Lexington Properties Limited v Alliance Media Uganda Limited (Civil Suit 682 of 2021) [2025] UGCommC 3 (22 January 2025) | Contract Termination | Esheria

Lexington Properties Limited v Alliance Media Uganda Limited (Civil Suit 682 of 2021) [2025] UGCommC 3 (22 January 2025)

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# **IN THE HIGH COURT OF UGANDA SITTING AT KAMPALA COMMERCIAL DIVISION**

Reportable Civil Suit No. 0682 of 2021

In the matter between

### **LEXINGTON PROPERTIES LIMITED PLAINTIFF**

**And**

## **ALLIANCE MEDIA UGANDA LIMITED DEFENDANT**

**Heard: 16 May, 2024. Delivered: 22 January, 2025.**

*Landlord / tenant relations - termination of tenancy agreement - a notice of termination of a contract should clearly or explicitly state the decision to terminate the contract, and on what grounds, if any - holding over (the continued occupancy by the tenant of premises past the lease or agreement terms, with or without the consent of the landlord) may create a new tenancy, or it may be considered a trespass.*

*Contract Law - Frustration of a contract - whether or not the effects of Covid-19 restrictions on a contract constitute "frustration of purpose" will depend on the facts of each case frustration of purpose deals with the problems that arise when a change in circumstances makes one party's performance worthless to the other, frustrating his purpose in making the contract - frustration does not contemplate a mere pause in the performance of obligations.*

## **JUDGMENT**

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## **STEPHEN MUBIRU, J.**

#### The plaintiff's claim;

- [1] The plaintiff is the proprietor a one-stop upmarket shopping place known as "Acacia Mall" located at Plots 2-6, 8A-12A and 14-18 Cooper Road in the Kisementi area of Kololo, comprising a wide variety of modern shops; including fashion, cosmetics, cinema, banks and restaurants. The defendant is a private limited liability company dealing in the business of advertising and outdoor signage whose services include the provisions of iconic billboards, digital billboards, mall advertising, street furniture, billboard and airport advertising. By an agreement dated 15th February, 2020 the plaintiff licenced the defendant to use space comprising the escalator side facing the main road and wall screen space at the entrance of "Shoprite supermarket," for the purpose of running its business of advertising products and services of the defendant's customers. - [2] The licence was to run from 15th February, 2020 to 31st December, 2020. The defendant was to pay an initial license fee of US \$ 15,755.86 exclusive of VAT, payable quarterly in advance (hence US \$ 3,938.10 per quarter) and US \$ 5,310 per month for using the designated spaces. At all time, the defendant was to seek the plaintiff's prior approval of advertisement content to be displayed on the designated spaces. Each parry reserved the right to terminate the licence by giving to the other one month's notice of payment of one month's fee in lieu thereof. The plaintiff reserved the right to terminate the license in the event of the licence fee or any part of it remaining unpaid for twenty-one days after becoming payable, whether formally demanded or not, or upon breach of any of the covenants, terms and conditions of the lease. - [3] At the execution of the agreement, the defendant paid a sum of US \$ 4,116.64 as the first quarterly payment instalment out of an invoice of US \$ 6,225.51 for the period ending 31st May, 2020. Leaving an outstanding balance of US \$ 2,108.87 for that period. On 18th March, 2020 a nationwide lockdown was imposed in mitigation of the spread of Covid-19, that was only lifted on 2nd June, 2020, and its violation constituted a criminal offence under rule 17 of *The Public Health (Control*

*of COVID-19) Rules, 2020,* and rule 9 of *The Public Health (Control of COVID - 19) (No. 2) Rules, 2020*.

- [4] By reason of that Presidential Directives on Covid-19 which took effect on 18th March, 2020 a nationwide lockdown was imposed, initially for 32 days thereby suspending mass gathering, which restricted the movement of persons alongside 34 other restrictions, until 18th April 2020 which period was thereafter from time to time extended on multiple occasions, including pronouncements made on 30th March, 2020 of extension initially by an extra 14 days and eventually by an extra 21 days until 5th May, 2020. It is only on 4th May, 2020 when limited measures of opening-up in the first phase were announced that permitted travel for whole sellers, hardware shops, repair workshops (garages), metal and wood workshops, insurance providers, a quota of 30 lawyers at any one time to provide urgent legal services to the different businesses and to handle urgent criminal matters, restaurants could only be allowed to provide take-away services, and warehouses, but travelling only by; (i) buses (either owned or hired by the employer); (ii) cycling to the work place by bicycle; or (iii) walking to the work place. The ban on public and private passenger vehicles continued. - [5] It was during the pronouncements of 1st June, 2020 that members of the public were permitted to use private vehicles from 2nd June, 2020 so long as no more than three people were in the vehicle at one time. Following the issuance of face masks, public transport would be permitted to resume at half capacity from Saturday, 4th June, 2020 except in districts located along border crossings with South Sudan, the Democratic Republic of Congo, Kenya, and Tanzania. Shops, hotels, and restaurants were to resume operations from 26th May, 2020 in accordance with social distancing guidelines. Gyms, bars, and salons remained closed. Meanwhile, the nationwide curfew, remained in place from 19:00 to 06:30 through 8th June, 2020.

