Amin v Mogo Loans SMC Limited (Civil Suit 77 of 2021) [2024] UGCommC 215 (28 June 2024)

Full Case Text

#### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

#### CIVIL SUIT NO. 0077 OF 2021

# AMIN VIRANI ::::::::::::::::::::::::::::::::::::

#### **VERSUS**

# MOGO LOANS SMC LIMITED ::::::::::::::::::::::::::::::::::::

# (Before: Hon. Lady Justice Patricia Mutesi)

#### **JUDGMENT**

#### **Background**

- The Plaintiff brought this suit seeking a declaration that the Defendant $1.$ breached the parties' tenancy contract, an order for recovery of rent arrears, an order for eviction against the Defendant, general damages, interest and costs. - The Plaintiff's case is that on 5th February 2020, he entered into a 3-year $\overline{2}$ . tenancy agreement with the Defendant. Therein, he rented out his property comprised in LRV 2486 Folio 5, Plot 6B, Mabua Road, Kampala measuring approximately 400 square meters at Rashida Towers. 3rd floor plus 8 parking slots at the Rashida Towers parking area to the Defendant who took possession of the same. The agreed monthly rent due from the Defendant was USD 6,000 inclusive of VAT and it was supposed to be paid 6 months in advance initially and, thereafter, quarterly. Late payment of rent was to attract a 5% interest per month until full payment. - $3.$ The Plaintiff asserts that despite occupying his premises, the Defendant failed or refused to pay rent for 11 months and the accrued default interest thereon, all totalling to USD 66,000. That although the Defendant purported to terminate the tenancy on 31st March 2020, it continued holding over the rented premises by not removing its property therefrom and by not handing

over the keys of the premises to the Plaintiff. That despite various demands, the Defendant refuses to pay the rent arrears or to leave the premises.

- The Defendant averred that its sole shareholder and director stays in $4.$ Lithuania and that he directs the operations of the company from there. That in February 2020, the COVID-19 pandemic had already spread throughout Europe and various European countries were in total lockdown. Since transactions were affected, the money to pay for the rent could not be transferred to Uganda from Lithuania. In March 2020, the Government of Uganda also imposed a lockdown of the economy forcing the Defendant to be out of business for more than 6 months. - The Defendant maintains that upon realizing that the funds to pay the rent $5.$ could not be remitted and that there was no business at the time, it informed the Plaintiff that it was not able to take up the premises. In the same communication, the Defendant advised the Plaintiff to re-enter the property since it was clear that the rent could not be paid and the contract had been frustrated. Despite this communication, the Plaintiff continued to charge rent when he was aware that the Defendant neither occupied nor utilized the premises in any way. That the Plaintiff failed to mitigate its loss by reentering the property and putting it on the market.

# **Issue arising**

- At the scheduling conference, the parties framed and agreed to the following 6. issues for the Court's determination: - 1. Whether the Defendant breached the tenancy contract. - 2. Whether the Defendant terminated the tenancy contract. - 3. Whether the Plaintiff is entitled to recover the rent arrears of USD 66,000 as claimed. - 4. What reliefs are available to the parties.

# **Representation and hearing**

At the hearing, the Plaintiff was represented by Mr. Fred Byamukama of M/S $7.$ MACB Advocates while the Defendant was represented by Mr. Moses Wacha

who was holding brief for Mr. Gilbert Nuwagaba, of M/S KGN Advocates. The Plaintiff (PW1) testified in support of his case and adduced 5 documents which were exhibited consecutively as P. Ex.1 – P. Ex.5. The Defendant neither adduced any witness testimony nor document to support its case.

