South Western Enterprises Limited v Ola Energy Limited [2023] KEHC 27122 (KLR) | Breach Of Contract | Esheria

South Western Enterprises Limited v Ola Energy Limited [2023] KEHC 27122 (KLR)

Full Case Text

South Western Enterprises Limited v Ola Energy Limited (Civil Case 176 of 2003) [2023] KEHC 27122 (KLR) (15 December 2023) (Judgment)

Neutral citation: [2023] KEHC 27122 (KLR)

Republic of Kenya

In the High Court at Kisii

Civil Case 176 of 2003

REA Ougo, J

December 15, 2023

Between

South Western Enterprises Limited

Plaintiff

and

Ola Energy Limited

Defendant

Judgment

1. The plaintiff, South Western Enterprises Limited, filed this suit against the defendant, Ola Energy Limited, through a further amended plaint filed on 18th April 2019. The plaintiff is seeking judgment against the defendant and seeks the following orders:a.A declaration that there is a valid and enforceable long-term supply agreement between the parties to the suit.b.A permanent injunction restraining the Defendant, its servants, agents and/or employees from breaching the long-term supply agreement entered into between the parties.c.A permanent injunction restraining the Defendants its servants, agents and/or employees from in any way trespassing, removing, alienating, wasting or in any manner dealing with all the equipment, signage tanks, pumps situated on the plaintiff premises Kisii Municipality Block 11/193. d.General damages for breach of contract.e.Kshs 19,520,000/- for breach of contract.f.The claim of Kshs 11,965,778 as aforesaid.g.Cost of this suit and interest thereon at court rates.

2. The plaintiff is the registered proprietor as lessee for 99 years from 1st January 1995 of land known as Kisii Municipality Block 11/193 where it has caused to be erected a petrol station. On 1st April 1996, the plaintiff entered into an exclusive agreement with Esso Kenya Limited for the supply of motor fuels and other petroleum products. The products were to be sold from the plaintiff’s petrol station to consumers. Esso (K) Limited fitted the Plaintiff’s petrol station with Esso (K) Limited Signage, Spreader Boxes, Logos, Trademarks, Pumps, Tanks and agreed to amortise the sum expended in fitting out the said station for 15 years.

3. Sometimes in 1996, Mobil Oil Kenya took over the assets and liabilities, duties and obligations of Esso (K) Limited and accordingly branded the plaintiff station and continued enforcing the terms of the long-term contract. It later changed its name to OLA Energy Kenya Limited. It was a condition and term of the long-term supply agreement inter alia that the defendant:a.Agrees to allow the dealer on all deliveries of Gasoline, automotive diesel and kerosene to the said station under this agreement a discount as per the attached schedule per litre payable in arrears or in any other manner that Esso may at its sole discretion decide subject to review every 5 years.b.Would be entitled to determine this agreement forthwith and without notice but without prejudice to any of the defendant’s rights or remedies which may have accrued herein.i.Cease or threatens to cease to carry on business at the designated premises without notifying the defendant.ii.Cease to carry on business.iii.Ceases to carry on business of a retailer of Esso’s petroleum products.iv.Shall be adjudged bankrupt or being a limited liability company is placed into liquidation.v.Has a receiver appointed or a petition to wind up is presented.vi.Makes any arrangement with his creditors for payment of his debts.c.The money expended by the defendant in supplying and installing tanks or other equipment on the said plot, signage, and pumps would be converted into a loan by the defendant, and it was expressly agreed that if for any reason the said service station shall be ceased to be operated or if the plaintiff shall procure supplies of petroleum products for sale at the said service station from any other source other than Esso, or if this agreement shall be for any reason determined by the Plaintiff, then the total loan balance or assistance then not amortised shall become immediately payable and the owner shall pay in one lumpsum within 15 days of the happening of the event making it due and payable.

4. According to the plaintiff, by a letter dated 19/11/2003 the defendants without assigning any reason therefore purported to unilaterally terminate the long-term supply agreement in flagrant breach of said agreement and threatened to breach clause 7 of the long-term supply agreement by alleging that it wanted to repossess its equipment. The plaintiff maintains that it observed the terms and conditions of the long-term supply agreement. It explained that since the commencement of operations of its petrol station, it has bought from the defendant and resold over 16,739,343 litres of petroleum products thereby surpassing its targeted volumes for the 15 years under the long-term supply agreement by 4,807,076 litres by September 2003. It purchased products from the defendant at its depot in Kisumu which had high temperatures as compared to Kisii where the plaintiff’s station is situated and as such the volume of the produce purchase would shrink due to the temperature differences, a fact that was acknowledged by the defendant’s engineer.

