Modern Lane Limited v Heineken Brouwerijen B.V (Civil Suit 148 of 2018) [2023] UGCommC 268 (14 November 2023)

Full Case Text

# IN THE HIGH COURT OF UGANDA AT KAMPALA ICOMMERCIAL DIVISIONI

THE REPUBLIC OF UGANDA

#### CIVIL SUIT NO. I48 OF 2OT8

### MODERN LANE LIMITED: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : PLAINTIFF VERSUS

## HEINEKEN BROUWERIJEN B. V.: : : : : : : : : : : : : : : : : : : : : : : : : : DEFENDANT BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI JUDGMENT

The Plaintiff filed this suit against the Defendant by way of ordinary suit for a declaration that the Defendant's termination of the Distributorship contract of Heineken Beer in Uganda between the Plaintiff and the Defendant was unlawful, payment of Ushs 6,354,466,405/ as compensation for the loss and damage suffered as a result of the unlawful termination of the Plaintiff s distributorship contract, general damages for breach of contract, interest and costs ofthe suit.

The brief facts constituting the Plaintiffs case are that on l't April 2012,, the Defendant appointed the Plaintiff as its sole distributor of Heineken beer brand in Uganda. The appointment was later confirmed by a letter dated l ls August 2014 wherein, among others, they were to import the product into the territory and pay any duty, tariff, deposit or clearance charges on the product; ensure that the product is not sold or distributed outside the territory without prior written consent of the Defendant; that the product is sold at the recommended price in trade channels; and to ensure that activities and sales were to be carried out in accordance with the Heineken specific instructions from time to time.

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That no formal distribution agreement was signed by the parties, and that the appointment letter did not provide for a termination clause. Thereafter, the Plaintiff invested in distributing the product by acquiring numerous warehousing units in Uganda, established an existing set of delivery routes using a route planning system among others and successfully started distributing the product. That on27h January 2016, Heineken Intemational B. V. wrote to the Plaintiff on behalf of the Defendant giving a three months' termination notice while expressing their intention to terminate the distributorship relationship with effect from l't May 2016.

Therefore, the Plaintiff avers that the said termination is unlawful, arbitrary and irregular as the appointment letter had no termination clause, and that the three months' notice was unreasonable given the massive investments the Plaintiff had put in the business. The Plaintiff further avers that the letter was unjustified and issued illegally and therefore null and void. That it was also issued by Heineken International B. V., a non-party to the contractual relationship. They also aver that the purported termination amounted to a breach of contract, and yet the Plaintiff created a distribution channel and goodwill for the product, which the Defendant still benefits from, and yet they did not compensate the Plaintiff for the same.

That the Plaintiff suffered loss and damage including but not limited to loss of business and profit, accumulated net loss, margin loss, loss of goodwill, inconvenience and loss of reputation, hence this suit.

The Defendant filed their Written Statement of Defence wherein they denied the allegations and aver that the Plaintiff is not entitled to the reliefs sought. The Defendant denies appointing the Plaintiff the sole distributor but admits confirming them as the approved importer and distributor of the product. That no formal

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distribution agreement was signed and that the letter of llth August 2014 was varied by another on of 9s February 2015 which introduced a new mode of importation.

The Defendant admits that the letter of l lth August 2014 did not have a termination clause, therefore, that either parry could end the relationship at will. That the Defendant did not require the Plaintiff to embark on the alleged massive infrastructure set-up, or maintain numerous warehousing units as a condition precedent. They add that the Plaintiffas an importer could have only taken on the distribution if it had warehousing facilities and established distribution routes among others. In addition, that the Plaintiff was aware of the investment it would have to make to fulfil its part of the bargain

The Defendant admits knowledge of the letter sent by Heineken International B. V and that the termination notice was to take effect after the Plaintiff had considered it. They deny terminating the relationship as the letter was only inviting the Plaintiff for negotiations aimed at ending the relationship as their intention in the leffer never materialised, and that the proposed three months' notice was reasonable. They add that they acted justly by offering an ex-gratia compensation of EU 450,000 as a sign of goodwill for the relationship they had. That the letter was issued according to the ordinary way of doing business between them, and also that several times, the Plaintiff had received letters from affiliates such as Heineken International B. V. and Heineken East Africa Import Company Limited.

The Defendant denies having knowledge of the Plaintiff s distributorship channels or even using them, and aver that the Plaintiff is currently the exclusive distributor of Warsteiner beer in Uganda and is using the same for distribution. The Defendant

denies liability for the alleged loss and damage suffered by the Plaintiffand prays that the suit be dismissed with costs.

#### REPRESENTATION

The Plaintiff was represented by IVI/S OSH Advocates & Legal Consultants whereas the Defendant was represented by M/S Ortus Africa Advocates.