- [6] It is at the address of 20th September, 2020 that schools were re-opened for the candidate classes of P-7, S-4, S-6, finalists in tertiary colleges and finalists in universities (however this was later to change when it was announced that the schools would be opened in January, 2021 and the rest of the economy would be opened in the same month), the international airport and land borders were opened for tourists, coming in and going out, provided they tested negative 72 hours before arrival in Uganda and provided the tour operators ensured that the tourists did not mix with the Ugandans, restrictions on movements on border districts were lifted, places of worship were reopened with specified precautions, open air activities of sports were re-opened provided there were no spectators and the players were tested for Covid-19, 72 hours before, mass gatherings were still prohibited and so were mobile markets, monthly cattle auction and produce markets, bars, casinos, gaming centres and cinemas. - [7] It is on account of the Covid-19 lockdown that on or about 30th March, 2020 the defendant wrote to the plaintiff requesting the plaintiff to credit all its invoices starting 1st March, 2020 until its business recovered from the effects of the lockdown. In a reply dated 20th April, 2020 the plaintiff rejected the request. The plaintiff maintained its rejection even when the defendant brought up the same request at subsequent meetings. On 2nd December, 2020 the plaintiff reminded the defendant of the licence's expiry date of 31st December, 2020 by which date the amount due in fees would be US \$ 14,498.87. The defendant nevertheless did not take down its advertising material until 17th February, 2021 thereby incurring an additional fee of US \$ 2,844.64 to make a total of US \$ 17,343.51 whose recovery the plaintiff now seeks.

#### The defendant's counterclaim and defence to the claim.

[8] By its written statement of defence, the defendant denied liability for the claim. The defendant contends that performance of its obligations under the contract was frustrated by the Covid-19 global pandemic which prompted a nationwide lockdown that lasted several months. As a result of the pandemic, Coca Cola International terminated the advertising contract it had with the defendant. It is on that account that the defendant on 30th March, 2020 wrote to the plaintiff requesting the plaintiff to credit all its invoices starting 1st March, 2020 until its business recovered from the effects of the lockdown. The plaintiff rejected the request despite the fact that due to the Presidential directive, the mall had been closed. Inability to realise the objective of the licence occasioned the defendant's failure to meet its obligations. The plaintiff thereafter blocked the defendant's access to the premises until 17th February, 2021 when it was permitted to remove its advertising material. The defendant had since April, 2020 expressed its intention to vacate the premises, hence it is the plaintiff's intransigence that occasioned the accumulation of fees in arrears for which the defendant should not be held liable.

### The issues for determination;

- [9] By their joint scheduling memorandum, the parties agreed on the following issues for the Court's determination, namely; - 1. Whether there was effective termination of the license agreement between the parties. - 2. Whether the agreement between the parties was frustrated by the occurrence of the Covid-19 global pandemic. - 3. Whether the defendant is indebted to the plaintiff, and if so in what sum? - 4. What remedies are available to the parties?

### Submissions by counsel for the plaintiff;

[10] Counsel for the plaintiff submitted that clause 20 of the license agreement on termination states that the license agreement could be terminated by the licensee giving the licensor a written notice of one month in advance or one-month license fee in lieu of the same. The defendant's letter of 30th March, 2020 does not in any way communicate termination of the contract but rather is a request to stop the billing. A communication of inability to pay cannot be misconstrued as a termination. Therefore, the defendant never terminated the Licence Agreement. P. W.1 testified that throughout the period of the lockdown the mall remained open because it provided essential services. It therefore continued to be available to the public. Consequently, the defendant's advertising material continued to be displayed until it was pulled down on 17th February, 2021. The lockdown might have reduced the human traffic at the Mall but it did not prevent the adverts from running. The contract did not become "impossible or radically different", the mall remained open, the advertising space continued to be available to the Defendant throughout the contract period and the Defendant's adverts continued to run. The contract was therefore never frustrated. By a letter dated 6th January, 2021 the defendant admitted indebtedness in the sum of US \$ 14,498.87 in arrears up to 31st December, 2020 and made a promise to pay the 1st quarter invoice. The plaintiff should therefore be awarded the reliefs claimed.

