A trader selling its goods at the premises of cash-strapped supermarket chain Uchumi in Nairobi under a franchise agreement has been ordered by the High Court to pay the retailer Sh26.6 million for breach of contract.
The trader, Aljazeera City Market, was penalised the amount as special damages for unpaid goodwill, royalties, rent, and assets.
The partnership between the trader and Uchumi was part of the supermarket's plan to franchise its stores to private businesses as a financial recovery route.
Justice Josephine Mong’are, while ruling on a claim filed by Uchumi, found that the trader breached the franchise agreement by failing to pay the full amount of the goodwill fee, rent, and remittance of royalties.
“I find that Uchumi demonstrated through its letters, invoices, and schedule of assets produced that the goodwill, royalties, and rent remain unpaid and that the defendant carted assets worth Sh1 million. Uchumi has therefore pleaded and proved that it is entitled to the sum of Sh26,675,121 sought,” said the judge.
The two entities entered into a franchise agreement on October 28, 2018, for a term of eight years and two months.
Though the franchisee was to pay Uchumi an initial fee, also known as goodwill, of Sh12 million it only paid half leaving a balance of Sh6 million.
Uchumi added that the franchisee failed to remit royalties, calculated at 2.5 percent of gross monthly sales amounting to Sh1 million, and failed to pay rent of Sh1.5 million resulting in arrears of Sh18.5 million.
It was also alleged that the franchisee moved out of the business premises and illegally took Uchumi’s assets worth Sh1 million. Uchumi sued in 2021 seeking damages.
To buttress its claim, Uchumi through its CEO Lawrence Ngao produced in court various invoices issued to the franchisee.
“My reading of the agreement and the non-binding understanding dated July 30, 2018, provides that these were sums expected to be paid by the defendant as the franchisee. There was no rebuttal evidence from the defendant demonstrating that these sums had been paid as per the agreement meaning it was in outright breach of the agreement,” said the judge.
She also directed the franchisee to perform all obligations owed by it to Uchumi.
In the claim, Uchumi had further alleged that the franchisee sold goods below safety standards, with most lacking the Kenya Bureau of Standards (Kebs) mark of quality.
It added the trader allegedly operated businesses outside the franchise agreement without the Uchumi’s express permission.
The court dismissed a counterclaim filed by the trader seeking a refund of the Sh6 million paid as goodwill.
“The defendant filed a defence and counterclaim but it did not call any witness or produce any evidence. This means that Uchumi's case remains unchallenged,” said the court.
