Batchi and Saatchi Limited v MTN Uganda Limited (Commercial Case No. HCT -00 - CC - CS - 15 - 2013) [2016] UGCommC 289 (13 May 2016)

Full Case Text

## THE REPUBLIC OF UGANDA

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

HCT - 00 - CC - CS - 15 - 2013

# GQ SAATCHI & SAATCHI LTD::::::::::::::::::::::::::::::::::::

#### **VERSUS**

MTN(U) LIMITED::::::::::::::::::::::::::::::::::::

# BEFORE: THE HON. JUSTICE DAVID WANGUTUSI

### $JUDGMENT:$

The Plaintiff brought this suit against the Defendant, MTN (U) Ltd, in which they seek Ugx 1,018,363,271/=, US\$19,559.39, general damages, interest and costs which the Plaintiff contends arise from breach of contract.

-The facts giving rise to this suit are that the Plaintiff and Defendant $5$ executed an advertising services agreement dated 1st June 2009 in which the Plaintiff undertook to promote the Defendant's interests and make it's advertising successful. The agreement was to commence on 1st March 2009 and run for a period of two years. The Plaintiff contended that the agreement was terminated without notice which was in breach of the 10 provisions of the contract. Further, that when they demanded for payment of six months in lieu of notice, 3% agency commission, together with sums payable to third parties, the Defendants declined to pay the

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•••u.'. S®11?6 and instead offered Ugx 58,935,530/= and US\$19,559 which was less in form of payment. Aggrieved by this, the Plaintiff brought this suit. /'•'J7 .^he Defendants denied liability by asserting that during the term of the contract, the Plaintiff was paid all the fees due to them, that notice of six months was only a requirement if the contract was to be terminated by *0>* effluxion of time which was not the case with the Plaintiff and that there . was no legal basis for the claims for media commission and accumulated *-* arrears due to third parties.

Further, that the contract was terminated lawfully and that the Plaintiff ...is not entitled to the reliefs claimed.

The parties agreed on the following issues to be determined by this court: 10

1. Whether the Defendant breached the terms of the advertising agreement?

2. Whether the plaintiff is entitled to the reliefs sought; namely;

- (a) 6 months payment in lieu of notice Shs 559,498,887/= - (b) 3% agency commission Shs 448,864,384/ = - (c) Payments to third partiesUSDS 19,559.39/= - 3. Remedies, if any.

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With regard to the first issue, the Plaintiff and the Defendant executed an advertising services agreement on 1st June 2009; Exhibit Pl. According to Clause 3.1, the contract commenced on 1st march 2009 and was to run for a period of two years, unless terminated by the provisions *30* therein.

Clause 3-2 provided that in the event of termination of the agreement by effluxion of time, the Defendant was to give the Plaintiff six months' notice in writing. Clause 3.3 further provided that in the event of breach

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-°f-the.agreement by either party, the aggrieved party was to be entitled to give three months' notice. Clause 15.1.4 also provided that the Plaintiff was not to provide services of any kind to a direct or indirect competitor of the Defendant in the telecommunications industry in Uganda within one year of terminating the agreement. The six months' notice envisioned in Clause 3.2 above was to be taken into account when computing the one year restraint period.

According to Clause 15.1.5, in the event of termination by either party for breach, only three months'notice period for termination by breach would be taken into account when computing the restraint period.

*10* This advertising agreement was to expire on 28th February 2011andon 4th March 2011, the parties executed an addendum to the agreement extending its application for one month effective 1st March 2011; Exhibit P2.

However, on 31st January 2011, the Defendant wrote to Jupiter Company and the Plaintiff regarding theirjoint tender bid for advertising services; Exhibit D2. The letter read:

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*"The MTN Uganda tender committee has evaluated and taken a decision regarding the award of advertising services tender, which was initiated during September 2010.*

*It is with much regret that I have to inform you that your tender submission has not been successful. "*

*20* the *It is on* the basis of this communication that the Defendant terminated contract between the parties. PW1 testified that the contract had been terminated by effluxion of time under Clause 3.2 and that the Defendant had done so without the prerequisite notice of six months,

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which amounted to a breach of the terms therein. He stated that the notice of six months was to be given before the expiry of the contract which was September 2010 and that because such notice was not given, the Plaintiff assumed they were required to continue holding on to the non-compete clause and keep serving the Defendant.