#### Submissions by counsel for the defendant.

- [11] Counsel for the defendant submitted that once a contract is frustrated both parties are discharged from their obligations. Section 66 (1) of *The Contracts Act* 2010 stipulates that where a contract become impossible to perform or is frustrated and where a party cannot show that the other party assumed the risk of impossibility, the parties to the contract shall be discharged from further performance of the contract. According to *Revolutionary Ads and Design Limited v. Board of Trustees Nakivubo Stadium C. A. Civil Appeal No. 131 of 2013*, the frustrating circumstances must arise without fault of either part, that is, the event which a party relies upon as frustrating his contract must not be self-induced. Covid-19, its occurrence and the attendant restrictions it brought was no fault on either the plaintiff nor the defendant, neither was it self-induced by the defendant who now relics on it, for its discharge from any further obligations. - [12] Advertisements are intended for the people. Between March, 2020 and December, 2020, there was restriction on public gathering and it's a judicially noticed fact that

only essential workers were allowed to move, it begs the question whether the foundation of the contract which was to advertise products for Coca-Cola International Limited could still be achieved in the absence of people to sec these adverts. Both Alliance Media (U) Limited and Lexington properties Limited knew that the revenue to pay this rent was from advertising these products, which with the attendant restrictions could not be achieved as the clients were not getting the benefit and visibility that was intended. In *Krell v. Henry [1903] 2 KB 740* it was held that there is an implied condition that the parties should be excluded in case before breach, performance becomes impossible from the perishing of the thing that formed the foundation of the contract, without default of the contractor.

- [13] On 15th February, 2020, none of the parties could have foreseen or contemplated that Covid-19 would occur and that as a result of its occurrence there would be a ban on public gatherings and restriction on movement, the foundation of the contract being advertising, performance of the contract was prevented and thus both parties were discharged from future obligations of the licencing agreement. The Licencing agreement was deemed terminated upon the occurrence of Covid-19 and the lockdown measures that were imposed which restricted gathering and banned congregations, the foundation of the contract could no longer be achieved. - [14] In the absence of Covid-19 as an unforeseeable event that frustrated the contract, the plaintiff was only entitled to US \$ 11,659.22 and not US \$ 17, 343.51 as claimed. Upon occurrence of the frustrating event, in this case Covid-19, the obligation towards Alliance Media (U) Limited to pay rent for the premises and the obligation of Lexington properties to provide space to advertise, ceased and the contract was deemed terminated. Although *Taylor v. Caldwell [1861-1873] All ER Rep 24* is to the effect that the doctrine of frustration does not apply to leases/ tenancies as they contain an unconditional undertaking to pay rent, The Licencing agreement in the instant case involved sticker and branding materials which qualify as chattels. Thus under the principles of frustration neither the plaintiff nor the

defendant is entitled to any sums under the contract as both parties were discharged from their obligations.

[15] The Licence fees between 24th May, 2020 and February, 2021 are thus not due and any refunds as well are not due. Upon court being satisfied that the licencing agreement between the plaintiff and the defendant was frustrated from being performed, not because the business became unprofitable but solely upon occurrence of Covid-19 that led to a ban on public gatherings, and restriction of people movement, thus the foundation which was advertising could not be achieved, the suit should be dismissed with costs to the defendant

### The decision;

[16] In all civil litigation, the burden of proof requires the plaintiff, who is the claimant, to prove to court on a balance of probability, the plaintiff's entitlement to the relief being sought. The plaintiff must prove each element of its claim, or cause of action, in order to recover. In other words, the initial burden of proof is on the plaintiff to show the court why the defendant liable for the relief claimed. Generally, the plaintiff in the instant suit must show: (i) the existence of a contract and its essential terms; (ii) a breach of a duty imposed by the contract; and (iii) resultant damages.

# **First issue;** whether there was effective termination of the license agreement between the parties.

[17] Contract termination is the process of ending a contract before the obligations within it have been fulfilled by all parties. There are mainly five ways in which contracts terminate or can be terminated; by performance, by agreement, by repudiatory breach or another agreed standard of breach, by the express terms of the specific contract itself and by frustration. In the instant case, it is the defendant's case that it terminated the contract in accordance with the express provisions of the contract itself, when it wrote the letter dated 30th March, 2020 to the plaintiff. The letter stated as follows;

LEXINGTON PROPERTIES LIMITED F3-307 3R FLOOR ACACIA MALL KAMPALA

Re: Billboard Advertising

Dear Sir

As you are aware the Covid-19 pandemic has affected every one of us. There exists huge "business interruption" for all our clients due to new protocols of social distancing and restrictions on travel having been put in place. In many cases as the public at large are staying at home and advertising on billboards is not being seen.

Understandably, our clients have, this month, advised us that they will not be paying for any advertising during the period of reduced travel and business interruption, and until such stage as travel and business is back to normal. We have accepted this fair demand as the advertisers are no longer receiving the service or benefit of what they booked.

We therefore must inform you that, reciprocally, we too are unable to pay rentals for the period from 01 March 2020 until such stage as the situation has normalized. Please therefore credit all invoices from 01 March 2020 and hold off further invoices until such stage as we mutually agree that we are back to normality.

We regret that after all these years of a strong relationship, this unexpected world-wide disaster has occurred. This is, therefore, obviously not the position that we want to be in but have been forced into this situation which is beyond our control.

