Hunkar Trading Company v Total Kenya Ltd [2017] KEHC 84 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & ADMIRALTY DIVISION

CIVIL SUIT NO.111 OF 2017

HUNKAR TRADING COMPANY...................................PLAINTIFF

VERSUS

TOTAL KENYA LTD.....................................................DEFENDANT

RULING

1.   The Notice of Motion dated 20th April, 2017 seeks the following orders:-

1.  Spent

2.  THAT Honourable Court do issue an order of Temporary injunction to restrain the Defendant either by itself, its agents, servants, assignees, or successors in title from ever withholding any of the Plaintiff’s Cylinders beyond the period allowed by the LPG Exchange Pool Agreement pending hearing and determination of this suit.

3.  THAT Honourable Court do issue mandatory injunction directing the Defendant either by itself, its agents, servants, assignees, or successors in title to handover all the Plaintiff’s Cylinders it is holding and the same be checked by a reputable Cylinder maintenance and verification company.

4. THA costs of this application to be provided for.

2. Hunkar Trading Company Limited (the Plaintiff or Hunkar) is engaged in the Sale and Distribution of Petroleum Products and the filling and Distribution of liquefied Petroleum Gas (LPG). Total Kenya Ltd (the Defendant or Total) is a leader in Oil marketing and also engaged in the Sale and Distribution of LPG.

3. Both Hunkar and Total are members of the LPG Cylinder Exchange Pool (The Exchange Pool) established under Regulation 14(1) of the Energy (liquefied Petroleum Gas) Regulations, 2009 (The Regulations) and signatory to the LPG Cylinder Exchange Pool Agreement dated 1st February 2012.  An object of the Exchange Pool is to regulate the Handling and Exchange of Cylinders owned or assigned to other members of the Pool.

4.  In a Plaint presented to Court on 16th March 2017, Hunkar complains that Total has progressively collected a variety of Gas Cylinders belonging to it and without any authority, a Claim of right, or reason or Lawful justification confiscated, impounded and refused to hand over the said Cylinders to Hunkar.  As of the date of the suit, Total had with it 4423 Gas Cylinders belonging to the Plaintiff.

5.  In an Affidavit filed in response to the Application, Stephen Atenya, a Legal Officer with Total states that Hunkar owes Total the sum of Khs.6,732,922. 22 and it therefore holds  a lein over the Cylinders.  Hunkar states that the debt is disputed.

6.  The orders sought by the Plaintiff are for both a Temporary and Mandatory Injunction.  If this Court were to grant the mandatory Injunction then it would have allowed a substantial part of the final orders sought herein at an interlocutory stage.  That would be drastic.  The principles upon which such a drastic Order can be made are well settled and our Courts have  embraced the Principles set out in the English decision of Locabail International Finance Ltd Vs. Agroexport and others [1986] ALLER 901, in which it was held, that:-

“A mandatory injunction ought not to be granted on an interlocutory application in the absence of special circumstances, and then only in clear cases either where the court thought that the matter ought to be decided at once or where the injunction was directed at a simple and summary act which could be easily remedied or where the Defendant had attempted to steal a march on the Plaintiff. Moreover, before granting a mandatory interlocutory injunction the Court had to feel a high degree of assurance that at the trial it would appear that the injunction had rightly been granted, that being a different and higher standard than was required for a prohibitory injunction (see p 906 d to g and p 907 f, post); dictum of Megarry J in Shepherd Homes Ltd v Sandham [1970]3 ALL ER t 412 applied”.

7.  Hunkar proposed that the key question is whether the alleged lien is lawful under the Exchange Pool Agreement or the law. It is submitted that the rationale for the pool is to regulate the mechanism of exchanging cylinders in order to promote fair competition. In addition clause 15(d) of the Agreement prohibits unfair practices.  That objective is further undergirded by the Provisions of Clause 15(g) which prohibits,

“Any action or inaction that will or would reasonably result in any unfair competition or practice between the members including but not limited to anything prohibited by the Laws of Kenya as amended from time to time”

8.  Although Hunkar’s position is that there is a dispute as to amount owed, there is uncontroverted evidence that it had attempted to settle a debt of Kshs.4,978,156. 00 by way of postdated cheques.  These cheques were however returned by Total on 6th April, 2016 as the payment was outside the 35 days of the date of invoice as set out n the Exchange Pool Agreement.

9.  Total has referred this Court to Halsbury’s Laws of England Volume 24 for these useful passages in respect to a right of lien.

262 General lien- A general lien entitles a person in possession of hattles to retain them until all claims or accounts of the person in possession gainst the own of the chattel are satisfied. It can only exist (1) as a common law right arising from general usage; or (2) by express agreement.

263 Particular lien – A particular lien is the right to retain goods in respect of which charges have been incurred until those charges have been paid; if the owner of the goods is willing to satisfy the charges, the goods cannot be retained until payment of a general balance due to the person having the particular lien.

264 legal Lien by contract – A lien, whether general or particular, may be created and defined by contract although a lien so arising will generally be more in the nature of a pledge.