- In his testimony, the Plaintiff told the Court that on 5th February 2020, he 8. entered into a three-year tenancy agreement with the Defendant through which he rented out his property comprised in LRV 2486 Folio 5, Plot 6B, Mabua Road, Kampala of approximately 400 square meters at Rashida Towers, 3rd floor and 8 parking slots in the Rashida Towers parking area. He duly handed over the keys to the rented premises to the Defendant who subsequently took effective possession and started partitioning and putting their materials on the premises. - 9. The Plaintiff told the Court that the agreed monthly rent payable was USD 6,000 inclusive of VAT. It was to be paid 6 months in advance initially and thereafter, quarterly. A default interest of 5% per month was also agreed. Despite occupying the premises, the Defendant failed or refused to pay USD 66,000 being rent arrears and the accrued default interest for 11 months. The Defendant purported to terminate the tenancy on 31st March 2020 but it has continued holding over the premises to date by not removing its property from there. Despite various demands, the Defendant has failed of refused to pay the arrears which has caused substantial financial loss and inconvenience to the Plaintiff. - 10. Finally, the Plaintiff clarified that he reentered the premises in June 2023 after the filing of this suit. After the hearing, both counsel filed written submissions to argue their respective cases. I have fully considered those submissions, the laws and authorities cited there in and all the other materials on the record.

# **Resolution of Issues**

$11.$ Section 101(1) of the Evidence Act provides that whoever desires a court to give judgment as to any legal right or liability dependent on the existence of facts which he or she asserts must prove that those facts exist. Additionally,

Section 103 of the Evidence Act provides that the burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence. In civil cases, the burden is on the plaintiff to prove the existence of his rights and the liability of the defendant on a balance of probabilities (See Miller V Minister of Pensions [1947]2 All ER 372). I will be guided by these principles on burden and standard of proof in evaluating the evidence adduced in this case.

Issue 1: Whether the Defendant breached the tenancy contract.

- It is trite law that once a contract is valid, it automatically creates reciprocal 12. rights and obligations for the parties to it. Those obligations ought to be performed to the letter. When a party fails to perform the contract as agreed, that party is said to be in breach of the contract. Accordingly, breach of contract will occur when one party to that contract fails, neglects or refuses to perform the contract, without a legal excuse. (See William Kasozi V DFCU Bank Ltd, HCCS No. 1326 of 2000.) If breach of contract occurs, the innocent party is entitled to relief. (See Kabagambe Matthias V Kahire Nobert, HCCS No. 389 of 2016.) - 13. In the instant case the Plaintiff and the Defendant entered into a tenancy agreement (P. Ex.1) which satisfies all the requirements of a valid contract in law as set out in Section 10(1) of the Contracts Act, 2010. In that agreement, the Plaintiff rented out the third floor (measuring approximately 400 square meters) and eight parking slots at his Rashida Towers situate on the land comprised in LRV 2486 Folio 5 Plot 6B Mabua Road, Kampala to the Defendant in exchange for monthly rent of USD 6,000. The rent was to be paid in advance into the Plaintiff's bank account. The 1st advance was supposed to be 6 months' rent. Thereafter, the Defendant was supposed to pay the rent in quarterly advances. The tenancy was to run for a renewable period of 3 years. - The Plaintiff's claim is that the Defendant did not pay the rent as agreed after $14.$ occupying the premises. P. Ex.2 is a letter confirming that the Defendant received the keys to the premises from the Plaintiff on 5th March 2020. In his

testimony, the Plaintiff told the Court that the Defendant took possession of the premises and started partitioning the office space. P. Ex.3 is also a letter dated 10th March 2020 confirming that the Plaintiff sent invoices for the 1st rent advance, maintenance costs and the security deposit to the Defendant. There is no evidence that the Defendant ever paid the rent as it fell due. What remains to be settled is whether or not the Defendant had a legitimate justification for its failure to pay.