5. The defendant paid part of the plaintiff's claim for losses arising due to non-conversion for the volume 3,480,343 litres leaving the volume of 13,259,000 unconverted. Under clause 5 of the long-term supply agreement, the defendant was obligated to pay the plaintiff a discount in terms of the schedule annexed to the agreement and the schedule was to be renewed every 5 years but the defendant failed and refused to renew the said discount payment in total breach of the long-term supply agreement. The plaintiff claims to have suffered loss and damage as a result of the defendant’s breach of contract and has particularized damages under paragraph 15 of his plaint:PARTICULARS OF DAMAGEa.Loss due to non-payment of rebates structure As per clause 5 of long-term supply agreement 4,853,774. 13b.Losses due to non-conversion period May 1996 to September 2003 – total volume purchases 16,739,343. 00 Less converted volume 3,480,343. 00 Unconverted volumes 13,259,000. 00Average conversion factor 1. 14%Total Loss due to non-conversion(13,259,000 x 1. 14%) 151,153 litresLoss by % proportion at the prevailing pricesPMS 24. 3% 36,730x57. 62 = 1,896,006/-RMS 43. 3% 65,449. 3x50. 67 = 3,316,313/-ADO 27% 4,081. 3x39. 77 = 1,623,066/-IK 5. 4 8,162. 2x33. 89 = 276,619/-11,965,778/-c.Loss of profits due to unlawful termination of the contract for the remainder of contract 2,440,000/- (profit per years) x 8 years = 19,520,000/-

6. The defendant filed its further amended defence and counterclaim dated 8th November 2019. The defendant claims that from about June 2003, the plaintiff has not purchased fuel or any products from the defendant but continued to operate and have fuel products in stock at the petrol filing and service station in contravention of their agreement. The defendant asserts that they were within their rights as per the express provisions and import of the long-term supply agreement in terminating the dealership of the plaintiff as it was a condition that the plaintiff sources its fuel from the defendant. It contends that the plaintiff was in breach of the agreement when it failed to source its fuel and related products from the defendant. If there was any loss occasioned by the plaintiff then it was as a result of the plaintiff being in breach.

7. The defendant denied that its engineers acknowledged, agreed and represented that there was a temperature variation from Kisumu to Kisii and further denied that the produce purchased by the plaintiff shrunk. It was explained that the defendant would normally deliver its product to the service station. However, in this case, the plaintiff made its arrangements to transport products from the depot and as such the defendants can take no responsibility for any variation which might have risen. It was also averred that the plaintiff misconstrued the terms of the agreement as the reviews on discounts are discretionary and not a matter of course.

8. The defendant in its counterclaim alleges that after the change of name from Esso (Kenya) Limited to Mobil Oil Kenya Limited on 1st January 1997, the defendant replaced a main ID sign and other signage that had become either damaged, obsolete or irreparable which equipment is subject to the shortage and dispensing equipment loan agreement dated 1/4/1996. Most of the equipment installed were new. In the normal course of business, the defendant would change and replace such equipment including but not limited to the manual and electric pumps, canopy, compressor, air gauge, greasing machine lubes, display stands and LPG cage. It was an express term of the aforesaid storage and dispensing equipment loan agreement that the various equipment given to the plaintiff was to be used for the exclusive storage and dispensation of products supplied by the defendant. The defendant carried out a meter reconciliation exercise and confirmed that the plaintiff had breached the terms of the agreement. According to the counterclaim, the plaintiff was in breach of the agreement in the following manner:a.From or about June 2003, the plaintiff had not purchased any fuel and or any products from the defendant but has continued to operate and have fuel products in stock at the suit petrol filling station.b.The plaintiff is storing and dispensing products purchased from third parties using equipment belonging to the defendant contrary to the provisions of the storage and dispensary equipment.

