A Nairobi court has ordered Dutch brewer Heineken to pay Kenya based firm, Maxam Limited Sh 1.7 billion as damages for unlawful termination of a contract agreement between the two.
The brewer was sued through its affiliates, Heineken East Africa Import Company Limited and Heineken International B.V.
Justice James Makau has further restrained Heineken or its agents from terminating the distribution agreement dated 21st May 2013 between Maxam and Heineken East Africa Import Company Limited relating to the distribution of the Heineken larger beer brand in Kenya contrary to the terms of the agreement.
In addition, the Dutch firm has also been restrained from appointing any other distributor of the said beer in Kenya contrary to the terms and conditions of the agreement.
The court declared the notice of termination dated 27th January 2016 from Heineken East Africa to Maxam is unlawful, irregular, unprocedural and therefore null and void ab initio.
“The circumstances of the breach under which special damages arose have been successfully demonstrated before this court and I find that there is no dispute that the plaintiff has now completely been driven out of the business and lost their entire Heineken beer distribution. And for that reason, special damages would be the only award that would compel itsef to this court,” Justice Makau ruled.
The judge found that the Maxam is entitled to special damages for the reasons that under clause 26, Heineken was required to continue performing its obligations according to the terms and conditions of the agreement pending the resolution of the dispute herein but it acted contrary and completely cut the supply leading to immediate collapse and extinguishing the plaintiff’s (Maxam) business and investment.
Through lawyer Philip Nyachoti, Maxam submitted that the two firms executed an agreement on 21st May 2013 for tye distribute of the said beer which came into force effective date being 1st May 2013 to remain in force and effective until the end of the third anniversary of that effective date and was to be automatically extended for a period of one year and subsequent one year period unless terminated by either party by giving the other written notice of termination within three months of the third anniversary of the effective date or one year extension.
Nyachoti further submitted that on 26th January 2016, Heineken illegally and unprocedurally issued a termination notice of the Kenya agreement contrary to the law and equity.
The court heard that on 26th April 2016 interim orders were issued prohibiting the Dutch firm from terminating the said agreement pending the hearing and determination of the suit. However, on 31st July 2017, the court on its own motion vacated the said orders and immediately thereafter, Heineken proceeded to appoint one of Maxam’s sub-distributors, Jeyfine Wine Company Limited and thereby entirely circumventing Maxam’s exclusive distributorship role under the Kenyan agreement.
This appointment altered the whole subsisting relationship that Maxam had zealously moved to court to protect.
The court heard that Heineken EA is now personally selling and distributing the beer directly to the market and at lower prices than those allowed to Maxam which is in itself a scheme to circumvent the court orders in place in favour of the plaintiff and to stifle the plaintiff’s business.
In their submissions, the Dutch firm submitted confirmed that it did issue the notice of termination and was under no obligation to give any reasons for the termination.
The court declared the pricing models imposed on Maxam by Heineken EA without its prior consultation and/or express consent and which models were issued subsequent to the court order dated 28th August 2017 are exploitative, oppressive, unfair, null and void.
“A declaration is and is hereby issued that Heinaken’s conduct of issuing lower market prices to other distributors of the Heineken larger beer, approving higher market prices on Maxam on the same product and arbitrarily reducing their approved margins is discriminatory and offends the provisions of Article 27(2) of the constitution,” Justice Makau ruled.
The judge declared that the Kenyan Distribution Agreement dated 21st May 2013 between the two parties is in full force and effect as per the terms set out therein.
“Special damages for loss of business of Sh 1,799,978,868 is awarded to the plaintiff,” the judge ruled.
The court further directed Maxam to submit its distributorship agreement dated 21st March 2013 to the stamp duty collector for assessment of the duty payable, upon which it should pay the amount in the normal manner within seven days from the date of this judgment and copy of the stamped document bearing stamp duty collector’s stamp and court stamp be submitted to the Deputy Registrar within four days from such stamping by court for record purposes.
