Nairobi, Kenya | By Michael Wandati | A Dutch beer maker Heineken will pay Kenyan distributor Maxam Limited Shs 1.7 billion for breaching distribution rights in the country.
This follows the Court of Appeal’s decision to uphold a High Court order requiring Heineken to compensate Maxam Limited for unlawfully terminating their distribution contract in Kenya.
Justices Pauline Nyamweya, Abida Ali-Aroni, and John Mativo dismissed Heineken’s appeal and ruled that the company must also cover the case’s legal costs.
The bench agreed that the High Court’s awarded amount was reasonable, as it would allow the distributor to recover its expenses and maintain its 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.
Heineken International BV has been supplying its beer in Kenya through Maxam Limited, a company that has held the franchise since 2007.
On May 21, 2013, Heineken East Africa Import Company Limited (Heineken EA) appointed Maxam Limited as its exclusive distributor in Kenya.
Earlier, on February 28, 2013, Heineken International BV, on behalf of Heineken EA, had appointed Modern Lane Limited, a subsidiary of Maxam, to distribute Heineken Lager in Uganda starting from February 1, 2013, pending the preparation of a formal contract.
In April 2013, Heineken Brouwerijen BV designated Olepasu Tanzania Ltd as the importer for Tanzania.
Nearly four years later, on January 27, 2016, Heineken BV notified Maxam Limited of the termination of their contract, effective May 1, 2016. This termination was also intended to affect Modern Lane and Olepasu.
The three companies contested this termination in the High Court, with Maxam Limited being the primary litigant.
Maxam’s lawyer, Phillip Nyachoti, argued that the termination was unprocedural and illegal, asserting that Heineken attempted to avoid litigation by indicating that the termination was “without prejudice.”
He argued that Heineken BV lacked the authority to terminate Maxam’s contract, as Heineken EA had committed to providing a three-month termination notice if it intended to end the relationship. Moreover, Heineken EA and Heineken BV never explained the reasons for the termination to Maxam.
Nyachoti further claimed that at the time of termination, Maxam’s business was valued at Shs 1.7 billion and that the company stood to lose this value if the termination proceeded without compensation.
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Justice Eric Ogola of the High Court ordered Heineken EA and Heineken BV not to terminate Maxam’s distribution rights. However, Heineken defied this order and appointed one of Maxam’s sub-distributors as the exclusive distributor.
Justice Joseph Onguto later extended the injunction preventing Heineken from terminating the contract. Maxam also informed the court that Heineken had attempted to bypass the court orders by selling directly to the market and by increasing Maxam’s purchase price for Heineken products while reducing the recommended selling price.
After hearing the arguments, High Court judge James Makau ruled that Heineken EA and Heineken BV had effectively ousted Maxam in 2016 and appointed new distributors in its place.