9. Pursuant to the plaintiff’s breach, the defendant exercised its lawful right under the agreement and terminated its contractual relationship with the plaintiff to protect the defendant’s reputation and goodwill and further limit any exposure against itself arising from the plaintiff’s conduct. The defendant published a disclaimer in the local print media disassociating itself from the plaintiff and the suit petrol filling station. The defendant claims that it owns all the equipment at the suit petrol station which the plaintiff continues to wrongfully withhold and use. The defendant claims as against the plaintiff Kshs 3,850,075/- being the value of the equipment being unlawfully withheld and used by the plaintiff to store and dispense fuel in breach of the storage and dispensing loan agreement dated 1/4/1996.

10. The defendant advanced that during the subsistence of the contractual relationship between the parties, at the plaintiff’s request, the defendant supplied and delivered to the plaintiff’s petrol filling station known as Nyamira Service Station products amounting to Kshs 478,750/- and the plaintiff issued the defendant with a cheque but upon presentation to the bank the same was dishonoured and the plaintiff has failed to settle the amount. The defendant further claims Kshs 1,132,608. 05/- being the amount due and payable in respect of an outstanding loan at the plaintiff’s request, an amount owed to the defendant.

The Evidence 11. Eliud Nyasimi Mogere (Pw1) testified that he is a director at the plaintiff and has sued the defendants for breach of contract. The parties entered into an agreement where they built a petrol station with the defendant and the defendants provided their products for sale. They had a loan agreement for the development of the service station and the defendant advanced them Kshs 350,000/- and another Kshs 150,000/- for the dispensing equipment. The loan for Kshs 350,000/- attracted an interest of 20% and was to be repaid within 15 years. He testified that they had repaid the two loans. In 1997 they received a Kshs 478,740/- loan from the defendants which was to be repaid within 32 months.

12. The plaintiff began running the station in May of 1996 with a target of selling 50 litres of product per month and they doubled their sales by the second month. The defendant’s managing director visited them in 1996 and noted that their sales were up and the plaintiff suggested that they should get discounts. Pw1 explained that at the signing of the initial contract, there was a schedule showing that if the plaintiff sold between 50,000 – 100,000 then they would receive a 50-cent discount per litre, if their sales were between 100,000 - 200,000 they were entitled to a Kshs 1/- discount while if the sales were over 200,000 liters they would be entitled to a Kshs 1. 50/- discount per litre. He referred to a letter dated 14/4/1998 showing that they had sold more than 250,000 litres and should earn a discount of Kshs 2/-. Pw1 testified that the discount was payable quarterly and subject to review after every 5 years. However, the discount structure was never reviewed. They reminded the defendant through their letter of 12/2/2002 of the need to have a review and after several meetings with the territory manager, they were asked for their proposal. Despite their efforts, the review was never done.

13. Pw1 testified that they also suffered a wet stock loss. He explained that when they bought 10,000 litres of fuel, due to the temperature causing evaporation they ended up receiving only 9,964 litres. He explained that the purchases made before 13/3/2001 were not temperature corrected and over that period they lost 151,153 litres of fuel. The cost of the lost fuel at the market price would have amounted to Kshs 7,112,004/-.

14. On cross-examination he admitted that he signed an agreement for the loan of storage and dispensing equipment with the defendant. He confirmed that the Kshs 150,000/- loan was not for the dispensing equipment. He referred to clause 7 of the contract which read that the equipment would remain the defendants. He testified that they had invoices to show that they purchased fuel from the defendant in June, July, August and September 2003. He testified that they have since moved to Total. He confirmed that the equipment is still on the land and not used by Total. According to Dexh5 on page 39 of the defendant’s bundles of documents, the defendant stated that it was not a standard practice for temperature correction. He testified that the defendants gave them discounts and credits and he recalled collecting Kshs 1. 2 million. He recognized that they drew a cheque of Kshs 478,750/- and were later made aware that it bounced.

15. Benedicto Karimi (Dw1) testified that he is the in-house counsel with Ola Kenya Limited previously known as Mobil Oil (K) Limited and previously operating as Esso (K) Limited. He testified that the defendant entered into a long supply agreement with the plaintiff for the exclusive sale of Ola Petroleum products in Kisii. There was a contractual obligation that the dealer purchase products exclusively from the defendant for the reasons that the defendant has invested its resources in the dealer’s station which includes branding and extending loan facilities in the form of cash and equipment to enable the dealer to operate as a station. The defendant also conducts training for the employees of the dealer to equip them with skills and best practices to enable the dealer to operate the service station. Dw1 testified that it was discovered in June of 2003 that the plaintiff was not purchasing petroleum products from the defendant yet it continued to sell products. The defendant terminated the contract following the plaintiff’s breach. The defendant has no invoices showing the plaintiff purchased products from them. In their counter-claim they seek the equipment and, in the alternative, the outstanding amount. He explained that the rebate is a discount that is structured in the volume uptake of a dealer. It benefits the dealer by giving them a competitive purchase. He explained that clause 5 of the contract provides that the discount will be provided by the defendant at its discretion. Which was informed by several considerations such as the price at which the defendant is selling to the dealer. He testified that the defendant addressed the issue of not renewing rebate. He referred the court to the letter dated 13/3/2001 where the defendant advised the plaintiff that it would not grant an increase on discount at current economic conditions.