- P. Ex.5 contains an email from the Defendant to the Plaintiff and the 15. Plaintiff's reply thereto. It shows that, on 31st March 2020, the Defendant's Chief Executive Officer emailed the Plaintiff telling him that the Defendant would not be able to "take up" the premises due to the coronavirus pandemic. It also proves that the Plaintiff replied saying that the provisions of the tenancy agreement on termination of the tenancy would be followed and that the Plaintiff was entitled to a three months' notice before termination. He averred that, accordingly, the rent due from the Defendant was to be four months' rent. - It appears to me that although tenancy agreement was signed on 5th 16. February 2020, the Defendant entered possession of the rented premises one month later on 5th March 2020. By 31st March 2020 when its CEO wrote the email in P. Ex.5, the Defendant had already "taken up" possession of the premises and started partitioning the office space. This would explain why the Plaintiff demanded for 4 months' rent, i.e. the rent for March 2020 plus 3 months' rent in lieu of the notice of termination. - It is also evident from the Plaintiff's testimony in cross examination that, 17. although the Defendant sent the said 31st March 2020 email, the Defendant never handed over the keys to the premises to the Plaintiff to this day. Indeed, the Defendant did not adduce any evidence proving that it formally returned the premises to the Plaintiff in the agreed manner. This implies that, even though there was a notice terminating the tenancy, the Defendant did not follow up that notice with any action to actualise the end of the tenancy. Until June 2023 when the Plaintiff broke the locks and forcefully re-

entered the premises, the premises remained locked with the Defendant's property inside. Between April 2020 and June 2023, the Defendant had locked the Plaintiff out of his premises.

- In my considered opinion, the omission or failure by the Defendant to hand 18. back the keys to the Plaintiff was inconsistent with the said communication of 31st March 2020 in which the Defendant stated that it would not be able to take up the premises. A tenant who is unable to continue with a tenancy would be expected to take his or her property out of the rented premises and return possession of the same to his or her landlord. It is bizarre for a tenant who says he or she is done with the tenancy to omit or fail to remove his or her property from the premises and to hand back the keys to the landlord. Such conduct would either imply that that tenant was not serious about leaving in the first place or that he left property in the premises and retained the keys for some ulterior mala fide purpose. - Clause $6(d)$ of the tenancy agreement anticipated that at the end of the 19. tenancy, whether due to lapse of time, termination or otherwise, the Defendant was supposed to vacate and yield the premises up to the Plaintiff by, inter alia, returning the keys. The Defendant's omission to return the keys and formally vacate and yield the premises back to the Plaintiff, even after the 31st March email, evidently contravened this provision. - It should be clarified that the Plaintiff's demand for 3 months' rent in lieu of 20. the notice of termination was misconceived. While Clause 8(g) of the tenancy agreement stipulates that the termination of the tenancy by either party ought to be preceded by a 3 months' written notice of termination, it is not clear what the repercussions of non-compliance would be. If the parties had intended that breach of the notice requirement was punishable with payment in lieu of the notice, they would and should have said so expressly in the tenancy agreement. In this sense, the failure to give the due notice only means that the Defendant breached the term of the contract on termination. - In its written statement of defence, the Defendant also claimed that the 21. tenancy agreement was frustrated by the lockdown put in place to combat the Coronavirus pandemic. Frustration is a form of discharge of a contract in where contractual obligations are discharged due to the occurrence of an unforeseen supervening event/factor which renders any further contractual performance impossible. The frustrating factor must not be the fault of any of the parties but it must render further performance completely impossible and not merely cumbersome. (See Tsakiroglou & Co. Ltd V Noblee Thorl GmbH [1962] AC 93.) - To prove frustration, the Defendant ought to have adduced evidence proving 22. how the lockdown implemented by the Government of Uganda to combat the coronavirus pandemic affected its ability to continue with the tenancy. It would thus have proved that the lockdown rendered further performance of the tenancy contract impossible. It should be recalled that the duration of the tenancy was 3 years yet the lockdown was temporary and was eased from time to time. - $23.$ Every case, therefore, is to be judged on its own facts and the Court cannot presume that the lockdown effectively frustrated all commercial contracts. A party raising the frustration argument is still bound to adduce evidence to prove that, in view of the unique facts of his case, the lockdown made further performance of the contract impossible and not merely cumbersome. The Defendant did not adduce any single witness or document proving that the tenancy contract was frustrated. Accordingly, the Defendant's claim that the tenancy was frustrated shall be disregarded. - In the end, I find that the Defendant breached the tenancy contract when it 24. terminated the contract without giving 3 months' notice of termination to the Plaintiff. The Defendant also breached the tenancy agreement when it failed to remove its property from the premises and to hand back the keys to the premises to the Plaintiff on or before 31st March 2020.

