Where a developer fails to deliver a property, the buyer is entitled to be restored to the position they were in before the contract, which includes a full refund of advanced sums. Court Rules.

FACTS

The First Defendant, a real estate developer affiliated with the UK's Comer Group, was contracted by the Government of Uganda under a Public-Private Partnership (PPP) Agreement to redevelop 138.62 acres at Naguru-Nakawa, Kampala, promising affordable housing in an ultra-modern satellite city.

During March and April 2005, the First Defendant made advance sales of townhouses and villas to the Plaintiffs, who made substantial part payments totaling approximately US $810,000 collectively. The properties were to be delivered with vacant possession by either 29th February 2016 or 30th June 2016.

However, the project stalled due to alleged financial and technical incompetence. The Government terminated the PPP Agreement in 2019 and repossessed the land in 2021. The Commissioner Land Registration cancelled all title deeds over the land on 15th October 2018. The Plaintiffs never received the units they paid for nor the title deeds.

ISSUES FOR DETERMINATION

1. Whether the contracts between the parties were frustrated

2. Whether the defendants are liable for breach of contract

3. Whether plaintiffs are entitled to the reliefs sought

   
   

PARTIES' SUBMISSIONS

Plaintiffs' Position

Counsel argued that the Defendants breached the sale agreements by failing to deliver vacant possession as agreed. The termination of the PPP Agreement was due to the First Defendant's own breach, which cannot constitute a frustrating event. The Defendants knew their ability to perform depended on successfully fulfilling obligations under the PPP Agreement with Government. The liquidated damages clause entitled each Plaintiff to US $2,500 per month for delayed delivery.

Defendants' Position

Counsel submitted that Government interference, reduction of acreage, and termination of the PPP Agreement incapacitated the Defendants from performing their obligations. Delivery became impossible when Government took over the land. The Plaintiffs assumed risks associated with termination since they knew the First Defendant's title derived from the PPP Agreement. A consent judgment against the Attorney General admitted Government's breach, and the Defendants remain capable of delivering titles and possession. Therefore, no breach has occurred, the contracts remain enforceable, and the suit should be dismissed.

LEGAL REPRESENTATION

1. For the Plaintiffs, M/s Okecha Baranyanga & Co. Advocates

2. For the Defendants,  M/s Kampala Associated Advocates

COURT'S FINDINGS

Issue 1: Frustration of Contract

The Court held that the contracts were NOT frustrated. Justice Mubiru emphasized:

"Frustration deals with events after contract formation but before performance is due, making it impossible or radically different, not events occurring when the duty to perform has already arisen."

The alleged frustrating events (cancellation of titles on 15th October 2018 and termination of the PPP Agreement on 9th August 2018) occurred more than two years after the performance due dates (February-June 2016).

The Court stated:

"An event that occurs after performance under the contract was already due (and thus already breached) cannot legally be a frustrating event because the breach occurred first, fixing the rights and liabilities of the parties."

Issue 2: Breach of Contract

The Court found the Defendants LIABLE for breach of contract.

The Defendants failed to meet their contractual deadline for handing over vacant possession by the specified dates (29th February 2016 or 30th June 2016). The alleged breach by Government did not constitute a frustrating event, and the Defendants presented no other justification for their inability to perform.

The Court recognized that the Plaintiffs exercised their right to anticipatory repudiation by filing suit, effectively terminating the contracts:

"Anticipatory repudiation terminates the contract."

Issue 3: Reliefs

The Court granted the Plaintiffs' claims as follows:

(a) Recovery of Part Payment (Special Damages)

Clause 8.4 of the contracts provided that upon vendor repudiation, the vendor must refund all payments with 25% interest within 45 working days. The Court found strict proof of payments through agreements, bank statements, and receipts.

Awards:

1. 2nd Plaintiff (Townhouse 27): US $205,000 + 25% interest (US $51,250) = US $256,250

2. 2nd & 4th Plaintiffs (Villa 22): US $50,000 + 25% interest (US $12,500) = US $62,500

3. 1st Plaintiff (Townhouse 31): US $205,000 + 25% interest (US $51,250) = US $256,250

4. 1st & 5th Plaintiffs (Villa 11): US $155,000 + 25% interest (US $38,750) = US $193,750

5. 3rd Plaintiff (Townhouse 28): US $195,000 + 25% interest (US $48,750) = US $243,750

(b) Liquidated Damages (General Damages)

The Court analyzed Clauses 14.4-14.6, which provided for liquidated damages of US $2,500 per month for delayed delivery. Applying the test from Dunlop Pneumatic Tyre Co Ltd v. New Garage & Motor Co Ltd, Justice Mubiru held:

"A clause is a genuine liquidated damages clause if it specifies a reasonable, pre-agreed sum to compensate for potential losses from a contract breach, rather than punishing the breaching party."

