The Legality of Exclusivity Clauses in Kenya: Insights from the Court of Appeal in the Heineken Case

published on 12 August 2025 | reading time approx. 5 minutes

In May 2024, the Court of Appeal at Nairobi delivered a landmark judgment in the case of Heineken East Africa Import Company Limited & another v Maxam Limited [2024] KECA 625 (KLR)¹ clarifying the Legality of exclusivity clauses in distributorship agreements under the Competition Act. This decision stemmed from an appeal against the High Court decision in Maxam Limited v Heineken East Africa Import Company Limited & another [2019] eKLR,² which reinstated a disputed distributorship agreement between the parties.

Heineken in its appeal argued that the exclusivity clause violated Section 21 of the Competition Act which prohibits agreements that prevent, distort, or lessen competition in trade. Citing precedents such as Patel v Singh [1987] eKLR³ and Mohamed vs Attorney General [1989] eKLR,⁴ Heineken contended that enforcing the agreement as ordered by the High Court would compel it to engage in conduct punishable under competition law.

Maxam, however, maintained that the Agreement complied with the Act since it was entered into in 2013 well after the Competition Act had become come into force in 2011. Therefore, the termination notice issued by Heineken was not related to any credible competition concerns.

The Court’s Analysis

In rendering its decision, the appellate Court noted that neither party to the dispute had ad-duced substantive evidence linking the distributorship agreement to anticompetitive effects under Section 21 of the Competition Act.⁵

Nevertheless the court proceeded to interpret the provisions of section 21 of the Competition Act. The Court also made detailed comparisons to similar interpretations from international jurisprudence.

The following are the key judicial considerations made by the Court.

The “lessening of competition”

The court emphasized that exclusive vertical terms and horizontal terms are not inherently illegal. Instead, their prohibition hinges on whether they substantially lessen competition. For instance, in Canada, exclusive territorial clauses in distribution agreements are permissible unless they demonstrably restrict competition. (La Pointe Rosinstein Marchand Melançon LLP, Lexology 2022).⁶

Monopoly Power and Exclusive dealing

While making reference to the U.S. case of United States v Dentsply International, Inc,⁷ the Court highlighted that exclusive dealing becomes illegal when orchestrated by a monopolistic entity to foreclose competitors. In contrast with the Heineken case, Heineken’s arrangement with Maxam, a notably small player with less than 1% market share, did not exhibit such anticompetitive intent.

The Characterisation Test

The Court further adopted the South African approach in the case of, Competition Commission v South African Breweries Limited, (Case No 129/CAC/Apr14).⁸ This case established what came to be known as the Characterisation test. This test dictates that in order to determine whether the character of the conduct complained constitutes prohibited conduct two elements must be satisfied.

The first element is the scope of the prohibition, which must be provided for in statute or legislation. For instance, under the Competition Act these provisions include Sections 21, 23, or 24 that provide for Restrictive trade practices, the Criteria for determining dominant position and the abuse of a dominant position. The second element of the test is whether the nature of the said conduct falls within the scope of the prohibition. This, the Court noted remains a factual question, one which must be answered by recourse to relevant evidence.

Per se Prohibited Practices

The Court of Appeal went on to further conclude that since Heineken had failed to establish that the exclusivity granted to Maxam Ltd can be characterised as one that invites a per se prohibition, or is "plainly anticompetitive", the clause could not be deemed illegal per se.

Under the Competition Authority of Kenya’s Consolidated Guidelines,⁹ plainly anticompetitive conduct (per se violations) refers to conduct that is so inherently harmful to competition that no further proof of harm is needed. These actions include but are in no way limited to

Price-fixing
Collusive tendering (bid-rigging) comprising cover bidding, bid suppression, bid rotation, market allocation
Market division
Output limitation/restriction
Resale Price Maintenance
Tying and Bundling

The Court of Appeal in applying the Characterisation Test, held that the High Court did not facilitate a breach of the Competition Act by reinstating Maxam Ltd to its original exclusive distributorship of Heineken EA and Heineken BV products in Kenya. The Court also found that there is also no prohibition in Kenyan law against a distributor maintaining more than one exclusive territorial distributorship.

Implications of the judgement

This determination has made it clear that parties can include exclusivity terms in agreements, provided they do not substantially lessen competition or reinforce a dominant position.

Separately, the Court has affirmed that regulatory penalties, such as fines by the Competition Authority of Kenya, do not preclude affected parties from seeking damages in court. This further aligns with global trends, as seen in the case of Devenish Nutrition Ltd v Sanofi-Aventis SA [2008] EWCA Civ 1086,¹⁰ where compensatory and deterrent remedies were deemed complementary.

Conclusion

The Heineken case underscores that exclusivity clauses are permissible under Kenyan law unless they demonstrably harm competition. The judgment provides clarity for businesses navigating distribution agreements while reinforcing the Competition Act’s overarching goal which is to balance contractual freedom with market fairness.

In order to mitigate the associated risks, stakeholders are encouraged to conduct thorough competition audits for prospective agreements, seek exemptions from the authority where eligible under Section 25 of the Act, and steer clear of any terms that explicitly block competition or disproportionately favour dominant players.

1 Heineken East Africa Import Company Limited & another v Maxam Limited (Civil Appeal E403 & E404 of 2020 (Consolidated)) [2024] KECA 625 (KLR) (24 May 2024) (Judgment) - Kenya Law

2 Maxam Limited v Heineken East Africa Import Company Limited & another [2019] KEHC 5257 (KLR) - Kenya Law

3 Patel v Singh [1987] KECA 21 (KLR) - Kenya Law

4 Ali Mohamed v Attorney General [1989] KEHC 111 (KLR) - Kenya Law

5 Cap. 504

6 At a glance: competition issues with distribution and agency agreements in Canada - Lexology

7 Antitrust Division | U.S. v. Dentsply: Brief for the United States (Redacted) | United States De-partment of Justice

8 South African Breweries and Others v Competition Commision (134/CR/DEC07) [2011] ZACT 73; [2011] 2 CPLR 403 (CT) (16 September 2011)

9 Consolidated Administrative Remedies and Settlement Guidelines, 2023

10 Devenish Nutrition Ltd v Sanofi-Aventis SA [2008] EWCA Civ 1086; [2009] 3 WLR 198