KENYA – Beverage giant Heineken B.V. has been ordered to pay Kes1.7 billion (US$12.78M) to its former Kenyan distributor, Maxam Limited, for breaching a distribution contract
The Court of Appeal upheld the High Court’s 2016 decision, confirming that Heineken’s termination of the agreement was illegal.
Justices Pauline Nyamweya, Abida Ali-Aroni, and John Mativo dismissed Heineken’s appeal and affirmed the lower court’s ruling, which found that Heineken’s notice of termination was unlawful and unprocedural. The court also ordered Heineken to bear the costs of the case.
The legal dispute began when Heineken terminated its distributorship agreement with Maxam Limited, which had been appointed as the exclusive distributor of Heineken products in Kenya starting from May 1, 2013.
The notice of termination was issued on January 27, 2016, a move that Maxam contested as invalid.
Maxam, represented by advocate Philip Nyachoti, argued that Heineken’s termination notice did not comply with the agreement’s requirements.
The contract stipulated a three-month notice period and required valid reasons for termination, none of which were provided by Heineken. Additionally, the agreement was said to automatically renew yearly, with the first extension taking effect on June 1, 2016.
Nyachoti pointed out that the termination notice was issued by Heineken International B.V. from the Netherlands rather than Heineken East Africa, which was the party to the agreement. This, he argued, violated clause 33 of the contract, rendering the notice invalid.
The appellate Judges supported these arguments, stating: “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 of 27th January 2016 and was not validly terminated.”
They emphasized that the Kenya Distribution Agreement was still legally binding as of that date and had not been validly terminated.
Regarding the award, the Judges considered the valuation report and other evidence presented by Maxam before Justice James Makau. The valuation report aimed to assess the financial loss Maxam would incur if Heineken discontinued the distributorship contracts.
The Judges noted that, based on the business relationship and practical workings between the companies, Maxam was effectively a joint venture partner with Heineken E.A. and Heineken B.V. and thus entitled to a share of the profits from the sales it facilitated.
The appellate court found no legal or factual grounds to challenge the Kes1.7 billion awarded by Justice Makau, concluding that the compensation was justified based on the evidence presented.
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