ascertain that the goods he is supplied with are suitable for the purpose for which
he wants them or that they comply with the contract. If the goods turn out to be
defective or do not suit his purpose, the buyer cannot hold the seller liable for the
same, as there is no implied undertaking by the seller that he shall supply such
goods as suit the buyer’s purpose.

If therefore, while making purchases of goods the buyer depends upon his own skill
and makes a bad choice, he must curse himself for his own folly (stupidity), in the
absence of any misrepresentation or fraud or guarantee by the seller.

In Ward v. Hobbs (1878) AC 13, certain pigs were sold by auction “with all
faults”. The pigs were suffering from typhoid fever and all of them but one died.
They also infected a few of the buyer’s own pigs. It was held that the seller was not
bound to disclose that the pigs were unhealthy. Caveat emptor being the rule, the
buyer could not claim damages from the seller as he ought to have examined the
pigs before accepting them to ascertain whether they were of good health.

ALPHA
TRANSFER OF PROPERTY – the right to abuse/use goods.

It is important to know the precise time at which the property in the goods passes
from the seller to the buyer for two main reasons.

i) To determine who bears the risk of loss in case of damage or loss of goods
ii) In the case of bankruptcy or insolvency of either the buyer or the seller, it
is necessary to know whether the goods belong to the trustee of the
bankrupt or not.
The following should be noted: -
86
Risk passes with property, S.27 SALE OF GOODS AND SUPPLY OF SERVICES
ACT CAP 292
As a general rule, the risk of the loss of goods is with the person in whom property
is. Thus, where after the contract, goods are destroyed or damaged, the question of
who is to bear the loss is to be decided not on the basis of possession of the goods
but on the basis of ownership of the goods. Whoever is the owner of the goods at
the time loss is occasioned bears the loss e.g. X buys goods from R and property
passes to him but the goods remain in the warehouse. Before delivery of the goods
to X, a fire sets out in R’s warehouse and all the goods are destroyed. X must bear
the loss and pay the price of the goods to R, if he has not paid yet.

Thus, risk passes with property unless the parties agree otherwise. However,
parties can contract that risk passes even before passing of property or on delivery
of the goods.

Instituting actions against third Parties

Where after a contract of sale the goods have been damaged by a third party, only
the person in whom property is vested, i.e. who had property in the goods can take
action against the wrong doer.

Suits for price

The seller can only sue for the price of the goods supplied only if the property in the
goods has passed to the buyer.

Insolvency of the seller or buyer

In the event of insolvency of the buyer or seller, an issue will arise as to whether the
official receiver can take over the goods or not and this will depend on whether the
property in the goods was with the party who has become insolvent. If property in
the goods was with the party who has become insolvent, the goods are vested in
the official receiver.

ALPHA
RULES REGARDING TRANSFER OF PROPERTY, S. 26 SALE OF GOODS AND
SUPPLY OF SERVICES ACT CAP 292
These can be analyzed/studied under two categories namely transfer of property in
specific or ascertained goods and transfer of property in unascertained or future
goods.

(i) TRANSFER OF PROPERTY IN SPECIFIC OR ASCERTAINED GOODS

87
Where there is a contract for the sale of specific or ascertained goods, the property
in such goods is transferred to the buyer at such time as the parties to the contract
intend it to be transferred.

The intention of the parties as to when property is intended to pass shall be

determined from the contract terms, the conduct of the parties and the
circumstances of the case.

The parties may intend the property to pass at once at the time when the contract
of sale is made or when the goods are delivered or when the goods are paid for.

Where the intentions of the parties cannot be determined or judged from either
contract or conduct or other circumstances, it can be determined from the rules
under S. 26 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292.

a. When goods are in a deliverable state; where there is an unconditional

contract for the sale of specific goods in a deliverable state, the property in the
goods passes to the buyer as soon as the contract is made, and it is immaterial
whether the time of payment of the price or the time of delivery of the goods or
both are postponed e.g. X buys a bicycle for 20,000/= on a months’ credit and
asks the shopkeeper to send it to his house and the shopkeeper agrees to do so,
the bicycle immediately becomes the property of X.

b. When goods have to be put into a deliverable state: Where there is a

contract for the sale of specific goods and the seller has to do something for the
purpose of putting the goods in a deliverable state e.g. packing the goods,
loading them aboard a ship, rail, filling them in containers etc, the property does
not pass until such thing is done and the buyer has notice there of.

It should be noted that the act of merely putting the goods into a deliverable state
would not result in the transfer of property in the goods to the buyer. It is further
necessary that the buyer must have notice thereof i.e. the fact that the goods have
been put in a deliverable state must come to the knowledge of the buyer.

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c. When the goods have to be measured etc, to ascertain the price: Where
there is a contract for the sale of specific goods in a deliverable state but the
seller is bound to weigh, measure, test or do some other act or thing with
reference to the goods for the purpose of ascertaining the price, the property
does not pass until such act or thing is done and the buyer has notice there of.

In Zagury v. Furnell (1809) 2 Camp.240. A sold to B 289 bales of goatskins,

each bale containing five dozens and the price was for a certain sum per dozen
skins. It was the duty of A to count the goatskins in each bale. Before A could do
the same, the bales were destroyed by fire. It was held that the property in the
88 goods had not passed to the buyer (i.e. B) as something still remained to be done
by the seller (A) for ascertaining the price (counting the skins in each bale),
therefore the seller had to suffer the loss.

d. When goods are delivered on approval; When goods are delivered to the
buyer on approval or “on sale or return”, or on some other similar terms, the
property there in passes to the buyer when he signifies his approval or
acceptance to the seller or does any other act adopting the transaction e.g.
pledges the goods or resells them. If he does not signify his approval or
acceptance to the seller but retains the goods without giving notice of rejection
beyond the time fixed for return of the goods or if no time has been fixed,
beyond a reasonable time.

(ii) TRANSFER OF PROPERTY IN UNASCERTAINED GOODS;

Where the goods contracted to be sold are not ascertained or where they are future
goods, the property in the goods does not pass to the buyer unless and until the
goods are ascertained or unconditionally appropriated to the contract so as to bring
them in a deliverable state either by the seller with the buyer’s assent or vise versa.

Until the goods are ascertained or appropriated, there is merely “an

agreement to sale”.

The process of ascertainment or appropriation consists of earmarking or setting

apart/aside goods which are the subject matter of the contract. It involves
separating, weighing, measuring, counting, or similar acts done in relation to the
goods with an intention to identify and determine the specific goods to be delivered
under the contract.

The difference between ascertainment and appropriation is that whereas

ascertainment can be a unilateral act of the seller, i.e. he alone may set a part the
goods, “appropriation” involves the element of mutual consent of the seller and the
buyer i.e the ascertainment of the goods must be brought to the knowledge of the
buyer.

ALPHA
Essentials of valid appropriation

The following must exist for a valid or proper appropriation of the goods;

a) The appropriation must be of goods in accordance with the contract

description, both as to quantity and quality.

b) The appropriation must be intentional i.e. it must be made with the intention
to appropriate goods to a specific contract and it must not be due to mere
accident or mistake.
89
c) The appropriation must be made either by the seller with the assent
(consent/approval) of the buyer or by the buyer with the assent of the seller.
Assent of the other party is therefore a prerequisite, whether before or after
appropriation is made.

TRANSFER OF TITLE, S. 29 SALE OF GOODS AND SUPPLY OF SERVICES ACT

CAP 292

The general rule relating to transfer of title is that the seller cannot transfer to the
buyer of goods a better title than he himself has.

Thus, where goods are sold by a person who is not the owner of such goods, the
buyer acquires no better title than the seller had. If the seller’s title is defective, the
buyer’s title will also be subject to the same defect.

The rule above is expressed by the maxim “Nemo det quod non habet”, which
means, “no one can give what he has not got”.

The rationale of the rule is to protect the true owner of goods against anyone who
buys his goods from a person who has sold without his authority or without having
any right in them.

Section 29 (1) SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292
states that where the goods are sold by a person who is not the owner thereof and
who does not sell either under the authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had unless the owner of
the goods is by his conduct precluded from denying the seller’s authority to sell.

Therefore, if a thief disposes of (sells) stolen property, the buyer acquires no title
though he may have purchased the goods bonafide for value and the real owner of
the goods is entitled to recover possession of the goods without paying anything to
the buyer.

ALPHA
EXCEPTIONS TO THE RULE OF “NEMO DAT QUOD NON HABET,” S.30-33
SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292

The following are the exceptions to this rule. Under the exceptions, a valid title can
be passed by a person who is not the owner of the goods. The exceptions include;

(i) An unauthorized sale by a mercantile agent

A mercantile agent is an agent who in his customary course of business as such
agent, has the authority to sell goods or to buy goods or to raise money on the
security of the goods. Thus, as a rule, a mercantile agent having authority to sell
90 goods can convey a good title to the buyer even though he sold the goods without
having the authority of the principal, if the following conditions are fulfilled/satisfied;
(in respect of the mercantile agent).

a) The Agent should have been in possession of the goods or documents of title
to the goods in his capacity as mercantile agent and with the consent of the
owner.
b) The Agent should have sold the goods while acting in his ordinary course of
agency business
c) The buyer should have acted in good faith without having had any notice at
the time of the contract that the agent has no authority to sell.

(ii) Transfer of title by estoppel

Estoppel arises when one is precluded from denying the truth of anything that he
has represented as a fact although it is not a fact. Estoppel means that a person
who by his conduct or words leads another to believe that a certain state of affairs
existed, he would be estopped from denying later on that such a state of affairs did
not exist. The essence of the rule of estoppel is that it will be unfair to allow a party
to depart from a given state of affairs that he permitted another person to believe
to be true.

Under sale of goods law, estoppel may arise in any of the following ways: -
a) The owner standing by when the sale is effected, or
b) The owner assisting in the sale, or
c) The owner permitting the goods to go into the possession of another with the
intent that the other party shall have such possession and title thereof.
d) If he has otherwise acted or made representations so as to induce the buyer
to alter his position to his prejudice.

In O’Connor V Clark, M the owner of a wagon allowed one of his employees K, to

have his name painted on it. M did so for the purpose of inducing the public to
believe that the wagon belonged to K. C purchased the wagon from K in good faith.
C acquired a good title and M was estopped from denying K’s authority to sell.

(iii) Sale by a Joint Owner

Where one of the several joint owners of goods has the sole possession of them by
permission of the co-owners and the property in the goods is transferred to another

ALPHA
person who buys them from such joint owner in good faith without notice of the fact
that the seller has no authority to sell. Otherwise the buyer would have obtained
only the title as co-owner and become merely a co-owner with the other co-owners.

(iv) Sale by seller in possession after sale

Where a seller after having sold the goods to a buyer continues to be in possession
of such goods or of the documents of title to them and again resells or pledges
them either himself or through a mercantile agent, he will convey a good title to the
buyer or the pledgee provided the buyer or the pledgee acts in good faith and
without notice of the previous sale. For this exception to apply, it is essential that
91 the possession of the seller must be as seller and not as hirer or bailee.

(v) Sale by buyer in possession after “agreement to buy” Where a buyer has
agreed to buy the goods and has obtained possession of the same or the
documents of title to them with the consent of the seller and he resells or pledges
the goods, he will convey a good title to the buyer or the pledgee provided the
latter acts in good faith without notice of any other right of the original seller in
respect of the goods.

Under this exception the person must have obtained possession of the goods under
an agreement to sell. Where one has merely “an option to buy” e.g. in a hire
purchase transaction, he can never pass a good title to another buyer.

(vi) Sale under a voidable title

When the seller of goods has a voidable title to such goods but his title has not
been avoided at the time of the sale, the buyer acquires a good title provided he
buys them in good faith and without notice of the seller’s defect of title.

In Phillips V Brooks Ltd (1919) A fraudulent person by the name of North entered
the plaintiff’s shop and selected a diamond ring. North paid for the ring by cheque
by falsely representing himself to be a well-known Lord, where upon, the plaintiff
allowed him to take the ring. North pledged the ring with Brooks. The cheque was
dishonoured and the plaintiff sued the defendant for the recovery of the ring. It was
held that there had been no mistake as to identify i.e. the plaintiff intended to deal
with the person in the shop. The property in the goods had rightly passed to the
purchaser.

(vii) Sale by the Order of Court

In a sale by order of a court of competent jurisdiction, or under any common law or
statutory power of the sale, the buyer gets a good title.

(viii) Sale in a Market Overt

This is another very important exception under the Sale of Goods Act. Where goods
are sold in a market overt, a buyer acquires a good title to them provided he buys

ALPHA
them in good faith and without notice of any defect. In this case the buyer can
acquire a good title even though the seller has none at all.

The only exception is where the goods were stolen and the thief has been convicted
or where the owner of the goods reported to the police after the theft of the goods.

A market overt is an open public legally constituted market usually held at

periodical intervals in some particular place for the sale of particular goods.

92 PERFORMANCE OF THE CONTRACT OF SALE, S.34-46 SALE OF GOODS AND

SUPPLY OF SERVICES ACT CAP 292

It is the duty of the seller to deliver the goods and of the buyer to accept and pay
for them in accordance with the terms of the contract of sale. Unless, otherwise
agreed, delivery of the goods and payment of the price are concurrent conditions
both arising at the same time.

Delivery
This refers to the voluntary transfer of possession of goods from one person to
another. Delivery of goods in pursuance of a contract of sale to the carrier for the
purpose of transmission to the buyer is generally regarded as delivery to the buyer.

Rules as to delivery, S.36 SALE OF GOODS AND SUPPLY OF SERVICES ACT

CAP 292
Unless the contract of sale specifies a place of delivery, the place of delivery is the
seller’s place of business if he has one and if not, his residence. Where the seller is
bound to send the goods to the buyer and no time for sending them is fixed, the
seller has to send them within a reasonable time.

Where the goods at the time of sale are in the possession of a third party, there is
no delivery by the seller to the buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf. Where the goods
are not in a deliverable state, unless otherwise agreed, the seller must bare all
expenses of putting goods in a deliverable state.

Delivery of wrong quantity, S.37 SALE OF GOODS AND SUPPLY OF

SERVICES ACT CAP 292
The seller is under a strict duty to deliver the correct quantity of goods agreed. The
breach of this duty entitles the buyer to reject the delivery all together, but if the
buyer accepts the goods so delivered, he must pay for them at the contract price.

Where the seller delivers to the buyer a quantity of goods larger than he contracted
to sell, the buyer may accept the goods included in the contract and reject the rest
or he may reject the whole consignment. But if the buyer accepts the whole of the
goods so delivered, he must pay for them at the contract price.

ALPHA
Delivery by Installments, S.39 SALE OF GOODS AND SUPPLY OF SERVICES
ACT CAP 292
The buyer is not obliged unless he agrees to accept delivery of goods by
installments.