As our long-term partner, we trust that you will understand this extreme circumstance and our position. We look forward to a time when the pandemic situation has normalised. We hope that our clients will then be in the position to return to advertising. Please do not hesitate to contact the undersigned for further information.

Sincerely, Cliff Mbage Country Operation Manager

## [18] On the other hand, clause 20 of the Licencing Agreement in issue states as follows;

- 20. TERMINATION: The licensee may terminate this Agreement by giving the Licensor, in advance, a written notice of one month or onemonth license fee in lieu of the same. - [19] Typically, a notice of termination of a contract clearly or explicitly states the decision to terminate the contract, and on what grounds, if any. It is expected that a letter of termination of a contract directly states its purpose succinctly as such in the reference, or at least in its first paragraph, and also specifies the date it is intend to officially end the relationship. For the avoidance of doubt, it is prudent to make reference to the clause in the contract that has been invoked in issuing the notice. The date of termination should be unambiguous and should be compliant with the period of notice specified in the contract. If a party gives a termination notice which does not comply with the contract, it is usually the case that the notice will be ineffective and will not give rise to a lawful termination. - [20] Nowhere in the letter of 30th March, 2020 did the defendant clearly or explicitly state that it had taken the decision to terminate the contract. The defendant at most only sought a suspension of its obligation to pay the agreed licence fee, "until such stage as the situation has normalised." D. W.1 According to Mr. Cliff Mbagge, communication of inability to pay hence to stop billing, to the defendant was tantamount to a termination. In the erroneous belief that the letter had triggered a lawful termination, the defendant thereafter said and did things which evidenced an intention to no longer be bound by the contract. The erroneous notice itself is evidence such intention, with the result that the letter unwittingly amounted to an act of repudiation, amounting to a repudiatory breach which the plaintiff could have chosen to accept, thereby enabling it to treat the contract as terminated, but it did not. For all intents and purposes the defendant remained bound by the contract. This issue therefore is answered in the negative; there was no effective termination of the license agreement between the parties.

## **Second issue;** whether the agreement between the parties was frustrated by the occurrence of the Covid-19 global pandemic.

- [21] Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance (see *National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 at 700*). There are three critical elements in the consideration of whether or not an event has frustrated a contract; - (i) the event must arise without the fault or election of either party; (ii) there must be such a change in the significance of the obligation undertaken that "it would, if performed, be a different thing from that contracted for," something "radically different"; and (iii) the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. - [22] The doctrine of frustration excuses non-performance of a contract when performance is made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made, or where a party's performance under a contract is impossible due to unforeseen circumstances. In *Taylor v. Caldwell [1861-1873] All ER Rep 24*, it was held that where performance depended on the "continued existence of a given person or thing" and performance became impossible because of "the perishing of the person or thing" the contract was discharged. The extension made in *Krell v. Henry [1903] 2 KB 740* was to discharge a contract where the foundation of the contract was on "the assumption of the existence of a particular state of things," namely the happening of a particular event, the coronation procession (for which neither party was responsible).

- [23] As regards the effects of Covid-19 restrictions on a contract, there is no standard way to apply these doctrines, not only because performance obligations in each contract are different, but also because the specific reason that performance is impossible or impractical, or the purpose is frustrated, will differ in each situation. Non-performance may be brought about by, for example, absence of an available labour market, closure of public facilities, illness, closure of borders, cutting off of supply chains, quarantine, lockdowns, or health concerns associated with congregations of people. Each of these circumstances might be viewed differently by a court in assessing foreseeability, fault and allocation of risk. - [24] The radical difference depends upon what, on an objective basis, is thought to be the essence of the obligation. In essence the defendant pleads "frustration of purpose" in the sense that because of the supervening events of Covid-19 and its attendant restrictions, its contractual value for the plaintiff's counter-performance was substantially destroyed. Frustration of purpose deals with the problems that arise when a change in circumstances makes one party's performance worthless to the other, frustrating his purpose in making the contract. In order for a party's duty to be discharged under this defence, three requirements must generally be met; (i) the frustrated purpose must have been a principal purpose of the contract, as both parties understood it, such that the contract makes very little sense without it; (ii) the frustration of the purpose must be substantial. It is not enough that profits will be affected or even that the party will sustain economic loss. The frustration must be so great that it is not fairly regarded as within the risks assumed when making the contract. It must have a substantial material impact on the contract; not that the business endeavour is just less profitable, but rather that it actually is near worthless; and (iii) the non-occurrence of the frustrating event must have been a basic assumption upon which the contract was made. The foreseeability of the event may be a factor in evaluating this requirement, but even if the event was foreseeable, this requirement may still be met.