# Issue 2: Whether the Defendant terminated the tenancy contract.

- Following my findings in Issue 1 above, I find that the Defendant terminated 25. the tenancy contract on 31st March 2020 but he did so in a manner that was not compliant with the agreed prerequisites for termination in the contract. The Defendant terminated the tenancy contract without giving due notice to the Plaintiff and without formally yielding the premises to the Plaintiff and handing back to him the keys. - However, the Plaintiff's argument that the tenancy continued after 31st 26. March 2020, owing to the Defendant's failure to yield the premises back to him as agreed, is not correct. The Defendant's CEO unequivocally communicated its inability to continue with the tenancy on 31st March 2020. The Defendant did not return to the premises again to do business there. The Plaintiff acknowledged in his testimony that the premises were "abandoned" by the Defendant after 31st March 2020. - These facts imply that the Defendant did not actually utilise the premises for 27. its offices as had been initially anticipated. In those circumstances, it cannot be said that the tenancy continued when the premises had evidently been abandoned by the tenant. The only logical conclusion that can be drawn from these facts is that the tenancy was terminated but this was done in a manner that was not anticipated in the contract.

# Issue 3. Whether the Plaintiff is entitled to recover the rent arrears of USD 66,000 as claimed.

- 28. In view of the findings in Issues 1 and 2 above, I find that since the tenancy contract was effectively terminated on 31st March 2020, the Plaintiff is not entitled to the claimed rent arrears of USD 66,000. The Plaintiff is only entitled to the rent for March 2020 with interest thereon. - 29. Although the Plaintiff testified that he was only able to re-enter the premises in June 2023, I have not found any legal justification for his delayed re-entry. In cross examination, he reasoned that he did not take back the premises earlier because he had been advised that this had to be preceded by a court order permitting him to do so. It is not clear why he did not follow that advice much earlier to take back the premises and put them on market again.

- While I understand why the Plaintiff feels entitled to rent for the extra 30. months that he did not have access to the premises after 31st March 2020, I am not convinced that he was justified to simply sit back and wait for the Defendant to return and formally hand over the premises. The Plaintiff could have obtained leave of court to re-enter the premises soon after the Defendant communicated its unwillingness to continue with the tenancy. He did not have to wait for 3 years to break the locks on the premises yet legal recourse to court for an order of re-entry was available. - 31. In conclusion, the Plaintiff is entitled to no more rent than that incurred by the Defendant during March 2020 when it had taken up the premises, plus the accrued interest thereon. The Defendant's omission or failure to yield the premises back to the Plaintiff in the agreed manner can only attract compensation in the form of general damages, but it does not entitle the Plaintiff to rent for the period between April 2020 and the date of filing the suit because the tenancy did not continue into that period.

#### Issue 4: What reliefs are available to the parties.

The Plaintiff prayed for the following reliefs which I will now traverse.

#### Declaration

32. Following all the above findings, the Court shall issue a declaration to the effect that the Defendant breached the tenancy contract.

#### Special damages (rent arrears)

The Plaintiff is entitled to rent for March 2020 (USD 6,000). He is also entitled 33. to interest thereon from the date of default in payment until payment in full. The only complication that has arisen is that the contractual default interest rate of 5% per month, which would culminate into 60% per year, appears to be too harsh and punitive to be enforced. Section 26(1) of the Civil **Procedure Act Cap 71** provides that:

> "Where an agreement for the payment of interest is sought to be enforced, and the court is of the opinion that the rate agreed to be

paid is harsh and unconscionable and ought not to be enforced by legal process, the court may give judgment for the payment of interest at such rate as it think just." Emphasis mine.