#### JUDGMENT

I have carefully read the pleadings and listened to the testimonies of the witnesses in this matter as well as considered the submissions of both counsel. During the scheduling conference, the following issues were raised for resolution by this Court:

- l. Whether the letter dated 27th January 2016 amounted to a termination ofthe distributorship relationship between the parties - 2. If so, whether the termination was lawful - 3. What remedies are available (if any)?

#### Issue I

### Whether the letter dated 27th January 2016 amounted to a termination of the distributorship relationship between the parties

It was submitted for the Plaintiff that the letter of I l'h August 2014 (PE 1) which confirmed the contractual relationship between the parties did not have a termination clause or notice period. He added that the Plaintiff went ahead to put up infrastructure, warehousing and other equipment to enable them perform the distribution role, which he said DWl and DW2 conceded to the fact that the brand required to be handled and stored in a special way.

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Counsel for the Plaintiff added that the Defendant wrote to the Plaintiff on 23d February 2015 informing them of a change of the relationship to a ,buy-sell model' where the Defendant would import the product as well as clear the taxes then deliver to the Plaintiffs warehouses but nothing changed until 27th January 2016 when the Plaintiff received a letter from Heineken Intemational addressed to the Plaintiff, Maxam Ltd (Kenya), and Olepasu Tanzania Limited noti\$ing them of termination of their contracts with effect from 1,rMay 2016. That the three of them filed a matter against the Defendant in the Kenyan Courts but the plaintiff and Olepasu withdrew due to jurisdiction; but that the Court passed judgment in favour of the Kenyan Company, therefore, he invited Court to be persuaded by the Kenyan decision (PEX 1 0).

Counsel also added that the Defendant had decided to terminate the relationship by appointing an effective date, and not just an intention like DWI and DW2 claimed. He added that the letter came after a meeting they had with them but they did not discuss termination.

In reply, Counsel for the Defendant submitted that the letter dated 27b January 2016 did not amount to a termination because the relationship continued until 25s September 2017 when the Plaintiff stopped placing orders, and did not send revised purchase orders (PO) in line with the new prices as requested. He added that the Plaintiffs audited books of account for 2016 and 2ol7 show continued sales of the Heineken products; and that the Tenancy Agreement executed on 27th May 2016 also shows the same. He added that the letter was only a notice of termination as the issue of amicable termination was discussed in the meeting before the letter was sent on a 'without prejudice' basis but that the plaintiff never responded therefore that the termination never took effect until september 2017.

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He added that the words 'without prejudice' revolve around negotiations which if the contents of the letter had been accepted, a binding contract would have been formed. That the termination did not take effect as the Plaintiff obtained interim orders on 5th February 2016 before the deadline of l0th February 2016 therefore that the letter did not have any effect to their relationship.

About relying on the Kenyan decision, Counsel submitted that the contractual relationship and issues in that case were different, and that the letter of 27th January 2016 applied differently as there was no ex-gratia offer. He also said the judgment had been appealed against and final decision was not yet out. He reiterated that the letter did not amount to a termination but rather an intention to terminate.

Having carefully considered the evidence on record as well as submissions by both Counsel, I find that by virtue of PEXI, the letter dated lln August 2014, a distributorship relationship was established between the parties, and neither party disputes it.

What is now under contention is whether the letter dated 27n January 2016 amounted to a termination of the relationship. The Cambridge Dictionary defines termination to mean 'the act of ending something or the end of something.' Specifically, in relation to contracts, the word 'termination' refers to the discharge of a contract meaning that the future un-accrued obligations of the parties fall away. Termination of contracts can either be contractual termination where a contract provides for it or by termination at Common Law for breach of a condition, or sufficiently serious breach of an intermediate term and or renunciation which is refusal to perform.

The question here is whether or not the letter of 27th January 2016 amounted to a termination of the distributorship relationship between the parties. A close look at

N\$\ the said letter indicates the same was made 'without prejudice' wherein paragraph 2 and 3 thereof state:

" ll/e hereby give each of Modern Lane Limited and Olepasu Tanzania Limited notice that HBBV will terminate the distribution of the Heineken lager beer brand to them in Uganda and Tanzania (respectivel) under the Ugandan Appointment Letters and the Tanzanian Appointment Letter, in each case with effect from I May 2016.

While we do not admit that we have any legal or contractual obligation to pay any compensation under any of the Ugandan Appointment letters...we are prepared as a sign of goodwill to pay you an amount of EU 450,000 by way of ex gratia payment for the termination of the Ugandan Appointment Letters..."

Before I consider whether or not the above paragraph amounts to a termination above, it is important to note that the said letter was written 'without prejudice'. According to Black's Law Dictionary, ninth edition, page 1740 "without prejudice" is defined as:

"Without loss of any rights; in a way that does not harm or cancel the legal rights or privileges of a party".

