Longest beer distribution dispute threatens Diageo's exit plan

A protracted legal war that began in 2016 between businessman Peter Burugu’s Bia Tosha Distributors Limited and Kenya’s leading brewer has evolved into one of the country’s longest-running commercial disputes.

At the centre of the conflict is a beer distribution agreement covering 22 routes in Nairobi, a contract that Bia Tosha claims was unlawfully taken away.

In 2016, business mogul Peter Burugu’s company, Bia Tosha Distributors Limited, sued Kenya Breweries Limited (KBL), East Africa Breweries PLC (EABL), UDV (Kenya) Limited and London-based Johnnie Walker and Captain Morgan brewer Diageo PLC, over a distribution contract. 

The dispute arose after changes to distribution routes in Nairobi, including one route that was reassigned to Cogno Ventures who have been also listed as party in the suit. Bia Tosha argued that it had invested heavily in the routes and had exclusive rights over them.

According to the distributor, it had paid more than Sh38 million as goodwill for the routes and had built profitable operations over the years. It maintained that withdrawing the routes without compensation amounted to unlawful deprivation of property.

Some of the routes under contention include South B, Industrial Area, Dagoretti, Kawangware, Upper Hill, Hurlingham, Rongai, Kitengela, Namanga and Kajiado.

Through lawyer Kenneth Kiplagat, the firm further alleged that Diageo, the majority shareholder of EABL, was arm-twisting suppliers to prevent them from stocking rival beer brands.

 "In yet another telling sign that Diageo has intentions of 'killing' the petitioner through intimidation, Diageo posted the following message (video link) to its employees in Kenya on how to deal with Bia Tosha which is the 1980 Lee Kuan Yew famous 'Iron' speech. It is the same threat that Diageo continues to use to intimidate its distributors,” claimed Bia Tosha in its case.

In its response, the brewer argued that the money paid as goodwill was non-refundable.

They further argued that Bia Tosha's claim that it had exclusive rights to certain routes is against the Competition Act and that the distributor had failed to service certain routes it had been allocated.

 It also accused Bia Tosha of failing to disclose the existence of an arbitration clause in the contract when it filed the petition in the High Court.

Also, KBL urged the High Court not to treat what was essentially a commercial dispute between it and the distributor as a constitutional matter.

And a decade later, the dispute has taken a new twist with the sale of the Sh306 billion Diageo stake sale at the EABL to a Japan's firm, Asahi Group Holdings. This has led to Bia Tosha now asking the court to block Diageo’s exit from EABL, claiming that it would be impossible to enforce the court’s judgment in case it wins the 2016 case. 

Speculative and misleading

In the new battle, Bia Tosha urged the court to bar Diageo from either selling, transferring or disposing of its shares, arguing that it may be impossible to enforce any future judgement against Asahi Group Holding as its based in Tokyo. According to the firm, the sale would take away court’s powers to hear the case.

The distributor claims Diageo has no known assets in Kenya and that the sale would render the case an academic exercise. The company also based its new application on alleged contempt of court arising from earlier proceedings.

Lawyers for KBL and Diageo have opposed the move, describing it as speculative and legally misplaced.

Senior counsel Kamau Karori argued that the Supreme Court had merely referred the case back to the High Court to determine the status of matters as at August 11, 2016, not to make any finding of contempt.

He noted that on two occasions, High Court judges found KBL and EABL in contempt, but those findings were later set aside by consent after Bia Tosha acknowledged errors in the rulings.

He, however, pointed out that upon appearing before Justice Lawrence Mugambi later, they could not agree on what would be heard first, clarification on the status quo or the contempt application.

He stated that, after Mugambi also held that his KBL and Diageo were in contempt, it sparked a fresh appeal. Again, he said that Bia Tosha admitted that the Judge was wrong, and they again, by consent, set aside his orders and returned to the High Court for hearing of the clarification application.

“It is evident that the High Court on two occasions erroneously treated the Supreme Court judgment as having made a finding of contempt and denied respondents the right of audience, which errors were acknowledged before, and ultimately corrected by the Court of Appeal. It is in these circumstances impermissible for the petitioner to urgue that the respondents are in contempt of court when it acknowledges that its applications for contempt have never been heard or even listed for hearing,” argued Karori.

 He added that the application to stop the share sale was speculative, arguing that there was no explanation of how KBL, EABL and UDV assets would dissipate and how they would not be able to pay if Bia Tosha wins.

According to him, business continues as usual.

On the flip side, Karori said that there was a danger of destabilising his client’s supply chain network and put to risk jobs that had been created, either directly or indirectly if the orders stopping the stake sale were granted.

Business as usual

“The first and third respondents are major contributors to the Kenyan and East African economies, both directly and indirectly. The first respondent is one of Kenya’s largest manufacturers and employer and directly supports thousands of jobs directly through its operations and indirectly through its extensive value chain,” the senior lawyer argued.

In a separate response, UDV’s lawyer George Oraro argued that the sale had no relationship with the alleged contempt. He asserted that if Bia Tosha succeeds in its case, then, it has a wide range of avenues of seeking its pound of flesh.

“The dispute does not have any nexus whatsoever with the shares of any of the respondents which are in law separate and distinct from assets,” argued Oraro.

According to the senior lawyer, the Asahi deal is quoted in the National Security Exchange (NSE). He stated that if the court stops the same, it will affect the government and other shareholders who are not party to the case.

Diageo’s lawyer Njoroge Regeru, backed EABL, KBL, and UDV’s argument. He said that Bia Tosha’s case is premised on a shaky argument as all the other parties are in the country.

Njoroge asserted that Diageo is not leaving the country. Instead, it wants to create a newly wholly owned entity, with new staff to continue managing its brand.

He also argued that the firm has been in the industry for over a century and had enough to compensate Bia Tosha in case it wins.

“ Indeed, granting the relief sought would have direct effect of re-engineering the Amended Petition into a collateral challenge to corporate ownership, contrary to the pleadings and the limited function of conservatory relief. The application should therefore be declined for want of nexus, to preserve the subject matter as pleaded and to avoid expanding the pleaded dispute beyond its proper boundaries,” replied Regeru.

In the meantime,  Cogno’s lawyers Githu Muigai and Issa Mansur argued that Bia Tosha had not shown how the shares sale would affect the distributorship routes it claims. At the same time, they said that the claim that Diageo is a foreign entity has not been proved yet, hence, there was a danger of making a conclusion without establishing if the same was true or not.

Githu argued that Diageo is listed in the UK, and which is a reciprocating country. According to him, Bia Tosha had not proved that it was impossible to go after the company.

“On the alleged irreversible erosion of the substratum of the suit, the Interested Party submits that there is no imminent threat or erosion, irreversible or otherwise, of the substratum of the Amended Petition. The Petitioner/Applicant's claim on goodwill and the termination of the distribution contract have no correlation to the sale and transfer of shares by Diageo,” he said.