Safari Plaza Limited v Total Kenya Limited [2018] KEHC 4978 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT MILIMANI (NAIROBI)

COMMERCIAL AND TAX DIVISION

CIVIL CASE NO. 229 OF 2018

SAFARI PLAZA LIMITED..........................................................PLAINTIFF

VERSUS

TOTAL KENYA LIMITED....................................................DEFENDANT

R U L I N G

1. The Applicant M/s SAFARI PLAZA LIMITED by Notice of Motion brought pursuant to Article 23, 47, 48, 159 (2) (c) and 165 of the Constitution of Kenya 2010, section 7 of the Arbitration Act,1995, Rule 2 of the Arbitration Rules, 1997, order 46 of the Civil Procedure Rules 2010 and all other enabling provisions of the law seek the following orders:-

1.  THAT this Honourable Court be pleased to certify this application as urgent and direct that the same be heard ex-parte in the first instance.

2.  THAT this Honourable Court be pleased to issue injunction restraining the Respondent by itself, its officers, servants, agents, employees or any person acting under their authority and/or instructions from effecting the rent increment of Kshs. 1,764,000. 00 per month pending the hearing and determination of the impending arbitration.

3.   THAT this Honourable Court be pleased to issue injunction restraining the Respondent by itself, its officers, servants, agents, employees or any person acting under their authority and/or instructions from interfering with and/or terminating the operations of the Marketing license Agreement dated 1st October, 2015 for the Total service station situated in South C and Marketing licence Agreement dated 17th February 2015 for the Total service station situated in South B.

4. THAT this Honourable Court be pleased to issue any other orders it deems necessary to safeguard the interests of justice and fairness.

5.   THAT the costs of the application be provided for.

2. The application is supported by the fact set out in the annexed affidavit of MOHAMED RABE and on the following ground on the face of the application being inter alia:-

a)  THAT the Applicant herein is the Director with the Applicant.

b) THAT on 1st October 2009, the Applicant entered into a Marketing Licence Agreement (the "MLA") with the Respondent to operate, sell and carry on the ancillary business approved by the Respondent at the Total service station situated in South C for the period of Eighteen (18) months.

(i)  THAT the Agreement was subsequently renewed in the years 2011,     2013 and 2015, the latter being the current Agreement in force that is dated 1st October 2015.

(ii)   THAT the Applicant also operates Total service station situated in South B pursuant to an MLA entered into in 1st January 2013, which was subsequently renewed on 17thFebruary, 2015.

c)  THAT the current South C MLA provides that in Article III Sub Article ii provides that:

"The amounts payable as License fees or the manner of its calculations shall be subject to revision at every renewal of the commencement date of the License by the Licensor. NOTWITHSTANDING the yearly revision period, the Licensor may revise the License fees at any time by giving notice in writing of such revision to the Licensee, following any major civil works, installation of new equipment or other improvements at the Station or following any substantial change in the commercial operating environment.

d)   THAT the current environment is inapt for abrupt revision of rent.  This is evidenced by product loss amounting to Kshs. 18,762,291. 92 the Applicant has and continues to incur.

e)  THAT despite the foregoing, the Respondent by a letter dated 4th December 2017 purported to increase the monthly rent for the South C service station from Kshs. 850,000. 00 to Kshs. 1,764,000. 00 per month exclusive of VAT.

f)  THAT the proposed rent increment by a staggering 126% is unreasonable, disproportionate, arbitrary and was made with ill intentions of pushing the Applicant out of the service station.

g)  THAT the Applicant will suffer immense prejudice and loss if the rent increment is effected by the Respondent.

h) THAT the Applicants have on a prima facie basis established that there is no basis for the Respondent to increase the rent without and lawful justification and is likely to succeed on the said issue at trial.

i)  THAT the Applicants stand to suffer irreparable loss and damage if the orders sought herein are not granted.

j)    THAT the balance of convenience tilts in favour of granting the orders sought.

k)   THAT it is in the wider interest of justice that this application be heard forthwith."