10. Total suggests, as I understand it from paragraph 11 and 12  of its submissions, that it is entitled to a particular lien because it is an Oil marketing Company which has provided services to Hunkar and therefore only requires payment for the “Work done”.

11.  Particular lien, just like general liens, may accrue from General usage or express contract. However terms of a contract may negative a particular lien which might otherwise have arisen. Generally, a particular lien arises “where the common Law has obliged certain classes of persons to receive goods and where work has been done on particular chattels” (paragraph 278 of Halsbury). In respect to lien arising from where work has been done the common law principle is that “if a man has an article delivered to him in which he has to do some work and to bestow trouble or expense, he has a right to retain it until his charge is paid”.

12. Examples of particular lien where work has been done include an Accountant upon Books of Accounts, an Architect upon Plans prepared by him and a Garage upon a Motor vehicle repaired.  There will be more. It seems to me that other than these classes of persons who under General usage are entitled to particular lien, the category is not closed because of ever involving categories of Trade and Services.  What is critical is that for a lien to arise for work done, the person must have expended labour, skill or expenditure upon the chattels entrusted to him for that purpose.

13. This discussion on particular lien is critical because Total’s only justification for holding the Cylinders is that there is a debt due for “work done”, an argument that is entitled to a Particular lien over the Cylinders. If this argument fails then there can be no reason for the Defendant to retain possession thereof.

14. It has not been argued, and it cannot be done successfully, that there is an express contract permitting Total to this lien.  The Exchange Pool Agreement which is the Contract that regulates the mechanism of exchanging LPG Cylinders between members does not expressly contemplate a right of lien.

15. Also granted, it is not Total’s case that the lien sought to be relied on arises from Trade usage.   Total, instead, places reliance on the “work done” thesis and as submitted by its Counsel, it provided services to Hunkar and “only requires payment for the work done”.

16. Hunkar on the other hand argues that this claimed right of lien is an antithesis of the Spirit of Exchange Pool Agreement.

17. Very early, the Exchange Pool Agreement sets out the background upon which it was entered.  Clause B-E  reads,

“B) By virtue of the legal notice number 114 of 2006 the Minister of Energy promulgated the Petroleum (Amendment) Rules 2006 pursuant to which the Members are required to set up an LPG Cylinder Exchange Pool for the purposes of regulating the mechanisms of exchanging LPG Cylinders in order to promote fair competition.

C)  Subsequent to the promulgation of legal notice number 114 of 2006 the Minister has now enacted legal notice number 121 of 2009 repealing and replacing the earlier regulations.

D) The members have therefore agreed to set up an LPG Cylinder Exchange Pool as more particularly detailed below for purposes of regulating the handling and exchange of Cylinders owned or assigned to the other Members.

E)The Members have agreed that with effect from the effective Date, any Member of the public in possession of any Cylinders the subject matter of legal notice number 121 of 2009, shall be able to purchase LPG at any of the Retail sites owned or supplied by any Member hereto, or from any of the agents of any Member hereto by freely exchanging  any such Cylinders with any Cylinders Filled by any of the Members hereto, PROVIDED that the Member so receiving another Member’s Cylinders shall only handle the same for purposes of exchanging such Cylinders for their own under the Pool as provided hereunder”.

That background, as correctly pointed out by Counsel for Hunkar, reveals the rationale or object of the agreement.

18. Clause E of the Background explanation makes it clear that a member  receiving another Member’s Cylinders handles it only for purposes of exchanging such Cylinders for its own.  This requirement is in furtherance of the obligation placed on the member by Regulation 14(6) of The Energy (liquefied Petroleum Gas) Regulations 2009 which provides that;

“A member of The LPG Cylinder Exchange Pool shall accept or recognize for exchange a cylinder belonging to another member”.

19. To operationalize the Exchange Pool some operations procedures were formulated. Of relevance to this matter is the operations headed  “Cylinder Exchange methodology” which reads,

Customers return empty visibly serviceable cylinders as per the vetting check list to the retail outlets and are issued with a filled cylinder from the brand owner.

NOTE: For non-exclusive outlets, members will collect empty visibly serviceable cylinders as per the vetting check list.

Retail outlets return all cylinders to collection point.

Collection points segregate cylinders as per brand.

Collection points on the first working day of every week send the data on cylinders as per brands to the LPG Cylinder Exchange Pool Secretariat.

The Secretariat consolidates the data and circulates to each member information relating only to that member on the second working day.

The brand owners will collect their cylinders from the collection points within 45 days from the date of the report or pay   storage levy. The storage levy charges will be Khs.100/= per cylinder per day from the 46th day.

The refundable deposit shall be set quarterly at the beginning of each quarter by E.R.C.  This deposit will be based on the cost build-up of the cylinders. Members will be required to submit import invoices of cylinders purchased within the current quarter to ERC for purposes of reviewing the quarterly refundable deposit for the consequent quarter.