- [25] Typically, impossibility or impracticality is asserted by the party who has contracted to perform work or provide services, while frustration of purpose is invoked by the party that has contracted to pay for it Relief though from contractual obligations under this theory will not be lightly granted. Unlike impossibility or impracticability of performance occasioned by a supervening event, the basic element of the plea of "frustration of purpose" is not that the defendant's performance has become physically impossible or difficult, but that the plaintiff's counter-performance has become of little value. While the defendant at the time of the contract had contemplated a wide audience for its advertisement based on a big volume of daily human traffic at the mall, this had suddenly been limited to a trickle by virtue of the lockdown. In short, it is the defendant's case that unexpected governmental action caused circumstances subsequent to the contract to be radically inconsistent with its business expectations. - [26] To prevail on a defence under the doctrine of impossibility, the defaulting party must show that an unanticipated circumstance has made performance of the promise radically different from what should reasonably have been within the contemplation of the parties. For frustration of purpose to succeed as a defence not only do the courts require that the frustrated party's purpose be known to the other party, but also this purpose should be shared to the extent that it becomes at least partially the other party's own. Frustration of purpose goes to the point of the contract as the parties both understood it at the outset. Technically both might still be able to perform. But they could never achieve the purpose they both understood the contract was intended to achieve. Although it is sometimes true that the promisee shares the frustrated party's hopes that the latter will be able to make valuable use of what he has received under the contract, it is generally immaterial to a lessor, whether the licensee can make any use of the premises as long as the licensee can pay his rent. Lack of an express clause dealing with the event means the loss falls on the licensee.

- [27] Secondly, the impact of the event must be so severe that it is not fairly to be regarded as part of the risks that the party invoking the doctrine assumed under the contract. The test remains whether the situation has become so "radically different" to the situation contemplated by the parties at the time the contract was entered into that it would render it "unjust" for the contract to continue (see *The Sea Angel [2007] 2 Lloyd's Rep 517*). Where performance is still physically possible but undesirable to one party in particular, that is not sufficient to constitute "a thing radically different from that which was undertaken by the contract." The effect of the restrictions in the instant case was to limit the size of the daily public audience for the defendant's advertisements, which did not render the contract radically different from that which the defendant undertook. Considering that the nature of the advertising relied on random walk-in visitors to the mall, at the time of the contract the parties must have contemplated fluctuations in the daily size of the targeted audience. It cannot, in the circumstances, be said that it was a basic assumption of the contract that reduction of the walk-in visitors to the mall to a trickle, would not occur for the duration of the contract. - [28] For example, in the Malaysian case of *Media Roadside Pty Ltd v. Diamond Wheels Pty Ltd (2011) 32 VR 255*, Diamond Wheels had licensed to Media Roadside Pty Ltd a site on the side of a building in King Street, Melbourne for the purpose of erecting a billboard for outdoor advertising for a five year period. The licence agreement was entered into in November 2005 when the site was visible from a number of vantage points including Kings Way, a busy Melbourne road. From the year 2006 to 2008, an open car park located at the intersection of King Street and Flinders Street was developed into the substantial Northbank Office Tower. The new tower significantly reduced the visibility of the site, including obstructing visibility for traffic travelling towards Melbourne along Kings Way. The agreement permitted Media to terminate the licence if "the site becomes unsuitable for the Permitted Use for any reason outside the reasonable control of the Licensee." In September 2008, Media wrote to Diamond Wheels purporting to terminate the licence, claiming that although the site was still visible from certain positions, its

obstruction was substantial and had caused a dramatic decrease in the advertising revenue it was able to generate from the billboard. The site had therefore become unsuitable for advertising purposes.

- [29] Media provided evidence of the reduction in fees earned from the site following commencement of the construction work. It contended that the unexpressed common assumption on which the parties entered into the licence was that there would continue to be an unobstructed view of the site from Kings Way. The Court rejected this contention on the basis that "there was nothing in the evidence of surrounding circumstances" which supported the conclusion that a shared understanding on this issue had been reached. The Court found further that while the construction of the Northbank Office Tower had caused Media financial hardship, and that "there may come a point at which hardship turns to frustration," that point had not been reached in that case. - [30] Frustration does not contemplate a mere pause in the performance of obligations, as suggested by the defendant in the letter of 30th March, 2020; it results in the whole commercial venture embodied in the contract to be discharged in full. It is not the question of an election by the parties, but occurs automatically by operation of the law and brings the contract to an end at the time of the frustrating event. A party seeking to rely on frustration must show that performance of the obligation will not merely cause hardship, inconvenience or material loss, but that there has been such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing to that contracted for. A downturn in business or of a venue becoming more or less popular is always foreseeable. That it was in the instant case occasioned by the effects of Covid-19 restrictions therefore is inconsequential. It does not matter that the advertisements became unprofitable as the License Agreement did not specify that they had to be. Changes in market conditions alone will not excuse performance, unless such conditions were an explicit assumption in the contract. In any event, as a business

endeavour, by reason of the restrictions it just became less profitable for the defendant, and not actually anywhere near worthless.