16. Dw1 testified that they did not grant conversion as there was no provision of the same in the agreement. In the sale of petroleum products, a dealer can either pick the product from the company’s facility or the company can take the product to the dealer’s service station. He referred to a letter dated 17/1/2000 where the plaintiff’s driver was found stealing fuel. He further testified that investigations were carried out in regards to wet stock losses and it was revealed that the losses were not attributed to the equipment at the service dealer. Dw1 testified that the defendant does not compensate for loss based on temperature issues. The defendant vide its letter dated 13/3/2001 advised the plaintiff that temperature corrections were not standard practice in retail sales and as in the plaintiff’s case, the defendant would start to temperature correct volumes at 20 degrees. He contends that the claim for non-conversion from May 1996 to September 2003 is inaccurate and there was no obligation by the defendant until 2001. Dw1 pointed out that the defendant temperature corrected up to Kshs 3,480,343/-. Although the plaintiff has claimed for loss of profits, the defendant had a right to terminate as the plaintiff had breached their agreement.

Submissions By Parties Plaintiff’s Submissions 17. It is not in dispute that the agreements, the subject matter of the suit, were prepared by the Defendant. It is also not in dispute that the Agreements did not have a provision for termination by the Plaintiff. The defendant in September 2003 wrote to the Plaintiff and terminated the contract. According to the plaintiff, the defendant was in breach of contract and thus the plaintiff claims for wet stock losses; non-renewal of rebates documents; special damages suffered as a consequence of the unlawful termination; and exemplary and punitive damages.

18. The plaintiff submits that it suffered wet stock losses as a result of the variance of densities of the volatile fluids that it purchased because of temperature changes. It was explained that when you purchase 10,000 litres, the actual volume of fuel you end up getting from the Defendant due to temperature variations is 9,940 therefore there is a loss of 60 litres of the volume you paid for. It was also an implied term of the contract that the Plaintiff would receive what it paid for. In other words, if it paid for 10,000 litres, it ought to receive 10,000 litres and not 9,940 litres. In other words, it is an implied term in every contract for the sale of goods that a party shall receive the actual volume of the product it purchases.

19. As early as June 1997, a year after entering into the long-term Supply Agreement, the plaintiff wrote to the Defendant to inform it about the wet stock losses. The Plaintiff through the contract period suffered wet stock losses which it continued bringing to the attention of the Defendant for redress to no avail. After protracted discussions, the defendant finally agreed to adjust for wet stock losses with effect from 2001. (Please see letter dated 13th March 2001 D. Exhibit 8(a) and 8(b)). During the subsistence of the long-term Supply Agreement, the Plaintiff sold 16,793,343 litres of fuel as follows.Year Volume in litres

i) 1996 1,900,000

ii). 1997 2,286,000

iii). 1998 2,335,000

iv). 1999 2,415,000

v). 2000 3,356,600

vi). 2001 1,783,715

vii). 2002 2,151,997

viii). 2003 302,631

20. Due to the bulk of the invoices confirming the above volumes, the parties herein recorded a consent before Justice Bauni on 18th July 2006 wherein the Defendant was to send a representative to the Plaintiff’s premises to ascertain the volumes of fuels sold between April 1996 to September 2003. The inspection was to be done before the next hearing. However, the defendant did not avail itself for inspection and it is estopped from questioning the volumes sold. The evidence produced by the Plaintiff on volumes sold was not controverted.

21. The Plaintiff submits that out of the total volumes of fuels purchased from the Defendant, the Defendant did a conversion in temperature correction in respect of 3,480,343 litres, leaving 13,259,000 litres unconverted. The total loss suffered due to non-conversion of 13,259,000 using the temperature correction of 20oC as admitted in the Defendant’s letter dated 13th March 2001 means the Plaintiff lost 151,153 litres of fuel valued at Kshs. 7,112,004 which the Plaintiff claims.

