Heineken distributors win first round in contract termination row

Dutch brewer Heineken has been stopped from terminating contracts it had signed with three distributors in Kenya, Uganda and Tanzania until a High Court suit that they have filed against it is determined.

Justice Eric Ogola has issued a temporary order stopping Heineken from effecting termination notices it sent to Kenya’s Maxam Limited, Uganda’s Modern Lane Limited and Tanzania’s Olepasu Limited after they claimed in court that the brewer has not given reasons for the move, which they insist is unlawful.

The three distributors in their suit argue that Heineken wants to terminate their contracts despite their efforts to grow the brewer’s turnover to Sh1.8 billion in 2015 up from Sh1.3 billion a year earlier.

Heineken sent termination notices to the three distributors last month. The distributors have sued Heineken International BV and its subsidiaries Heineken East Africa Import Company and Heineken Brouwerjen BV.

“Pending the hearing and determination of this application, the defendants or any other person acting on their instructions be and is hereby restrained by an injunction from appointing any distributor for the distribution of the Heineken beer brand in Kenya, Uganda and Tanzania being the business currently carried out by the applicants,” Justice Ogola ordered.

Heineken is yet to respond to the suit but Justice Ogola has granted the Dutch firm until February 18, when the case comes up for hearing before him, to file a reply.

Heineken’s distributors have argued that allowing the beer maker to terminate their contracts would affect third parties from whom they have leased warehouses, lorries for transportation and sub-distributors to move the products.

The three suppliers add that Heineken International BV, the parent company, has no authority to terminate the agreements as they signed their contracts with Heineken Brouwerjen.

“The applicants have made massive financial investments in the defendants’ beer brand larger distribution and have also entered into numerous contracts with third parties to ensure availability of proper infrastructure and distribution. The defendants have not given any reasons whatsoever for the termination of the three agreements,” the distributors say.

Heineken’s deal with Kenya’s Maxam was to see the distributor move beer for the Dutch brewer from May 2013 to May 2016 after which the contract would be renewed on a yearly basis.

Maxam alongside its Ugandan and Tanzanian counterparts claims that Heineken intends to engage other distributors on different terms to keep moving the products. Maxam has carried Heineken’s brand in Kenya since 2007 when the Dutch beer made its entry into the country.

Heineken was to compensate each distributor with €450,000 (Sh51 million) in the event of termination of a contract.

The three distributors say they have worked hard to build Heineken’s distribution network since being contracted and now stand to lose the fruits of their labour to a new supplier.