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Court Clears Celtel Kenya to Stop Contract With Distributor

The High Court has given Celtel Kenya Limited the go-ahead to cease business transactions with its appointed dealer, Airtime Business Solutions. It will no longer market or distribute Celtel products or represent the mobile phone service. The case throws a little light on Kenya’s struggling second mobile operator as it seeks to increase its sales.

High Court Judge, Justice Luka Kimaru, ruling in a civil suit filed by Airtime Business Solutions at Milimani Commercial Court, reiterated that courts cannot force parties, no longer willing to work together, to remain in such a relationship.

"Celtel no longer wishes to deal with Airtime Business Solutions. Therefore, the latter cannot seek orders of this court to force them to conduct business together," said Justice Kimaru.

Airtime Business Solutions, owned by Nasser Ahmed, had moved to court seeking an injunction to restrain Celtel from abruptly terminating a dealership agreement without prior notice. Airtime Business Solutions also wanted the court to enter a judgment for Sh119.2 million for payments they claimed Celtel owed them.

Further, Airtime Business Solutions had sought orders restraining Celtel from interfering with the ownership or operation of their outlets, shops, containers and recalling bank guarantees.

Before their dealership was terminated, Airtime was an authorised distributor and marketer of Celtel products in Malindi, Taveta and Voi, Eastleigh Estate in Nairobi, Westlands and Hilton Arcade.

Ahmed, in a sworn affidavit, said his company had entered into an agreement with Celtel to distribute their products after giving a bank guarantee of Sh20 million and subsequently renting containers for Sh2 million. However, in a counter claim, Celtel said Airtime owed them Sh21.9 million for goods and credit advanced to them.

Celtel's legal officer, Jocelyn Muthoka, had told the court that Airtime agreement was terminated after failing to put in stock sufficient merchandise of Celtel products, thus inconveniencing their customers. Muthoka further said Airtime had failed to meet the monthly targets in the regions it was assigned and, therefore, invoking the clause in the agreement which called for automatic termination of the agreement.

In one of the letters to Airtime Business Solutions tabled in court, Celtel had complained of the company's failure to deliver monthly targets, thereby denying them business revenue due to stock-outs. "Our customers have also been greatly inconvenienced by your poor market service and this contravenes our distribution contract, which states that you shall be responsible for product availability in your assigned markets," said part of the letter.

In his ruling, Justice Kimaru said under the distributorship agreement, either party was at liberty to terminate the contract in the event of breach of terms and conditions.

The judge said there was no period specified in the agreement that would entitle either party to six months or one year notice before termination. "I agree with Celtel that a distributorship agreement is akin to a licence which once withdrawn cannot form a basis for enforcement of terms beyond the said licence," noted Justice Kimaru.

However, Justice Kimaru said Airtime remedy was pegged on damages "if it is of the view that it was aggrieved by Celtel's decision to terminate the contract."

Ahmed had earlier told the court that he had invested heavily in the understanding that he was headed for a long-term business relationship with Celtel.

He also claimed to have been one of the best performing distributors of Celtel and was entitled to be paid incentives and bonuses that had been put in place by the mobile phone company. Ahmed further maintained the termination was entirely without provocation or legal justification and was in total breach of the contract.

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