Heineken East Africa Import Company Ltd & another v Maxam Ltd (Civil Appeal E403 & E404 of 2020 (Consolidated)) [2024] KECA 625 (KLR)
The bottom line
#Kenya's Court of Appeal largely upheld a Kshs 1.8 billion damages award against Heineken for wrongly terminating Maxam's exclusive distribution agreement, but trimmed several High Court declarations.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether bias on the part of the learned Judge of the High Court was established
- 2.Whether the doctrine of legitimate expectation was applicable to the purely private commercial contract between private parties
- 3.Whether the trial court erred in relying on the interlocutory ruling of Ogola J in determining the validity of the termination notice
- 4.The legal effect of the termination notice dated January 27, 2016 issued 'without prejudice'
- 5.Whether the Kenya Distribution Agreement was illegal for want of stamping under the Stamp Duty Act
- 6.Whether the exclusive distribution agreement offended section 21 of the Competition Act
- 7.The legal effect of the appointment of third-party distributors by the appellants during the pendency of the suit
- 8.Whether the special damages awarded were pleaded and proved
- 9.Whether the order for the taking of accounts rendered the judgment incomplete and offended the functus officio doctrine
Key legal issues
#Applicability of legitimate expectation to private commercial contracts
The doctrine is inapplicable between private parties; the trial judge erred in applying it and conflated it with reasonable expectation arising from contract terms
The court traced the doctrine's public law origins (Schmidt, Coughlan) and affirmed Supreme Court authority (CCK v Royal Media Services) that the representation must emanate from a public body. It examined the Seychelles and Tanzania decisions that attempted to transplant the doctrine into contract law and noted both were overturned on appeal. It distinguished the Kenyan situation under the 2010 Constitution, where equity under article 10(2)(b) informs contract law, but held that reasonable expectation, not legitimate expectation, supports damages claims in contract.
Legal effect of a 'without prejudice' termination notice
The notice was inadmissible as evidence of termination, was ambiguous, and could not constitute a valid notice under clause 17 of the Distribution Agreement; the agreement remained subsisting
Relying on section 23(1) of the Evidence Act and Oceanbulk Shipping v TMT, the court held the without prejudice rule renders the letter inadmissible to prove admissions. Adopting Unilever v Procter & Gamble, it refused to dissect out portions of the communication for protection. Applying Chitty's requirement that a notice be clear and unambiguous, doubts were construed against the originator, who could have issued two separate notices. The trial court erred only in finding the notice invalid under clause 18.
Appointment of third-party distributors during litigation
The appointment was in breach of clause 26 and constituted a repudiatory breach; third parties acquired no rights against Maxam Ltd and could not disrupt vested contractual rights
The interim orders did not license the appointment; the vacation of the fifth limb only acknowledged the fait accompli. A court cannot rewrite a contract (National Bank of Kenya v Pipeplastic Samkolit). The breach deprived Maxam Ltd of the core benefit of exclusivity, amounting to repudiation, which Maxam Ltd is deemed to have accepted. Third parties without privity take the risk that the giver's rights fail in litigation, and the appellants' pleaded prejudice was self-inflicted.
Proof of special damages for loss of business
The valuation report by PW2 was uncontradicted by contrary expert evidence and supported the award of Kshs 1,799,978,868, but the claims for actual losses of reduced volumes and profits failed for want of specific proof
Relying on AG v Zinj and Griffiths v TUI, the court held that a party who does not tender expert evidence of its own takes the risk of not displacing the opposing expert report; cross-examination was insufficient to jettison the report's methodology and findings. Damages for breach of contract are compensatory, and loss of expected profits may be established by reasonable estimation (MSK Projects India). Clause 21 excluding compensation only applied on valid termination, which had not occurred.
Functus officio and the order for taking of accounts
The order for account of profits after final judgment was improper as that relief is interlocutory, but the offending order was severable and did not nullify the entire judgment
Following Telkom Kenya v John Ochanda and Chandler v Alberta Association of Architects, the functus officio doctrine bars merit-based re-engagement after final judgment. Account of profits (AG v Blake) is available only in exceptional cases and at an interlocutory stage. Exclusive beer distribution agreements qualify as exceptional cases warranting such relief, but it must be sought at the proper stage. Because it was one order among several, it was severable.
Illegality under the Competition Act
Exclusivity in a distribution agreement is not a per se prohibition under section 21 absent a lessening of competition or monopoly power
The court drew on comparative jurisprudence (the Dentsply case, the South African Breweries characterisation test) to hold that exclusive vertical arrangements require proof of anticompetitive effect or a per se prohibited characterisation such as price-fixing. The appellants conceded Maxam Ltd had no monopoly influence and adduced no evidence. The court also noted that a breach of competition law now founds a private damages claim (Devenish Nutrition).
