Uganda Breweries ordered to pay sh1.5b over terminated contract
Dismissing UBL’s appeal and allowing Seroy’s cross-appeal, Court of Appeal justices; Cheborion Barishaki, Esta Nambayo and Musa Ssekaana held that the continued dealings between the two firms after the probationary framework created a binding contract by conduct between them.
Uganda Breweries ordered to pay sh1.5b over terminated contract
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The Court of Appeal has ordered Uganda Breweries Limited (UBL) to pay over sh1.5b to Seroy Airport Hotel Limited after ruling that it unlawfully terminated the distributorship contract with the hotel.
Dismissing UBL’s appeal and allowing Seroy’s cross-appeal, Court of Appeal justices; Cheborion Barishaki, Esta Nambayo and Musa Ssekaana held that the continued dealings between the two firms after the probationary framework created a binding contract by conduct between them.
“I find that the cross-respondent’s (UBL's) termination of the contract without notice and in the manner adopted by the cross-respondent constituted a breach of contract. The termination was wrongful, unlawful and gave rise to liability on the part of the cross-respondent for the losses occasioned to the cross-appellant (Seroy),” Justice Barishaki stated in the judgment.
By directing the cross-appellant to procure additional land and a bank guarantee and subsequently terminating the contract without affording the cross-appellant the benefit of those investments, the justices said UBL acted in bad faith and in violation of the contractual framework.
The justices noted that UBL’s decision to terminate the distributorship with immediate effect on November 20, 2013, breached the Contracts Act because Seroy was not given reasonable notice to wind down its operations.
The justices said reasonable notice is important in a commercial agency involving distribution of goods and bank-backed financing because sudden termination could expose a distributor to significant financial losses.
They said the immediate termination deprived Seroy of an opportunity to wind down its business and mitigate its damages.
Consequently, they awarded Seroy sh1.5b in general damages, sh63m in special damages, sh1m in nominal damages and sh197m as interest.
The justices said the refusal by the trial High Court judge to award the general damages to Seroy was erroneous given the losses it suffered as a result of the termination, which rendered the trucks unable to do the work they were intended.
Seroy had purchased three trucks and one van in compliance with UBL’s requirements for the distributorship.
A breach of contract occurs when one or both parties fail to fulfill their obligations under the terms of the agreement.
Background
On January 14, 2013, UBL, in a newspaper advert called for additional beer distributors in various areas, including Najjanankumbi, Kampala.
On March 12, 2013, UBL appointed Seroy as its distributor in the Najjanankumbi area. UBL indicated that upon satisfying its ability and capacity to distribute and deliver on the targets set, it would proceed to award Seroy a distribution contract.
Consequently, Seroy opened a Barclays Bank account at the UBL’s specific instructions to allow them direct access to withdrawals.
Following UBL’s demand for increased capacity, Seroy contended that it invested heavily in land, architects and a larger warehouse, including securing bank loans to meet the demands.
Seroy stated that on June 20, 2013, UBL withdrew sh90m as security for empty bottles, which was extraneous to the agreement between the parties and contrary to the business’ practice. As a result, Seroy could not access money for her business.
Again without justification, Seroy argued that UBL withdrew another sh58m from its account, thereby affecting its operational capital and minimum capital requirements. On November 20, 2013, UBL communicated its decision to terminate Seroy’s agency contract.
Subsequently, Seroy sued UBL, and on August 19, 2016, Justice Christopher Madrama ruled in favour of Seroy, but declined to award it general damages.
Dissatisfied with the decision, UBL appealed to the Court of Appeal and Seroy also lodged a cross-appeal.