The Court found US $2,500 per month reasonable, comparing it to average monthly rent for upscale residential units in prime Kampala suburbs (US $1,000 to US $3,500). This represented a genuine pre-estimate of loss including alternative accommodation costs, storage, lost rental income, and other consequential losses.

Award Each Plaintiff receives US $2,500 per month from 1st July 2016 until full refund of their respective part payments.

(c) Interest

6% per annum on all awards from the date of judgment until payment in full.

(d) Costs

Costs of the suit awarded to the Plaintiffs following the general rule that costs follow the event.

HOLDING

Judgment entered for the Plaintiffs against the Defendants jointly and severally for:

1. Special damages totaling US $1,012,500 (including 25% contractual interest)

2. Liquidated damages of US $2,500 per month per plaintiff from 1st July 2016 until full repayment

3. Interest at 6% per annum from judgment date until payment in full

4. Costs of the suit

KEY TAKEAWAYS

1. Timing of Frustration is Critical

Frustration applies only to events occurring after contract formation but before performance is due. Events occurring after the performance deadline cannot constitute frustration, as the breach has already occurred and fixed the parties' rights and liabilities.

2. Self-Induced Frustration is No Defense

A party cannot rely on frustration caused by their own breach or failure to perform obligations under related agreements. The First Defendant's failure under the PPP Agreement led to its termination, which cannot then be used as a defense for non-performance of the sale agreements.

3. Anticipatory Repudiation Terminates Contracts

When one party clearly indicates before performance is due that they cannot fulfill obligations, the innocent party may treat the contract as immediately breached. Filing suit for damages constitutes an election to terminate the contract through anticipatory repudiation.

4. Distinction Between Penalties and Liquidated Damages

Courts will enforce liquidated damages clauses that represent a genuine pre-estimate of loss, even if substantial, provided they are reasonable and not extravagant compared to the greatest conceivable loss. The test is whether the clause compensates for anticipated losses or punishes breach.

Key factors in assessing liquidated damages clauses:

1. Reasonableness at the time of contract formation (not breach)

2. Proportionality to foreseeable consequential losses

3. Whether the amount is a genuine pre-estimate or punitive measure

5. Strict Proof of Special Damages

Special damages must be specifically pleaded and strictly proved, though strict proof does not always require documentary evidence. In this case, the combination of written agreements acknowledging payment amounts, bank statements, and receipts satisfied the requirement.

6. Contractual Refund Provisions are Enforceable

Where contracts specify refund obligations upon vendor repudiation (including interest rates and timeframes), courts will enforce these provisions as agreed by the parties.

7. Knowledge of Underlying Agreements Does Not Equal Risk Assumption

The fact that purchasers knew the developer's title derived from a PPP Agreement does not automatically mean they assumed the risk of its termination, especially where the termination resulted from the developer's own breach.

8. Ongoing Breach Calculations

Liquidated damages for delayed performance can run from the original delivery date until actual payment/remedy, providing continuing compensation for the extended period of breach.

PRACTICAL IMPLICATIONS

For Real Estate Developers:

1. Ensure robust PPP agreement compliance before entering downstream contracts

2. Clearly distinguish force majeure from self-induced impossibility in contracts

3. Understand that liquidated damages clauses will be enforced if reasonable

4. Meet contractual deadlines or face accumulating liability

For Property Purchasers:

1. Document all payments meticulously with receipts and bank records

2. Negotiate clear liquidated damages clauses for delayed delivery

3. Exercise rights to anticipatory repudiation when breach becomes apparent

4. Ensure refund provisions include interest for delayed payment

For Legal Practitioners:

1. Carefully draft frustration and force majeure clauses

2. Structure liquidated damages as genuine pre-estimates of loss

3. Preserve evidence of payments and contractual breaches

4. Advise clients on timing of frustration claims relative to performance dates

Read the full case below

Grace Kerali and Others v Opec Prime Properties (U) Ltd and Bankshire Africa Ltd ta Remax .

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