The Court of Appeal has ordered Nile Breweries Limited to pay Shs 1.1 billion to Salvation Distributors as compensation for loss of goodwill following the unlawful termination of a long-standing distributorship agreement.
In a judgment delivered by three justices, the court found that the beer firm breached its contract with Salvation and significantly increased the amount of compensation that had earlier been awarded by the High Court.
The business relationship between Salvation Distributor and Nile Breweries started in 1999 when Gregory Gidagui Mafabi, the director, was granted exclusive rights to distribute Nile Breweries products in areas including Kyengera, Kayabwe, and Maddu.
For more than 25 years, the distributor invested heavily in the business, building infrastructure like warehouses, acquiring trucks, and expanding operations to boost sales.
In 2016, Nile Breweries asked the distributor to relocate its warehouse from Kyengera in Wakiso to Kayabwe.
Salvation Distributors says it complied and invested about Shs2.5 billion to build a new facility, believing the partnership would continue.
At the same time, Nile Breweries gave the distributor a credit facility of about Shs 1.32 billion to support operations.
The partnership later deteriorated after Nile Breweries introduced a new Distributor Management System and accused the distributor of failing to use it.
Salvation claimed the system was imposed without proper agreement and that the company was never trained to use it, despite requesting help.
The situation escalated in June 2018 when officials allegedly asked Mafabi to sell his business to another company, Keshwala Group. He refused.
Shortly after, on July 2, 2018, Nile Breweries terminated the distributorship agreement.
Salvation Distributors challenged the termination in the High Court, arguing that the system had not been part of the original agreement and that it had not been given the required three months’ notice.
Nile Breweries defended its decision, saying the distributor was underperforming and that the termination was lawful. It also filed a counterclaim seeking more than Shs1.07 billion, which it said was owed under a credit facility.
The High Court ruled that the termination was unlawful and awarded Salvation Distributors Shs 108 million in general damages and Shs 100 million for loss of goodwill. In total, this was Shs 208 million.
However, the court also ruled that Salvation Distributors owed Nile Breweries Shs1.07 billion under the credit facility.
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Therefore, the ruling did not favour any side, so they both appealed in the Court of Appeal, which had a panel of three judges comprising Justice Moses Kazibwe Kawumi, who led the panel; Justice Florence Nakachwa, and Justice Musa Ssekaana.
At the Court of Appeal, Salvation Distributors was represented by Frank Lusse, while Nile Breweries was represented by Joachim Kintakunte.
Salvation Distributors argued that the damages awarded at the High Court were too low since the business had been built over nearly 20 years and deserved much higher compensation.
They relied on an expert report, which valued the business at over Shs 13.4 billion.
Nile Breweries, on the other hand, argued that the damages were fair and that the termination was lawful, insisting that the distributor owed them money and should pay.
The panel of judges, after hearing both sides, agreed with Salvation Distributors.
“The respondent [Nile Breweries] was required to give the Appellant [Salvation Distributors] 3 months’ notice. This amounted to a breach,” Justice Kawumi argued in his ruling.
They also pointed out that failure to use the new system was not listed by Nile Breweries as a ground for immediate termination.
The Court of Appeal upheld the award of Shs108 million to Salvation Distributors but made a major adjustment when it came to the loss of goodwill suffered by the distributor. Remember the High Court had awarded the distributor Shs 100 million for loss of goodwill, but Justice Kawumi said the figure was insulting.
“I find no rational basis for the award given the nature of the business and the investment,” he said.
It increased the compensation due to Salvation Distributors to Shs 1.117 billion.
Regarding Nile Breweries’ claim that Salvation owed them Shs1.075 billion, the Court of Appeal said it was not clear because there were inconsistencies in the figures.
“The correct figure can only be arrived at after a reconciliation of accounts,” the court ruled, ordering both parties to reconcile their accounts under court supervision within 90 days.
There you go. Salvation Distributors and its director, Mafabi… stood their ground and secured a major victory.
As a business owner, what do you learn from this?
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