JDW1 testified that the contract was terminated by effluxion of time under ^jansg-^Xas it had run its course. He stated that notice of termination was given to the Plaintiff but that it was not in writing. He further stated that the notice took the form of an invitation to participate in a tender and that the Plaintiff indeed participated and was later informed that *I 0* their bid was not successful.

He testified that the purpose of a notice is to bring something to the attention of the other party and that the letter of 31st January 2011; Exhibit D2 effectively conveyed the information that the Plaintiffs bid had been unsuccessful from which the Plaintiff would have learnt that the contract was not going to be renewed once it lapsed.

At this point, it is important to determine under what clause the contract was terminated. It was the consistent testimony of both parties that the =A,.- contract was terminated by effluxion of time.

*2\$ "Effluxion of time"* is defined in Black's Law Dictionary 8th Edition Pg 577 as the expiration of a lease term resulting from the passage of time rather than from a specific action or event. Therefore the contract; Exhibit Pl was terminated based on the passage of time.

DW1 insisted that the contract was terminated under Clause Clause 3.1 merely provides for the However 3 1 I respectfully disagree since duration of the contract. It reads:

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*Notwithstanding its date of signature, this agreement shall commence on the 1st day of March 2009, and shall continue for a period of two years, unless terminated in accordance with the provisions ofthis agreement.''*

*5* The clauses therefore pertaining to termination are clause 3.2 and 3.3, which provide:

Clause 3.2 *"In the event of termination of this agreement by effluxion of time, the Client shall give the Agency six months' notice in writing"*

Clause 3.3 *"In the event of termination of this agreement for breach by either party, the aggrieved party shall be entitled to give three months' notice"*

*}0* In the instant case therefore, since there has been no evidence as to breaches perpetuated by either party as would lead to termination of the agreement, the applicable clause then for termination was by effluxion of time under Clause 3.2 which obligated the Defendant to give the Plaintiff notice of six months in writing. - *.*

The requirement in the agreement for termination to be notified in writing meant that the written document had to be communicated to the Plaintiff; **Holwell Securities Ltd V Hughes [1974] 1 All ER 160.** The Plaintiff's address where such notices were to be delivered was provided in the agreement under Clause 17.1.2. The letter DW1 seeks to rely on did not amount to a notice in writing as anticipated under Clause 3.2 because it specifically stated in its title that it was regarding a *"Request for tender no UG/MKT/RFP0036/ 10-K: Advertising Services.".* Its content is also specific in its notification that the Plaintiff had been unsuccessful . tender bid. It says nothing about terminating the original in Li-Lcii

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agreement between the two parties. For DW1 to assume that the Plaintiff ought to have construed this communication as a notice of termination of their contract is quite farfetched.

Counsel for the Defendant submitted that Clause 3.2 was a superfluous clause and that the use of the word *"shalV'would.* only be deemed mandatory where there were repercussions for non-performance which was not the position in the instant case. Counsel relied on **Sitenda Sebalu V Sam Njuba &Another Supreme Court Election Petition Appeal No 26 of 2007** in support of this position.

*I 5* However the Supreme Court position regarding the interpretation of *I @ "shall!'* in that case is distinguishable from the instant case. The **Sitenda** case regarded the interpretation of a legislative provision that included the word *"shall".* TheSupreme Court foundthat where the Act did not provide for the consequences of failure to comply with the provision, it was for 5the court, therefore, to determine if the legislature intended the provision to be mandatory or directory.