[31] In conclusion, the frustrating event must strike at the foundation of the contract, a basic assumption on which the contract was made such that the party's performance, due to this unexpected circumstance, would be "virtually worthless" and "meaningless." The principal purpose of the License Agreement was to enable the defendant advertise products to walk-in visitors of the plaintiff's mall. P. W.1 Mr. Marc Du Toit testified that despite the lockdown, the malls had banks, pharmacies and supermarkets which were open. The mall was only closed from 6.00 pm to 6.00 am due to the curfew. Because the mall was never closed entirely at any point in time and continued to be accessed, albeit by a fewer number of people than had been envisaged at the time of the contract, the prospect of reduced profitability or financial losses incurred by the defendant in complying with the contractual requirements during the pendency of the Covid-19 restrictions did not constitute a substantial frustration of the defendant's principal purpose. Accordingly, this issue is answered in the negative; the agreement between the parties was not frustrated by the occurrence of the Covid-19 global pandemic.

## **Third issue;** whether the defendant is indebted to the plaintiff, and if so in what sum.

[32] The licence ran from 15th February, 2020 to 31st December, 2020. Under its terms, the defendant was to pay an initial license fee of US \$ 15,755.86 exclusive of VAT, payable quarterly in advance (hence US \$ 3,938.10 per quarter) and US \$ 5,310 per month for using the designated spaces. At the execution of the agreement, the defendant paid a sum of US \$ 4,116.64 as the first quarterly payment instalment out of an invoice of US \$ 6,225.51 for the period ending 31st May, 2020. This left an outstanding balance of US \$ 2,108.87 for that period. As at 31st December, 2020 when it eventually expired, the defendant owed US \$ 14,498.87 in fees. Counsel for the defendant's contention that the plaintiff was only entitled to US \$ 11,659.22 is not supported by any proof of payment beyond that which is acknowledged by the plaintiff, and is therefore rejected.

- [33] As regards the additional fee of US \$ 2,844.64, it is the plaintiff's case that this arises from the fact that the defendant did not take down its advertising material until 17th February, 2021, which is added to the basic claim of US \$ 14,498.87 to make a total of US \$ 17,343.51 whose recovery the plaintiff now seeks. The defendant denies liability for the extra fee beyond the contractual period on grounds that the defendant had since April, 2020 expressed its intention to vacate the premises, but the plaintiff blocked the defendant's access to the premises until 17th February, 2021 when it was permitted to remove its advertising material. Hence it is the plaintiff's intransigence that occasioned the accumulation of fees in arrears for which the defendant should not be held liable. - [34] At page 35 of the plaintiff's trial bundle is an email correspondence dated 6th January, 2021 from D. W.1 Mr. Cliff Mbagge addressed to the plaintiff's property manager, Ms. Claire Kiconco requesting for notification as to when the defendant could be permitted to "pull down the Fanta branding on the escalator." He testified further that they spent time negotiating on how to move forward and remove the branding. This appears to explain the delay that occurred until 17th February, 2021. Ideally, well in advance of the expiry date, the parties should discuss their intentions. It is then that the tenant indicates whether it would like to remain at the property. It turns out that the request to remove the material was made almost a week after the expiry of the contract. There is no evidence to support the assertion that the plaintiff caused the delay in removal of the material by denying the defendant access. - [35] P. W.1 Mr. Marc Du Toit testified that the nature of the Licence Agreement was that the landlord had to provide an escalator and video screens. The designated space was for purposes of advertising. The defendant would put branding on the video screen and on the side of the escalator. Under tenancy law, in the absence of any

other relevant circumstance, if a tenant remains in possession of the rented premises after the tenancy has expired, but with the implied or express consent of the landlord, the inference sensibly and reasonably to be drawn is that the parties intended to create a periodic tenancy on the same terms as those of the expired agreement. The periodic tenancy continues under the same terms that applied to the fixed term agreement except for the end date, which is not specified in a periodic agreement, but is superseded by a new month-to month basis (see *Richardson v. Langridge (1811) 4 Taunt 128,131*; *Ladies Hosiery & Underwear Ltd v. Parker [1930] 1 Ch. 304; [1929] All ER 667, (1929) 46 TLR 171; Javad v. Aqil [1991] 1 WLR 1007; London Baggage Co Ltd v. Railtrack Plc [2000] L & TR 439* and *Adler v. Blackman [1953] 1 KB 146*; *[1953] 1 QB 146*). It is a rolling tenancy with no fixed end date.

[36] Holding over (the continued occupancy by the tenant of premises past the lease or agreement terms, with or without the consent of the landlord) may create a new tenancy, or it may be considered a trespass. The next day after the expiry of the fixed-term tenancy is taken as the commencement of the periodic tenancy. The period of the tenancy is determined by reference to when the rent is paid. So, if rent is paid weekly, there is a weekly periodic tenancy, monthly rent is a monthly periodic tenancy, and so on. Therefore, despite the tenancy agreement having expired on 31st December, 2020 the fact that the plaintiff allowed the defendant's adverts to continue running until 17th February, 2021, a monthly periodic tenancy commenced under the same terms that applied to the fixed term agreement, except for the end date. The plaintiff was thus obliged to continue paying the monthly rent. It is for that reason that the defendant incurred the additional rent of US \$ 2,844.64, since it did not take down its advertising material until 17th February, 2021.