22. The defendant should not unjustly enrich itself in respect of monies paid to itself yet it is fully cognizant of the fact that there was a discrepancy in the volumes of the product supplied to Plaintiff vis a vis the volume invoiced. “The idea of unjust enrichment or unjust benefit or unjust benefit is intended to prevent a person from retaining money or some benefit derived from another which it is against conscience that he should keep it and he should in justice restore it to the Plaintiff. The gist is that a Defendant upon circumstances of the case is obliged by ties of natural justice and equity to make restitution.” Nairobi High Court Civil Case No. 1263 of 1992, per Justice Kuloba).

23. In Fibrosa Spolka, Lord Wright 1943 Ac page 61 stated:“It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort and are now recognized to fall within a third category of the common law which has been called quasi contract or restitution.”

24. In the case of Chase International Investment Corporation and anor –vs- Laxman Keshra and others [1986-80 KLR 891, Justice Madam adopted the passages of Goff and Jones in their treatise, Law of Restitution and stated as follows:“Most mature systems of law have found it necessary to provide, outside the fields of contract and civil wrongs for restoration of benefits on grounds of unjust enrichment. There are many circumstances in which a Defendant may find himself in possession of a benefit which, in justice he should restore to the Plaintiff. Obvious examples are where the Plaintiff has himself conferred a benefit on the Defendant through mistake or compulsion. To allow the Defendant to retain such a benefit would result in his being unjustly enriched at the Plaintiff’s expense and this, subject to certain defined limits the law will not allow… the principle of unjust enrichment presupposes three things, first that the Defendant has been enriched by the receipt of a benefit; secondly that he has been so enriched at the Plaintiff’s expenses and thirdly that it would be unjust to allow him to retain the benefit.”

25. It is the Plaintiff’s submissions that the defendant by delivering lower volumes than the volumes paid for have been enriched by the receipt of benefit at the expense of the Plaintiff and it would be unjust to allow the Defendant to retain the benefit.

26. On the issue of non-renewal of rebates structure, it was submitted thatunder Clause 5 of the Long-Term Supply Agreement, the defendant would pay a discount on the fuel products purchased from the defendant. The defendant had the discretion as to the manner of payment of the said discounts, that is quarterly in arrears or in any other manner that the Defendant would at its discretion decide. However, the Defendant had an obligation under the contract to review the discount structure every five years. The provisions of the long-term Supply Agreement under clause 5 aforesaid were violated and breached remorselessly by the Defendant who explicitly acknowledged the breach in its correspondence. No review was carried out after the 5 years. The Plaintiff suffered losses in volumes of sales precipitously as is evidenced in the volumes of sales sold in the year 2003.

27. The Plaintiff’s claim under this limb for non-renewal of discounts structure under clause 5 of the long-term Supply Agreement is for the sum of Kshs 4,853,774. 13 as set out in clause 15(a) of the amended Plaint being an amount that represents the admitted renewal proposal that was made by its territory manager one David Kombe in his letter dated 25th April 2002.

28. On the claim for unlawful termination of contract, it was argued that the defendant having failed to honour its terms under the long-term Supply Agreement, using deception, trickery and chicanery, proceeded to execute an unlawful termination of the long-term Supply Agreement on the pretext that the Plaintiff had breached the long-term Supply Agreement when in fact, it was the Defendant that had violated the long-term Supply Agreement. The defendant, without service of a notice, or any information of an alleged breach by Plaintiff unilaterally terminated the Long-Term Supply Agreement in June 2003 because the plaintiff was purchasing fuel products from third parties other than the defendant. Dw1 testified that the Long-Term Supply Agreement was terminated in June 2003. The defendant’s employees visited the Plaintiff’s petrol station on 21st July 2003 and conducted an equipment verification exercise. (Please see D. Exhibit 5 page 53 of the Defendant’s bundle). However, to establish that the plaintiff had bought stock from a different party, the defendant needed to conduct a meter verification exercise and prepare a report to that effect. No such meter reconciliation sheet was produced by the defendant to prove the allegations that the plaintiff had purchased petroleum products from a third party. Therefore, no cogent evidence was placed before the Court to prove that the plaintiff had purchased fuel products from third parties as alleged by the Defendant.

