The Court of Appeal has ordered Nile Breweries Limited to pay Shs 1.1 billion in damages to Salvation Distributors Limited for breach of contract, bringing to a close a long-running dispute over distributorship rights.
Court records show that between 1999 and 2002, Gregory Gidagui Mafabi, through Salvation Distributors, entered into agreements with Nile Breweries granting exclusive distributorship rights in Kyengera, Kayabwe and Maddu.
To fulfil its obligations under the agreements, Salvation Distributors made substantial investments, including constructing a warehouse in Kyengera, acquiring delivery vehicles and equipment, and establishing distribution infrastructure. The company argued that these investments significantly boosted Nile Breweries’ sales and market reach.
However, in April 2016, Nile Breweries reportedly introduced new terms outside the original agreements, including a requirement for the distributor to relocate its main warehouse from Kyengera to Kayabwe. Salvation Distributors complied, investing about Shs 2.5 billion in a new facility, which was later commissioned in 2017.
The distributor also accessed a credit facility of about Shs 1.32 billion from Nile Breweries to support the construction and maintain business operations.
The dispute escalated after Nile Breweries introduced a new distributorship management system, which Salvation Distributors claims was imposed without its consent. Although it was agreed that the distributor would fund the system, Nile Breweries was expected to train staff—something Salvation Distributors says was never done.
On July 2, 2018, Nile Breweries terminated the distributorship agreement, citing failure by Salvation Distributors to adopt the new system. Efforts to challenge the termination were unsuccessful, prompting the distributor to file a suit for breach of contract.
Salvation Distributors argued that the termination was unlawful, citing unilateral changes to contract terms, failure to provide training, lack of a notice of default, and disregard of the contractual three-month notice period. The company also claimed to have suffered losses amounting to Shs 13.4 billion.
In its defence, Nile Breweries maintained that the distributor had failed to meet its contractual obligations. It argued that the introduction of the new system was necessary to improve efficiency and profitability, and that Salvation Distributors had the option to reject the new terms but did not do so.
The company further contended that either party was free to terminate the agreement upon giving three months’ notice and distanced itself from loans Salvation Distributors obtained for warehouse construction, saying these were undertaken without its approval.
Nile Breweries also filed a counterclaim seeking recovery of Shs 1.07 billion, said to be an outstanding balance on the credit facility, along with damages, interest and costs.
Initially, the High Court awarded Salvation Distributors Shs 108 million in general damages—an amount the company challenged as inadequate.
In its ruling, the Court of Appeal upheld the finding of breach but faulted the trial judge for failing to justify the basis of the Shs 108 million award.
“I find that the trial judge did not demonstrate how he arrived at the award,” the appellate court noted.
Justice Moses Kazibwe Kawumi, however, agreed that damages for breach were warranted and reassessed the compensation.
“I would consider five years of projected business continuity as a reasonable period for determining the loss of goodwill. I accordingly award Shs 1.1 billion,” he ruled.
The court set aside the earlier award and substituted it with Shs 1.117 billion in damages for loss of goodwill.
The court also directed both parties to reconcile their accounts under the supervision of the Registrar of the Court of Appeal within 90 days to determine any outstanding amounts under the counterclaim.