Where the buyer agrees that goods are to be delivered by installments each
separately paid for and the seller makes a defective delivery in respect of one or
more installments, or the buyer neglects or refuses to take delivery or pay for one
or more installments. It is a question in each case depending on the terms of the
contract, whether the breach is repudiation of the whole contract or whether the
93 breach is a severable breach giving rise to a claim for compensation and not a right
to treat the whole contract as repudiated.

Acceptance, S.43 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292
The buyer has a right to have the delivery made to him in accordance with the
contract and to reject it if the delivery does not confirm with the rules agreed.
Acceptance of the goods by the buyer takes place when the buyer:-

a) Intimates to the seller that he has accepted the goods.

b) When the goods have been delivered to the buyer and he does any act to the
goods that is inconsistent with the ownership of the seller.
c) Retain the goods after the lapse of a reasonable time, without intimating to
the seller that he refuses to accept the goods.

Liability of the buyer

An action for damages for non-acceptance lies when the seller is ready and willing
to deliver the goods but the buyer refuses or rejects to accept the goods. The
measure of damages is the loss resulting from the breach of contract.

Rights of the unpaid seller, S.50-59 SALE OF GOODS AND SUPPLY OF

SERVICES ACT CAP 292
The seller of goods is deemed to be unpaid when the whole of the price is not paid
or tendered. When a conditional payment was made by a Bill of Exchange (or other
negotiable instruments) and the instrument has not been honoured.

The unpaid seller has two rights i.e. rights against the goods and rights
against the buyer.

Rights against the goods

An unpaid seller of goods even though the property has passed to the buyer has
three rights against the goods.

a Right of lien on the goods in his possession.

b Right of stopping the goods in transit i.e. stoppage in transit.
c A limited right of re-sale.

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Right of Lien, S.52 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP
292
The unpaid seller has a lien on the goods for the price as long as the goods remain
in his possession and he can refuse to deliver them to the buyer until the full
payment or tender of the price has been made in the following cases; Where the
goods have been sold without any stipulation as to credit, where the goods have
been sold on credit but the term of credit has expired and where the buyer
becomes insolvent.

The seller’s lien is a possessory lien i.e. the lien can be exercised only as long as the
94 seller is in possession of the goods. Lien can be exercised for nonpayment of the
price and not for any other charges.

Termination of Lien, S.54 SALE OF GOODS AND SUPPLY OF SERVICES ACT

CAP 292
Lien depends on physical possession of the goods. Therefore, the unpaid seller loses
his lien or right of retention on the goods in the following circumstances;

a. When he delivers the goods to a carrier or other party for the purpose of
transmission to the buyer without reserving the right of disposal of the
goods.
b. When the buyer or his agent lawfully obtains possession of the goods.
c. By waiver of his lien i.e when the buyer waives his right to exercise the right
of lien.

Right of stoppage in transit, S.55 SALE OF GOODS AND SUPPLY OF

SERVICES ACT CAP 292
The right of lien or right to retain the goods of the unpaid seller may even be
enforced by him after he has parted with the goods but they have not actually been
delivered to the buyer. He may reclaim the goods if they are in the hands of the
railway or any other carrier in the process of delivering (i.e. when the goods are still
in transit).

The right is known as stopping the goods in transit. The unpaid seller has the right
of stopping goods in transit when they have been delivered for transmission to the
buyer and while they are in the course of transit the buyer becomes insolvent. The
buyer is insolvent if he fails to pay his debts in the ordinary course of business, or
cannot pay his debts as they become due.

Duration of transit, S.56 SALE OF GOODS AND SUPPLY OF SERVICES ACT

CAP 292
Goods are in transit from the time they are delivered to the carrier by hand or water
or air or other means to transmit to the buyer until, the buyer or his agent takes
delivery of them.

Unpaid seller’s right of re-sale

The unpaid seller may resale the goods under the following conditions: -

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a) When the goods are perishable
b) Where the right to resale is expressly reserved in the contract.
c) Where in exercise of the right of lien or stoppage in transit the seller gives
notice of his intention to re-sale and the buyer does not pay or tender the
price within a reasonable time.

Loss due to re-sale

If on re-sale there is a deficiency between the contract price and the amount
realised out of the sell, the unpaid seller will be able to recover this from the buyer.
But if on such resale a surplus is left i.e. the goods are sold at a higher price than
95 the contract price, the seller is not bound to hand over the surplus to the buyer.

Unpaid seller’s rights against the buyer, S.60-61 SALE OF GOODS AND
SUPPLY OF SERVICES ACT CAP 292
He is entitled to sue the buyer for the price of the goods, if the property in the
goods has already passed to the buyer.

He is also entitled to maintain an action for damages if the buyer refuses to accept
delivery and pay for the goods.

RIGHTS OF THE BUYER

a) Action for non-delivery, S.62 SALE OF GOODS AND SUPPLY OF

SERVICES ACT CAP 292
The Sale of Goods Act, entitles the buyer to maintain an action against the seller if
he wrongfully neglects or refuses to deliver the goods to the buyer for the recovery
of damages.

b) Recovery of Price
If the buyer has paid the price and the goods are not delivered, he can maintain an
action for the recovery of the amount paid.

c) Specific performance, S.63 SALE OF GOODS AND SUPPLY OF

SERVICES ACT CAP 292
The SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP 292 allows the buyer to
sue for specific performance when the goods are specific or ascertained. The
remedy is discretionary and will only be granted if the goods are of special value or
unique in either nature or rare.i.e. under this remedy, the seller is ordered to deliver
the goods.

Suit for breach of conditions

On breach of a condition, the buyer is entitled to reject the goods and treat the
contract as repudiated. But the buyer cannot reject the goods in the following
circumstances;

a. If he elects to treat the breach of such condition as a breach of

warranty ex-pest-facto warranty.

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b. If the contract of sale is not severable and the buyer has accepted the
goods or part thereof.
c. If the contract is for specific goods and the property has passed to the
buyer.

Remedy for breach of warranty, S.64 SALE OF GOODS AND SUPPLY OF

SERVICES ACT CAP 292
Upon the breach of a warranty by the seller or where the buyer elects to treat
breach of a condition on the part of the seller as a breach of a warranty the buyer is
not by the reason of that breach of warranty entitled to reject the goods, but the
96 buyer may;

a) Set up against the seller the breach of warranty in diminution or extinction of

the price (reduce the price by that loss)
b) Bring an action against the seller for damages for breach of warranty

Claim for other damages and interest, S.65-66 SALE OF GOODS AND
SUPPLY OF SERVICES ACT CAP 292
The sale of goods Act, does not affect the right of the buyer or seller to claim and
recover incidental and consequential damages, interest and special damages from
either party for breach.

Reasonable time, S.68 SALE OF GOODS AND SUPPLY OF SERVICES ACT CAP
292
Whenever the sale of goods Act makes a reference to reasonable time, the question
of what is reasonable is a question of fact.

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Insurance

A contract of insurance is one whereby the insurer agrees to pay a certain sum of
money to the insured on the happening of a certain event. See: Suffish
International Food Processors (U) Ltd v Egypt Air Corporation SCCA No 15
of 2001.

A contract of insurance must be in writing. See: Section 21 of the Marine

97 Insurance Act Cap 192. The Marine Insurance Act is applicable to ordinary
insurance contracts. See: Oriental Insurance Brokers Limited v Transocean
(U) Ltd SCCA No.55 of 1995 per Oder JSC at pg 18.

1. Formation of an insurance contract.

An insurance contract is no exception to the general rule requiring offer,

acceptance, agreement, consideration and an intention to create binding relations.

Offer and Acceptance.

An offer to enter into an insurance contract may be made by the prospective

insured or by an insurer.

At the initial stage, it will in practice be made by the proposed insured, usually, by
completing a proposal form. Proposal forms are standard mass-produced
documents prepared by the insurers.

The insurer may accept the offer made or may accept it with qualifications, in which
case the acceptance may in law amount to a counter-offer.

If the premium is offered and accepted there is at once insurance, and the year for
which the insurance runs commences then, and if the policy is drawn up properly
that will appear in it. Per Lord Esher MR in Canning v Farquahar (1886) 16
QBD 727, HL.

The contract is concluded when the proposal of the insured is accepted by the
insurer and the insurer will then issue a policy to the insured. See: Section 20 of
the Marine Insurance Act Cap 192.

Classes of Insurance

1. Non-life insurance products.

These products provide cover for: liability, property damage, financial

loss, and fixed benefits products.

2. Life insurance products.

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Insurable interest

A person is interested where he stands in any legal or equitable relation to any

insurable property at risk in consequence of which may benefit by the safety of the
insurable property, or may be prejudiced by its loss or damage thereto, or may
incur liability in respect thereof. See: Section 4(1) of the Marine Insurance Act
Cap 192.

Principle of Insurable interest in life insurance policies

98 Insurable interest must exist at the time of making an insurance policy. See:
Section 132 of the Insurance Act Cap. 191.

Principles of Insurable interest in Contracts of indemnity.

Unlike life insurance, the interest must exist at the time of loss and not when the
contract is made. See: Section 5 of the Marine Insurance Act Cap 192.

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SERVICE LEVEL AGREEMENTS
A Service Level Agreement (SLA) is a formalized contract between a service
provider and a customer that outlines the specific services the provider will deliver,
the standards of service expected, and the remedies or penalties if those standards
are not met. The purpose of an SLA is to set clear expectations and ensure that
both parties understand their roles and responsibilities, helping to prevent disputes
and ensure service continuity.

99 KEY CLAUSES IN THE SLA (for Internet Service Providers)

1. Definition of Services
 Scope of Services: Specifies the type of internet service STL will provide,
including:
Fibre optic connectivity and leased lines.
Bandwidth speeds (e.g., download and upload speeds).
Availability of services (e.g., 24/7 connectivity or specific working hours).
 Access and Support: Outlines how STL will provide access to the network and
its support mechanisms (e.g., helpline, technical support, etc.).
2. Performance Standards
Service Availability: One of the most critical components for LDC, given its
reliance on stable internet connectivity during classes and examinations, is
defining the minimum acceptable uptime percentage (often 99.9% or higher)
to ensure that network outages are rare and manageable.
Response Time: Specifies the maximum time STL has to respond to and
resolve any service-related issues or outages.
Bandwidth Guarantee: Ensures STL guarantees the specified bandwidth and
latency for LDC’s services to ensure smooth video conferencing and online
exams.
3. Monitoring and Reporting
Service Monitoring: STL may be required to provide continuous monitoring of
the internet service, ensuring that it meets agreed performance levels.
Reporting: STL should provide regular reports on service performance,
incidents, and any planned maintenance activities.
4. Penalties and Remedies
Service Credits or Penalties: If STL fails to meet the agreed-upon
performance levels (e.g., uptime or response time), the SLA will define penalties
or service credits that STL will provide to LDC. This ensures STL is incentivized
to meet the agreed standards.

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Compensation for Downtime: Compensation may be offered if the service is
unavailable or performs below the agreed standards for a specified period, such
as pro-rated refunds for downtime.
5. Service Support and Maintenance
Scheduled Maintenance: The SLA will typically define when STL will perform
routine maintenance, with appropriate notice to LDC to minimize disruption. It
should also specify whether the service will be unavailable during maintenance
and for how long.

100 Emergency Support: In the case of critical service issues, STL should provide
emergency support with clear response times.

Critical components for LDC to look out for in the service level agreement
before they are signing
Before LDC signs the contract and SLA with STL, the Director should carefully
review the following critical components to ensure that the agreement provides
sufficient protection for LDC, aligns with its needs, and guarantees high
standards of service:
1. Service Scope and Delivery
 Clear Description of Services: Ensure that the scope of the service STL will
deliver is clearly described, including specific details on the type of internet
connectivity (e.g., fiber optic or leased line), bandwidth (e.g., speed of
upload/download), and redundancy features (e.g., backup connections if
primary service fails).
 Geographical Coverage: Confirm that the internet service will cover all areas
of LDC’s campuses, both the main campus and any satellite campuses
(especially for remote students).
 Customization or Scalability: Ensure that LDC can scale up or down
depending on future needs (e.g., increased bandwidth during peak periods, or
additional services for remote campuses).
2. Service Availability and Uptime
 Uptime Guarantee: As LDC’s activities depend on the continuous availability
of the internet, the contract should specify a high uptime percentage (e.g.,
99.9% or higher). The Director should be wary of any agreement that offers
lower uptime guarantees, as it could result in significant disruptions during
critical periods like exams or lectures.
 Penalties for Downtime: The SLA should outline the penalties STL will incur in
case of unplanned downtime. These could be service credits, refunds, or other
remedies. It should specify how downtime is measured and what constitutes an
“acceptable” downtime event.

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 Service Outages: The contract should explicitly state the steps STL will take in
the event of an outage, including notifications to LDC, troubleshooting timelines,
and the expected resolution time.
3. Response Times and Resolution
 Guaranteed Response Time: The SLA should specify how quickly STL will
respond to issues, such as a network outage or poor service. This includes
response times for different levels of service disruption (e.g., critical vs. minor
issues).

101  Resolution Time: The contract should outline how quickly STL is required to fix
service issues and restore full service. This could be broken down by the
severity of the issue, with critical issues being resolved faster.
 Escalation Process: Define an escalation process in the event that STL fails to
meet response or resolution times. This may include a senior management
escalation or a dedicated point of contact for urgent issues.
4. Monitoring, Reporting, and Performance Metrics
 Monitoring Systems: STL should provide LDC with the ability to monitor
network performance. The contract should stipulate how performance is
measured (e.g., uptime, latency, bandwidth usage) and whether LDC can
independently verify these metrics.
 Monthly Reports: STL should provide regular performance reports (e.g.,
monthly or quarterly) showing system performance, uptime statistics, and any
incidents that occurred. These reports should be easy to interpret and provide
transparency.
 Annual Performance Review: The contract may include a provision for an
annual performance review, during which LDC can assess STL's service quality
over the previous year and suggest improvements.
5. Penalties and Service Credits
 Service Credits for Breaches: Ensure that STL agrees to service credits or
other compensation in the event that the service does not meet agreed
performance standards. This provides financial compensation for the
inconvenience or disruptions caused by outages or poor service.
 Specific Remedies for Critical Failures: The SLA should outline specific
penalties if STL fails to provide service during critical times, such as
examinations. This ensures that STL takes extra precautions during key periods
and is held accountable if they fail to meet expectations.
6. Security, Privacy, and Data Protection
 Network Security Standards: The contract should specify STL's security
measures, including encryption, access controls, and intrusion detection
systems, to ensure that the internet service remains secure.

