Court upholds decision to have beer firm pay Sh1.79b

A Dutch beer maker Heineken has suffered a major blow after the Court of Appeal declined to quash the Sh1.79 billion compensation bill slapped on it for terminating a Kenyan distributorship agreement with tycoon Ngugi Kiuna’s firm Maxam Ltd.

A three-judge bench of the appellate court comprising of Justices Pauline Nyamweya, Abida Ali-Aroni, and John Mativo upheld the decision of the High Court that the move by Heineken East Africa to terminate the distribution agreement with Maxam Limited was unprocedural, illegal, and unlawful.

“We affirm and uphold the declaration issued by the High Court that the Notice of Termination dated January 27, 2016 from Heineken E.A to Maxam Ltd was unlawful, irregular, unprocedural and therefore null and void,” the judges ordered.

They also upheld the award by the High Court to Maxam Ltd of special damages for loss of business amounting to Sh1,799,978,868.00 to be paid by Heineken E.A and Heineken B.V, arising from their repudiatory breach of the Kenya Distribution Agreement.

While dismissing the consolidated appeals by Heineken East Africa Import Company Ltd and Heineken International B.V, the judges found Maxam Ltd owner Kiuna laid out justifiable reasons as to where it was entitled to the compensation damages amounting to billions of shillings from the international beer maker.

Justices Nyamweya, Abida and Mativo found that after the agreement, Maxam made heavy investments including renting warehouses in Nairobi and several depots across the country and invested in a fleet of vehicles in addition to employing staff to manage the distributorship.

The appellant court found that  Heineken E.A and Heineken B.V actions to cancel the distribution agreement had infringed on Maxam Ltd’s rights as protected by Article 19 of the Constitution.

“A Distributorship Agreement is a sui-generis agreement requires that the special commercial and legal characteristics of these agreements are taken into account. That consistent with the sui generis nature of this commercial relationship, and as an imperative of Article 10(2) of the Constitution, investments made by beer distributors in Kenya constitute irrebuttable goodwill, automatically qualifying as property,” the Court of Appeal judges held.

They noted that the special relationship existing between beer manufacturers and beer distributors invites the clear presumption that unilateral termination is unavailable to beer manufacturers given the inherent power dynamics obtaining in the relationship between manufactures and distributors which is invariably tilted in favour of manufacturers and, further, that any mutual separation has to be guided by, conform and be consistent with, the imperatives of Article 10(2) of the Constitution.

Payable damages

Heineken had approached the court of appeal stating that the high court erred when it issued an order to have it compensated Maxam limited 1.7 billion arguing that there were no damages payable and that it’s wrong that the judgement came to that consciousness.

“The judge did not say where the breach occurred. When and how the judge processes to rule on the law of legitimate expectations which does not apply to private entities ...that’s why we say the judge was bias ...he ignored all our submissions,” the beer maker had told the judges. The brewer has faulted Justice James Makau’s decision, arguing that the judge failed to consider the terms of the distributorship agreement.

Legitimate expectation

Heineken had also argued that it was wrong for the judge to rule that Maxam Ltd had a legitimate expectation that the agreement would not be terminated.

 On its side, Maxam Limited lawyer Phillip Nyachoti opposed the submissions and argued that the judge was right in compensating it. and that the judge delivered a complete and a solid judgment. ”The judge didn’t error in awarding the damages as he did in his judgement,” Nyachoti submitted.

On legitimate expectations, Nyachoti submitted that it’s not correct that the judge relied on the doctrine of legitimate expectations to arrive at his decision according to Maxam the high court judge considered the submissions by all parties.

Additionally,  Nyachoti argued that the actions by Heineken were oppressive, unreasonable and they were not acting in good faith.

 Further, Maxam Limted stated that  Heineken E.A and Heineken B.V. had not given any reasons whatsoever for the termination of the agreement.