BLOW TO EABL IN LONG-RUNNING DISPUTE WITH DISTRIBUTOR.

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East Africa Breweries limited has suffered a major blow after they were in contempt of High Court orders that stopped them from terminating distributorship agreement with Bia Tosha.

BY SAM ALFAN.

East Africa Breweries Limited (EABL) and Kenya Breweries Limited (KBL) have suffered a blow after the Supreme Court ruled in favor of alcohol distributor.

The Apex Court decision means Bia Tosha will get back it business to continue distributing the brewer products in 22 areas as it used to do before EABL attempted to terminate their distribution agreement.

Supreme Court found that they were in contempt of High Court orders that stopped them from terminating distributorship agreement with Bia Tosha.

Deputy Chief Justice Philomena Mwilu and Justices Smokin Wanjala,Njoki Ndung’u, Isaac Lenaola and William Ouko directed the High court to proceed to assess the suitable punishment arising out of the contempt application by Bia Tosha.

“Having found that there was contempt of court, the High Court should also proceed to assess the suitable punishment arising out of the contempt application dated 23rd August 2016 by Bia Tosha pending before it,” ruled the Judges.

This is after the Apex Court allowed the distributor appeal and set aside Court of Appeal Judgement to refer the dispute to arbitration per the respective parties’ distributorship agreements.

“The judgment and orders of the Court of Appeal in Civil Appeal No. 163 of 2016 delivered on the 10th July 2020 be and are hereby set aside in entirety,” said the supreme court judges in their decision.

The Beer distributor which had been appointed as the sole distributor for KBL liquor products for various routes within the country moved to court in 2016 after KBL and EABL repossessed 22 routes and reallocated them to other distributors and refused to refund the goodwill for the repossessed routes.

The Apex Court Judges faulted the EABL and KBL adding that it was ingenious for the brewer to turnaround and raise expiry of contract that was never the subject of the court proceedings and determination. 

The judges further said that even if that were to be the case, it is absurd that the KBL, EABL and Diageo plc would on one hand invoke the expiry of the contract to justify noncompliance with the court orders while at the same time relying on the same ‘expired’ contract to refer the matter to the arbitrator.

“Moreover, the order of the Court of Appeal affirms that as at 11th August 2016, when the contract relied upon by the respondents had ostensibly expired, the parties were still trading. This is the trading arrangement that both superior courts below preserved during the pendency of the hearing,” said the Supreme Court.

Bia Tosha in the High court suit claimed KBL and EABL trade practices were unreasonable, anti-competitive, discriminatory and contrary to public policy, and in breach of its fundamental freedoms.

It was Bia Tosha’s case that KBL’s actions of refusing to pay back goodwill which was sh 38 million amounted to a violation of its right to property under Article 40 of the Constitution.

The High Court then issued an order preserving the exclusive distributorship to Bia Tosha but KBL went ahead and terminated the contract.

Bia Tosha filed contempt of court proceedings against the top directors of KBL and EABL and sought a jail term of six months against the bosses plus a fine of  Sh30 million. 

However KBL and EABL moved to Court of Appeal and in its judgment, the appellate court overturned the High Court decision.

The appellate court  directed the case to be handled by an arbitrator as per the distributorship agreements.

Bia Tosha aggrieved escalated the dispute to the Supreme Court which ruled in favour of the distributor.

The Supreme Court Judges held that the Court of Appeal failed to appreciate and uphold that the dispute before the court related to breach of constitutional rights.

“The Court is alive to the fact that arbitration must remain an option open to any party within their understanding of their contract and there is no bar to any of them invoking any arbitral clause to assert their rights under the said contract…In determining the consequential reliefs, the Court underscored the fact that the main dispute is live before the High Court and decried the time taken in litigation,” observed the Supreme Court Judges.

The Apex court bench further noted that the Court of Appeal did not decide on the pending applications either in a ruling or indeed in the judgment.

It was Supreme Court Judges view that there was breach of the status quo orders and this was manifest in the KBL and UDV (KENYA) ltd attempt to terminate the contract with Bia Tosha or otherwise interfere with the said routes as revealed in the position on record taken by the said company.

 The decision adds that the replying affidavit sworn by Nadida Rowlands in response to the Bia Tosha’s application dated 23rd August, 2016 the KBL and UDV (k) ltd stated that the routes allocated under the two-month agreement were: Hurlingham, Industrial Area, Kenyatta, Langata, Nairobi West, South B and Upper Hill

“In the letter dated 5th August, 2016 the two company’s lawyers request for evidence from the appellant of distribution routes as at 2nd February, 2006 was in our view mischievous in view of their long-standing partnership,” said Judges.

This by extension amounted to contempt of court on the part of the KBL and UDV (k) ltd and prompted the applications to court by the appellant.   

The Judges noted that the effect of taking court processes and in particular court orders lightly even in the face of the court is that it is likely to encourage descend into anarchy and loss of confidence in the court process.

“It was an unfortunate misdirection, in our view, that the appellate court, in the wake of such an application, deliberately ignored the same and shelved it as a side show…It is more disturbing that such an omission did not find any place for explanation in the judgment,” they noted.

The five-judge bench remitted the case back to the High Court for hearing and restored the orders which were in force.

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