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 Data Privacy Compliance: Ensure that STL complies with relevant data
protection and privacy regulations, especially if LDC collects student data for its
online exams. The contract should address how STL will protect this data and
handle any breaches.
 Disaster Recovery: The SLA should outline STL’s disaster recovery procedures,
including how quickly the network can be restored if there is a catastrophic
failure.
7. Maintenance and Upgrades

102  Scheduled Maintenance: The SLA should define STL's maintenance windows,
including when routine maintenance will be performed and whether the service
will be disrupted. This should be scheduled at times that minimize disruption to
LDC’s operations.
 Upgrade Process: The contract should clarify whether STL will upgrade the
service (e.g., bandwidth, hardware, software) during the term of the agreement,
and how LDC will be notified of upgrades.
 Emergency Maintenance: In the case of emergency maintenance, the
agreement should specify how STL will handle urgent repairs or upgrades and
how LDC will be informed.
8. Termination and Exit Clause
 Termination Rights: The contract should clearly outline LDC’s right to
terminate the agreement if STL fails to meet the service standards or breaches
the terms of the contract. This clause should also address how LDC can
terminate the contract if STL’s performance does not improve over time.
 Exit Strategy: The contract should specify how LDC can transition to a
different provider, should the need arise. This includes data migration, returning
leased equipment, and any associated costs.
9. Confidentiality and Intellectual Property
 Confidentiality Clause: Ensure that there is a confidentiality clause protecting
LDC’s proprietary information, such as student records or any intellectual
property used or transmitted via the network.
 Intellectual Property: Clearly define ownership of any intellectual property
involved in the service, especially if STL develops custom software or services
for LDC.

In conclusion, before signing the contract and SLA with STL, the Director should
carefully review the agreement to ensure the following:
1. High Performance Standards: Including guaranteed uptime and quick
response times.

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2. Penalties and Remedies: For service failure, including financial
compensation.
3. Clear Security and Privacy Provisions: To protect LDC’s data and
operations.
4. Regular Monitoring and Reporting: To ensure transparency and
accountability.
5. Exit Clauses: In case STL fails to meet service expectations, with clear
termination procedures.
103 By ensuring these critical components are addressed, LDC will be better equipped
to manage the internet service and maintain high standards for online classes
and examinations.

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AGENCY

Agency may be defined as the relationship which exists whenever one-person

(called the agent) acts on behalf of another person (the principal). Where such
relationship exists, the acts of the agent are said to be the acts of the principal,
therefore in case of any liability arising from such acts, the principal will be liable.

An agent is a person who is employed to do work on behalf of another person

known as a principal. The law of contract generally applies to the agency
relationship. However, agency itself forms one of the exceptions to the doctrine of
104 privity of contract. This means that when an agent enters into a contract with a
third party, the principal is considered to have been a party to that contract even if
he was not physically a party to it. He can then be sued by the third party as if he
was a party to the contract. This is because of the dictum that he who acts
through another, acts himself. Thus, where a principal act through an agent, he
is liable on the contracts entered into by the agent on his behalf.
Purpose of Agency
In most cases especially in business transactions, it is not always possible for a
businessman to make contracts alone and individually. He may therefore need to
employ agents to make contracts on his behalf. The common law rule is that any
person can act through an agent unless a person occupies a position which requires
his personal performance or where parties make a contract that expressly or
impliedly prohibits a person from delegating to an agent.

Capacity of an Agent and Principal

Any person with legal capacity to enter into a contract can appoint or be appointed
as an agent. Section 119 Contract Act provides that a person may employ an
agent, where that person is eighteen years or more, is of sound mind and is not
disqualified from appointing an agent by any law to which that person is subject.

a) Persons of unsound mind

The general rule is that where the party to a contract is of unsound mind, the
contract is still binding on him unless he can prove that he was so insane at the
time of the contract that he did not know what he was doing and this was known to
the other party

A mentally incompetent person can only appoint an agent during the lucid interval
i.e. during an interval when he is capable of understanding what he is doing.

b) Companies
Companies can be appointed to act as agents of individuals or other companies as
long as they have been registered as required under section 22 of the Companies
Act.

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TYPES OF AGENTS;
i) Universal Agent
This agent has authority which is unlimited. He has power to bind the principal by
any act, provided that such act is legal and acceptable under the law of the country
in which he operates. Such agent is therefore one who is appointed to handle all the
affairs of his principal. This kind of agency is very rare; it has to be created by deed
and in the form of a power of attorney.

ii) General Agent

105 This is the agent who has authority to represent his principal in all businesses of a
certain kind e.g. to manage a branch bank. Such an agent has implied authority to
represent his principal in all matters incidental to the business in question. i.e, such
agent will be deemed to have authority to do anything which comes within the
limits of his position as such agent.

iii) Special Agent

This is an agent who is appointed for a particular purpose and is therefore
vested/given limited powers, i.e. he can only bind the principal if he/she acts within
those powers. He/she cannot bind the principal in any other matter other than that
for which he was appointed. This agency comes to an end on the conclusion of the
purpose for which it was formed. E.g. an agent who is appointed by a principal to
sell a particular piece of land or any other property or to conclude a particular
agreement, etc.

iv) Mercantile agent

Such agent is a person who in his customary course of business as such agent has
authority to sell goods, or to buy goods, or to assign goods for the purpose of sale,
or to raise money using the goods as security. Mercantile agents are of different
kinds, i.e;

v) Factors;

A factor is an agent whose ordinary business is to sell goods. Cotton L.J defined a
factor as an agent who is entrusted with the possession of goods for the purpose of
sale. When in possession of such goods, a factor has wider powers than an ordinary
agent.

He may sell, pledge or otherwise dispose of the goods as long as;

a) He does so in the ordinary course of business

b) He acts in good faith and without exceeding his authority or powers.
c) A factor may sell the goods in his own name. Thus, if A leaves his
car in the garage with the garage owner, with instructions that the

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garage owner displays the car and sells it on A’s behalf, the garage
owner is a factor.
vi) Brokers
These are basically middle men who enter into contracts in return for a commission
known as brokerage. Such agents are merely employed to make contracts with
third parties for the purchase of goods or property, or for the sale of the principal’s
goods or property. The difference between brokers and factors is that brokers are
agents who are not given possession of goods or the documents of title to the
goods and have no authority to sell the goods in their names.
106
In Fowler v. Hollins (1874), L. R. 7 H. L. 757 a broker was defined as thus; an
agent employed to make bargains of contracts between persons in matters of trade,
commerce and navigation. Frankly speaking, a broker is a mere negotiator between
other parties …He himself… has no possession of the goods, no power actual or
legal of determining the destination of the goods, no power or authority to
determine whether the goods belong to the buyer or seller.

Examples of brokers include; insurance brokers; who arrange policies of insurance,

Estate agents; who connect purchasers with sellers; Stock brokers; who deal with
the sale of stock or shares; etc.

vii) Auctioneers;
These are agents who are given instructions to sell property on behalf of the
principal by private or public treaty. Their reward is also called a commission. An
auctioneer acts in two capacities. Before the sale, he is an agent of the seller. After
the completion of the sale, he is an agent of the buyer for purposes of making a
written record of the sale.

An auctioneer warrants that he has authority to sell the goods to the highest bidder
unless he states otherwise. He should sell the goods in cash unless he is sure that if
the sale is by cheque, the cheque will not bounce.

viii) Commission agents

These ones appear to resemble independent parties rather than agents. As regards
the principal, they seem to be sellers and as regards the third parties, they are
buyers. Eg X orders Y (agent) to purchase LG Fridges from USA. Y purchases them
with his own money and sells them to X.

ix) Del Credere agents;

These agents, in return for an extra commission, promise that they will indemnify
the principal, if the third party, with whom they contract in respect of the goods,
fails to pay what is due under the contract. They in the first place guarantee the
solvency of the third parties but where the third parties fail to pay, these agents are

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personally liable. This is a contract of indemnity because these kinds of agents
agree to indemnify/compensate the principal if the third party fails to pay.

Other types of agents; these include bankers, solicitors/lawyers, directors of

companies, partners in a partnership, etc.

Types of Principals
a) Named principal
This is a principal whose name has been revealed to the third party by an agent e.g.
107 the agent may intimate to the third party that he/she is working for company B or
an individual D

b) Disclosed principal
This is a principal whose existence has been revealed to the third party but whose
exact identity remains unknown. The general principle is that a named and
disclosed principal can sue or be sued by third parties for the acts of the agent.

c) Undisclosed principal
Here, neither the identity (name) nor the existence of the principal is revealed to
the third party. The third party believes that he is contracting with the agent as the
principal. Surprisingly, an undisclosed principal can sue or be sued in his own name
on any contract duly made on his behalf as long as the agent acted within the
scope of his authority.

CREATION OF AGENCY
Agency can be created in a number of ways and these include;

1) By Express Agreement, S. 121(1) & (2) of the Contracts Act

This is where an agent is expressly appointed by the principal. The appointment
may be oral, or in writing (agreement in writing). In other words, a person is
appointed in clear terms by the principal to act as his agent. E.g. if the principal
wants the agent to execute/sign a deed/agreement on his behalf for the sale or
purchase of land, he will execute a document called a power of attorney. This
document is a formal document whose format is laid out in the Registration of
Tittles Act. It is normally used where one person wants another to act o his behalf in
land matters/transactions. It is in this document that the principal appoints the
agent to act on his behalf and also defines the extent of the agent’s powers under
the power of attorney.
Although an agent may be appointed orally, for evidential purposes (for purposes of
evidence), it is better to appoint an agent by way of a written deed/agreement
which clearly spells out the necessary details and limits of the agent’s powers.

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2) Agency by Implied Agreement, S. 121 (2) Contract Act
This kind of agency arises by operation of the law. In other words, the law implies
its existence from the circumstances of a particular case. It arises in a situation
where by although there is no express agreement appointing a person as an agent,
the law will imply the existence of an agency relationship from the circumstances of
the case or from the conduct of the parties.

Such agency may rise from estoppel and from holding out, and gives rise to;
Agency by Estoppel and Agency by Holding out.
108 a) Agency by Estoppel
This kind of agency arises from the doctrine of estoppel which is to the effect that
where a person by words or his conduct willfully leads another to believe that a
certain state/set of circumstances or facts exists and that other person acts on that
belief, the person who made the statement of facts will be precluded/estopped from
later on denying the truth of such statements even if such state of affairs did not in
fact exist.
Agency by estoppel is therefore created where a principal by his conduct or words
spoken or written places someone in a situation where third parties are made to
believe that he has authority to do what he is doing although in the real sense he
does not. The law in such case will presume that the person who made the
statement by word of mouth, in writing or by conduct represented the other as an
agent and he will be bound by his action. He cannot deny that the person he
represented as having the power to act had the power to do so; even if he did not in
fact have such power.

Thus, if a person by his words, statements or conduct represents another person as

having authority to make contracts on his behalf, he will be bound by such
contracts as if he had not expressly authorized them. For example, where A allows
third parties to believe that B is acting as his authorized agent, he will be
estopped/stopped from denying the fact that B had authority to act on his behalf
even if in the real sense B did not have authority to act at all.

b) Agency by Holding Out

This kind of agency is in a way similar to agency by estoppel because it is based on
the doctrine of holding out which is a part of the law of estoppel. The doctrine of
holding out refers to a situation where a person by some positive act or conduct
represents the other person as having the power to act on his behalf. In such case,
the principal will be said to have held out/represented the other person as having
power/authority to act on his behalf and thereby creating the agency relationship.
This kind of agency is common in partnerships where every partner is said to be an
agent. Therefore, a partner acting on behalf of the firm will be held out to have
authority to bind the firm and all the other partners.

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Similarly, another example is where an employer ordinarily pays for goods bought
by his employee from a seller X on behalf of the employer. Such employer will still
be liable to X where the employee goes ahead and purchases goods from X in the
usual manner even though this time, he may do so for his own benefit (fraudulently)
and after he has ceased to be in the employment of the employer.

3) Agency by Necessity/ authority of agent in an emergency

This kind of agency is also conferred by law. Section 124 of the Act provides that in
an emergency, an agent has authority to do any act for the purpose of protecting a
109 principal from loss, as would be done by a person of ordinary prudence, under
similar circumstances.

Example: Where an individual who has possession of another person’s property

deals with it without seeking the owner’s consent in order to protect the owner’s
interest e.g. a carrier of perishable goods.
The law assumes the consent of the owner to the creation of the relationship of
principal and agent. However, for this kind of agency to arise, the following
conditions must be satisfied;

a) The agent must show that it was impossible to obtain the

owner’s/principal’s instructions.

Springer v. GW Railway (1921) 1 KB 257 a consignment of fruit was found by

the carrier to be going bad. The carrier sold the consignment locally instead of
delivering it to its destination. It was held that the carrier was not an agent of
necessity because he could have obtained new instructions from the owner of the
fruit. He was thus liable in damages to the owner. (The carrier failed to show that it
was impossible to get new instructions from the principal)

b) The agent must not do anything to deprive the owner of his title to
the goods or items. For example, where the delay is brought about by the
carrier’s recklessness/ negligent or carelessness.
c) The agent must act in good faith and if he sells the product/goods,
he should attain the highest attainable/possible price for them. He /she
should not sell the property at a giveaway price just because of an
emergency. He/she should deal with the property as if it is his/hers.

d) There should be real necessity for acting on behalf of the principal.

In Prager Vs Blatspiel [1924] 1 KB 566. The agent bought skins as agent for the
principal but was unable to send them to the principal because of prevailing war
conditions. Since the agent was also unable to communicate with the principal, he
sold the skins before the end of the war. It was held that the agent was not an
agent of necessity because he could have stored the skins until the end of the war.
There was no real emergency.

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4) Agency by ratification
Section 130 (1) provides that where an act is done by one person on behalf of
another but without the knowledge or authority of that other person, the person on
whose behalf the act is done may ratify or disown the act.

Section 130 (2) states that, where person on whose behalf an act is done, ratifies
the act, the same effects shall follow, as if the act was performed under his or her
authority. Section 131 provides that ratification may be express or implied by the
conduct of the person on whose behalf an act is done.
110
This occurs in two situations;

I. Where a duly appointed agent exceeds his authority

II. A person having no authority purports to act as agent

In such situations, the principal incurs no liability on the contract supposedly made
on his behalf since the persons who entered into it acted without his authority.
However, in such cases, the principal may expressly or impliedly ratify the agent’s
transaction and so accept liability. i.e., the principal opts or affirms such
unauthorized act thereby making the act valid as if the agent had originally had
authority to enter into it on behalf of the principal.

Where the principal adopts such unauthorized act, he is said to have ratified that
act and this therefore creates an agency by ratification. In addition, where the
principal ratifies such act, the ratification will be said to relate back to the time of
contract i.e the principal will be bound by the agent’s act as if the act had originally
been done with his authority.

Ratification may be express or it may be implied from the conduct of the parties. It
is express where the principal clearly states orally or in writing that he has adopted
the transaction. It is implied if the conduct of the principal with regard to the
transaction shows that he has adopted the transaction.
For the ratification to be valid the following conditions must be satisfied;

a. The agent at the time of the alleged unauthorized transaction must have
claimed expressly to be contracting as an agent on behalf of a named his
principal. Here, the person who enters into the unauthorized contract must
profess at the time of making it to be acting on behalf of and intending to bind
the person who subsequently ratifies the contract. Ordinarily the person making
the contract will be required to name his professed principal but it has been said
to be sufficient if the principal, though not named is “capable of being
ascertained” (his existence must be disclosed) at the time of the contract, an
expression which is presumably employed here to mean “identifiable”.