3. The supporting affidavit by Mohamed Rabe, dated 7th July 2018 reiterates the grounds relied upon on the face of the application and in it is annexed the Agreement dated 1st October 2009 in which the parties entered into a Marketing Licence Agreement (the "MLA") annexed and marked "MR1"; Marketing Licence Agreement dated 17th February 2017, annexed and marked "MR2"; copy of invoice annexed and marked "MR3"; a copy of letter dated 4th December 2017 increasing the monthly rent from Kshs. 780,000 to Kshs.1,764,000 annexed and marked "MR4";  copy of letter dated 8th December 2017 from applicant informing the Respondent that the Applicant was unable to adhere to the revised rent annexed and marked "MR5"; a copy of a letter dated 28th December 2017 from the Respondent reiterating that the rent increment shall remain as proposed annexed and marked "MR6"; a copy of the accounts; delivery invoices and Fuel Stock Control Deposits annexed and marked "MR7"; copies of the corresponding E-mails with the Delivery Recording Forms and Complaint Forms on incurred abnormal losses annexed and marked "MR8"; a copy of demand letter dated 22nd January 2018 and Reply to the said letter dated 29th January 2016 for compensation for losses incurred by the Applicant annexed and marked "MR 9" and "MR 9-a".

4. The Applicant depones that the said increment doesn’t fall within the law and doesn’t deserve any legal protection; that the court has the powers to prohibit the Respondent from enforcing the illegal increment pending hearing and determination of the matter by arbitration.  It is further deponed the increment is arbitrary and ill intended and particularly well-orchestrated to eject the Applicant from the facility which it has for a long time built and acquired goodwill from its customers who are well served and the court should look into it and issue an appropriate order.  That the proposed increment by a staggering 126% is unreasonable, disproportionate, arbitrary and was made with ill intentions of pushing the Applicant out of service station. That the increment of rent was made well knowing the Applicant has incurred abnormal losses due to shortages after offloading at both the South C and B service station amounting to (Kshs. 48,383,282/78 and Kshs. 22,161,279/14 respectively); that demand for compensation for losses incurred has not been met by the Respondent.  Respondent will not suffer any prejudice if the application filed herein is allowed and orders sought granted.  That the application has been brought without undue delay and that it is in the interest fairness and justice that the orders sought be granted.

5. The application is opposed.  The Respondent filed Replying affidavit dated 21st June 2018; deponed upon by Soila Kigera; a legal officer of the defendant company averring inter alia;- that the Applicant filed a plaint dated 7th June 2018 seeking orders as per the plaint and at the same time filed a notice of motion seeking injunctive orders therein; that she is aware of the Marketing Licence Agreement entered into on 1/10/2009 (herein referred to as "the MLA";) which has express term of the MLA at Article III sub title on licence fees subject to revision if every renewal of the commencement date of the licence by the licensor; that pursuant to the aforesaid clause, the Respondent notified the Applicant through a letter dated 4th December 2017 of their intention to increase the rent as per annexture "SK 1" a copy of the aforesaid letter; that the decision was arrived at after holding extensive discussions between the parties; a copy of a letter dated 28th December 2017 containing the explanation for the rent increment annexed and marked "SK 2".

6. It is further deponed by the Respondent that under the Agreement it is the sole responsibility of the Plaintiff to ensure that all steps are followed to ensuring that the products loaded into the truck are fully loaded into the station tanks to avoid any possible collusion; that all delivery trucks are filled with on board computer (OBC) devices to monitor the routes followed by driver from the depot to the station, and any deviations noted are immediately debited to the transporters for any short deliveries experienced.

7. The Respondent avers that it was an express term of the MLAat article IX (IV) that any dispute, difference or question relating to the construction, meaning or effect of the MLA would be referred to arbitration in accordance with the Arbitration Act.  That the Applicant ignored the option of going to arbitration and instead filed several suits in different courts and Tribunals being:-

"a)   Nairobi CMCC Case No.3525 of 2018; Safari Plaza Limited Vs. Total Kenya Limited;

b)    Nairobi BPRT Cause No.335 of 2018; Safari Plaza Limited Vs. Total Kenya Limited;

c)   Nairobi HCCC No. 71 of 2018; Safari Plaza limited Vs. Total Kenya Limited.