29. The defendant also put forward as a reason for the termination of the Long-Term Supply Agreement that the plaintiff issued cheques for the purchase of petroleum products, which cheques were upon presentation dishonoured. However, clause 3 of the Long-Term Supply Agreement provides as follows.“The dealer agrees to make payment to Esso for the motor fuels on or before delivery as Esso may from time to time require and any concession granted by Esso may be withdrawn at any time.”

30. Dw1 on cross-examination, confirmed that the defendant was only obliged to deliver fuel to the plaintiff upon receiving payment. The defendant had the right to refuse to deliver any fuel to the plaintiff until it received payment in full and if it waived this right, such waiver cannot be used as a ground for termination by the defendant. In any event, the cheques that were returned as dishonoured cheques were all duly replaced and the Defendant acknowledged this. According to Dw1, the defendant terminated the Long-Term Supply Agreement with the Plaintiff in June 2003. Therefore it could not have supplied fuel to the Plaintiff on 19th September 2003, which is the basis for the claim of Kshs. 478,750.

31. The plaintiff further submits that the Defendant breached the Long-Term Supply Agreement and further unlawfully terminated the same and the Plaintiff suffered loss and damages. The damages payable for the breach of contract are the profits that the Plaintiff would have been entitled to for the remainder of the contract period after the unlawful termination. The Plaintiff used to make an average of Kshs. 2,440,000 as profit per year. To arrive at this figure, the plaintiff produced its management accounts evidencing the volumes of fuel sold which were undisputed and the monies realized. The average amount realized as profit per year for the period traded with the Defendant was Kshs. 2,440,000. The contract had eight (8) years to run. The profit that the Plaintiff would have earned for the remainder of the contract is thus 2,440,000 x 8 = 19,520,000. The management accounts and the volumes of fuel purchased prove the Plaintiff’s claim on a balance of probabilities. The Plaintiff placed its evidence of volumes purchased and resold and management accounts as evidence of its profit per year. The Defendant placed nothing on its side of the scales to controvert even the volumes sold. In the circumstances, the scales tilted in favour of the Plaintiff.

32. On exemplary and punitive damages, the Plaintiff relied on the case of Rookes –vs- Barnard (1964) 1 ALL ER 367, where the Court held that exemplary damages may be awarded in two classes of cases; first where there is oppressive, arbitrary or unconstitutional action by the servants of the Government and secondly, where the Defendant’s conduct was calculated to procure him some benefit. The plaintiff advanced that it was aptly demonstrated that the defendant conducted itself in a most oppressive and high-handed manner towards the plaintiff throughout the period of the contract. The defendant flagrantly declined to review the rebate structure and also declined to temperature correct the volumes of fuel sold to the Plaintiff. The Defendant unilaterally and without just cause walked away from its contractual obligations and thereby exposed the Plaintiff to great loss and harm. The Plaintiff was the weaker party with no say in the contractual relationship. Under this head the plaintiff urged the Court to grant Kshs. 20,00,000/-. They relied on the decision of Titus Gitau Njau –vs- Municipal Council of Eldoret (2015) eKLR.

33. On the counterclaim, the plaintiff submitted that the defendant failed to prove its case against the Plaintiff on a balance of probabilities and the same should be dismissed with costs. The Defendant seeks the value of equipment as particularized in paragraph 18/19 of the counterclaim. The first observation about this claim is that the total amount is Kshs. 3,849,175 as opposed to Kshs. 3,850,075/-. The relief sought in the Counterclaim states that the amounts claimed are as particularized in paragraph 18. No such particulars are made in paragraph 18. Further, Dw1 testified that the parties agreed that the defendant was to supply and install tanks or other equipment in the said plot at the sum of Kshs. 150,000/-.

34. A further sum of Kshs. 350,000 was advanced to enable the plaintiffs to develop its premises into a filling station and install dispensing equipment as provided in the agreements. The total contractual amounts for the supply and installation of tanks, storage and dispensing equipment was Kshs. 500,000 which amounts were converted into a loan and amortized over the contractual period. The Plaintiff submits that having fully paid the loans due under the Long-Term Supply Agreement and the Loan Agreements, the tanks and storage and dispensing equipment became its property and the Defendant’s claim is misplaced. The tanks, and the dispensing equipment are now the property of the Plaintiff and the Defendant cannot claim them.