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b. The principal must have had full contractual capacity both at the time of
ratification and at the time the agent made the contract.

c. The principal must have been in existence at the time of the alleged
unauthorized act of the agent. Therefore, a company after its incorporation
cannot ratify a contract supposedly made on its behalf before incorporation
since it did not exist at the time of the contract and therefore had no contractual
capacity when the contract was made. But where a person purports to contract
as agent for a non– existent company, he will be personally liable on the
contract.
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In the case of Kelner v. Baxter (1866) LR 2 CP 174. The plaintiff sold wine to the
defendant who purported to act as agent for a company which was about to be
formed. When it was formed, the company attempted to ratify the contract made
by the defendant before it came into existence. It was held that it could not do so,
since it was not in existence when the contract was made. The defendant was
therefore personally liable to pay for the wine. However, under section 54 of the
Companies Act 2012 such contracts may be ratified/adopted by the Company once
it’s incorporated.

Therefore, an agent who contracts on behalf of a nonexistent principal may be

personally liable on the contract. In the case of companies, the position is now
governed by statute and the promoters who make the contract are personally liable
on it subject to any contrary agreement.

a. The principal must have full knowledge of all the material facts of the agent’s
unauthorized act. Otherwise there cannot be valid ratification by a person
who does not have full knowledge of the facts of the case.
b. There should be an act that is capable of ratification. Only a lawful act
/transaction can be ratified. An illegal transaction or an act which is void
cannot be ratified. E.g. the shareholders of a company cannot ratify an
ultravires contract made by the directors or an act that involved fraud.
c. The principal must ratify the whole transaction entered into by the agent and
not only bits or parts of it. Once part of the transaction is accepted, it will be
implied that the whole contract is accepted/ratified. Thus, the principal
cannot accept only the benefits of the transaction and reject the burdens. He
must ratify both.

It should be noted that where ratification takes place, it is retrospective i.e it dates
back to the time when the contract was made by the agent.

AUTHORITY OF THE AGENT

Authority of an agent means his capacity to enter into a particular transaction and
bind the principal by such transaction. The agent can only bind the principal if he
acts within the scope of his authority.

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S.122 (1) of the Contracts Act states that an agent with authority to do an act has
authority to do anything which is necessary to do the act, which is lawful. S. 123(2)
provides that any agent with authority to carry on a business has authority to do
anything which is necessary for the purpose of carrying on the business or which is
usually done in the course of conducting the business.

The scope of the agent’s authority may be of various kinds i.e.

b. Express Authority
c. Implied Authority
112 d. Usual Authority
e. Apparent or Ostensible Authority
a) Express Authority/Actual Authority
This is where the authority of the agent is clearly spelt out orally, or in writing. If
this authority is in writing, it may be under hand or seal. Where it is under seal, it is
contained in a document called a power of attorney. Such authority is normally
spelt out orally at the time the agent is appointed or it may be contained in the
document appointing the agent to act on behalf of the principal.

b) Implied Authority
This refers to an agent’s authority to do everything necessary for, or incidental to
the execution of his express authority. i.e., where an agent is expressly given
authority to do something, it is also implied that he has authority to do everything
that may be necessary for or incidental to his performing such act. Implied authority
may be implied either from conduct on a particular occasion or from other
relationship. It has been held that a husband who lives with his wife impliedly
authorizes her to pledge his credit for necessary household expenses. This depends
on the existence of a household, which the husband permits the wife to manage.
The authority will not arise where there is no household for instance where the
parties live in a hotel.

Implied authority can also arise from custom. A Principal who employs an agent to
act for him in a particular market impliedly authorizes the agent to act in
accordance with the custom of that market. The Principal will be bound by the
custom even if he is unaware of it. The inference of an implied authority according
to custom may be negatived if the custom is inconsistent with the instructions given
by the Principal to the agent or with the very relationship of Principal and agent. In
such a situation, the custom is “unreasonable” and the Principal is not bound by it
unless he knows it.

Thus, in Perry vs Barnett (1885) the agent who was employed to buy bank
shares failed to comply with the Act of Parliament which was in force. The Act
provided that such contracts were void unless the numbers of shares were stated in
the contract note. The Principal did not know of the custom of the stock exchange

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to disregard the Act. It was held that the Principal wasn’t bound by the custom,
which was inconsistent with the agent’s instructions in so far as it resulted in his
making a void contract when he was employed to make a valid one.

Another example is where an agent is appointed to sell a house. Such agent is said
to have implied authority to sign the contract of sale, to receive the proceeds of the
sale etc.

c) Usual Authority

113 The expression “usual authority” has three possible meanings. First, it may mean
implied or incidental authority as discussed above. Secondly, it may refer to cases
where an agent has apparent authority because he has been placed by his Principal
in a situation in which he would have had incidental authority if this had not been
expressly negatived by instructions given to him by the Principal and not
communicated to the third party. Thirdly, it may refer to a situation where the
Principal is bound by the agent’s contracts even though there is no express, implied
or apparent authority.

There are certain things that are usually done according to given professions,
businesses or trade. It is the authority which is usually/ordinarily possessed by
persons performing/executing certain transactions in such professions or
businesses. Where the usual authority that is ordinarily possessed by a person in
such trade is restricted in the contract of agency, this restriction will not affect third
parties who are not aware of it.

The extent of the agent’s usual authority depends on the class of agents to which
he belongs and on the common understanding of the trade concerning such agents.
It’s significant to note that where an agent doesn’t belong to a well-known class of
agents, but is simply appointed for an isolated transaction, the doctrine of usual
authority doesn’t apply.

d) Apparent Authority/Ostensible
This refers to that authority which the agent appears to have but does not in fact
have. In most cases it overlaps with actual authority. In Rama Corporation v.
Proved Tin & General Investments Ltd (1952) 1 ALLER Slade J defined
ostensible or apparent authority as a form of estoppel which depends on three
conditions;

a. A representation
b. Reliance on the representation
c. Alteration of the third party’s position as a result of such reliance.

The Principal must make a representation since it is his act, which produces the
belief in the mind of the third party, and gives rise to the principal’s liability. Thus,

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in Attorney General v. Silva (1953) AC 461 a crown agent falsely represented
that he had authority to sell steel plates which were crown property. The Privy
Council held that the crown wasn’t bound since;

a. The agent had no actual authority

b. Apparent authority could only arise out of a representation made
by the Principal and not out of that made by the agent.

The representation may be by words or conduct. The representation may be

intentional or negligent for instance where the Principal mistakenly signs a
114 document giving authority to the agent, then he would be liable if a third-party acts
on the document. In Edmund Schulter & Co (U) Ltd v. Patel (1969) EA 259 a
Principal sold land to Y through his agent. A deposit of shs 50,000/= was paid to the
agent and the balance paid direct to the Principal. The agent however disappeared
with the deposit. The Principal now claimed the deposit afresh from Y arguing that
the agent had no authority to receive such sums. The court of appeal dismissed the
claim. It was explained that the Principal had given the agent the duplicate
documents of title and by such behaviour the Principal was estopped from denying
the agent’s right to act.

DUTIES OF THE AGENT

a) Duty to Obey
Where an agent is carrying out the terms of the agency, he is obliged to carry
out/obey instructions from the principal. If he fails to do so, he is liable in damages
to the principal. In the case of Turpin v. Bilton (1843) 5 Man & G 455, an
insurance broker (the agent), in return for a fee, agreed to effect insurance on the
principal’s ship. He failed to do so and the ship was lost. The broker was held liable
to the principal.

An agent is however not bound to obey the principal where the principal’s
instructions are illegal or void, ambiguous or the agent is a professional agent
whose instructions are subject to the customs or usage of a particular trade. Also,
where the agency is purely gratuitous (unpaid for), the agent incurs no liability for
not obeying or performing at all.

b) Duty of Care, skill and Diligence.

Section 146 (1) Contract Act states that, an agent shall act with reasonable
diligence and conduct the business of the agency with as much skill as is generally
possessed by a person engaged in similar business, unless the principal has notice
of the lack of skill by the agent.

An agent must exercise due care and skill in the performance of his duties. The
degree of skill required depends on the circumstances of a particular case. More
skill is expected of a professional person than of a layman who merely advises a
friend. If a payment is made, this will also be taken into account in assessing the

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care and skill expected but even an unpaid agent may be liable in tort for
negligence if he gives bad advice. Therefore, an agent professing a particular
profession must show the required degree of skill appropriate to that profession.
E.g. an auctioneer or broker will be liable if he acts contrary to the rules governing
his trade.

The Kenyan case of Marianne Winther v. Arbon Langrish & Southern Ltd
[1966] EA 292 shows what skill a professional agent must exercise. The facts of
this case are that an insurance broker wrote to a policy holder suggesting a
discussion concerning the renewal of an aircraft policy and a personal accident
115
policy. The wife of the policy holder called at the brokers and asked for both policies
to be renewed with Loyd’s underwriters. Through some misunderstanding on the
part of the broker, the personal accident policy was not renewed. The husband was
later killed in a plane crash and the wife lost 2000 pounds that would have been
paid had the policy been renewed. She sued the broker for breach of duty of care.
The court held in her favour on the ground that the broker possessed special skill
and experience in the matter of aircraft insurance and in his dealings in this matter
must be assumed to have been undertaken to apply that skill and experience for
the benefit and assistance of the plaintiff.

An agent is required to compensate the principal in respect of the direct

consequences of his/her own neglect, lack of skill or misconduct but not in respect
of loss or damage which are indirectly or remotely caused by the neglect, lack of
skill or misconduct of the agent. See Section 146 (2).

c) Duty of Good faith

The agent must act in good faith. This entails three things:

I. The agent must not let his own interests’ conflict with his duty to the
principal. The reason for the rule is to prevent the agent from being
tempted not to do the best for his principal. In the case of Igben & Oke
v. Etwarie (1971) 1 NCLR 85 the High Court of Benin held that it was a
rule of general application that an agent should not be allowed to enter
into agreements in which he has or can have a personal interest
conflicting with his principal.
II. The agent must not make a secret profit
III. The agent must not use his position to secure a benefit for himself. Where
an agent makes a secret profit, he must disclose and account for it to the
principal. In the case of Lucifero v. Castel (1887) an agent appointed to
purchase a yacht for his principal bought the yacht for himself and then
sold it to his principal for a profit, the principal being unaware that he was
buying the agents own property. Court held that the agent had to pay the
profit to the principal even if the principal could not have earned the profit
himself.
IV. The agent must disclose to the principal any opportunity or information
which he comes across in his position as agent.

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c) Duty of Personal performance
Section 124 (1) of the Contract Act provides that an agent shall not employ another
to perform an act which the agent expressly or impliedly undertook to perform
personally. This section indicates that an agent must perform personally his duties
under the agency and is not permitted to delegate his duties except with express
permission of the principal or unless such can be implied from that trade or
business in which the agent is engaged, or where in the course of employment, the
agent finds that he has to delegate. This is based on the rationale that “delegatus
non potest delegare” i.e. a delegate cannot delegate.
116
However, Section 124 (3) provides that where the nature of an agency allows it, a
subagent may be employed to perform an act which the agent expressly or
impliedly has undertaken to perform personally.

There are circumstances under which a sub-agent is appointed by the agent, where
a subagent is properly appointed by the agent, the principal shall be represented by
the subagent and shall be bound by and responsible for the acts of sub-agent, as if
the subagent was the agent originally appointed by the principal. See S.125 (1)
Contract Act

Where an agent without authority to do so, appoints a person to act as a subagent

and stands towards that person in a relation of a principal to an agent and is
responsible for the actions of that person to both the principal and a third person,
the principal is not represented by or responsible for the acts of the person
employed as sub-agent and that person is not responsible to the principal. See
S.126 Contract Act.

d) Duty to account (Section 146)

An agent is under a duty to keep and render appropriate/proper accounts of his
stewardship to his principal. This means that he must pay over to the principal all
sums of money or property received by him for the use of the principal. The agent
must do this even if the transaction giving rise to the payment is illegal or void. He
should therefore keep the principal’s property distinct from his and also open up a
separate account for his principal.

The obligation by the agent to account to the principal entails the

following;

I. He must keep proper accounts of all his dealings and transactions in the
course of the execution of the agency.
II. He must make available to the principal or any other person appointed by the
principal all books and documents in his custody relating to the agency.
III. He should keep any money or property of his principal separate from his own
and from other persons. If he mixes the property then he is liable to the
principal for everything in the mixture which he could not prove to be his
own.

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IV. He must pay money and property held on behalf of the principal to the
principal regardless of third-party claims.

Remedies of the principal where the agent breaches his duties

a. Where the agency is contractual, the principal can sue the agent for
damages for breach of contract.
b. Where the agent has received a secret profit or money for the principal, the
principal can sue the agent to account for money had and received by him
secretly.
c. A principal can dismiss the agent who is guilty of breach of duty and is not
117 bound to pay him compensation.

DUTIES OF THE PRINCIPAL

1) To pay any agreed commission or remuneration
Whether a commission is payable or not depends on the terms of the agreement
between a principal and his agent, thus in the case of Taylor v. Brewer (1813), 1
M. & s. 290). The agent was to receive such commission as should be deemed
right by the principal. It was held that the agent had no legal right to commission.
Where the agency is commercial, courts would deem reasonable payment for the
agent in the absence of express provision for payment. If the agreement stipulates
that the amount of the commission is to be left at the principal’s discretion, and he
refuses to fix the amount, then the court may force him to pay a reasonable
amount.

A commission is payable in respect of a transaction which the agent was employed

to bring about. Thus, in the case of Toulimin v. Millar (1887) 58 LT 96, 3 TLR
836 (HL). The owner of a house employed an agent to find a tenant who later
bought the house. His claim for a commission on the sale of the house failed since
he was only employed to let the house and not to buy the house.

Therefore, in every agency relationship, there must be an express or implied

agreement to pay for the agent’s trouble. The remuneration of an agent is called a
commission. However, if the principal withdraws his instructions or refuses to
continue with the contract, he is not liable for damages. A principal incurs no
liability for discontinuing or selling off his business unless he had agreed to conduct
his business as to enable the agent to earn his commission. In Turner v.
Goldsmith (1891) 1 QB 544, it was held that the plaintiff was entitled to damages
where the premises of the principal were destroyed by fire if the contract was not
confined to goods manufactured by the principal but even those sold by the
principal.
2) Duty to indemnify the agent, S.155 Contract Act
Under the section, a principal shall indemnify an agent against the consequences of
all lawful acts done by the agent in exercise of the authority conferred upon that
agent. And where a principal employs an agent to do an act and the agent does the

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act in good faith, the principal is liable to indemnify the agent against loss, liability
and the consequences of that act, although it may affect the rights of a third party.

The general rule is that an agent who incurs liability or uses his money in
performing the agency duties is entitled to be indemnified/compensated by the
form his principal for all such expenses unless the agency contract excludes this
right.
However, the agent’s right to indemnity is subject to two main qualifications:

118 a. There is no right to indemnify unless the agent’s acts are authorized or
ratified by the principal.
b. No indemnity can be claimed in respect of an illegal act.

