Heineken in Kenya Fined for Trade Violations
Heineken has been fined $17 million in damages it caused a distribution company due to trade violations. Maxam Ltd, a Kenyan alcoholic beverage distribution company, has been awarded $17 million in damages by the High Court of Kenya for loss of business after Heineken International BV unfairly terminated its distribution agreement. The High Court has also reinstated the distribution agreement that the Dutch beer giant illegally cancelled. The way Heineken apparently deals with its distributors in African countries highlights both its systematic unethical business practices, as well as casts further shadow over the (now suspended) partnership between the beer giant and the Global Fund to Fight AIDS, Tuberculosis and Malaria.
Investments, aggressive pursuit of profit, contract violations
Heineken, the second largest beer producer in the world, has been distributing its beer in Kenya through Maxam Limited, since 2007, when it took over rights to hold the franchise. Forbes reports that a formal exclusive distribution agreement for Kenya was signed between the two companies in 2013. Subsequently Maxam invested significantly in developing distribution infrastructure and in marketing Heineken brands aggressively across Kenya.
But only three years later, Heineken terminated the contract, claiming the termination was aimed at deleting the exclusivity clause in the contract. Heineken was pursuing opportunities to open up the distribution of its products across the region to other firms.
Maxam accused Heineken of sidestepping them and of acquiring Maxam’s key account customers as sub distributors ignoring an order stopping such business practices. Maxam also alleged Heineken was offering lower prices to other distributors while approving higher prices to Maxam on the same products.
Trade violations and exploitation as business strategy
Ultimately the High Court rules that the complainant convincingly proved that Heineken acted in breach of their contract and noted that there was no basis for Heineken to appoint additional distributors. According to the judge, after Heineken terminated its agreement with Maxam, the distributor lost significant business. In order to compensate Maxam for the loss, he directed Heineken to pay Maxam KES 1.79 billion ($17 million) in special damages.
I find the promise and arrangement of automatic extensions served as motivation for Maxam to keep performing in accordance with the assigned obligations resulting to investing heavily in the business,” Justice Makau said, according to Forbes reporting.
Justice Makau also said that the pricing models imposed by Heineken on Maxam Ltd without consultation are exploitative, oppressive and unfair. He declared the conduct of Heineken International of offering lower market prices to another distributor of the Heineken Lager Beer, but instituting higher market prices on the same products for Maxam Ltd is discriminatory and is against the Constitution.
Heineken appeals for a stay of execution orders and gets refused*
Heineken had moved to court seeking stay of execution orders pending their appeal. Lawyers representing Heineken on Tuesday argued the company has no assets.
However, lawyer Philip Nyachoti representing local distributor Maxam said Heineken has deliberately declined to obey the orders issued by Justice James Makau last month, arguing that defendants should comply with the orders before the stay is issued.
Justice Wilfrida Okwani, declined to grant the beer makers any orders and directed that they serve their application to the respondents.
The matter will be heard on September 17.
Case casts further shadow over Heineken-Global Fund Partnership
The way Heineken apparently deals with its distributors in African countries highlights both its systematic unethical business practices, as well as casts further shadow over the (now suspended) partnership between the beer giant and the Global Fund to Fight AIDS, Tuberculosis and Malaria.
It is worth remembering what the ill-fated partnership between the beer giant and the Global Fund was supposed to be about, in the words of Christoph Benn, Director of External Relations, from Davos on January 26, 2018:
… the Global Fund and Heineken entered into a partnership to fight infectious diseases in Africa. As part of the partnership, Heineken will lend its expertise in logistics and communications to support the Global Fund to better reach specific demographic groups that are most at risk of HIV, tuberculosis and malaria. Heineken will pair supply chain experts with logistics planners at the Global Fund to share expertise in demand-forecasting and quality control during shipment. Locally, Heineken will support efforts in countries in Africa where the company is present to improve the effectiveness of the “last mile” distribution, which focuses on ensuring the right goods can reach health care facilities and patients in remote areas.”
The Kenyan High Court found that Heineken way of dealing with its distributors violates the constitution and is exploitative.
It is therefore time to question once more just what kind of expertise the Global Fund expected to get from Heineken? Exploitative, unconstitutional, profit-driven schemes where not Heineken staff but local experts provide the know-how and shoulder the biggest risks?
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For further reading from the Blog:
What Latest Global Fund Drama Reveals About Their Leadership
* This article was updated on the 16th of August 2019 as per news from The Star.