*ao* The instant case pertains to contract interpretation. The primary consideration in interpreting a contract is to attempt tofulfill, to the extent possible, the reasonable shared expectations of theparties at the time they contracted; considering the intention of the parties as expressed in the unequivocal language they have employed; **Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-13.**

A contract is therefore unambiguous, by its plain terms> incontroversy are reasonably susceptible to only one meaning; **Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 NZLR 189**

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That said, in analyzing contractual text, a court need not turn a blindeye to context Rather, a court should accord contractual language its plain meaning giving due consideration to intention the parties sought to accomplish; **Chartbrook V Persimmon Homes [2009] 1 AC 1101**

A construction of acontract that would give one party an unfairadvantage over the other, or place one party at the mercy ofthe other, should, if at ah possible, be avoided. A contract should also not be interpreted to produce a result that isabsurd, commercially unreasonable or contrary to the reasonableexpectations of the parties; **Rainy Sky S. A V Kookmin Bank [2011] 1 WLR 2900**

*10* In the instant case, the Defendant had incorporated a non-compete clauseunder Clause 15.1.5 in the contract therefore the Plaintiff's hands would be tied professionally and they would not deal with similar clients as the Defendantuntil such notice of termination was effectively conveyed. In these circumstances, to construe the meaning of *"shall"* in Clause 3.2 of.the contract as directory, like the Defendant would like this I 5 court to : believe, is commercially unreasonable. Considering the authorities illustrated above, it is my finding that Clause 3.2 requiring written notice was a mandatory provision which was accordingly breached by the Defendant when theydid not send the Plaintiff a notice in writing six months before the agreement between the two parties was *^0* terminated by effluxion or passage of time.

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to the second issue, the Plaintiff is seeking three reliefs as Turning follows:

(a) **6 months payment in lieu of notice of Shs 559,498,887/** =

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**5** PW1 testified thatthe particular provision regarding payment in lieu of notice was not in the contract but that during contract negotiations, after being informed by the Defendant that the Plaintiff would beRequired not to work for anybody else for 12 months after termination of the contract; the Plaintiff subsequently informed the Defendant that they had a number of staff on their payrol\_l\_s,o\_they—neede.d\_six\_months' notice in advance so as to extinguish\_jtheinobli-gat-iQns.

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PW2 testified that the Plaintiff wrote to the Defendant demanding this outstanding payment after termination of the contract without notice but the Defendant only offered to pay for 3 months in lieu of notice instead of six months, which offer was rejected by the Plaintiff. Counsel for the Plaintiff submitted that contracts are generally ended either by giving notice or making a payment in lieu of notice. In this he relied on **Bank of Uganda V Betty Tinkamanyire SCCA 12/2007 and Barclays Bank V Godfrey Mubiru SCCA 1/1998.** ;

DW1 testified that there was no such contractual provision\_fom.p.ayme.nt in lieu of notice and that the same should not be.imphg.d- Counsel for the Defendant relied on an earlier decision of this court in **James Sebagala V China Place (U) Ltd HCMA 152/2015** to the effect that people who freely negotiate a contract should be held to their bargain and that 5 <3 courts should not be seen to intervene by substituting terms contrary to those the parties have agreed to by themselves.

While it is true that the contract did not specifically provide for payment in lieu of notice, the Plaintiff did write to the Defendant on 21st October 2011 in regard of the same; Exhibit P3. The letter read in part: X *5*

*<cTo recap, the salient areas of contention remain asfollows:*

![](_page_7_Picture_5.jpeg) The Agency claims it should be paid for six months in lieu of notice as per contract. MTN on the other hand has verbally proposed a three month settlement of the same. No conclusion has been reached."

The letter went on to claim $Ugx 560,183,883/$ as settlement in lieu of Notice of six months. On 4th November 2011, the Chief Marketing Officer $5$ $=$ of the Defendant responded with a summary of the status of the Plaintiff's outstanding amounts after reconciliation; Exhibit P4. The letter. provided that, in the Defendant's view, the settlement in lieu of notice due-to-the Plaintiff was for three months amounting to Ugx $292,416,003$ = instead of six months. It stated in part: ı0

## "CLAIMS CONCLUSION

Reference is made to your letter dated 21 October 2011 regarding outstanding claims by GQ Saatchi and Saatchi.

The purpose of this letter therefore is to give you a summary of the status of Saatchi Outstanding amounts from *MTN* point of view after reconciliation which is as per attached reconciliation.

Since both parties agreed that MTN settles some suppliers directly and offset against what is due to Saatchi, we will therefore use the balance owed to settle some outstanding claims upon confirmation from your accounts team."