8. It is further averred that there is a pending appeal between the same parties herein and arising out of the MLA Agreement, being Nairobi Elc and No. 28 of 2018 Total Kenya Ltd Vs. Safari Plaza Ltd, arising out of BPRT Cause No. 339 of 2018.  That in all the above suits, the effort to go to arbitration has been from the Respondent who had filed the necessary application to have the matter referred to arbitration, but the Applicant has frustrated the arbitral process, annexed and marked "SK 3" is a copy of arbitration notice.  It is in view of the averment by the Respondent that the application is unmerited and misleading, and if the orders sought are granted to the Respondent, it is urged, the Respondent would be highly prejudiced as such orders would have the effect of preventing the Respondent herein from exercising its right under the MLA.

9. It is further averred by the Respondent the orders sought by the Applicant pertaining page No. 3 will act as a complete suspension of the contract and rights of the Respondent under the contract, thus giving the Applicant unfettered powers of dealing with the Respondent’s petrol station.  It is further deponed the Applicants have not shown that the Respondent have threatened to evict them from the petrol stations.  That, if the arbitration finds the Applicant should pay, it is averred they stated they would pay, meaning they are capable of paying even right now and if the arbitration finds that the rent increment was irregular, it is averred money can be refunded to the Applicant.  It is further urged the Applicant cannot be allowed to approbate and reprobate. That it is not urged the Respondent is incapable of refunding the rent if the arbitration finally finds that the rent increment was irregular.  That it is also averred that the subject matter of arbitration will be rent increment which subject is reversible even if the rent increment takes effect as scheduled, hence the subject matter is averred is incapable of being diminished even if the orders sought are not issued.  In the alternative the Respondent seeks if the court is inclined to grant the orders the Applicant should give security for rent so that the Respondent is not left disadvantaged.

10. The Applicant filed further affidavit dated 4th July deponed upon by Mr. Mohamed Rabe in which it is briefly averred that:- that as per annexture "MR 6" the rent increment was based on station profitability, which the Applicant avers is increment as demonstrated under annexure  marked annexture "MR 7"; that the Applicant followed the elaborate procedure contained in Article IV of the MLAand recorded every shortage after offloading on Delivery Invoice, Recording Books and Delivery Recording Forms and brought the same to the attention of the Respondent (as per annexture "MR 7" & "MR 8").

11. That the Applicant upon decision to arbitrary increase the rent, the Applicant filed BPRT Case No. 30 of 2018, got restraining orders (annexture "M10" a copy of the order dated 12th January 2018).  "MR 11" a copy of the sitting session for BPRT at Nyeri, in Nairobi CM.CR Case No. 3525/2016, which has since been withdrawn; a copy annexed marked "MR 12" being letters sent to Executive Officer and Chairman of BPRTwhich have since been withdrawn; that the Applicant has since 9th May 2018 initiated the arbitration and served the Respondent with Arbitration Notice, according to Article IX sub-article IV of MLA; that the present case was filed on 7th June 2018 for interim measures of protection, well within 21 days period; that at any rate it is averred the Respondent has not complied with MLA and appointed their arbitrator.  Further if no order of protection is issued, the Respondent will implement the rent increase and terminate theMLA if the Applicant fails to adhere to it which the Applicant avers is highly likely unless compensated by the Respondent for the losses incurred so far.

12. The parties filed their respective submissions before seeking a date to highlight on the same. I have very carefully considered parties respective rival submissions, the pleadings, and the oral submissions and from the aforementioned I find that the issues arising for the determination being as follows:-

a) Whether the Applicant has established good and sufficient cause or reasons to warrant the exercise of the court’s discretion under section 7 of the Arbitration Act to grant an order of interim measure of protection pending reference to arbitration and conclusion of the arbitral proceedings?

13. It is clear from the application as formulated that the Applicant is seeking an interim measure of protection before the commencement of the intended arbitration.  The orders are sought under section 7 of the Arbitration Act 1995 which section provides:-

"7 Interim measures by Court

(1)  It is not incompatible with an arbitration agreement for a party to request from the High Court, before or during arbitral proceedings, an interim measure of protection and for the High Court to grant that measure.