After exchanging cylinders, if one member is left in deficit as per the Secretariat reports at the end of the month, the member who has collected more cylinders than they have received will be entitled to payment for the Cylinders in deficit at the prevailing quarterly refundable deposit that has been set.

The member will then invoice for the cylinders that are in deficit and payment should be received within 35 days from the date of invoice.  After 35 days, an interest will be levied at the rate of 2% per month. This interest will be reviewed annually by the LPG Cylinder Exchange Pool Management Committee.

Cylinders will only be exchanged on size for size basis.

Members will only exchange empty cylinders for full cylinders at the retail level.

20. As I understand it, the debt claimed by Total from Hunkar is on account of a deficit of Cylinders.  This would arise where one member has collected more Cylinders than it has received and so the member will invoice for the Cylinders that are in deficit and payment should be received within 35 days of the date of invoice.  After the 35 days, an interest of 2% per month accrues.

21.  The Exchange Pool Agreement neither expressly permits nor bars the holding of Cylinders in lien for unpaid dues on deficit. In favour of Hunkar’s proposition that a right of lien should not be read into the arrangement is that a primary object for the arrangement is to ensure a receiving member handles Cylinders only for purposes of exchanging such Cylinders for their own. It is for that reason as pointed out by Hunkar’s Counsel. Clause 15(d) of the Agreement reads,

“Any action or inaction intended or aimed at fraudulently procuring the removal or withdrawal of another Member’s Cylinders from the Pool, circulation, or in any other way from being accessible to the owner or assignee thereof.”

22. In addition the Agreement prohibits any action or inaction that will or would reasonably result in unfair competition or practice between the Members (clause 15(d)). A strong argument can be made that a member in whatever difficulty it find itself, should not restore to any action which is unimical primary objective of the arrangement being a seamless exchange of Cylinders. It might then seem logical that default of payment of the deficit sums should be pursued by other means than through holding of Cylinders in lien.

23. What is the other side of the coin? Any person wishing to conduct a business of Filling and wholesaling LPG in Cylinders must belong to the Exchange Pool.  This is the requirement of Regulation 14(5) of The Energy (liquefied Petroleum Gas) Regulation 2009;

“A person shall not conduct a business of filling and wholesaling of LPG in Cylinders unless such a person is a member of The LPG Cylinder Exchange Pool”.

24. A receiving member does not accept a Cylinder belonging to another member on its own volition. It is a duty imposed on it by law, specifically Regulation 14(6) of The Energy (liquefied Petroleum Gas) Regulations 2009 provides,

“A member of The LPG Cylinder Exchange Pool shall accept or recognize for exchange a Cylinder belonging to another member”

25. The Exchange Pool Agreement (which is made pursuant to these Regulations) places a further obligation on the receiving member to collect and transport the Cylinders, at their own cost, to the designated collection point (clause 12. 7).  The Receiving member bears yet more responsibility for the reasonable Care, Safety and Protection of the Cylinders while in its custody (clause 12. 8). In respect to the Cylinders that a member is obliged to receive, there is work to be done (ie. collecting and transporting) and a duty of Care, Safety and Protection.

26. The consideration for the Receiving member must include, that it will also receive its Cylinders and in the event of deficit, a compensation thereof.  The effect of default could disadvantage the receiving party and is unproductive to fair compensation just as unlawful retention of the Cylinders disadvantages an innocent member.

27. If I have correctly understood the nature of the arrangement then a serious proposition can be made that as a receiving member is under a Statutory obligation to receive the Cylinders and to work on them in terms of collection and delivery, it may well be entitled to a lien over other Cylinders belonging to defaulting member.  A proposition that members of the pool can be included into the expandable class of persons entitled to General or particular lien.

28. This Court sets out these rival positions to demonstrate that, on the material and arguments availed to it, both sides have strong arguments which may not be exhaustively and adequately resolved at interlocutory proceedings.  This Court is not confident and assured enough that even after trial, it will feel that it had made the correct decision if it grants a mandatory injunction at this stage (see Locabail International (supra)).

29. However this Court has little difficulty in finding that the Plaintiff has made out a prima facie case with probability of success and is able to grant an order restraining the Defendants from withholding any of the Plaintiff’s Cylinders going forward pending the hearing and determination hereof.  In granting a temporary order of injunction the Court bears in mind that further retention of the Plaintiff’s Cylinders could cripple its business and this would cause substantial hardship to Hunkar.

30. The outcome is prayer 3 of the Motion is declined while prayer 2 thereof is allowed. So that there is no doubt as to the meaning of the Order granted, the Defendant is not obliged to handover the Cylinders already retained as at the date of the application but is restrained from henceforth withholding the Plaintiff’s Cylinders pending the hearing and determination of this suit.  Each party shall bear its own costs in view of indecisive success of the motion.

Dated, Signed and Delivered in Court at Nairobi this 3rd day ofNovember, 2017.

F. TUIYOTT

JUDGE

PRESENT;

Agwenyi h/b Mogere for Defendant

Thuita for Plaintiff

Alex – Court clerk