Section 156 provides that, where the principal employs an agent to do an act which
is criminal, the principal is not liable, either upon express or implied promise, to
indemnify the agent against the consequences of that act.
3. Duty to allow the agent exercise his right of lien
Section 154 of the Contracts Act provides that in the absence of any contract to the
contrary, an agent is entitled to retain the goods of a principal, whether movable or
immovable, received by the agent, until the amount due to the agent for
commission, disbursements and services in respect of the goods is paid or
accounted for by the principal.

An agent is therefore, entitled to a lien on all the property of the principal which has
come into his possession in the course of the agency until the commission is paid.
This means that an agent is entitled to retain possession of the principal’s goods as
security for payment of his commission. The agents who possess such right are
ordinarily those who are given possession of the goods which are the subject of the
agency relationship. They include; factors, stock brokers, bankers and solicitors.
They have a general lien by usage of their profession or trade.

However, a lien can’t be claimed if it has been expressly excluded by the agency
contract or if the goods have been delivered for a special purpose which is
inconsistent with the lien.
The right to a lien may be lost in four ways:

a. By the agent voluntarily parting with possession of the goods

b. A change in character of the possession may destroy the lien
c. Where the agent waives it (where the agent decides not to exercise his
right of lien).
d. Where the principal tenders (pays) to the agent the sum due.

REMEDIES OF THE AGENT WHERE THE PRINCIPAL BREACHES HIS DUTIES

I. The agent may sue the principal to enforce the right to indemnity

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II. Where the principal sues the agent, the latter has a right to set off or
counter claim from the amounts due to him by way of payment,
indemnity or reimbursement
III. Right of lien over the goods in his possession belonging to the principal
IV. Withholding further performance under the agency where the
principal’s breach of contract continues

Note: The duties of the agent are the rights of the principal and duties of
the principal are the rights of the agent.
Relationship between the Principal and Third Parties
119 The rights of the principal against a third party depend on the distinction between
disclosed and undisclosed principals. A disclosed principal is one whose existence
the third party is aware of at the time of contracting or whose name the third party
knows. An undisclosed principal is one whose existence the third party is unaware
of at the time of contracting. Generally, once a contract has been made on behalf of
his principal, the agent drops out of the transaction and privity of contract exists
between the principal and the third party.

Disclosed principal
The general rule is that a disclosed principal can sue a third party and likewise the
third party can sue the disclosed principal. The agent generally incurs neither rights
nor liabilities under the contract. In the case of Tot Ram v. Mistry Waryam
Singh, the agent was asked by his uncle the principal to obtain transport from the
plaintiff a third party to take Y to Kampala. The third party knew that the agent had
negotiated the contract on behalf of the principal. Unfortunately, the principal later
left the country and gave the third party a cheque that was later dishonored. The
third party sued on the contract. It was held that the agent was not liable.

Undisclosed principal
An undisclosed principal can sue a third party however this right is limited to two
main respects:

a. Where the agent discloses the fact that he is merely an agent but conceals
the identity of the principal. Here the agent drops out in the normal way
provided he makes it clear when contracting that he does so merely as an
agent. If he fails to do so, he is personally liable on the contract.
b. Where the agent conceals the agency altogether and appears to be acting on
his own behalf. Here, the third party can enforce the contract against the
agent or when he discovers his identity and existence, against the principal.

The third party thus has an option whether to compel the agent to accept personal
liability or to shift liability to the principal as soon as his identity is revealed.
However, it should be noted that;

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i) The third party can’t enforce the contract against both the agent and the
principal. If he sues one he can’t later sue the other

ii) The third party may be estopped from suing the principal at all if he allows
the principal to think he has settled matters satisfactorily with the agent e.g.
by unreasonably delaying in taking action against the principal after his
identity is revealed.

Relationship between a Third Party and an Agent

The general rule is that an agent is neither liable under nor entitled to enforce a
120 contract he makes on behalf of his principal. However, there are exceptions to this
rule;

a) Where the agent contracts personally

An agent is liable if he in fact intended to undertake personal liability under the
contract. Thus, in the case of Basma v. Weeks (1950) AC 441 an agent who was
described as a party to a written contract and who signed it without any
qualification that he was signing on behalf of the principal was held to be liable
under the contract even if the third party knew he was contracting as agent.
However, in the case of Mahony v. Kekule (1854) 139 E.R. 161 it was held that
an agent who is described as agent and signs as agent is not liable.
Section 162 (1) provides that where an agent enters into a contract with a person
who does not know or does not have reason to believe that he or she is an agent,
the principal may require the performance of the contract; but the other contracting
party shall have, as against the principal, the same rights as he or she would have
against the agent, if the agent had been the principal.

b) Trade usage or custom

An agent may be personally liable or entitled if that is the usual course of business
either between particular parties or in relation to a particular class of agents e.g.
formerly where the agent acted for an overseas principal, there was a presumption
that the agent accepted personal responsibility, this presumption no longer exists
and the agent is not personally liable in such a case unless it can be shown that he
volunteered to accept personal liability.
(Where he/she freely accepts personal liability)

c) Principal is undisclosed
An agent is both entitled and liable under the contract where the principal is
undisclosed. Under Section 162 (2) where a principal discloses himself or herself
before a contract is completed, the other contracting party can show that he or she
would not have entered into a contract if he or she had known who the principal in
the contract was or if he or she had known that the agent was not the principal.

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d) Agent in fact is the principal
If an agent purports to be acting for an unnamed principal when he is in fact acting
for himself, he can enforce the contract for his benefit. Thus, in the case of
Schmaltz v. Avery (1851) 16 QB 655 a person was described in a charter party
as “agent for the freighters”. He was held personally liable after it was proved that
he was in fact the freighter. However, if he purports to act for a named principal, he
can only enforce the contract after giving notice to the third party that he acted on
his own behalf.

121 e) Principal is non-existent

Where the agent contracts on behalf of a nonexistent principal, he is himself
personally liable. In the case of Kelner Vs Baxter (1866) LR 2 CP 174, the
promoters of a company were held personally liable on a contract made by them on
behalf of a company which had not yet been formed. However, where the principal
(company) is later registered/incorporated and it adopts/ ratifies such a contract, it
will be liable as if the agent had instructions to enter into the said contract. See
S.54 of the Companies Act.
f) Bills of exchange
These include cheques, promissory notes etc. Where the agent signs a bill of
exchange in his own name, he is personally liable on it. To avoid this, he should
make it perfectly clear that he is signing merely as agent e.g. by signing “for and on
behalf of” a named principal. Section 164 provides for joint liability of an agent and
principal to a third party. It states that where an agent is personally liable, a person
dealing with the agent may hold the agent or principal or both of them liable.

Note a person who holds out as an agent shall not be entitled to require the
performance of a contract, where that person was not acting on as an agent but on
his or her own account. See S.167 Contract Act.

A person who fraudulently represents himself or herself as an authorized agent of

another person and induces a third person to deal with him or her as the agent, is
liable to compensate the third person in respect of any loss or damage incurred,
where the alleged principal does not ratify the acts. See S.166 Contract Act.

AGENCY TERMINATION
In this section we shall consider the different ways through which an agency
relationship can cease to exist/can be terminated/come to an end and the effect of
such termination.

Section 134 Contract Act provides that an agency may be terminated by;

a) Mutual agreement
b) A principal revoking his or her authority

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c) An agent renouncing the business of the agency
d) The business of the agency being completed
e) Death of the principal or an agent.
f) A principal or an agent becoming of unsound mind
g) A principal being adjudicated insolvent under the law
h) The purpose of the agency being frustrated.

a) Mutual agreement
122
An agency may be terminated by mutual agreement like any other contract.
Since the agency relationship is normally created by an agreement between the
principal and agent, it could similarly be terminated by both of them agreeing to
end the relationship. This is so even if there is an agreement that the relationship
will last for a given period or indeed should be irrevocable. The agreement as to
termination may be contained in the contract creating the agency.

b) Revocation
Section 138 Contract Act provides that revocation of the agent’s authority by the
principal shall not take place where authority is partly exercised, with respect to
acts and obligations that arise from acts already done under the agency. Section
138 attracts compensation where an agency is revoked without reasonable cause
contrary to an express or implied contract that the agency is to continue for a given
period of time.

However, since normally an agency is created for the benefit of the principal, he is
free at any time to revoke it or to revoke any other authority granted to the agent.
Such revocation may well constitute a breach of contract. The effect of this is that
even if the revocation is effective, the principal may be liable in damages to the
agent for breach of contract.

The principal must however give reasonable notice of such revocation to the agent
before the actual termination of the agency. See S.139 Contract Act. The
revocation may be in writing or oral per Section 140 irrespective of whether the
original agreement was contained in a deed. The principal must also take steps to
inform the third parties of the revocation of the agency, otherwise he will continue
to be held liable for the transactions entered into by the agent after the revocation
of the agency. In Alexander Logios v. Attorney General of Nigeria (1938) 4
WACA 163, it was held that although the principal has a right of revocation, a third
party with whom the agent had dealt was entitled to assume that the agency was
still subsisting since no step was taken to inform him that the agency had been
revoked and warning him not to deal further with the agent on the principal’s
behalf.

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The agent may be dismissed summarily if he is found guilty of any misconduct or
breach of duty to his principal. No formality is required for revocation. Revocation is
effective if the principal informs the agent or the third party personally per Section
141. Revocation may be by word of mouth or by the principal intervening in the
course of negotiation by the agent and informing the party concerned. Where the
agency was created by written authority for instance by a power of attorney, the
principal’s revocation should also be effected in the same way.
A revocation may be implied where the principal withdraws all necessary facilities
originally provided to the agent for proper execution of the agency. Thus, until the
123 principal takes such action, the agent or third party is justified in assuming that the
agency is still in existence.

c) Renunciation by agent
Renunciation by an agent occurs where the agent personally terminates the agency
relationship between him and the principal. An agent has an implied power in all
agency relationships to terminate the agency before it ends unless it is stated in the
agency contract that the agency is irrevocable.

Similar to revocation by the principal, renunciation of authority by the agent may

amount to breach of the agency contract by the agent and render the agent liable
in damages to the principal.

In addition, the agent must give reasonable notice of renunciation of the agency to
the principal according to Section 139. However, the agent may revoke his
authority without notice where the principal is guilty of misconduct or breach of his
duties to the agent.

Renunciation by the agent may be in writing, by word of mouth or simply refusing

to act in accordance with the agency. See section 140 Contract Act.

d) Closure of Business
A principal’s closure of business terminates the agency relationship. However, a
major question arises as to whether the principal is liable to pay compensation to
the gent for his removal of the opportunity for the latter to earn commission. This
however largely depends on the terms of the agreement and on the customary way
of doing things in a given trade.

Agency may automatically be terminated in the following cases:

e) By performance
Where the agent was appointed to carry out a particular/specific transaction, his
authority will terminate when that transaction is accomplished e.g. the authority of
an auctioneer engaged to sell specific property terminates after the sale of the
property.

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f) Effluxion of time
The agency will end when the period for which it was created expires. This will be so
regardless of whether the task for which the agency was created has been carried
out or not. Where no time is fixed by the parties as to how long the agency is to run,
a reasonable time for the duration of such agency is implied and the authority will
terminate at the end of such reasonable time. What is a reasonable time will
depend on the facts of a particular case and the surrounding circumstances?

g) Frustration
124 If property, which is the subject matter of the agency is destroyed, or otherwise
ceases to exist, the agency will automatically terminate. Such events include;
instances where the subject matter of the agency is destroyed or otherwise ceases
to exist. However, in such case, regardless of the end of the agency, the agent may
still be entitled to a commission or remuneration. Thus, in the case of Turner v
Goldsmith (1891) 1 QB 544, the agent was employed on a commission basis by
the principal to sell shirts. The principal’s factory, at which the shirts were
manufactured, was accidentally burnt down. It was held that the principal was liable
to pay the agent a reasonable sum representing what he would have been likely to
earn by way of commission.

h) Death of principal or agent

If either the principal or the agent dies, the agency is terminated. This is because
the agency relationship is confidential and personal. The effect of death is that the
rights of the parties are frozen at the time of death. In the case of Pool v. Pool
(1889), it was held that if the principal died, the agent could not recover expenses
incurred after the death even if he had no knowledge of the death of the principal.

i) Insanity of the principal or agent

The insanity or other legal incapacity of the principal or agent will in ordinary
circumstances terminate the agency. This is because the insane person can’t validly
contract so as to appoint or act as agent.

j) Bankruptcy of the principal or agent

Since agency is a personal relationship, when a person becomes bankrupt, his
rights vest or are transferred to the trustee in bankruptcy. As a result, the agency is
affected in this way and ceases to have a personal touch. Where the principal is
bankrupt, the agency is terminated unless the agent’s authority is irrevocable.

k) By Necessity
Since the agent’s authority under this kind of agency does not arise from any
agreement but comes about as a result of circumstances which justify his acting as
agent, it is clear that this form of agency is not terminated by agreement. It
terminates when the necessity which brought it into being has disappeared.

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125

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THE REPUBLIC OF UGANDA

IN THE MATTER OF THE CONTRACTS ACT, CAP 284

AND

IN THE MATTER OF THE CONTRACT OF AGENCY

BETWEEN

126 ………………………….

AND

………………………………

THIS AGREEMENT is made this…………… day of ……………2024 BETWEEN

…………………., of particulars herein described (Hereinafter referred to as "the

Principal", which expression shall where the context so permits include his legal
representative(s), authorized agent, the successor(s) in title and assignee(s) on the
one part;

AND

…………………., of particulars herein described (Hereinafter referred to as "the

Agent", which expression shall where the context so permits include his legal
representative(s), authorized agent, the successor(s) in title and assignee(s) on the
one part on the other part

WHEREAS

1. The Principal is ………………………(Business Description)

2. The Agent is ………………………….(Description)
3. The Principal is desirous of………………………..(Intention)
4. The Agent undertakes to …………………………. (Intention)

NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:

1. DATE OF COMMENCEMENT.

The agreement will be effective on the …………. day of…………. 2024

2. NATURE OF AGENCY

The agency shall take the form of …………………….

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3. SCOPE OF WORK

The Agent shall operate in the geographical areas of

……………………………………………

4. REMUNERATION

In consideration for the services to be performed by the Agent, The Principal agrees
to pay The Agent a commission of 5% of the total sales made and declared per
month.

127 5. DUTIES OF PARTIES

a. The Agent undertakes to perform the following modified duties.
i. …
ii. …
b. The Principal undertakes to perform the following duties subject to
modifications:
i. …
ii. …

6. POWERS OF THE AGENT

The agent shall have the following powers in performance of his duties.

a. The power to sign contracts on behalf of the principal.

b. The power to transfer title in goods.

7. LIABILITY
a. The agent shall be liable for all acts occasioning loss/ damage to any third
parties arising out of his negligence or privy acts.
b. The principal undertakes liability to the extent of the quality of the
services/goods out of the agents control.