(2) Where a party applies to the High Court for an injunction or other interim order and the arbitral tribunal has already ruled on any matter relevant to the application, the High Court shall treat the ruling or any finding of fact made in the course of the ruling as conclusive for the purposes of the application."

14. Whereas the court has powers to grant an order of interim measure of protection under section 7 of the Arbitration Act, the principle of party autonomy  still reigns supreme as the court is precluded from making orders undermining the arbitration or which may be prejudicial to the outcome of the arbitration.  The interim measures are otherwise supposed to be in a such way that would support the arbitral process and ensure the process is not undertaken in vain.  The court should guard against undermining the arbitral process by the kind of orders it issues.  It should issue orders that are compatible with an arbitration agreement as made by the parties.

15. The principle upon which interim measure of protection will be granted under section 7 of the Arbitration Act 1995 are well settled in myraids of decisions.  In the case of Safaricom Limited Vs. Ocean View Beach Hotel Limited & 2 others (2010) eKLR, the Court of Appeal, stated the following with regard to factors to be taken into account before granting of an interim measure under section 7 of the Arbitration Act, 1995 provides:-

"i)     The existence of an arbitration agreement;

ii)    Whether the subject matter of the arbitration is under threat;

iii)  In the special circumstances which is the appropriate measure of protection after an assessment of the merits of the application?

iv) For what period must the measure be given especially if requested for before commencement of the arbitration so as to avoid encroaching on the tribunal’s decision making powers as intended by the parties?"

16. I have considered the parties affidavits and annextures thereto and I find that it is admitted by all parties that the MLA; in which both the Applicant and the Respondent have subscribed to; incorporates an Arbitration clause which prescribes that any dispute, question or difference between the Applicant and the Respondent should be resolved through Arbitration.

17. The Applicant referred to case of Seven Twenty Investment Limited Vs. Sandhoe Investment Kenya Limited (2013) eKLR where Lady Justice J. Kamau, stated:-

"Perusal of Section 7 of the Arbitration Act clearly shows that the issue of whether or not there is a dispute or whether or not there would be losses by either side would not be a factor for a court to take into consideration when deciding whether or not it should grant an order for interim measure of protection or injunction to safeguard the subject matter of the arbitral proceedings.  All that a court would be interested in is whether or not there was a valid arbitration agreement."

18. In view of the above I find that the Applicant has demonstrated from the contents of MLA, which is not contested by the Respondent, there exists a valid Arbitration agreement, which was voluntarily entered into by the parties and which parties are bound by.

19. I now turn, to consider whether the subject matter of the arbitration between the parties is under threat.  In the instant matter, the subject of arbitration is rent increment.  The Respondent urges the Applicant has not demonstrated subject matter of the arbitration in under threat or is incapable of being reversed if no orders of protection are issued.  It is further urged the subject matter of arbitration would be rent increment which is incapable of being diminished even if the orders sought are not granted.  It is further urged the Applicants urge at the end of the arbitration, if the arbitration holds they should pay, they will pay and is as such argued by the Respondent that the Applicants are capable of paying right now and in case arbitrator find the rent increment irregular, the Respondent will refund.

20. The court understanding of the purpose of interim measure of protection, is that it must be of urgent nature to preserve the subject matter of the dispute, so that the proceedings before the arbitral are not rendered nugatory.  In the instant matter, the Applicant upon being advised of increment of rent acted swiftly, by moving to the Business Premises Tribunal on 11/1/2018 and obtained the orders for temporary injunction on 12/1/2018 restraining the Respondent from rent increment from Kshs. 780,000 to Kshs.1, 764,000/- where orders were extended till Applicant choose to withdraw the matter and refer the same to Arbitration.  The Applicants apprehension is that without the protection by the court the Respondent will effect the rent increment, which is the subject matter of the dispute or difference between the parties herein and which must be dealt with by an Arbitral Tribunal.  It is further urged if rent increment is effected the Applicant will be prejudiced and later be evicted for non-payment of the rent.