#### **Fourth issue;** what remedies are available to the parties.

[37] If the landlord terminates the tenancy by re-entry or accepts a surrender (whether impliedly or deliberately), the tenant will be released from performing the rest of the periodic tenancy covenants in the future. The tenant will still be liable for rent already due and any other existing breaches. The landlord may be able to pursue the tenant for unpaid rent and other breaches. Under common law the damages that a landlord is able to claim for breach of a fixed term contract, is limited to the amount still due for the remainder of the period of the contract.

### a. Arrears of rent.

- [38] Section 61 (1) of *The Contracts Act*, 7 of 2010, provides that where there is a breach of contract, the party who suffers the breach is entitled to receive from the party who breaches the contract, compensation for any loss or damage caused to him or her. Compensation is awarded for the personal inconvenience suffered by a party by reason of the breach, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract to be likely to result from the breach of it. For a loss arising from a breach of contract to be recoverable, it must be such as the party in breach should reasonably have contemplated as not unlikely to result. The precise nature of the loss does not have to be in his or her contemplation, it is sufficient that he or she should have contemplated loss of the same type or kind as that which in fact occurred. There is no need to contemplate the precise concatenation of circumstances which brought it about (see *The Rio Claro [1987] 2 Lloyd's Rep 173*). - [39] A claim for arrears of rent being a claim for special damages, the law is that not only must they be specifically pleaded but they must also be strictly proved (see *Borham-Carter v. Hyde Park Hotel [1948] 64 TLR*; *Masaka Municipal Council v. Semogerere [1998-2000] HCB 23* and *Musoke David v. Departed Asians Property Custodian Board [1990-1994] E. A. 219*). Special damages compensate the plaintiff

for quantifiable monetary losses such as; past expenses, lost earnings, out-ofpocket costs incurred directly as the result of the breach. Unlike general damages, calculating special damages is much more straightforward because it is based on actual expenses. It is trite law though that strict proof does not necessarily always require documentary evidence (see *Kyambadde v. Mpigi District Administration, [1983] HCB 44; Haji Asuman Mutekanga v. Equator Growers (U) Ltd, S. C. Civil Appeal No.7 of 1995* and *Gapco (U) Ltd v. A. S. Transporters (U) Ltd C. A. Civil Appeal No. 18 of 2004*).

[40] The currency that will most effectively compensate the plaintiff must be taken to be the one that was within the contemplation of the parties in entering into the contract. If the contracting parties have agreed on a particular currency as the currency of account and payment in respect of all transactions arising under the contract, including the payment of damages for breach, judgment should be given for damages in that currency. Once it is recognised that judgement can be given in a foreign currency, justice requires that it should be given in every case where the currency of the contract is a foreign currency; otherwise one side or the other will suffer unfairly by the fluctuation of the exchange (see *Federal Commerce and Navigation Co. Ltd. v. Tradax Export SA [1977] 2 All E. R. 41, at p. 51*). It has already been found as explained above that the plaintiff pleaded and proved on the balance of probabilities that the defendant breached its contractual obligations when it failed to pay the outstanding rent arrears by reason of which it owes the plaintiff a sum of US \$ 17,343.51. The plaintiff is entitled to the recovery of that sum from the defendant.

#### b. Interest on the amount in arrears.

[41] Under section 26 (1) of *The Civil Procedure Act* where interest was not agreed upon by the parties, Court should award interest that is just and reasonable. In determining a just and reasonable rate, courts take into account "the ever rising inflation and drastic depreciation of the currency. A Plaintiff is entitled to such rate of interest as would not neglect the prevailing economic value of money, but at the same time one which would insulate him or her against any further economic vagaries and the inflation and depreciation of the currency in the event that the money awarded is not promptly paid when it falls due (see *Mohanlal Kakubhai Radia v. Warid Telecom Ltd, H. C. Civil Suit No. 234 of 2011* and *Kinyera v. The Management Committee of Laroo Boarding Primary School, H. C. Civil Suit No. 099 of 2013*).

- [42] Interest can be demanded only by virtue of a contract express or implied or by virtue of the principal sum of money having been wrongfully withheld, and not paid on the day when it ought to have been paid. Interest falls due when money is wrongfully withheld and not paid on the day on which it ought to have been paid (see *Carmichael v. Caledonian Railway Co. (1870) 8 M (HL) 119*). If a party does not pay a sum when it falls due the aggrieved party is entitled to interest from the time payment is due to the time of payment. The other justification for an award of interest traditionally is that the defendant has kept the plaintiff out of his money, and the defendant has had the use of it himself so he ought to compensate the plaintiff accordingly. An award of interest is compensation and may be regarded either as representing the profit the plaintiff might have made if he had had the use of the money, or, conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation (see *Riches v. Westminster Bank Ltd [1947] 1 All ER 469 at 472*). - [43] Interest is a standard form of compensation for the loss of the use of money. The award should address two of the most basic concepts in finance: the time value of money and the risk of the cash flows at issue. As per the coerced loan theory, the plaintiff was effectively coerced into providing the defendant with a loan at the date of the original breach, and therefore deserves to earn interest on this forced loan at the unsecured borrowing rate. Compensation by way of interest is measured by reference to a party's presumed borrowing rate in the relevant currency because that rate fairly represents the loss of use of that currency (see *Dodika Limited &*