8. EXCLUSIVE AND NON EXCLUSIVE RIGHTS

The agent shall have exclusive rights to carry of the agency business in the
geographical areas/scope described herein.

9. DELEGATION

The agent shall not delegate their duties in the course of the agency business under
this agreement to any third-parties without the express written authorization of The
Principal.

10.CONFIDENTIALITY

All information received and shared with the agent regarding the business of the
principal shall be used exclusively for the agency business and shall not be
disclosed to any third parties or used in any manner prejudicial to the principal.

11. RIGHT OF LIEN

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The agent shall have a right of lien over the goods of the Principal in case of non-
payment of the whole sum of remuneration or any dues to which the principal is
liable to pay.

12.INDEMNITY

The principal undertakes to compensate the agent for all losses incurred in the
course of the agency business in good faith and upon exercising the duty of care.

13.INTELLECTUAL PROPERTY.

128 The principal vests all intellectual property rights in the agent to be exploited
exclusively by the agent and in the course of the agency business only.

14.TERMINATION
a. The agreement may be terminated by any lawful stipulated modes.
b. Upon termination, The Principal shall pay to The Agent all compensation due
and owing for work carried out prior to the date of termination.
c. The Agreement may be terminated at any time by either party upon a two
months’ written notice to the other party.
d. Notwithstanding the above, termination shall be effective immediately in
those instances in which the Principal deems the agent’s behavior or actions
to be gross negligence, or illegal or in the event of neglect of duties; non-
compliance with the terms of the Agreement; inability to properly perform the
terms specified; any falsification or carelessness; and failure or refusal to
satisfy the obligations. In these circumstances, the Principal shall be
permitted to terminate the Agreement immediately without any requirement
to give notice or to pay compensation.
e. Termination or expiry of the Agreement shall not affect any rights, remedies,
obligations, or liabilities of the parties that have accrued up to the date of
termination or expiry, including the right to claim damages in respect of any
breach of the Agreement which existed at or before the date of termination
or expiry.

15. DURATION

This agreement shall for the period of …. From the date of execution.

16. FORCE MAJEURE.

Neither party shall be liable to the other for any loss, damage, cost, or expenses
which may be suffered by the other party as a result of any failure to perform its
obligations under this Agreement as a result of any circumstances outside its
reasonable control. If the Agent is subjected to a force majeure event for a period of
thirty (30) consecutive days, the Principal may require the Agent under this
Agreement immediately upon providing written notice to perform his/her duties
affected.

b) Force Majeure Event: means any circumstance not within a party's reasonable
control including, without limitation:

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a. Acts of God, flood, drought, earthquake, or other natural disaster;

b. Epidemic or pandemic;

c. Terrorist attack, civil war, civil commotion or riots, war, threat of or preparation
for war, armed conflict, imposition of sanctions, embargo, or breaking off of
diplomatic relations;

d. Nuclear, chemical, or biological contamination or sonic boom;

e. Any law or any action taken by a government or public authority, including

imposing an export or import restriction, quota, or prohibition, or failing to grant a
129 necessary license or consent; and,

f. Collapse of buildings, fire, explosion, or accident.

17.THIRD PARTY RIGHTS.

Unless it expressly states otherwise, the agreement does not give rise to any third
party's rights under any law to enforce any term of the agreement.

The rights of the parties to rescind or vary the agreement are not subject to the
consent of any other person.

18.DISPUTE RESOLUTION

Any dispute arising out of or in connection with this agreement between the
Principal and Agent, including any question regarding its existence, validity or
termination, shall be referred to and finally resolved through mediation within 60
days; failure of which the parties may proceed to courts of law.

19.LAW APPLICABLE

This Agreement shall be governed by the provisions of the Contracts Act and any
Laws of Uganda and any dispute arising from or in relation thereto shall be subject
to the jurisdiction of the Courts of Uganda.

IN WITNESS WHEREOF the parties hereto, each acting under due and proper
authority, have executed this Agreement. This Agreement has been entered into on
the date stated at the beginning of it.

1. Signed/ Sealed/ Stamped by ………………………………………………

PRINCIPAL

In the Presence of ……………………………………………….

WITNESS

2. Signed/ Sealed/ Stamped by ………………………………………………

AGENT

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In the Presence of ……………………………………………….

WITNESS

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FRANCHISES

Meaning and formation of a franchise

The Black’s Law Dictionary 8 th Ed Pg 1944 defines franchise to mean the sole
right granted by the owners of the trademark to engage in business or sell goods
and services in a certain area. A franchise business is an arrangement whereby a
franchisor who owns a trademark, brand grants another party a franchisee, the right
131 to use that trademark or brand name.

Franchising is a strategic alliance where a business with a tried, tested and trusted
brand allows another normally without experience in the field , to use the former’s
wealth of intellectual property (patents, trademarks, copyrights, business models)
and its entire business systems to selectively distribute particular goods or services
for a specified period on pre-agreed terms in consideration for payment of initial
fees and ongoing royalties and remuneration.

The law governing franchising in Uganda is not elaborate however, the most
significant is the Contracts Act Cap 284 and The Investment Code Act Cap 74.

Under Section 34 of the Trademarks Act, Cap, 225 an owner of the trademark
has the exclusive right to use the trademark. In Anglo Fabrics Bolton Ltd v.
African Queen,HCCS No.632 of 2006, the court noted that an individual who
makes use of a trademark without the express permission of the owner infringes the
trademark.

Types of franchise contracts.

There are various types of franchise contracts that encompass various business
models in the form of franchising.

Product Distribution franchise contract.

This is a type of franchise where the franchise acts as a distributor or dealer of the
franchisor’s products. Unlike a business format franchise ( where the franchisee
follows a strict operational model a product distribution franchise mainly focuses on
selling branded products without adopting the full business system of the
franchisor.

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Business format franchising contract

The franchisee uses the franchisor’s products, services and the trademark, and also
conducts its business as if it were the franchiser itself e.g. the marketing plan and
operation manuals

Manufacturing franchise contract

This is where the franchisor allows the franchisee to manufacture the products
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using the recipe, the brand name and the trademark.

Unit franchising Contracts

In unit franchising, franchisor licenses a franchisee to operate a single franchise

while Multiple Unit franchising covers more than one unit , including area
franchising -the franchisee gets right to open a designated number of franchises
within a defined area over a specified time period and usually loses these rights
should he/she fail to meet the development schedule, and master/ sub franchising-
franchisor grants a franchise the right to grant unit franchises to sub-franchises
within a defined area.

Conversion franchising contract.

Conversion Franchising involves conversion of independent dealers or unaffiliated

business into franchisees. Conversion of a non-selective distribution system (i.e; the
manufacturer initially sold to a variety of distributors or dealers that agree to deal
exclusively or to concentrate their sale efforts in the manufacturer’s products and to
perform specified pre sale and post sale services and marketing activities) is a
conversion franchising in a business format franchise context primarily by the
significant role of the franchisor as a supplier of products for resale by franchised
dealers

Procedure of negotiation of a franchise.

Negotiating a franchise requires careful planning, due diligence, and strategic

discussions to ensure both the franchisor and franchisee benefit from the
agreement. Below is a step-by-step process for negotiating a franchise:

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Research and Preparation

•Understand the Franchise Model: Study the franchisor’s business, industry trends,
and competition.

•Evaluate Your Goals: Define your business objectives, financial capability, and
long-term expectations.

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Establish the type of franchise that they wish to form.

The franchise would therefore be one of the above mentioned franchises.

Conduct market research

The company must find out if the brand is reputable. Reputability of a brand is
important in franchising because a trustworthy brand gives one an assurance
that they are making a good investment. A reputable brand will offer assistance
and support where the need arises, depending on the agreement the franchisee
has with them.

Market research is also meant to ascertain whether the people living in the area
can afford the products or services.

Furthermore, there is a need to ascertain if there is competition in the market

that could affect the potential success of the business.

Conduct a search at the Registry of Companies and registry of trademarks.

The company must conduct a search at the Registry of Companies to confirm that
Franchisor is a duly incorporated Company and also examine its Articles and
Memorandum of Association.

The search will also help the intending franchisee to ascertain whether the
franchise has any operations in the region where they intend to put up a
franchise or if they intend to do so.

The search on the registry of trademarks will ascertain whether there is a

registered trademark or copyright in relation to the intellectual property.

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Formalization of the franchise through an agreement.

This is key to the establishment of a franchise. Uganda has no specific law

governing franchises hence they are governed by the Contracts Act Cap 284. In
Bwambale v Solar Now Services (U) Ltd High Court Civil Suit No.25 of
2015 and Warid Telecom v Punch Telecom(U) Ltd Criminal Appeal No. 95
of 2013, the Courts specifically relied on the clauses in the contractual
agreement between the franchiser and the franchisee to determine the rights
134 and obligation of the parties in respect of termination of a franchise contract.

Key clauses in this agreement will be in respect of the confidentiality or the non-
disclosure clause.

Non-disclosure means that the franchisee must protect the trade secrets of the
franchiser and never disclose the same to third parties. Section 2 of the Trade
Secrets Protection Act, 2009 defines a trade secret to mean information
including but not limited to formula, pattern, compilation, program, method,
technique or process or information contained or embodied in a product, device
or mechanism which is used in a trade or business, is not generally known in that
trade or business, has economic value from not being generally known or is the
subject of efforts that are reasonable under the circumstances to maintain its
secrecy. Section 3 of the same Act provides that a person has a right to
prevent information lawfully within his or her control from being disclosed or
acquired by others without their consent in a manner contrary to commercial
practice. The franchisor and franchisee will have to agree on the protection of
the former’s trade secrets by the latter.

Secondly, a provision on payment of royalties by the franchisee must be included

as well as the agreed sum amounting to royalties.

Quality Control.

The franchiser must conduct a training program for its employees to ensure that
they maintain the quality of the products of the franchiser. This training may be
facilitated by the franchiser

The franchisee must develop a proper marketing plan to attract customers.

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Use of Intellectual Property in franchises

Brand Search.

It is important to carry out a search in the registry of trademarks. Someone might

have gone ahead to register your famous trademark.

The position regarding famous brands in Uganda will most likely will be in line the
Kenya intellectual Property institute’s trademark office position in the matter of
135 Bulzai Energy Drink & Bull Derrick KE/T/2010/0067288 in this case the
registrar held that a famous mark must be proven to be famous in Kenya, rather
than in the market of origin per se.

Brand Protection.

[follow the registration of the trademark as seen in the IP week]

Under the Investment Code, all agreements involved in the transfer of foreign
technology or expertise, including commercial franchise agreements are required to
be registered with the Investment Authority by the beneficiary of the transfer.
( franchisee)

The agreement can only be effective offer registration as provided for under
section 19 of Investment Code Act Cap 74.

This doesn’t explicitly talk about technology transfer agreement therefore the
provision has not been actively policed in Uganda.

Rights, duties and termination of a franchise,

As a franchisee, you have certain rights that are typically outlined in the franchise
agreement. Here are some common rights of a franchisee:

Contractual Rights. Contractual rights under a franchise agreement refer to the

legally enforceable rights and obligations between the franchisor and franchisee,
these rights maybe both implied or express as to all parties involved. Contractual
are unique to the type of franchise

1. Right to operate the business: The franchisee has the right to operate the
business using the franchisor's trademark, trade secrets, and business system.

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2. Right to use proprietary information: The franchisee has the right to use the
franchisor's proprietary information, such as recipes, software, or marketing
materials.

3. Right to receive training and support, his franchisee has the right to receive
training and support from the franchisor, including initial training, ongoing training,
and operational support.

Financial Rights, the rights d obligations of the franchisee related to financial

aspects of the business. Here are some key financial rights these include:
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1. Right to receive financial information: The franchisee has the right to receive
financial information about the franchise, including financial statements and sales
data. - The franchisee has the right to receive regular financial statements,
including profit and loss statements, balance sheets, and cash flow statements. This
must done a franchisor must provide financial information in a timely and
transparent manner

2. Right to set prices: The franchisee may have the right to set prices for goods and
services, subject to the franchisor's approval.

3. Right to receive royalties and fees: The franchisee has the right to receive
royalties and fees from the franchisor, which may include marketing fees,
technology fees, and other charges.

In Microcosm Research Ltd v Robertson [2005] EWHC 1368 (Ch), Microcosm

Research Ltd (the franchisor) entered into a franchise agreement with Robertson
(the franchisee) to operate a computer business. The agreement required
Robertson to pay royalties to Microcosm Research Ltd. Robertson failed to make the
royalty payments, leading Microcosm Research Ltd to terminate the agreement.

The House of Lords stated Robertson was obligated to pay royalties to Microcosm
Research Ltd under the terms of the franchise agreement. Microcosm Research Ltd
was entitled at any point to terminate the agreement due to Robertson's failure to
pay royalties. Robertson was ordered to provide an account of profits made during
the period of non-payment, which would be used to calculate the amount of
royalties owed. The House royalties from franchisees under the terms of the
franchise agreement are a key term and should followed strictly.

Operational Rights, rights and responsibilities of the franchisee to operate the

business on a day-to-day basis. Under franchisee has the right to operate the
business using the franchisor's trademarks, trade names, and logos.The franchisee
must operate the business in accordance with the franchisor's operational standards
and procedures, therefore operational allow the franchisee

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1. Right to operate the business independently: The franchisee has the right to
operate the business independently, subject to the franchisor's guidelines and
standards.

2. Right to hire and manage employees: The franchisee has the right to hire and
manage employees, subject to the franchisor's approval.

3. Right to purchase supplies and inventory: The franchisee has the right to
purchase supplies and inventory from approved suppliers.

137 Termination Rights Right to terminate the franchise agreement: The franchisee
has the right to terminate the franchise agreement, subject to the terms and
conditions of the agreement. Right to sell the franchise: The franchisee has the right
to sell the franchise, subject to the franchisor's approval.

Termination of a franchise contract can be a complex and sensitive

process. Here are some key aspects to consider:

1. Breach of Contract: Failure by either party to fulfill their obligations under the
franchise agreement.

2. Non-Payment of Fees: Failure by the franchisee to pay royalties, advertising fees,

or other required payments.

3. Insolvency or Bankruptcy: If either party becomes insolvent or bankrupt.

4. Change in Law or Regulation: If a change in law or regulation makes it impossible

for the franchisee to operate the business.

5. Mutual Agreement: If both parties agree to terminate the franchise agreement.

Termination Procedures

1. Notice Period: A specified notice period, usually 30-60 days, during which the
franchisee must remedy any breaches or pay outstanding fees.

2. Termination Letter: A formal letter from the franchisor to the franchisee stating
the reason for termination and the effective date of termination.

3. Return of Property: The franchisee must return all franchisor property, including
confidential information, equipment, and signage.

Post-Termination Obligations

1. Non-Compete Clause: The franchisee may be required to refrain from competing

with the franchisor for a specified period.

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2. Confidentiality: The franchisee must maintain confidentiality of franchisor
proprietary information.