21. The Applicants in their application are not seeking settlement or determination of the issues that has arises between the parties, which is not a mandate of this court in this application; but is seeking an order which is intended to maintain status quo until the dispute between the parties is referred to arbitration.

22. In the case of Infocard Holdings Limited Vs. Attorney General & 2 others (2014) eKLR, the court stressed that the purpose of the interim measure of protection is to preserve the subject matter of the dispute pending arbitration. The court, therefore, should in making the order or rejecting the application be concerned with the finding out whether the subject matter of arbitration is in danger of being wasted or whether the application would be rendered nugatory by declining to grant the orders sought.

23. In the case Isolux Ingeniera, S.A. Vs Kenya Electricity Transmission Company Limited & 5 others [2017] eKLR Onguto J.L stated as follows:-

"The Act prescribes no standards applicable to applications for interim measure of protection but case law has essentially settled the standards.  Unlike arbitral tribunals which will consider imminent harm and the likelihood of success on the merits of the dispute, a court faced with an application for interim measures must avoid venturing into the merits of the dispute for the obvious reason that this is not its remit.  It is the remit of the arbitral tribunal.  The court must thus be careful not to pre-empt the ultimate award, even as it considers an application for interim measures of protection.

The court however has a loose discretion to ensure that the aim and purpose of an interim measure of protection is achieved."

24. Having considered the submissions by both parties, I would like to state that the question of the remits of the applicants’ application on the question whether the Applicant will pay rent if the tribunal finds so or whether the Respondent would be able to refund the rent increment if the tribunal finds so, is a speculative matter for which this court is not ready to divulge into or whether the Respondent had right to increase the rent or whether the Respondent was exercising its right under MLA is the remit of the arbitral tribunal and not a question that the court can determine when deciding whether or not it should grant an order for interim measure of protection or injunction to safeguard the subject matter of arbitral proceedings.  All what the court should be focused on is whether or not there was a valid Arbitral agreement binding both parties.  I find contrary to the Respondent assertion, the subject matter being rent increment, which parties intend to be resolved by arbitration, by granting the orders sought, that would in itself not prevent the Respondent from exercising its rights under MLA, as the Respondent right to increase the rent is disputable but that warrants determination first by an Arbitral Tribunal.  I further find that the Respondent has not suffered any irreparable harm since the BPRTissued an order of temporary injunction on 12/1/2018 restraining them from effecting rent increment.  The orders sought I find therefore would not be prejudicial to the Respondent.  I also find if rent increment is effected by the Respondent at this stage, then the proceedings before the arbitral tribunal will be rendered nugatory, and the effect as submitted by the Applicant, will be prejudicial to the Applicant.

25. In view of the above I am satisfied that Applicants case meets the tests upon which interim measure of protection will be granted under section 7 of the Arbitration Act and the settled law.

26. From all reasons aforestated, my finding is that the parties MLA agreement made an arbitral agreement, committing the parties to refer all the disputes arising between themselves in respect of that Agreement to Arbitration.  It has been demonstrated that the application for referral to arbitration has been made in accordance with the structures of section 6 of the Arbitration Act, at the same time the defendant acknowledged the suit.  I have considered the nature of the application dated 7th June 2018 and the orders sought, which orders would accord well with the powers of the court under section 7 of the Arbitration Act, I proceed to make the following orders:-

a)  An injunction order be and is hereby issued restraining the Respondent by itself, its officers, servants, agents, employees or any person acting under their authority and/or instructions from effecting the rent increment of Kshs. 1,764,000. 00 per month pending the hearing and determination of the impending arbitration.

b)  THAT an injunction order be and is hereby issued restraining the Respondent by itself, its officers, servants, agents, employees or any person acting under their authority and/or instructions from interfering with and/or terminating the operations of the Marketing license Agreement dated 1st October, 2015 for the Total service station situated in South C and Marketing licence Agreement dated 17th February 2015 for the Total service station situated in South B pending the hearing and determination of the impending arbitration.

c)    Costs of the application be in the cause.

Dated, signed and delivered at Nairobi this 30thday of July, 2018.

……………………………….

J .A. MAKAU

JUDGE