BY NT CORRESPONDENT.
Dutch beer brewer, Heineken, has formally challenged the Sh1.7billion compensation awarded to Kenyan distributor, Maxam Ltd, for breach of contract four years ago.
Anjarwalla and Khanna Advocates, acting for Heineken International, filed the memorandum of appeal on October 23, against the decision made by Commercial Court Judge Aaron Makau on July 29, last year, awarding the local firm special damages to the tune of Sh1,799,868.
The brewer, which had been jointly sued with Heineken East Africa Import Company Ltd, has cried foul over what it terms as “excessive and unwarranted damages” claiming Maxam neither pleaded nor proved special damages for alleged loss of business.
“The Judge erred in law and in fact by holding that Maxam Ltd had a legitimate expectation that the distribution agreement would not be terminated,” the international firm said in court papers and argued that the court totally ignored the evidence tendered to justify the change in contract terms.
Heineken asserted that the court wrongfully concluded that it constructively terminated the distribution contract by appointing additional distributors even after the court had slapped sanctions on August 28, 2017. “This is despite the fact that the injunctive order barring appointment of additional distributors was not reinstated,” the firm has explained.
Commercial Court Judge Wilfrida Okwany granted the brewer conditional stay of execution of the award on November 14, last year pending the outcome of the appeal. Equity Bank has already offered the brewer’s guarantee of the total amount of compensation.
In the contested judgment, Justice Makau issued restraining orders barring the brewer and its agents from purporting to terminate the distribution agreement dated May 21, 2013. The court blocked the appointment of any other distributors after finding that the notice of termination by Heineken to Maxam, dated January 27, 2017, was “unlawful, irregular, null and void.”
The Judge pointed out that the brewer’s decision to offer lower market prices to other distributors, approving higher market prices to Maxam on the same products and arbitrarily reducing its profit margins was “discriminato6ry and offends the provisions of Article 27 (2) of the Constitution.” Further, the Judge declared the pricing models imposed on Maxam without prior consultation or express consent after the court’s intervention on August 28, 2017, were “exploitative, oppressive and unfair.”
At the time, Justice Joseph Onguto had restrained Heineken from interfering with Maxam’s operations pending the adjudication of the dispute. Maxam and its sister companies-Uganda’s Modern Lane Ltd and Tanzania’s Olepasu Ltd-were seeking Sh5.3billion compensation for the purported cancellation of the contracts.
Heineken has justified its decision to cancel the distributorship contracts with the three firms operating across East Africa on the basis that it intends to attract more suppliers to expand its business. One of the directors of the aggrieved firms, Ngugi Kiuna, filed the commercial dispute and secured an injunction issued by Justice Eric Ogola suspending any adverse action on the contracts until the dispute was resolved.
The beer manufacturer had claim the three distributors are not entitled to any explanation since the contracts were unequivocal that each of the contracted distributors could be compensated with €450,000 (Sh51 million) once the business relationship was severed.
The General Manager of Heineken East African Import Company (HEAIC), Uche Unigwe, said in court papers the three distributors were formally informed on December 23, 2014, of the parent company’s decision to terminate the exclusivity of the three-year contracts and that the firms were still eligible to enter into fresh agreements alongside other interested distributors.
Uche explained that the Sh1.8billion turnover realized by the Heineken brand across East Africa in 2015 up from Sh1.3billion the previous year could not be attributed to the individual marketing by the three firms but the sound management of sub-distributors in Tanzania. Further, the contested agreements were extensively negotiated with the distributors and they knew the commercial risks involved, he said in a sworn statement.
The brewer maintained that the three distributors did not deserve conservatory orders since they had taken legal action prematurely and breached the dispute resolution mechanism stipulated under their distribution agreements. The termination notices issued on January 27 were legally binding and the distributors had no mandate to seek the court’s protection, the brewer asserted in court papers.
Maxam Limited through veteran lawyer Phillip Nyachoti have not filed their response to the appeal.
However, the distributors have accused the beer maker and its affiliates of unilaterally cancelling the deals on flimsy, selfish and malicious grounds. They claim that the move is meant to frustrate them, deny them income and allow new-comers to infiltrate the business at lesser financial terms.
The distributors claimed they have made massive and substantial financial investments that were likely to be wasted once they were kicked out of business.
They had already negotiated and entered into binding agreements with third parties to secure warehousing, delivery and logistics that had greatly expanded the market and increased profitability for the Heineken brand, they said.