Legal principles established
#- The doctrine of legitimate expectation is a public law doctrine that can only be applied against a public body and is inapplicable to disputes between private parties to a commercial contract
- A notice of termination communicated 'without prejudice' is inadmissible as evidence of termination and, where ambiguous, must be construed against its originator, so that it cannot constitute a valid notice of termination
- Exclusive beer distribution agreements are sui generis; investments made by beer distributors constitute irrebuttable goodwill qualifying as property, and unilateral termination without regard to that investment offends article 10 of the Constitution
- Appointment of third-party distributors in breach of an exclusive distribution agreement amounts to a repudiatory breach discharging the innocent party, who may then claim damages
- The remedy of account of profits is available for breach of exclusive beer distribution agreements as 'exceptional cases', but only at an interlocutory stage and not as a final order in a judgment
- Exclusivity clauses in distribution agreements do not, without evidence of a lessening of competition or monopoly power, offend section 21 of the Competition Act
Court orders
#- 1.The consolidated appeals are dismissed, save for the grounds on the application of the doctrine of legitimate expectation and on the order for account for profits
- 2.Set aside: the injunction orders restraining the appellants from terminating the distribution agreement and from appointing other distributors
- 3.Set aside: the declaration that the Kenyan Distribution Agreement dated May 21, 2013 is in full force and effect
- 4.Set aside: the declarations that the appellants infringed Maxam Ltd's rights under article 19 and article 27(2) of the Constitution
- 5.Set aside: the declaration that the pricing models imposed on Maxam Ltd were exploitative, oppressive, unfair, null and void
- 6.Set aside: the order directing the taking of accounts in respect of loss of profits
- 7.Set aside: the special damages for loss of profits as tabulated in prayer (i) of the plaint
- 8.Affirmed and upheld: the order directing Maxam Ltd to submit the Distributorship Agreement to the Stamp Duty Collector for assessment and payment of duty
- 9.Affirmed and upheld: the declaration that the notice of termination dated January 27, 2016 was unlawful, irregular, unprocedural and null and void
- 10.Affirmed and upheld: the award of special damages for loss of business of Kshs 1,799,978,868.00 against the appellants
- 11.Heineken EA and Heineken BV shall pay Maxam Ltd the costs of the trial in the High Court and of the consolidated appeals
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Jurisdiction invoked
- First appeal to the Court of Appeal under Article 164 of the Constitution of Kenya, 2010, from the High Court (Civil Appeal Nos E403 and E404 of 2020)
- Consolidated with
- Nairobi Civil Appeal No E404 of 2020 (Heineken International BV)
Relief refused
#Application of the doctrine of legitimate expectation to sustain automatic renewal of the Distribution Agreement
The doctrine is rooted in public law and cannot apply as between private parties to a commercial contract; the trial judge conflated legitimate expectation with reasonable expectation
Order for the taking of accounts in respect of loss of profits after final judgment
The relief of account of profits is sought and granted at an interlocutory stage and cannot remain open after final judgment; the offending order was however severable
Claim for special damages for loss on decreased volumes of sale (Kshs 11,495,674.00) and loss of profits (Kshs 5,116,514.00)
These were actual losses that ought to have been specifically proved; no such evidence was brought by Maxam Ltd
Constitutional declarations under articles 19 and 27(2) of the Constitution
Unnecessary under the principle of constitutional avoidance, as the matter was properly decidable on contract law
Allegation of bias against the trial judge
No evidentiary basis of interest, association, conduct or extraneous knowledge was provided to give rise to a reasonable apprehension of bias
Costs
Heineken EA and Heineken BV shall pay Maxam Ltd the costs of the trial in the High Court and of the consolidated appeals herein.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
The consolidated appeals by Heineken EA and Heineken BV are hereby dismissed, save for the grounds on the application of the doctrine of legitimate expectation and on the order for account for profits.
Heineken EA and Heineken BV shall pay Maxam Ltd the costs of the trial in the High Court and of the consolidated appeals herein.
We afirm and uphold the award by the High Court to Maxam Ltd of special damages for loss of business of Kshs 1,799,978,868.00 to be paid by Heineken EA and Heineken BV, arising from their repudiatory breach of the Kenya Distribution Agreement.
the doctrine of legitimate expectation was inapplicable to the contractual relationship between Heineken EA, Heineken BV and Maxam Limited
the letter accordingly cannot be construed as amounting to a lawful or valid Notice of Termination under Clause 17 of the Distribution Agreement
investments made by beer distributors in Kenya constitute irrebuttable goodwill, automatically qualifying as property
we find it to have been a repudiatory breach by Heineken EA and Heineken BV, as it essentially deprived Maxam Ltd of the core benefit of the Kenya Distribution Agreement
a counter-report was required to efiectively contradict the contents of the report, and the Appellants’ cross-examination of Maxam Ltd’s witness was not suficient to jettison the findings in the report
the judgment could not remain “open” for the taking of account of profits after final judgment was rendered by the trial court, absent any exceptional circumstances to justify the order of taking of accounts
Once parties accept the jurisdiction of the court and tender pleadings an objection cannot subsequently be taken that the dispute ought to have been referred to another forum.
Issues in the judgment
#The judgment gives inconsistent dates for the Kenya Distribution Agreement: the appointment letter and agreement are dated May 21, 2013 throughout, but the stamping order and the disposition refer to “March 21, 2013” and one witness refers to “21st March 2013”
The letter of termination is dated January 27, 2016 throughout, but the court introduces the reproduction of the letter as “the letter dated January 26, 2016”
The citation for R v S (RD) is given as [1977] 3 SCR 484, which is inconsistent with the internal reference to that judgment at paragraph 99 in the appellate context
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Heineken East Africa Import Company Ltd & another v Maxam Ltd (Civil Appeal E403 & E404 of 2020 (Consolidated)) [2024] KECA 625 (KLR)", Case Analysis (2024). Nairobi Civil Appeal No E403 of 2020 (consolidated with Civil Appeal No E404 of 2020). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2024/625/eng@2024-05-24
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.