Court of Appeal affirms orders for Heineken to pay firm Sh1.7bn

Beer maker Heineken will pay Kenyan distributor Maxam Limited Sh1.7 billion for breach of rights to distribute its products in the country.

This is after the Court of Appeal affirmed a High Court’s order for Heineken to pay Maxam for illegally terminating a contract to distribute its products in Kenya.

Justices Pauline Nyamweya, Abida Ali-Aroni and John Mativo dismissed Heineken’s appeal and ordered the firm to shoulder the cost of the case.

The bench was of the view that the amount awarded by the High Court was reasonable as it would enable the distributor recoup its expenditure and goodwill.

“Once goodwill legally vested, it could not be unilaterally annulled. In our view, given the loss and damage arising from the circumstances of the breach by Heineken EA and Heineken BV, the projection of profits by PW2 for the period 2017 to 2021 was reasonable and adequate to enable Maxam Ltd to recoup its expenditure and goodwill,” the bench, headed by Justice Nyamweya, ruled.

On May 21, 2013, Heineken East Africa Import Company Limited (Heineken EA) wrote to Maxam appointing it the only distributor of its products.

Two months earlier, on February 28, 2013, Heineken International BV, on behalf of Heineken EA, appointed Modern Lane Limited, which is Maxam’s subsidiary, to distribute Heineken Lager in Uganda from February 1 of the same year. This was to await the preparation of a formal distribution contract.

Heineken Brouwerijen BV wrote a letter to Olepasu Tanzania Ltd, confirming that it would be the importer in Tanzania from April 2013.

Nearly four years into the respective contracts, on January 27, 2016, Heineken BV wrote to Maxam terminating its deal from May 1, 2016. This, according to Heineken BV, was also supposed to affect Modern Lane and Olepasu.

The three companies challenged the move before the High Court. Maxam was the key party in the case.

Before the High Court, Maxam’s lawyer Phillip Nyachoti argued that the termination was unprocedural and illegal. He argued that Heineken tried to shield itself from litigation by indicating that the termination was without prejudice.

Termination notice

He was of the view that Heineken BV could not terminate Maxam’s contract as it was not in the picture. Instead, the lawyer argued that Heineken EA had committed that it would issue Maxam with a three-month termination notice in the event it wanted to end the relationship.

The lawyer also said that Heineken EA and Heineken BV never explained to his clients why they had decided to terminate the agreement.

Nyachoti further argued that by time Heineken BV was terminating Maxam’s contract, the Kenyan firm’s value was Sh1.7 billion and it stood to lose the value of its business if the termination was allowed without compensation.

At the High Court, Heineken EA and Heineken BV were ordered not to terminate Maxam’s distribution rights. The orders were issued by Justice Eric Ogola.

The two, however, defied the court order and appointed one of the Maxam’s sub-distributors as the exclusive distributor.

Justice Joseph Onguto extended the orders barring Heineken from terminating the contract. Maxam told the court that Heineken went to the extent of directly selling to the market in a bid to circumvent the orders.

On the flip side, Nyachoti argued that Heineken EA and Heineken BV went ahead to increase Maxam’s buying price of Heineken products while reducing the recommended selling price.

After hearing rival submissions, High Court judge James Makau found that Heineken EA and Heineken BV had constructively kicked out the local distributor in 2016 and proceeded to appoint other distributors.