DW1, who was copied into the letter, testified that he advised the 20 Defendant that there was no payment obligation in terms of the notice and that's why the Defendant subsequently never paid. He testified that the author of the letter, the Chief Marketing Officer, wrote it in his capacity as an employee of the Defendant but that the Chief Executive Officer is the only person who had binding authority over decisions of the 25

Defendant. He however conceded that the letter extending the offer was never'rescinded. DW2 also testified that the Plaintiff operated only one account with the Plaintiff based on the advertising services contract; Exhibit Pl and that the offer was in relation to this account.

*6 lO* The Defendants' witnesses both failed to effectively challenge the authenticity of Exhibit D2, a document the Plaintiff relied on to refuse the Defendant's offer and opt for litigation in order to recover the amounts claimed. It is my opinion therefore that since the Defendant recognized the concept of payment in lieu of notice and that's why they counter offered with payment in lieu of notice for 3 months instead of six months, they are therefore bound by their own document. Having found earlier that the Plaintiff was entitled to written notice of six months which notice was not given, the court hereby finds that the Defendant is liable to pay Ugx 559,498,887/= in lieu of notice of six months to the Plaintiff.

## (b) 3% agency commission of Shs 448,864,384/ = *16*

PW1 testified that the Plaintiff's status was one of a principal at law when dealing with third parties. Further that the Plaintiff had negotiated an 18% agency commission which the Defendant was aware of and that the 18% was passed on to the Defendant who was to retain 15% as agreed in the contract and remit 3% to the Plaintiff. PW1 testified that the practice of agency commission was one both parties had carried out throughout their business relationship; in this he relied on a past contract Exhibit Pl6 and past receipts issued by the Defendant to the Plaintiff found in Exhibit Pl4.

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PW2 also testified that throughout the entire contractual period that run from 2009, the Defendant had not paid any money in respect of the 3% agency commission and that the Defendant had retained the entire 18% instead of the 15% accorded to them by the contract.

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**5** *tO* Contesting this claim, DW1 testified that the Plaintiff was only entitled to remuneration and cost re-imbursements as provided for in Schedule 3 and 4 of the agreement and that these schedules did not provide for remuneration of 3% commissions to the Plaintiff. He stated that under Item 4 of Schedule 4, the Plaintiff was supposed to invoice the Defendant for media space and time less 15% agency commissions and that this clause did not entitle the Plaintiff to any further commissions as alleged. He further testified that under the agreement, the Plaintiff was mandated to negotiate discounts from the various media houses and all discounts obtained were to be applied to the benefit of the Defendant,

**/5** *ZO* The difference between *"discount'* and *"commission"* is seen in Black's Law Dictionary 8th Edition on Page 286which defines *"commission"* as a fee paid to an agent or an employee for a particular transaction while *"discount'* is a reduction from the full amount or value of something usually a price. This difference is made clearer by the New Oxford Dictionary of English Page 369 which defines a commission as a sum, typically a set percentage of the value involved, paid to an agent in a commercial transaction.

Schedule 3 of the contract' Exhibit Pl provided for remuneration and charges. Under Clause 4 it read:

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POyfiir-- ■' "Fhe *Agency will invoice the Clientfor media space and time at gross rates contracted with the media, less agency commissions at. 15% and gross media rates inclusive of VAT'*

*!£>* From the evidence on record, the Plaintiff would negotiate 18% commission and the Defendants would take 15% in accordance with Clause 4 of Schedule 3 of the agreement. 3% of the commission would go **•i** to the Plaintiff. This relationship can be discerned from the past receipts wherein an 18% agency commission would be raised and 15% would be retained by the Defendant as provided for in Exhibit Pl Clause 4. This clause was reserved in the instant contract Exhibit Pl from which the Plaintiff testified that since its commencement, the Defendant had not remitted their 3% commission.

There is nowhere in the new agreement or the old where the Defendant tells the Plaintiff that the commission had stopped or that the Defendant's share has changed from 15% to 18%..

There being no communication from the Defendant retracting this commission that had been a practice, I find no reason to support the Defendant's assertion that the entire 18% was to be retained by them. In my view, their past relationship receiving no new agreement to change it, persisted upto the time the contract Exhibit Pl was terminated. I find the Plaintiffs claim for 3% commission justified in the circumstances. The Plaintiffs prayed for Shs 448,864,384/= which they claimed constituted 3% commission. This sum has not been disputed and is therefore awarded as prayed.

