Kenya: Heineken to pay Sh1.8bn to local distributor after losing appeal

The Court of Appeal has upheld a decision that awarded local distributor Maxam Limited Sh1.8 billion as special damages for loss of business after its distribution agreement was terminated by Dutch beer maker Heineken, The Star reported on May 28.

Justices Pauline Nyamweya, Abida Ali-Aroni and John Mativo said Heineken E.A and Heineken B.V should pay the monies after breaching the Kenya Distribution Agreement.

The Judges at the same time affirmed the High Court’s decision delivered in January 2016 declaring the notice of termination from Heinken as unlawful and unprocedural.

Heineken appealed the award slapped on it by High Court Judge James Makau in 2016 after terminating its distributorship agreement with Maxam Limited.

The company faulted the Judge’s decision for failing to consider the terms of the distributorship agreement, adding that the award of damages was excessive.

At the same time, the company said the Judge was also wrong to find that the distributor had a legitimate expectation that the agreement would not be terminated.

The beer maker had appointed Maxam as its exclusive distributor of Heineken products in Kenya with effect from 1st May 2013.

In a rejoinder to the appeal, Maxam Ltd through its advocate Philip Nyachoti said the supposed termination notice dated January 27, 2016 in respect to the agreement was invalid.

Nyachoti explained there was no proper termination notice issued within three months as is contemplated in the agreement and that Heineken had not given any reasons for termination of the agreement entered into in 2013.

He added that the agreement was automatically extended after every one year with the first extension being June 1, 2016.

“Most importantly, there was no privity of contract between Maxam and Heineken International B.V who issued the purported termination notice since the agreement was exclusively between Heineken East Africa and Maxam,” said Nyachoti.

He added that the purported termination was issued from the Netherlands and not in Kenya as contemplated by the Agreement.

“It is obvious therefore that the said notice was invalid for breaching clause 33 of the agreement,” he said.

Nyachoti in asking the court to uphold Judge Makau’s award said any supposed termination of the contracts without any valid or genuine reason exposed it to substantial loss and damage.

In their judgement, the appellate Judges in affirming Makau’s award said the letter and Notice of Termination dated 27 January 2016 which was issued by Heineken E.A and Heineken B.V on a “without prejudice” basis could not be accepted as evidence of any negotiations or admission on the part of Maxam Limited as regards termination of the contract.

They said the letter produced in court by the parties was not acceptable as evidence of any termination.

“In light of this effect, and the uncertainty as to its intent, the letter accordingly cannot be construed as amounting to a lawful or valid Notice of Termination under Clause 17 of the Distribution Agreement. The Kenya Distribution Agreement was therefore legally still subsisting as at 27 th January 2016 and was not validly terminated,” they said.

Regarding the award, the Judges considered the valuation report and other evidence tendered by Maxam Ltd before Justice Makau.

The objective of the valuation report was “to determine the loss of business to Maxam Ltd if Heineken were to discontinue the distributorship contracts” using various valuation methods.

“Irrespective of the provisions of the Distribution Agreement, from the workings and reality of their business relationship, Maxam Ltd was in fact and law a business joint-venture of Heineken E.A and Heineken B.V, and entitled to a share of Heineken E.A and Heineken B.V profits from the sales it made,” said the appellate Judges.

They concluded by saying there was no convincing legal or actual basis that would compel them to question the award of Sh1,799,978,868.00 awarded by Justice Makau.

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