Heineken stopped from terminating contract for distributors

Dutch beer manufacturer, Heineken, has been stopped from terminating its contract with three distribution companies.

The interim order was issued by Justice Eric Ogola against the brewer who issued termination notices to three distributors- Kenya's Maxam Limited, Uganda's Modern Lane Limited and Tanzania's Olepasu Limited.

"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," said Justice Ogola.

The three argued that Heineken had not given them any valid reasons for the termination. They also expressed fear that Heineken was planning to replace them with different distributors but on different terms to operate in a market which they, the distributors, have already set up and extensively established.

The distributors claimed that they had put up massive financial investments including securing a €250,000 (Sh29,052,585) guarantee from one of the reputable Kenyan banks.

They also acquired, maintained and operated numerous warehousing units, utilising temperature records in storage areas, established existing set of delivery routes and acquired numerous lorries and other vehicles.

The distributors reckoned that as a result of their efforts, business for the brewer in the region- Uganda, Kenya and Tanzania- has grown considerably recording a turnover of Sh1.87 billion in 2015 from Sh1.39 billion recorded in 2014.

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

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.

Heineken had refuted the distributors' claims through one of its general manager Uche Unigwe in a sworn affidavit. Heineken argues that it never formerly approved the choice of sub-distributor by HIBV thus breaching a part of the contract.

The brewer had argued that the deals struck with the three firms allowed it to terminate the agreements without having to make any explanations.

The termination, it says, is aimed at deleting the exclusivity clause in the current contracts to open up the distribution of its products across the region to more firms that are willing to partner with it.