3. Return of Customers: The franchisee may be required to return customer lists

and other confidential information to the franchisor.

4. Payment of Outstanding Fees: The franchisee must pay any outstanding fees,
including royalties and advertising fees.

The key aspects that must be included in a franchise agreement

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1. Grant of Franchise. The franchisor grants the franchisee the right to operate a
business using the franchisor's trademark, trade secrets, and business system. The
grant should specify the territory, term, and any conditions or restrictions.

2. Term and Termination. The agreement should specify the length of the franchise
term, renewal options, and termination conditions.Termination clauses should
outline the circumstances under which the agreement can be terminated, such as
non-payment of fees or breach of contract.

3. Fees and Payments

- The agreement should outline the fees and payments required, including: Initial
franchise fee, Ongoing royalties, Marketing fees, Other charges

4. Territory and Exclusivity. The agreement should specify the franchisee's territory
and any exclusivity rights. Exclusivity clauses should outline the circumstances
under which the franchisor can operate other franchises within the territory.

5. Confidentiality and Non-Disclosure. The agreement should include confidentiality

and non-disclosure clauses to protect the franchisor's trade secrets and confidential
information. The franchisee should be required to maintain confidentiality and not
disclose confidential information to third parties.

6. Intellectual Property. The agreement should outline the franchisor's intellectual

property rights, including trademarks, copyrights, and trade secrets. The franchisee
should be required to respect and protect the franchisor's intellectual property
rights.

7. Operations and Standards, The agreement should outline the operational

standards and requirements for the franchise, including: Business hours, Product or
service offerings, Quality control and Customer service

8. Training and Support, the agreement should outline the training and support
provided by the franchisor, including: Initial training ongoing training and support,
Access to proprietary systems and technology

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9. Transfer and Assignment. The agreement should outline the conditions under
which the franchise can be transferred or assigned, including: Approval
requirement, Transfer fees, Assignment restrictions.

139

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Distributorship.

A distributorship is an arrangement under which the distributor buys goods from a

manufacturer or supplier and resells them on its own behalf.

Under a distribution agreement, the supplier or manufacturer sells its products to

the distributor, who then sells the products on to its customers, adding a margin to
cover its own costs and profit.

Types of distributorship agreements

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There are two types of distributorship agreements which include:

1. Exclusive distributorship agreement.

An exclusive distributorship agreement is an arrangement whereby a manufacturer

or supplier agrees to sell the contract products only to the distributor within a
certain defined territory, and agrees not to appoint other distributors or sell the
products directly to other customers within the territory.

2. Non-exclusive distributorship agreement.

A non-exclusive distributorship agreement gives the supplier complete freedom

both to sell directly and to appoint other distributors within the territory. The terms
of the appointment will be far less onerous on the distributor than those within an
exclusive or sole appointment, as it will need to compete with the supplier and
other distributors in terms of both pricing and promotion of the product.

3. Sole distributorship agreement.

A “sole distribution agreement” is one whereby a supplier appoints a distributor as

its only or sole distributor within a territory, but the supplier reserves the right to
supply the products directly to end users.

Key clauses of a Distributorship agreement

1. Type of distributor
2. Territory
3. Distributor’s functions
4. Distributor’s exclusive rights
5. Marketing
6. Conditions for supply
7. Sales target i.e. Guaranteed minimum target
8. Resale target
9. Goodwill indemnity
10.Minimum stock requirements.
11.Supplier’s trademarks, trade names and symbols.

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DISTRIBUTORSHIP AGREEMENT

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE CONRACTS ACT CAP 284

DISTRIBUTORSHIP AGREEMENT

THIS DISTRIBUTORSHIP AGREEMENT (‘‘Agreement’’) is entered into as of

this__________ day of___________20__ by and between MK Power Industries Limited
(hereinafter referred to as Supplier) and Mugaga Entreprises Limited (herein after
142
referred to as the Distributor)

RECITALS

WHEREAS, the supplier is engaged in the manufacture, production and supply of

energy saving stoves (‘‘the products’’) and desires to grant the Distributor the
exclusive right to sell and distribute the Products within the Territory (as defined in
Clause 1.02) on the terms and conditions set forth below; and

WHEREAS, the Distributor possesses the ability to promote the sale of the Products
and desires to develop demand for and sell the products within the territory, and

WHEREAS, the Supplier is the owner of all right, title, and interest in and to the
trademark ‘‘MKP ECO-Save Stoves’’ (The ‘‘Mark’’), as more fully defined below, and

WHEREAS, the Distributor desires to acquire, in accordance with the terms and
conditions of this Agreement the exclusive license to use the Mark as set forth
below.

NOW THEREFORE, in consideration of the foregoing Recitals which are incorporated

into the operative part of this Agreement by this reference, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

1.0. Grant of Exclusive Rights.

1.01 . Exclusive Grant: On the terms and subject to the conditions contained
herein, Supplier hereby grants to Distributor the exclusive right to sell and
distribute Products in the Territory. Distributor accepts the appointment to
market, sell, and distribute Products in the Territory, and shall use its best
efforts to promote the sale and distribution of Products in the Territory. During
the term of this Agreement, Supplier shall not, either directly or indirectly,
appoint or use any person or entity other than Distributor for the marketing,
sale or distribution of Products in the Territory.

1.02 Territory. For purposes of this Agreement “Territory” shall mean the
Democratic Republic of Congo.

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1.03. Products. For purposes of this Agreement “Products” shall mean all products
manufactured, produced, or sold by Supplier.

1.04 Sub distributors. Distributor may appoint sub distributors within the Territory
for the distribution and sale of Products within the Territory.

1.1. Distributor’s Undertakings

The Distributor undertakes and agrees with the Supplier that at all times during the
Term it will:
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a) use all reasonable endeavors to promote the distribution and sale of the
Products in the Territory;
b) take all appropriate action to ensure the proper fulfillment of the Distributor’s
obligations under this Agreement;
c) not resell the Products at a price exceeding the maximum resale price from
time to time specified by the Supplier in writing;
d) keep full and proper books of account and records showing clearly all
enquiries, quotations, transactions and proceedings relating to the Products
and allow the Supplier, on reasonable notice, access to its accounts and
records (and linked data) relating to the Products for inspection;
e) inform the Supplier immediately of any changes in ownership or Control of
the Distributor, and of any change in its organization or method of doing
business that might, in the reasonable opinion of the Supplier be expected to
affect the performance of the Distributor’s duties in this Agreement

1.2. Supplier’s Undertakings

1.2.1. The Supplier agrees that at all times during the Term it shall:

a) supply the Products to the Distributor on an exclusive basis for resale in the
Territory.
b) provide any information that may be reasonably requested by the Distributor
to enable it properly and efficiently to discharge its duties under this
Agreement;
c) approve or reject any promotional information or material submitted by the
Distributor within 28 days of receipt.

1.3. Price and Payment

1.3.1. The prices to be paid by the Distributor to the Supplier for the Products are to
be the Supplier’s list prices as notified to the Distributor by the Supplier from time
to time. The prices applicable as at the Commencement Date are set out in
Schedule 1.

1.3.2. The Distributor shall pay the full amount invoiced to it by the Supplier in US
Dollars within 30 days of the date of invoice.

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1.3.3. The Distributor shall be responsible for the collections, remittance and
payment of any of all taxes, charges, levies, assessments and other feeds of any
kind imposed by governmental or other authority in respect of the purchase,
importation, sale, lease or other distribution of the Products.

1.3.4. The Distributor may not withhold payment of any amount due to the Supplier
because of any set-off, counter claim, abatement or other deduction.

1.3.5. Interest shall be chargeable on any amounts overdue at a rate of 4% per

annum above the base rate of the Bank of England from time to time. The interest
period shall run from the due date for payment until receipt by the Supplier of the
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full amount whether before or after judgment and without prejudice to any other
right or remedy of the Supplier.

1.3.6. The Supplier shall give the Distributor 28 days’ notice in writing of any rises in
the prices for the Products.

1.3.7. Any and all expenses, costs and charges incurred by the Distributor in the
performance of its obligations under this Agreement shall be paid by the Distributor,
unless the Supplier has expressly agreed in advance in writing to pay such
expenses, costs and charges.

1.4. Term
1.4.1 Term. This Agreement shall commence on the date first written above (the
“Effective Date”) and shall extend for a period of five years. Following the initial
term, this Agreement shall be renewed automatically in five year terms, with no
further action of the Parties necessary, unless either Party terminates by written
notice to the other no less than ninety days before the end of a term.

1.5. Termination

1.5.1. Termination. In the event that either Party is in default of any term or
condition of this Agreement or fails to perform any obligation under this Agreement
and such default or failure continues unremedied for fifteen (15) days after receipt
of written notice, the other Party may terminate the Agreement on written notice.

1.5.2. Automatic Termination. This Agreement terminates automatically, with no

further act or action of either Party, if a receiver is appointed for the other Party or
its property, or the other Party makes an assignment for the benefit of its creditors,
or any proceedings are commenced by, for or against the other Party under any
bankruptcy, insolvency or debtor's relief law, or Supplier is liquidated or dissolved.

1.5.3. Effect of Termination. In the event of termination, this Agreement shall

remain applicable to any orders for Products that Distributor has previously placed
and to any other orders that may be executed subsequent to the effective date of
termination.

1.6. Marketing and Sales Promotion

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1.6.1. The Distributor shall:

a) Be responsible for advertising and promoting the Products in the Territory (but
the Distributor shall not use any advertising materials or promotional literature
without the Supplier’s prior written approval);

b) submit an annual advertising and promotion programme to the Supplier for its
approval;

c) display advertising materials and other signs provided by the Supplier;

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d) observe all directions and instructions given to it by the Supplier for promotion
and advertisement of the Products; and

e) not make any written statement as to the quality or manufacture of the Products
without the prior written approval of the Supplier.

1.6.2. The Supplier shall provide the Distributor with information on the advertising
and promotion carried out by the Supplier. The Supplier shall supply any available
promotional and advertising material that the Distributor reasonably requests at a
cost to be agreed between the parties.

1.6.3. The Supplier shall make reasonable commercial efforts to participate with the
Distributor in fairs, exhibitions and similar events in the Territory

1.7. Sales Targets and Performance Reviews

1.7.1. The Distributor shall meet the sales target set forth in Schedule 2 of this
Agreement.

1.7.2. Performance reviews will be conducted quarterly to assess the Distributor’s

compliance with sales targets.

1.8. Inventory Management

1.8.1. The Distributor shall use commercially reasonable efforts to maintain its
inventory of products at a level sufficient to meet the demand for the products by
customers in the Territory.

1.8.2. Without limiting the generality of the foregoing, at all times during the term
of this Agreement, the Distributor shall maintain inventory levels of the products as
set forth in Schedule 3 of this Agreement.

1.9. Trademarks

1.9.1 Subject to clause, the Supplier hereby grants to the Distributor the non-
exclusive right, in the Territory, to use the Trade Marks in the promotion,
advertisement and sale of the Products, subject to, and for the duration of, this
Agreement. The Distributor acknowledges and agrees that all rights in the Trade

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Marks shall remain in Supplier, and that the Distributor has and will acquire no right
in them by virtue of the discharge of its obligations under this Agreement, except
for the right to use the Trade Marks as expressly provided in this Agreement.

1.9.2. The Distributor shall not sub-license, transfer or otherwise deal with the rights
of use of the Trade Marks granted under this Agreement.

1.9.3. The Distributor shall not do, or omit to do, anything in its use of the Trade
Marks that could adversely affect their validity.

146 1.9.4. Any good will associated with any trademarks affixed or used in relation to
the Products shall accrue to the sole benefit of the Supplier or such associated
Company of the supplier as owns such Trademarks.

1.9.5. Each party shall promptly give notice in writing to the other if it becomes
aware of:

a) any infringement or suspected infringement of the Trade Marks or any other

intellectual property rights relating to the Products within the Territory; or
b) any claim that any Product or the manufacture, use, sale or other disposal of
any Product within the Territory, whether or not under the Trade Marks,
infringes the rights of any third party and provide reasonable co-operation to
the other to successfully resolve any notified issue.

1.10. GENERAL TERMS

1.10.1 Assignment. This Agreement may not be transferred or assigned by either

Party without the prior written consent of the other Party.

1.10.2. Subject to the foregoing, the provisions of this Agreement shall inure to the
benefit of the Parties’ successor and assigns.

1.10.3. Governing Law. This Agreement shall be governed by, and construed in
accordance with the laws of the State of Uganda, notwithstanding any choice of law
provisions to the contrary.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first written above

DISTRIBUTOR: SUPPLIER:
_____________ _________________
MUGAGA ENTREPRISES LTD MK POWER INDUSTRIES LTD

Schedule 1

PRODUCTS AND PRICE LIST

Product Price
Schedule 2

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Sales Target.

Year Quarter Month Target

Schedule 3
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MINIMUM INVENTORY QUANTITIES

Not including the initial stocking month for the Company products, Distributor
agrees to order and have on hand a minimum of stock equal to [] the number of
individual units shipped to customers during the previous month.
These levels will be monitored and verified on a quarterly or as needed basis.

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CONSTRUCTION CONTRACTS.

This is an agreement between an employer (client) and contractor to construct,

repair, modify, renovate or even demolish something in an agreed time frame, for
an agreed price and to agreed standard. These contracts are binding between the
parties herein contractor and employer or client and cover everything including cost
and payment terms, schedule, scope, specific tasks to be performed among others.

The core of construction law is law of contracts and these contracts safeguard
parties from disputes and legal issues and are governed by Contract Law, Standard
148 form (General Condition of Contract, Special Condition of Contract) and the PPDA,
PPDA (Contract) Regulations 2014

Public Procurement applies to all ministries, government departments, statutory

corporations and other entities, Procuring and Disposing Entities (PDEs) as
discussed under Section 1 of PPDA Act. Construction falls under the works
category

There are 2 conditions to be fulfilled prior to signing a domestic contract between a

PDE and a Contractor and these are the lapse of period specified in Section 82(2)
PPDA and Regulation 5(1) which prohibits signing of contract within 10 days after
display of Notice of Best Evaluated Bidders as this is a standstill and administrative
review period.

The second condition is commitment of full funding of required period as discussed

under Section 61 PPDA which is to the effect

THE TYPES OF CONSTRUCTION CONTRACTS.

The types used in works are provides under Regulation 34 PPDA (Contract)
Regulations which states that the procuring and disposing entity shall use a lump
sum contract and an admeasurement contract for buildings

1. Lumpsum Contracts (Section 97 PPDA Act)

These are construction contracts where a fixed price is determined by the parties
before the work begins, and the contractor agrees to complete project for fixed
price and this includes interim or stage payment clearly identified, deliverable and
outputs and these contracts are not subject to change regardless of changes in
prices as such shifting contractual financial risk to contractor as they must stay
within the agreed budget and as such a contractor delivers the project at a pre-set
price.

