Dutch beer maker Heineken has moved to the High Court seeking to halt a decision awarding Ngugi Kiuna more than Sh1.7 billion to terminate a distribution agreement, arguing that the Kenyan businessman would likely force Equity Bank to release the funds.
Heineken East Africa Import Company revealed in court papers that it had obtained a bank guarantee from Equity Bank while the case was pending in the Court of Appeal, and Maxam Limited is likely to demand the release of the funds at any time.
This was after an appeals court upheld the multi-million dollar award awarded to Maxam after Heineken terminated its distribution contract in 2016.
“Once the payment is made, the amount will no longer be accessible to this honorable court,” the Dutch brewer said through senior counsel Fred Ngatia. Mr Ngatia further said it would be impossible to recover the money because Maxam has no known assets that could be seized and there is no certainty that these assets will be available by the time the High Court determines the appeal.
Deputy Registrar of the High Court, Nelly Kariuki, certified Heineken's appeal as urgent but refused to grant the stay order as requested.
Ms Kariuki directed Mr Ngatia to submit documents to Mr Kiuna's company by the end of the day and scheduled the matter to be brought before her on July 5 for further directions.
In a ruling last month, a three-judge panel of the Court of Appeal upheld the High Court's decision, which ordered Heineken to pay Mr Kiona in exchange for terminating the distribution agreement in January 2016.
Justices Pauline Nyamuya, Abida Ali Aruni and John Mativo said the phrase “without prejudice” in the termination notice created ambiguity because the two words could not be understood to mean a legal or valid notice of termination under clause 17 of the distribution agreement signed by the parties.
“Our finding is that the letter and notice of termination dated 27 January 2016 issued by Heineken EA and Heineken BV on an ‘without prejudice’ basis is inadmissible as evidence of any negotiations, acceptance or acquiescence on the part of Maxam.” The judges said.
The court was told that Heineken East Africa Import Company Ltd – which markets and sells Heineken Lager beer – was part of the Heineken group of companies, a world-famous and reputable company with operations in 170 countries.
“In the absence of a unilateral moratorium in the first place, the guarantee will be called for, rendering this proposal invalid,” Ngatia said.
On the intended appeal, Heineken wants the court to determine whether the appellate court erred in law by holding that there was a clear presumption that unilateral termination was not available in the distribution agreement.
“A declaration that merely by the fact that the Court of Appeal wrongly assumed that it was bound by the necessities of Article 10 when applying or interpreting contract law, the Court violated the principle of rescission which was binding on it under Article 163(7),” Heineken said.
The beer maker said the distribution agreement was for a period of three years starting from May 1, 2013, until May 1, 2016. The company said that a three-month notice from either party to the end of the period would effectively terminate the agreement.
If the agreement is not terminated, it will be renewed for one year. Likewise, a three-month notice before the term expires would effectively terminate the agreement, Heineken said in court documents.
Even with the notice, Mr Kiona received revenue for four years and three months instead of three years as stipulated in Clause 17 of the distribution agreement, the company said.
“It is noteworthy that since the termination did not take place, the second defendant (Mexam) continued to trade and earn profits for the next period of one year and three months,” Heineken submitted.
Furthermore, Heineken said the Court of Appeal had erred in applying national values and principles of adjudication to a purely private law dispute.
The company also said that the Court of Appeal did not specify the national value or governance principle in Article 10 that would be applied in the distribution agreement or would be used in interpreting the agreement.
The appeal court judges said the distribution agreement legally existed at the time Heineken contracted with other distributors.
Mr Kiona is the former Chairman of BOC Kenya and is among the company's largest shareholders. He was also a former member of the Board of Directors of Proctor & Allan and Transceny Kenya, in which he has a stake.
Maxam Ltd and its sister companies – Uganda's Modern Lane Ltd and Tanzania's Olepasu Ltd – have filed a lawsuit against Heineken East Africa Import Company Ltd and Heineken International BV, seeking damages for the cancellation of contracts concluded between the parties in May 2013.
At the time the contracts were terminated, Maxam stated that it had made significant and significant financial investments that would likely have been lost once it was fired.
According to the distributor, Maxam had already negotiated and entered into binding agreements with third parties to secure warehousing, delivery and logistics services that significantly expanded the market and increased the profitability of the Heineken brand.
Through lawyer Philip Nyashoti, the distributor accused the beer maker and its affiliates of unilaterally canceling deals for flimsy, selfish and malicious reasons.
Mr Nyachoti argued that the termination was intended to frustrate Maxam, deprive the company of income and allow new entrants to infiltrate the company on lower financial terms.
The distributor claimed damages for business losses, amounting to Sh1.799 billion, among other damages, which were awarded by the High Court and upheld by the Court of Appeal.
