Your contract goes south, do you just watch the losses pile up? In the recent High Court decision, VAS Garage v MTN Uganda, the Court awarded VAS Garage a significant sum to the value of UGX 11.3 billion in damages for MTN's breach of contract. The judgment made no reference to the principle of mitigation, a key principle of contract law that requires an injured party to take reasonable steps to minimise its losses following a breach. This omission is particularly striking given the scale of the damages and the established legal expectation that courts will consider whether a plaintiff could have reduced their losses. This article examines the damages award for MTN's breach of contract and highlights the surprising absence of mitigation.
Background
VAS Garage provided value-added mobile services using MTN's telecommunications network. According to VAS Garage, MTN wrongfully “expired” or deleted VAS Garage's subscription database and stopped billing VAS Garage's customers, thereby impairing VAS Garage's capacity to earn revenue. VAS Garage contended that because it had invested significantly in promotions and advertising, it suffered extensive financial damages after MTN curtailed its business operations. MTN, on its part, contended that it had implemented a “Do Not Disturb” directive from the Uganda Communications Commission (“UCC”) and had adhered to new billing policies for technical or regulatory reasons. It further argued that VAS Garage's claims for damages, especially in lost revenue, were unduly speculative or exaggerated, pointing out that changes in consumer behaviour and technological disruption affect potential earnings.
The damages award
The Court found that MTN's wrongful deletion of VAS Garage's subscription database and cessation of customer billing caused 29 months of revenue loss. The Court awarded VAS Garage UGX 11.3 billion damages, including UGX 8.37 billion for lost income plus 19% annual interest from judgment until payment. The Court stressed that MTN's actions crippled VAS Garage's business.
The mitigation principle
Mitigation requires an injured party to take reasonable steps to minimise losses post-breach, as the plaintiff is not entitled to sit around and twiddle their thumbs. In all breach of contract claims, the court must inquire into the availability of circumstances of mitigation that the plaintiff could have called in his aid.
As stated in the cases of Ushillani v Kampala Pharmaceuticals Ltd, Goldburg v. Shell Oil Co. of Australia and British Westinghouse v Underground Electric Railways, the Plaintiff must act reasonably to reduce damages while the Defendant has the onus of proving that the Plaintiff failed to mitigate. Similarly, Payzu v Saunders clarified that plaintiffs cannot claim losses avoidable through reasonable efforts.
In Doreen Rugundu v International Law Institute, the Supreme Court held that since the appellant was prevented from commencing her contract of service, she should have mitigated her damages by accepting the offer of re-engagement by the Respondent. In Amony v Okot t/a 323 Royal Inn, the appellant`s motorcycle was stolen from the Respondent`s premises. The High Court held that mitigation must be pleaded and the wrongdoer is not entitled to demand of the injured party that she incur a loss, bears a burden or makes unreasonable sacrifices in the mitigation of his damages. The Court found that the appellant was under a duty to minimise her loss by spending no more on the hire than she needed to do to obtain a substitute means of transport and she had not produced any evidence to show the alternative means of transport.
The judgment does not consider whether VAS Garage could have adapted its business or redirected investments during the 29-month period to lessen its loss.
Key takeaways
The significant damages awarded in VAS Garage underscore Ugandan courts' readiness to make a good remedy where a defendant's breach severs a plaintiff's revenue stream. It would have been interesting had the court considered an argument in mitigation of the damages.
Contracting parties should bear in mind that the duty to mitigate is generally recognised globally as a hallmark of commercial fairness. Ignoring or failing to plead mitigation can result in substantial damages that might otherwise have been reduced. Innocent parties should always explore alternative revenue streams post-breach and document their efforts to mitigate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