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This was a sum admitted by DW1 who's only contention with it was that the Plaintiff had not raised an invoice to claim it as was a requirement according to Clause 8 Schedule 4 of the contract Exhibit P1. Having admitted the indebtedness, I find no reason to deny the Plaintiff the award simply because they have not raised an invoice based on a terminated contract. The Plaintiff is therefore awarded USD\$19,559.39 as payment due to third parties.

The Plaintiff prayed for general damages arising from breach of contract. The settled position is that an award of general damages is in the discretion of court, and is always as the law will presume to be the natural and probable consequence of the defendant's act or omission; James Fredrick Nsubuga v. Attorney General, H. C. C. S No. 13 of 1993 ErukanaKuwev. Isaac Patrick Matovu&A'nor H. C. C. S. No. 177 of 2003

A Plaintiff who suffers damage due to the wrongful act of the defendant must be put in the position he or she would have been in had she or he not suffered the wrong and when assessing the quantum of damages, courts are mainly guided by the value of the subject matter, the economic inconvenience that a party may have been put through and the nature and extent of the breach; Kibimba Rice Ltd. v. Umar Salim. S. C. C. A.17/92; Uganda Commercial Bank V Kigozi [2002] 1 EA 305 20

In the instant case, it has been found that the Defendants committed breaches by not remitting payments to the plaintiff in accordance with the provisions in the agreement. In showing what financial distress these breaches had occasioned, PW1 testified that under immense pressure and in order to meet unplanned costs and liabilities arising from the Defendant's non payments, the Plaintiff had to sell its head office

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property urgently at low market ratesto bridge their financial gap and that in doing so, the Plaintiff lost the opportunity to recover a fair price from the property.

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Counsel for the Plaintiff submitted that general- damages be awarded at 30% of the total sums claimed which would amount to over Ugx 300,000,000/=. That the Plaintiff has suffered damage and needs to *£>* recover from the Defendant is without dispute. However, damages are, in their fundamental character, compensatory and not punishment and an award of over Ugx 300,000,000/= would in my view be punitive. Considering the circumstances of the case therefore, I would find an award of Ugx30,000,000/= sufficient.

The Plaintiff also prayed for interest on the sums claimed at 25% per annum from 28th February 2011 until payment in full. Interest is awarded at the discretion of court and the basis of this award is that a party has been kept out of the use of his money while the other has had use of it so the injured party ought to be compensated accordingly; *15* **Harbutt'sPlasticine Ltd V Wyne Tank** & **Pump Co. Ltd [1970] 1 Ch B 447** - ;

In the instant case, from the evidence on record, it is without doubt that the Defendant has kept the Plaintiff out of the use of their money. There is sufficient evidence to show that the Defendant was obhgated to make certain payments to the Plaintiff under the advertising contract terms which the Defendant did not do and have kept the money since the termination of the contract in 2011, about 5 years ago. Therefore, an award of interest, fully considering the depreciating value of the Ugandan shilling would make good economic sense. Taking into account that the plaintiff has already, been awarded general damages, I would find an X-

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**1 J** interest rate of 25% relatively high and would instead find a rate of 20% appropriate. Therefore the Plaintiff is hereby awarded interest at 20% per annum on the special damages and interest at court rate on the general damages.

In conclusion judgment is entered in favour of the Plaintiff against the Defendant in the following terms:

- a) Recovery of Ugx 1,008,363,271/ $=$ being the sum total of the six months' payment in lieu of notice and 3% agency commission. - $\mathbf{b}$ ) Recovery of USD\$19,559.39 - $\cdot$ c) General damages of Ugx 30,000,000/ $=$ - $d$ ) Interest on a) and b) at 20% per annum from $28^{\text{th}}$ February 2011 until payment in full - $e)$ Interest on c) at court rate from date of judgment until payment in full

$\mathbf{f}$ Costs

David K. Wàngutusi

**JUDGE**

Date: .... $\frac{3}{5}$ /16

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