The Court of Appeal's decision, which upheld a ruling directing Heineken E. A and Heineken B.V to pay Maxam Limited Ksh.1.7 billion compensation for terminating a distributorship agreement, has significant implications for both the Dutch beer maker and Maxam Limited.
The three-judge bench, consisting of justices Pauline Nyamweya, Ali-Aroni, and John Mativo, ruled that the Notice of Termination from Heineken E. A to Maxam Ltd, dated January 27, 2016, was deemed unlawful, irregular, and unprocedural, and therefore null and void, due to specific reasons.
"We affirm and uphold the award by the High Court to Maxam Ltd of special damages for loss of business of Ksh. 1,799,978,868.00 to be paid by Heineken E.A and Heineken B.V, arising from their repudiatory breach of the Kenya Distribution Agreement," read the judgment.
Heineken, in its appeal, raised a critique against the High Court decision, arguing that the judge's ruling on Maxam Limited's legitimate expectation of the agreement's non-termination was erroneous.
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Heineken argued that Maxam Ltd. was aware, at the time of contracting, of the investment required to fulfill its part of the bargain of the contract and the commercial risks of its contractual obligations and willingly entered into the Kenya Distribution Agreement despite the termination clause.
Furthermore, under the terms of the Kenya Distribution Agreement, Heineken B.V. had no obligation to negotiate the terms of the termination with Maxam Ltd, compensate it following the termination, or provide any reasons for terminating the agreement if the termination notice was issued within three months of the third anniversary of the agreement's Effective Date.
"That the termination notice was rightfully issued by Heineken B.V., and that Maxam Ltd was legally represented during the extensive negotiations prior to the termination that culminated in a meeting held by the parties on January 27 2016, and were fully aware that Heineken E. A and Heineken B.V. would be terminating the Kenya Distribution Agreement upon the expiry of the three (3) year period," they argued.
Maxam argued that the termination notice was illegal, unprocedurally issued, invalid, null, and void. It added that the notice was issued on a "without prejudice" basis, meaning that it had no legal implications in relation to Clause 17 of the Kenyan Distribution Agreement between Maxam Ltd and Heineken E.A.
Similarly, Maxam claimed that after being appointed as the exclusive distributor of Heineken E.A's products, it set up elaborate infrastructure to fulfill and discharge its obligations under the agreement and specified the financial investment.
".....as a result, the market for Heineken products in Kenya expanded and grew significantly leading to the profitability of the business for both parties. Maxam Ltd tabulated the evaluation of their business as at the date of filing suit using various valuation methods, and averred that the average valuation from the said methods was Ksh. 1,799,978,868, and claimed that it stood to lose the value of its business if the Kenyan Distribution Agreement was allowed to terminate without compensation," argued lawyer Philip Nyachoti for Maxam Limited.
