Dutch Beer maker Heineken E.A and Heineken B.V has received a blow after the Court of Appeal upheld a decision that directed it to pay Maxam Limited a Ksh.1.7 billion compensation for terminating a distributorship agreement.

A three judge bench consisting of justice Pauline Nyamweya, Ali-Aroni and John Mativo ruled that a Notice of Termination, from Heineken E.A to Maxam Ltd, dated January 27, 2016 was unlawful, irregular, unprocedural, and therefore null and void.

"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,” reads the judgement.

On the appeal, Heineken had faulted the High Court ruling saying that the judge erred by ruling that Maxam Limited had a legitimate expectation that the agreement would not be terminated.

Heineken had argued that Maxam Ltd was aware, at the time of contracting, of the investment it would have to make to fulfil its part of the bargain of the contract and the commercial risks of its contractual obligations, and having considered the risk and benefits, willingly entering into the Kenya Distribution Agreement notwithstanding the termination clause.

Furthermore, that under the terms of the Kenya Distribution Agreement, Heineken B.V. had no obligation when terminating the Kenya Distribution Agreement to negotiate the terms of the termination with Maxam Ltd, or to compensate it following the termination, or to give any reasons for terminating the agreement, if the termination notice was issued within three months of the 3rd anniversary of the Effective Date of the agreement. 

"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 27th January 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.

It was Maxam case that the termination notice was illegal, unprocedurally issued, invalid, null and void adding that the notice was issued on an “without prejudice” basis meaning therefore, it had no legal implications as regards Clause 17 of the Kenyan Distribution Agreement between Maxam Ltd and Heineken E.A

Similarly Maxam claimed that following its appointment as the exclusive distributor of the products of Heineken E.A, it embarked on setting up elaborate infrastructure so as to fulfil and/or discharge its obligations under the agreement, and particularised 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.