35. On the claim for Kshs. 1,132,608. 05/-, it was submitted that the defendant did not produce a Loan Agreement duly entered into by the parties evidencing the said amount. Instead, the defendant relied on the letter dated 29th July 1997 (Defendant’s Exhibit 11 appearing at page 19 of the Defendant’s Bundle) which reads:“Conversion of part current overdue amount of Kshs. 2,288,065 into a 1. 8 million shillings’ loan repayable within 5 months at a favourable interest to be proposed to South Western Directors by Mobil. Directors of South Western should make immediate payment of the balance of Kshs. 488,065. 50 to Mobil.”

36. The Defendant’s claim for the said amount was instituted vide an amended Defence and Counterclaim on 7th December 2004, by which time it was statute barred under the Statute of Limitation Act Chapter 22 of the Laws of Kenya as a contractual claim must be instituted within six (6) years.

Defendant’s Submission 37. The defendant identified the following issues for the court’s determination:a.Whether the Defendant validly terminated the dealership within the terms of the Long-Term Supply Agreement and the collateral contracts.b.Whether the property in title and risk passed to the Plaintiff over fuel purchased by it and whether the Defendant is liable for loss of Kshs 7,112,004/- allegedly arising from shrinkage a.k.a wet-stock loss.c.Whether there was an absolute obligation on the part of the Defendant for renewal of the “rebates structure” and if so, whether the Plaintiff suffered a loss of Kshs 4,853,774. 13 attributable thereto.d.Whether the plaintiff suffered loss of profits of Kshs 19,520,000 attributable to wrongful termination of the Long-Term Supply Agreement.e.Whether the equipment installed by the Defendant on the suit-premises were subject to the agreements between the parties and the consequence thereof upon termination.f.Whether the defendant is entitled to an award of Kshs 1,132,608. 05/- on a loan owing and outstanding from the plaintiff?g.Whether the defendant is entitled to an award of Kshs 478,750/- for products sold to and/or at the request of the Plaintiff?h.Whether the Defendant or Plaintiff is entitled to General Damages for breach of contract?

a. Whether the Defendant validly terminated the dealership between the parties within the terms of Long-Term Supply Agreement and the collateral contracts 38. It is common ground from the evidence tendered before the Court that the plaintiff and the defendant were in a dealership relationship, which was anchored on the following three documents: Long Term Supply Agreement “DEXh 1” / “PEXh 1”; Loan Agreement “DEXH 2”/ “PExh 2”; and Agreement for the Storage and/or Dispensing Equipment “DEXH 3”. The plaintiff was obligated to purchase and distribute fuel products from the defendant exclusively as per Clause 2 of the Long-Term Supply Agreement, DExh 1. The defendant’s letter dated 30th September, 2003, addressed to the plaintiff, the Defendant’s complaint about the Plaintiff’s breach was phrased in these terms: -“…It is also apparent that while you have Mobil equipment at your site, you have in the recent past purchased products from others and utilized Mobil’s equipment”

39. From the evidence on record, it is clear that the plaintiff never adduced evidence of having purchased any fuels for the period from June, 2003 until November, 2003 when the Defendant called off the dealership. The plaintiff having stopped purchasing fuel products from the defendant as from June, 2003, the Plaintiff was in breach of Clause 2 read together with Clause 8(g) of the Long-Term Supply Agreement. The Defendant was therefore entitled to terminate the Agreements Without Notice as is clear from Clause 8(g) of the Long-Term Supply Agreement (DExh 1) as well as under Clause 10(g) of the Agreement for the Loan of Storage and/or Dispensing Equipment (DExh 3).

40. The defendant submits that it is trite law that parties are bound by the bargain they make in executed contracts and it is not in the place of the Courts to re-write contracts for the parties but rather to enforce them. In South Nyanza Sugar Co. Ltd -vs- Leonard O. Adera [2020] eKLR the court stated:“It is a longstanding principle of law that parties to a contract are bound by the terms and conditions thereof and that it is not the business of the Courts to rewrite such contracts. In National Bank of Kenya Ltd vs. Pipe Plastic Samkolit (K) Ltd (2002) 2 E.A. 503, (2011) eKLR the Court of Appeal at page 507 stated as follows: ‘A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved’. In Pius Kimaiyo Langat vs. Co-operative Bank of Kenya Ltd (2017) eKLR the Court of Appeal further stated that: ‘We are alive to the hallowed legal maxim that it is not the business of Courts to rewrite contracts between parties, they are bound by the terms of their contracts, unless coercion, fraud or undue influence are pleaded and proved’.”

