Dar es Salaam. The Court of Appeal has annulled a Sh3.2-billion award to Mohans Oysterbay Drinks Limited which had sued British American Tobacco Kenya Limited (BAT) over unlawful termination of cigarette supply contract.
The decision ends an eight-year legal battle between East Africa’s tobacco manufacturer and Tanzania-registered Company Mohan’s which claimed it had exclusive right to distribute BAT products in Tanzania.
Court of Appeal judges---Ferdinand Wambali, Lugano Mwandambo and Ignus Kitusi quashed the decision of madam justice Latifa Mansoor who in 2016 awarded Mohan’s Sh3.2 billion in damages for the alleged unlawful termination of the distribution contract.
“In our view there was no evidence to prove existence of a distributorship agreement between the parties, nor its breach,” said the judges in their recent decision.
It all started with Mohans
The trade dispute started in 2014 when Mohan’s brought a suit against BAT at the Commercial Division of the High Court after accusing the company terminating a contract for distribution of BAT products in Tanzania.
Mohan's claimed in the suit there was an existing contract between it and BAT in which it was recognised as the exclusive distributor of BAT products in Tanzania.
BAT disputed the existence of the alleged contract and maintained it did not breach any.
After hearing the case, the Commercial Court decided the case in favour of Mohan's in September 2016, holding that there existed an implied contract between the parties, which BAT unlawfully terminated and caused damages to Mohan’s.
The court went further to award Mohan’s Sh3.2 billion in damages for loss of goodwill and money it had invested in the business.
The two enjoyed a good business relationship and it was disputed that BAT used to supply Mohan’s with its products specifically, Dunhill and Benson and Hedges. And in the course of the relationship, Mohan’s participated in review programme for re-evaluation of BAT’s business model.
The relationship turned sour when BAT informed Mohan’s it had appointed an exclusive distributor of its product as part of implementing the findings of the review program. BAT had also accused Mohan's of breach of contract.
Mohan’s had been an importer and exclusive distributor of BAT’s products in Tanzania for 15 years since 2010.
During the trial, Mohan's managing director Rajesh Davda, the managing director of Oringin Resources (T) Limited and Mike Food and Drinks (T) Limited, Michael Minja and director of MNR Distributors Limited, Jacob Mlingi gave evidence in support of Mohan's case.
They told the court that there was an implied contract by conduct of the parties over that period of time although there was no written contract.
The court also heard at the hearing of the case that BAT made several attempts to formalise the distributorship agreement by signing a written contract unsuccessfully.
According to BAT, twice, in 2008 and 2011, Mohan’s turned down BAT’s offer for execution of a formal distributorship agreement.
Mohan’s blamed BAT for granting the distributorship contract to another company without offering the slightest of clues as to where the respondent may have gone wrong to deserve such punishment.
BAT had accused Mohan's of starting selling their products by buying them from companies that were hitherto direct buyers of their products from the appellant in Nairobi.
BAT’s case was that Mohan’s had started buying products indirectly from Origins Resources Tanzania Limited, not directly from BAT in Kenya.
Battle in the Court of Appeal
After losing the case in the commercial court, BAT lodged an appeal in the Court of Appeal to oppose the decision with 13 grounds of appeal.
It was BAT’s contention that the trial judge erred in law and in fact by holding that there existed a distributorship agreement between the appellant and the respondent and that the appellant breached the distributorship agreement.
In deciding the case, judge directed themselves in establishing whether the conduct of the business relationship of the parties created an implied contract between them.
First, the judges concluded that there was no contract between the two before 2010 and that the only contract that existed was that of BAT and other companies.
The court also touched on evidence that went unchallenged by Mohan’s that BAT had offered to sign a contract with Mohan's but Mohan's declined.
This was period when there was no formal relationship between the appellant and the respondent because the respondent was dealing with Mike Foods and Drinks Limited.
“The totality of all this is that there was neither express nor implied agreement between the appellant (BAT) and the respondent (Mohan’s) prior to 2010,” said the judges.
Regarding efforts that BAT made to formalize the distributorship agreement by signing a written contract, the judges had this to say, the court said the move showed BAT had no intention to continue operating under the implied contract.
“Our construction of the oral and documentary evidence on this point leads us to the conclusion that by repeating the proposal for signing of a formal contract, it is clear that it was not the intention of the appellant (BAT) to be governed by implied term of contract,” said the judges.
The court insisted that the commercial court judge erred in concluding that there existed a distributorship agreement between the parties.
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