It is trite law that once 'without prejudice' is stated at the beginning of a letter, the contents of the same are inadmissible in any future Court proceedings as evidence and neither can they be referred to.ln Katumbo Ronald v Kenya Airways Limited Civil Appeal No. 9 of 2008, where a letter written 'without prejudice' had been relied on in Court, Katureebe JSC held that:

"To my mind, when a letter is written "WITHOUT PREIUDICE" it implies that the writer is reserving whatever other course of action or defence as may be

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available to him. When such letter is admitted among the documents admitted at the trial, it goes together with the words "WITHOUT PREruDICE." It would not preclude the writer from relying on any other defences available to him. Its contents must be regarded without prejudice, and the Court would not necessarily take its contents as truth. "

In the case of Rush and Tompkins Ltd v Greater London Council [19891 AC 1280, The House of Lords held as follows:

"(I) ...in general the "without prejudice " rule made inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made with a genuine intention to reach a settlement; and that admissions made to reach settlement with a dffirent party within the same litigation were also inadmissible whether or not settlement was reached with that party.

(2) That the general public policy that applied to protect genuine negotiationsfrom being admissible in evidence also applied to protect those negotiations from being disclosed to third parties... "

It has been established by several case law therefore that the "without prejudice rule (WP)" will generally prevent statements made in a genuine attempt to settle an existing dispute, whether made in writing or orally, from being put before the court as evidence of admissions against the interests of the pany which made them. One reason for having the WP rule is the public policy of encouraging parties (or potential parties) to litigation to settle their disputes out of court. The rationale is that settlement discussions (and, it is hoped, settlement itself) will be facilitated if parties are able to speak freely, secure in the knowledge that what they have said and, in particular, any admissions which they might have made to try to settle the

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matter, may not be used against them should the settlement discussions fail. The inclusion of the words "without prejudice" will not necessarily bring the communication within the ambit of WP privilege if it is not, in substance, a communication made in a genuine attempt to settle an existing dispute.

From the fore going, it therefore implies that such communication is made without the intention of affecting the legal rights of the maker of the statement. Further, this Common Law principle was used to ensure that parties make concessions and promises without fear of their words being used in Court later, which promotes productive discussions with openness and freedom to reach a compromise.

However, there are tests that must be met for a communication to have protection under the 'without prejudice' principle. They are that there must be a dispute in existence, there must be a genuine attempt to resolve the dispute and that the assertions were made in an attempt to resolve the dispute.

In this instant case, since the letter of 27th Jantary 2016 makes reference to the meeting held earlier by the parties, it is apparent that there was a dispute in relation to termination of the contract which must have been discussed in the meeting, therefore the first test is met. It follows therefore that the meeting was a genuine attempt to resolve the dispute and finally, this letter was written in an attempt to resolve the same. I therefore find that letter with the words prejudice at the beginning meets the requirements for the privilege to apply and therefore, the Defendant is protected.

In addition, the letter cannot amount to a termination unless both parties consent that the privilege is waived or that the party to whom the letter was written accepted the proposals so as to make its contents binding. ln Mohanlal Kakubhai Radia V Warid Telecom Ugando limited HCCS 0224 of 2011 which was cited in

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the case of Sarope Petroleum Lld V Orient Bonk Ltd & 2 Others HCCS No. 198 of 2009 it was held that 'there is no evidence anwhere that the proposals were accepted in order to constitute a binding contract between the parties'. The Plaintiffhere did not produce evidence to show that they accepted the proposals in the letter, instead, the evidence on record suggests that the parties continued performing their obligations under the contract until 25th September 2017 when the Plaintiff stopped placing orders, and did not send revised purchase orders (PO) in line with the new prices as requested.

In conclusion, it is evident that the distributorship relationship between the parties continued until sometime in September 2017 and, this was also made possible by injunctive relief sought by and obtained by the Plaintiff in February 2016 soon after the letter of 27h January 2016 was issued. It is clear that the letter of 27th January 2016 was made without prejudice and cannot be relied on by this Court to conclude that it was a notice of termination by the Defendant. This is also confirmed by the Plaintiff in their own pleadings (paragraph 5 (a) of the Plaint) when it states that the notice was issued on a "Vl/ithoul Prejudice" basis meaning therefore that it has got no legal implications whatsoever as regards enforcement.

In the premises, I find that the letter dated 27th January 2016 did not amount to termination of the distributorship relationship between the parties.

This Issue is accordingly resolved in the negative.

## Issue 2

If so, whether the termination was lawful

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On the second issue as to whether the termination was lawful, I find that since the first issue was answered in the negative and there was no termination, it is not necessary to handle this issue.

## Issue 3

## What remedies are available (if any)?

In relation to the remedies available to the parties, I find that the suit has no merit and therefore, the Plaintiff is not entitled to the prayers sought.

In the premises, the suit is hereby dismissed with costs to the Defendant.

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HON. LADY JUSTICE ANNA B. MUGENYI DATED Iu.lm.x I