A lumpsum contact, as provided under Regulation 14 PPDA (Contract)

Regulations shall indicate a fixed price determined in accordance with the
Regulations. A lump sum contract shall provide for interim or stage payments
(Regulation 44) and Payment for a lump sum contract shall be linked to clearly

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specified outputs or deliverables, including deliveries of supplies, evidenced by the
appropriate delivery documentation; reports; drawings; bills of quantities; activity
schedules; and any other outputs or deliverables appropriate to the contract

2. Admeasurement contracts (Section 99 PPDA Act)

Work is split in various items and each item has a unit rate. Contract price will be
total sum of all items and payment is made for actual quantity of work performed as
contractor is paid based on actual quantities of work completed rather than fixed
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price.

Regulation 16 of PPDA (Contract) Regulation Under an admeasurement

contract, works are split into various items and the quantity of each item needed to
complete the assignment shall be estimated and indicated in the bidding document
as a bidder shall price each work item by indicating a unit rate for each item in the
bill of quantities.

CONTRACTS
a) The Joint Contracts Tribunal (JCT) – United Kingdom

Originally based on the premise that trust between collaborating organisations is

low and every aspect of their working relationship must be prescribed by the
contract.  However, with the growth in genuinely collaborative attitudes and
development of alternative suites in the construction industry e.g. NEC3 there have
been substantial revisions in the current JCT forms (2011), with the following goals

b) The New Engineering Contract (NEC) – Institution of Civil Engineers,

UK

Stimulate good management of the relationship between the two parties to the
contract and of the work included in the contract eg in each NEC contract there is
an obligation on the parties to ‘act in a spirit of mutual trust and co operation.
These are global application and are being adopted for many multi-disciplinary
projects by clients in nearly 20 countries, e.g. Australia, New Zealand and South
Africa.  The NEC suite of contracts have been endorsed for use in the public sector
in the UK by the Office of Government Commerce

c) GC/Works – UK Government
d) FIDIC – International Federation of Consulting Engineers

The most widely used forms of contract internationally, including by the World Bank
for its projects. where main responsibility for design lies with the employer (or its
representative, the engineer). The works may also include some elements of
contractor-designed civil, mechanical, electrical and/or construction works. The

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work done is measured, and payment is made according to a bill of quantities,
although there is an option for payment on a lump sum basis

e) ACA –Association of Consultant Architects

f) IChemE – Institution of Chemical Engineers

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RESPONSIBILITIES OF PARTIES IN A CONSTRUCTION CONTRACT

1. EMPLOYER/CLIENT

This is the party who commissions the work i. e the person whose benefit the
building works are carried out. The employer may be any kind of legal person and
have any status e. g a private individual, a local authority, limited company, a
charity, partnership, government body or other body incorporated or
151 unincorporated.

Responsibilities of the employer

a To analyze and collect all relevant information available to him in order to

give the designer the clearest and broadest picture of his requirements
with special thought to, space available, location, use of new building,
cost, time limits.
b To consider his legal responsibility regarding the land, freehold or leases,
most likely calling upon the services of the solicitor at this point.
c The financial aspects of the proposed project have to be carefully
considered by the client, with consideration being made to drawing
regular sums from his account to meet the contractor’s payment. He
makes stage or interim payments to the contractor.
d Engage a designer usually an architect to carry out his wishes.
e Upon receiving architect’s views on type, size, cost of building, consider
whether the project should continue.
f If project proceed, sign contract after agreeing to tender figure.
g He must arrange any insurance he or she requires.
2. CLERK OF WORKS
a. Inspect the quality of work in accordance with drawing and specification. He
will make regular reports to the architect and it is important that he keeps
the site diary throughout the project which will be valuable in the case of any
disputes arising.
b. Represents one or other of the leading parties involved in a construction
project.

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c. May be engaged by the employer or the architect to undertake supervision of
carrying out of the works and report back to the employer or architect as the
case may be.
d. Check setting out and also other parts of the work during construction to
ensure they conform to requirements./

MAIN CONTRACTOR AND SUB-CONTRACTOR

152  The main contractor is the party primarily responsible for ensuring the
carrying out of building works under a construction contract on behalf of an
employer. It is common that the management role is taken by a larger
contracting company whereas the main elements of the ‘hands on’ is carried
out by the subcontractors.
3. ARCHITECT
1) Architects design the works and supervise the construction. Formulates the
client‟s requirements into an understandable form, bearing in mind any
statutory conditions that may apply. It will be advantageous to the client at
this stage if he can be shown work of a similar nature so that he may obtain
a visual impression of shape, type of materials, size and so on.

2) Bring together a team to give guidance on specific points such as a

structural engineer, quantity surveyor, internal services
3) Upon assessing cost limits and time scale, sketch plans, enabling client to
approve or otherwise, before more final drawings are prepared. The cost of
the building will have been broken down into elements at this stage with
approximate values so that if costs are to be cut, it can be done in sections
e.g. structure, internal finishings.
4) When general agreement has been reached between the architect, his team
and the client, the architect can now proceed to produce his contract
drawing to enable tenders to be obtained.
5) Project drawings complete and bills of quantities prepared, the work can now
be put out to tender.
6) Upon receipt of checked tenders and the acceptance of one, an inaugural
meeting is arranged to clear up salient points that may arise, including a pre-
planning period for the building.

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7) Approves the contractor’s program and his proposed method of working.
8) The architect has the responsibility of overseeing the construction project
from inception to a completion. An Engineer has the same responsibility in
the context of an engineering contract.
4. QUANTITY SURVEYOR
Although the quantity surveyor is a member of the architect’s team from very, he
must have a very close work with the contractor upon acceptance of the tender, for
153 it will be his role to cost valuations, variations and, in so doing, remain completely
impartial and without favor to either side and so produce harmony in his role of
project account.

a Prepare an approximate cost from sketch drawings, assembling element

costs, so that should the client’s sum be exceeded, the architect can
consider each element of the building in reasonable isolation, enabling him
to pare costs as necessary.
b Upon acceptance by the client of costs and scheme and upon receipt of
architect’s drawing prepares a bill of quantities in accordance with the
current Standard Method of Measurement, and tender documents before
tendering.
c The contractors selected for tendering will each receive a copy of unpriced
bills, together with drawings upon which to estimate the project costs. Upon
receipt of the tender and now priced bill, the quantity surveyor checks the
accuracy to ensure that the builder has made no serious errors which could
cause complications at a later date.
5. CONTRACTOR
a Upon receiving the application to tender decides whether or not, with the
resources, manpower and general management and administrative set up at his
command, to take up the project if successful, complete it according to the
architect’s wishes as stated in the bill/specification and drawing.
b Before the tender is complete, carry out a full site investigation so that any
unforeseen problems can be noted to ensure that they will not cause delays or
extra costs once the contract is underway.

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c On completion of the estimate which will have been obtained from accurate
study of the bill of quantities, drawing, site investigation, suppliers‟ and
subcontractors’ quotations, the board of directors or principal of the firm will
decide upon the final tender figure.
d If tender is accepted submit a copy of the priced bills to the quantity surveyor for
consideration to enable him to satisfy the architect that no serious omissions or
faults have been made in the make-up of the tender figure.
154 e Upon the architect and the contractor being satisfied with the price a meeting is
arranged between all the parties concerned to discuss all the arrangements,
conditions of contract and for the signing of the same, when all disagreements
and minor problems have been solved.
6. LOCAL AUTHORITIES
a Have a responsibility, not only to the client ensuring that construction of the
project conforms to the Building Regulations, but also to the public and
community at large to enforce the various Acts of Parliament that control the
erection, alteration and repair of buildings.
b Upon receiving the „Notice of Intention‟ to build, the local authority will state the
relevant information that they require to assist in the approving of the plans, e.g.
structural calculations, drawing, etc.
c Upon approval by the local authority and Town and Country Planning, the builder
will be given permission to start. It is an offence to commence construction
before this approval has been given, even if the building does comply with
Regulations.
d At commencement of work on site, the builder must notify the authority through
a specially supplied form or card given by the authority passing the plans, to be
returned at various stages of construction, e.g. foundations, damp proof course,
etc, and one for final project completion.
The local authority employs building inspectors to check and administer the
Building Regulations. They visit the site upon receipt of the aforementioned forms, a
penalty being payable for failure to notify.

7. ENGINEERS

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a Part of the architect’s team whose responsibility is to help in the design of the
project within the scope of their specialist fields.
b Produce calculations or other relevant data that may be required to assist the
architect in his design, the quantity surveyor in his cost control, or the local
authority in its assessment of the suitability of the project regarding statutory
requirements
c Issue of further drawings and variation orders to supplement, modify or re-
155 design any part of the work as may become necessary.
d Application of the test of satisfaction as the standard of compliance for all
matters pertaining to the materials.

RISKS INVOLVED IN CONSTRUCTION CONTRACTS AND HOW TO MITIGATE

THEM

RISKS INVOLVED

A. Financial Risks

These are risks that could potentially lead to loss of money or a variation in the
initial anticipated costs of executing the construction project. These include;

- Government Funding Delays in releasing money which is accountable to the

bureaucracy and budgeting system involved before money is given to
government entities.
- Inflation:
This is the general increase in the prices of goods and services in an
economy.
- The contractual price may escalate due to unanticipated adjustments during
the course of the project.

B. Contractor and Execution Risks

- Contractor Default: If the contractor fails to perform as expected, the project
could be delayed or the work could be of poor quality.
- Poor Execution of Work: Risk of shoddy work or failure to meet specifications
can cause delays and additional costs.
- Absconding by Contractor: If the contractor absconds with the advance
payment or fails to complete the project satisfactorily, LDC could incur
significant losses.

C. Operational Risks

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- Damages to Existing Works/Utilities: Excavation work could damage existing
utilities or infrastructure, leading to delays or additional costs for repair.
- Delays in Completion: The project may not meet its completion deadline if
external or internal factors cause delays (e.g., contractor’s inefficiency, poor
weather conditions).

D. Legal and Compliance Risks

- Non-compliance with Regulatory Standards: There is a risk of failing to meet
the legal and regulatory requirements during construction, which may result
in additional costs.
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- Third-party Liability: Risk of legal liability for injuries or damages caused to
third parties during the construction process.

E. Environmental risks.
These are risks involving altering the natural state of the environment.
Projects and construction sites take different forms and therefore have
different effects to the environment.
These effects include; cutting down trees, building in water lodged areas like
swampy areas, digging too far in the ground while using excavators or other
heavy machinery.

F. Force majeure.
These are unexpected, unforeseeable God made occurrences. These include,
pandemics that can hinder workers to do their work, earthquakes that can
demolish buildings and others.

HOW TO MITIGATE THESE RISKS

A. Financial Risks

Budget Adjustments and Contingencies: Include provisions for cost escalation

in the contract, such as a fixed percentage increase allowance (e.g., 5% per year)
to address inflation and rising material costs.
Payment Schedule and Government Funding: Ensure a clear payment
schedule is set for government funding, with provisions that allow LDC to suspend
work if government payments are delayed. A clause should also be included for the
project’s suspension in case of funding cuts.
Regulation 35(2) provides that a contract for works may be a standard lumpsum
or admeasurement contract, (Projects to measure the actual amount of work done
and payment is based on work done). Where the construction is not well specified
use an admeasurement contract
B. Contractor and Execution Risks

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 Advance Payment Security: Require the contractor to provide a bank
guarantee or performance bond as security for the advance payment and the
fulfillment of their obligations.
 Milestone Payments: Structure payments according to clear contractual
milestones tied to specific deliverables to ensure payments are made only
upon completion of work to a satisfactory level.
 Performance Bonds and Penalties: Incorporate performance bonds or
guarantees for the completion of the project, with penalties for delays or poor
quality. Additionally, include terms for liquidated damages in case of delay.
Refer to the case of DFCU Bank ltd v Abubaker Technical Services &
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General Supplies Ltd Misc. Application No.0764 of 2022 where Hon.
Justice Stephen Mubiru described how these performance bonds
work.
C. Operational Risks
 Insurance and Risk Allocation: Ensure the contractor provides
comprehensive insurance that covers construction risks, third-party
liability, and potential damage to existing works/utilities. LDC should be a
named insured party to safeguard its interests.
 Site Inspections and Quality Control: Implement regular site
inspections and quality control mechanisms to monitor progress and
ensure that the work is up to standard. Also, appoint an independent
project manager to oversee the project.
 Regulation 11 of the Regulations provide that the bidding documents
shall state the requirement for a performance security or performance
securing declaration.
D. Legal and Compliance Risks
 Compliance with Laws and Regulations: Ensure that the contractor
adheres to all relevant local construction laws, environmental regulations,
and safety standards.
 Liability Clauses: Include indemnity and liability clauses that protect LDC
in case of third-party damages or claims arising during construction. The
contractor should take responsibility for damage caused to utilities or
existing infrastructure during the excavation process.
 Reg 6(f) of the Regulations All the relevant agencies including the
Attorney General where applicable make the relevant approvals.
E. Environmental risks.

 Conduct environmental risk assessments to establish what environmental

risks are likely to affect the construction work.

RISK MANAGEMENT CONTRACTS.

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"risk management contracts" isn't a single, specific type of contract. Rather, risk
management is a component woven into many different kinds of contracts.

Key Concepts:

 Risk Transfer:
This involves shifting the burden of potential losses from one party to another.
Common mechanisms include:
 Indemnification Clauses: One party agrees to compensate the other for
158 losses or damages.
 Insurance Requirements: Contracts may mandate that parties obtain
specific insurance coverage (e.g., liability insurance, property insurance).
 Security requirements: like a bank guarantee which may either be on
demand guarantee and contingency guarantee
 Risk Mitigation:
These are measures taken to reduce the likelihood or impact of potential risks.
Examples include:
 Performance Bonds: Guarantees that a contractor will fulfill their
obligations.
 Force Majeure Clauses: e.g., natural disasters) that excuse parties from
contractual performance.
 Clear and Detailed Specifications: Reducing ambiguity in contract terms
minimizes the risk of disputes.
Examples of Contracts with Risk Management Elements:

Construction Contracts:
These often include:
 Performance bonds to ensure project completion.
 Liability insurance requirements to cover accidents.
 Indemnification clauses to allocate responsibility for defects or delays.
 Force majeure clauses to account for unexpected delays.
Service Agreements:
These may feature:
 Liability limitations to cap potential damages.
 Service level agreements (SLAs) to define performance standards.

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 Confidentiality agreements to protect sensitive information.
Insurance Contracts:
These are, by their very nature, risk transfer mechanisms.
They involve:
 The insurer agreeing to cover specified losses in exchange for premiums.
Financial Derivatives:
 These contracts (e.g., futures, options) are used to hedge against financial
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risks, such as fluctuations in interest rates or commodity prices.
Supply Chain Contracts:
These contracts are increasingly including clauses that deal with supply chain
disruptions.
 These may include clauses that allow for alternative supply sources, or
clauses that deal with increased costs due to supply chain issues.
NOTE

 The specific risk management provisions will vary depending on the type of
contract and the nature of the risks involved.

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