The Court of Appeal has upheld a multibillion-shilling award against Uganda Breweries Limited (UBL) after finding that the brewer unlawfully terminated its distributorship agreement with Seroy Airport Hotel Limited.
The appellate court dismissed UBL’s appeal and allowed Seroy’s cross-appeal, leaving the company with an award exceeding Shs1.59 billion in damages, interest and costs. The dispute stemmed from a distributorship arrangement for the Najjanankumbi area that began in 2013 and later collapsed after UBL terminated the relationship.
The decision was delivered by Justices Cheborion Barishaki, Esta Nambayo and Musa Ssekaana in Civil Appeal No. 001 of 2017, arising from proceedings before the High Court Commercial Division.
Seroy was appointed by UBL as a distributor in March 2013 under a three-month trial arrangement. However, the parties continued doing business after the trial period ended, with Seroy investing in additional facilities and other requirements to support the distributorship.
The relationship continued until November 20, 2013, when UBL terminated the arrangement, citing failure by Seroy to meet its sales targets.
Seroy went to court, arguing that UBL had unlawfully ended the relationship without giving reasonable notice. UBL, on the other hand, maintained that there was no substantive distributorship contract because the parties had never signed a formal agreement.
The Court of Appeal rejected that argument, finding that the continued dealings between the parties after the initial trial period amounted to a contractual relationship.
The judges also pointed to UBL’s own termination letter, which referred to the “termination of distribution agreement”, as evidence that the brewer itself recognised the existence of an agreement.
The appellate court found that UBL had breached the Contracts Act by terminating the distributorship without reasonable notice.
The judges held that the law requires reasonable notice when an agency relationship is revoked and that a party affected by such termination should be compensated for the resulting loss.
The court therefore upheld the finding that UBL’s November 2013 termination was unlawful.
It also maintained the High Court’s award of Shs345 million to Seroy as damages in lieu of notice.
Although Seroy had not produced audited accounts to support all the losses it claimed, the court found that evidence from its managing director on the company’s monthly turnover had not been challenged. The High Court had also significantly reduced the amount initially claimed before arriving at the award.
The court further upheld Shs19.4 million awarded to Seroy for salaries paid to an operations manager, accountant and security guard after the distributorship ended.
The judges found that UBL took several months to collect its stock and complete reconciliation of the parties’ accounts. Seroy was therefore justified in retaining employees to safeguard and account for the brewer’s property.
The court also faulted UBL for calling Seroy’s bank guarantee before the accounts had been reconciled.
It awarded Shs20 million in general damages over the unjustified call on the guarantee.
The judges noted that Seroy had made substantial investments after UBL required it to expand its operations, including acquiring land, vehicles and other facilities. The court awarded an additional Shs10 million over what it considered UBL’s unexpected conduct in abruptly ending the relationship.
Seroy was also awarded Shs63 million in special damages after the court found that its premises had been used to store UBL goods for about nine months following termination.
The appellate court further ordered UBL to pay Shs197.816 million that had been wrongfully withheld from Seroy.
The amount will attract interest at 10 per cent per annum from November 20, 2013 until payment in full.
The court also awarded interest on the general damages at six per cent per annum from the date of judgment until payment.
In its final orders, the court awarded Seroy Shs1 million in nominal damages, Shs30 million in additional general damages, Shs1.5 billion in general damages and Shs63 million in special damages.
UBL was also ordered to pay the costs of the appeal and proceedings in the lower court.
The judgment brings to an end a commercial dispute that began more than a decade ago, with the appellate court ultimately holding that a business relationship created through continued dealings could not simply be discarded without observing the legal obligations attached to termination.