34. In my considered opinion, an interest rate of 60% per annum on rent arrears is harsh and unconscionable, and ought not to be enforced by legal process. This necessitates the Court to revise the interest rate applicable to the rent arrears so that the ends of justice are not defeated. The rate is revised in paragraph 40 below.

#### **Eviction order**

In cross examination, the Plaintiff revealed that he has since re-entered the 35. premises. Therefore, his prayer for an eviction order against the Defendant has been overtaken by events and will not be allowed.

### **General damages**

- General damages refer to the losses which flow naturally from a defendant's 36. breach. They are what the law presumes to be the direct, natural or probable result of a defendant's breach (see Opia Moses v Chukia Lumago Roselyn & 5 Ors, HCCS No. 0022 of 2013). They are also said to be the immediate, direct and proximate result, or the necessary result, of the wrong complained of. - The evidence adduced by the Plaintiff the trial proved that the Defendant 37. terminated the tenancy contract without giving the Plaintiff advance notice of 3 months as the parties had agreed. The Defendant then went away and abandoned the premises without giving back the keys to the Plaintiff. The Plaintiff was eventually forced to break the locks of his own building in order to gain access. The Defendant also left its property in the premises contrary to the agreement which required the Defendant to leave the premises the way it found them. - The natural and probable result of this conduct is that it caused financial loss 38. to the Plaintiff who could not rent out the premises to another tenant for many months, inconvenience, emotional agony and mental anguish. I have also considered the Plaintiff's failure to seek court intervention earlier to re-

enter the premises which would have mitigated the damage. Accordingly, I will award general damages of UGX 25,000,000 to the Plaintiff.

#### **Interest**

- Section 26(2) of the Civil Procedure Act Cap 71 gives the Court the power to 39. award interest on damages awarded in a suit. Ordinarily, a successful plaintiff is entitled to interest at a rate which would not neglect the prevailing economic value of money but which would also insulate him or her against further economic vagaries, like inflation and depreciation of the currency, in the event that the money ordered to be recovered is not paid promptly when it falls due. (See Mohanlal Kakubhai Radia V Warid Telecom Uganda Ltd, HCCS No. 0224 of 2011.) - In view of these principles, the Court hereby awards interest to the Plaintiff 40. on the rent arrears at the rate of 18% per annum from 1st April 2020 until full payment. Interest is awarded on the general damages at the rate of 13% per annum from the date of judgment until full payment.

#### Costs

Section 27(1) of the Civil Procedure Act Cap 71 gives this Court the discretion 41. to award the costs in a suit before it. The general rule is that costs follow the event. This means that an award of costs will generally flow with the result of litigation and that a successful party is entitled to costs, unless the Court, for good reason, orders otherwise (See Kwizera Eddie V Attorney General, Supreme Court Constitutional Appeal No. 01 of 2008). I have not found any reason to deny the Plaintiff in this case the costs of the suit. I, accordingly, award the costs of the suit to the Plaintiff.

## **Reliefs**

- Consequently, judgment is hereby entered in favour of the Plaintiff against 42. the Defendant on the following terms: - It is hereby declared that the Defendant breached the tenancy contract. i.

- The Defendant shall pay special damages of USD 6,000 plus interest ii. thereon at the rate of 18% per annum from 1st April 2020 until full payment. - The Defendant shall pay general damages of UGX 25,000,000 plus interest iii. thereon at the rate of 13% per annum from the date of judgment until full payment. - Costs of the suit are awarded to the Plaintiff. iv.

Palite adenter

Patricia Mutesi **JUDGE** $(28/06/2024)$