*Others v. United Luck Group Holdings Limited [2020] EWHC 2101 (Comm*). The borrower typically pays interest on a loan at a rate equal to the base rate plus an agreed applicable margin.

- [44] The Ministry of Finance noted that foreign currency denominated loans decreased to an industry average of 4.7 per cent in December, 2020 from 5.6 per cent to November, 2020 (see the "*Daily Monitor*" Newspaper of Wednesday 24th March, 2021). The primary goal of an award of interest should be the realistic compensation, in commercial terms, of the plaintiff for loss of the use of money. Interest should not as a general rule be payable at a punitive rate. The general rule should be that entitlement to interest should be neutral as between the parties so that neither benefits from delayed payment. Considering that this to be the rate prevailing in the year 2020 when payment fell due, the plaintiff should not be prejudiced by interest at the rate of 6% per annum on the award of US \$ 17,343.51 from 17th February, 2021 until payment in full. - c. General damages for breach of contract; - [45] General damages are the direct natural or probable consequence of the wrongful act complained of and include damages for pain, suffering, inconvenience and anticipated future loss (see *Storms v. Hutchinson [1905] AC 515; Kabona Brothers Agencies v. Uganda Metal Products & Enamelling Co Ltd [1981-1982] HCB 74* and *Kiwanuka Godfrey T/a Tasumi Auto Spares and Class mart v. Arua District Local Government H. C. Civil Suit No. 186 of 2006*). As a general rule, a person who has suffered loss as a result of another's breach of contract is entitled to be restored to the position that the person would have occupied had the breach not occurred. In special circumstances where the loss did not arise from the ordinary course of things, general damages are awarded only for such losses of which the defendant had actual knowledge (see *Hungerfords v. Walker (1989) 171 CLR 125*).

- [46] The general rule as regards general damages is that the court should award the injured party such sum of money as will put him in the same position as he would have been if he had not sustained the injuries, which in cases of this nature are the earnings which have actually been lost, or expenses which have actually been incurred up to the date of the trial (see *Robert Cuossens v. Attorney General, S. C. Civil Appeal No. 8 of 1999*). Damages are said to be "at large," that is to say the Court, taking all the relevant circumstances into account, will reach an intuitive assessment of the loss which it considers the plaintiff has sustained. The award of general damages is in the discretion of court in respect of what the law presumes to be the natural and probable consequence of the defendant's act or omission (see James *Fredrick Nsubuga v. Attorney General, H. C. Civil Suit No. 13 of 1993* and *Erukana Kuwe v. Isaac Patrick Matovu and another, H. C. Civil Suit 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 if she or he had not suffered the wrong (See *Hadley v. Baxendale (1894) 9 Exch 341*; *Charles Acire v. M. Engola, H. C. Civil Suit No. 143 of 1993* and *Kibimba Rice Ltd v. Umar Salim, S. C. Civil Appeal No. 17 of 1992*). - [47] Considering that the plaintiff has not proved any damage apart from the late payment of money due to it under the contract, an award of interest should compensate the plaintiff for loss of the use of money throughout the period during which that loss has subsisted. An award of interest in commercial disputes serves the same purposes as an award of general damages as compensation (see *Harriet Arinaitwe v. Africana Clays Ltd. H. C Civil Suit No. 376 of 2013* and *Spring Freight Logistics Limited v. Amoo Holding International Limited and others, H. C. Civil Suit No. 556 of 2019*). In the circumstances, an additional award of general damages would be tantamount to overcompensation. The claim for an award of general damages is accordingly rejected.

## d. The costs of the suit;

[48] According to section 27 (2) of *The Civil Procedure Act,* costs of any action, cause or matter follow the event unless Court for good cause orders otherwise. The plaintiff being the successful party in this case is therefore entitled to costs of the suit.

### Order:

.

- [49] For the foregoing reasons, Judgment is entered for the plaintiff against the defendant, in the following terms; - a) Arrears of rent in the sum of US \$ 17,343.51 - b) Interest on the award in (a) above at the rate of 6% p.a. from 17th February, 2021 until payment in full. - c) The costs of the suit.

Delivered electronically this 22nd day of January, 2025 …Stephen Mubiru……..

Stephen Mubiru Judge, 22nd January, 2025

# Appearances;

For the plaintiff : M/s MMAKS Advocates. For the defendant : M/s Kaggwa & Kaggwa Advocates.