41. The contracts negotiated and executed by the parties were clear and unambiguous on the terms on which the parties intended to be bound. The Plaintiff has not pleaded or proved coercion, fraud or undue influence in regard to the said agreements. This Court is therefore called upon to enforce the parties’ bargain as set out in the terms there under. They also cited the decision in Davies Mwangi Kinyua T/A Kiamunyi Tyre Dealers & Auto Accessories –vs- Firestone East Africa (1960) Ltd [2006] eKLR where the court observed that:“It is clear from this Contract that failure to comply with the terms of the agreement the defendant reserved itself the right to terminate the agreement without prior notice…. This would seem to suggest that there were outstanding invoices as at November 2000 that had not been settled. If that be the case then the Plaintiff was in breach of the contract. Having been in breach the defendant was entitled to invoke the terms of the agreement which gave it the right to terminate without prior notice.”

42. The Defendant was within its right to call off the dealership on the strength of Clause 8(g) of the Long-Term Supply Agreement and Clause 10(g) of the Agreement for the Loan of Storage and/or Dispensing Equipment.

b. Whether the property in title and risk passed to the Plaintiff over fuel purchased by it and whether the Defendant is liable for loss of Kshs 7,112,004 allegedly arising from shrinkage a.k.a wet-stock losses. 43. The temperature correction as contended by the Plaintiff could not be generalized and was not “standard practice”. In the letter, the 13/3/2001 the Defendant stated:“…We would start to temperature correct volumes for your Kisii station to 20 C. AS I explained to you, this is not standard practice in retail sales transactions and we only have one other station that we temperature correct..”

44. There was no basis for the plaintiff to force the defendant to claim temperature correction for the period prior to 13/3/2001 as there was no contractual term between the plaintiff and the defendant that existed prior. Secondly, the plaintiff’s claim for temperature correction concerning a volume of 13,259,000 liters, accounting for the claimed sum of Kshs 7,112,004/- falls under the category of “liquidated” or “special damage” claim. Under the law, such a claim calls for not only specific pleading, but also strict proof. As at the time when the Plaintiff finalized his testimony and closed its case, no evidence was tabled before the Court, to support the volumes amounting to 13,259,000/- and the basis for the computation of the claim for Kshs 7,112,004/-. Thirdly, the risk and title to the fuel products collected by the plaintiff from the defendant’s depot at Kisumu passed to the Plaintiff. They invited the court to consider provisions of the Sale of Goods Act, Cap 31 Laws of Kenya:Section 22 “Risk prima facie passes with property.”“Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not: Provided that—(i)where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for that fault…”Section 30. “Rules as to delivery(1)Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties; and apart from any such contract, express or implied, the place of delivery is the seller’s place of business, if he has one, and if not, his residence…”Section 33. “Delivery to carrier as buyer’s agent(1)Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to the carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer.”

45. The Plaintiff has sought to anchor its claim for “wet-stock losses” upon the principle of restitutio in integrum (“Restitution”). The plaintiff’s argument to anchor their claim under this principle is misconceived. First, the two precedents cited are distinguishable from the matter before this Court. In the case of Madhupaper International Ltd & Anr -vs- Kenya Commercial Bank & 2 others [2003] eKLR, the Hon. Justice R.C.N. Kuloba examined the circumstances under which the Plaintiff contended to have conferred a benefit to the Defendant. The Judge went ahead to consider the unconscionable conduct of the defendants who, without explanation, reneged on a negotiated settlement of the Plaintiff’s indebtedness, returned the Kshs 54,000,000/- initially agreed, only to demand the sum of Kshs 110,000,000 plus 14,000,000/-. The epitome of the judgment on pages 13 - 16 is that the Defendants exercised undue influence and exacted payments above what they were owed under the contracts. In our matter, the plaintiff has not demonstrated undue influence or an exact benefit/unjust enrichment made by the Defendant. Similarly, the facts in the case of Chase International Investment Corp & Anr-vs- Laxman Keshra &others [1976 - 80] KLR 891 are clearly distinguishable from the facts in the present matter before this Court in that the clear undertakings made by one party in that matter were totally dishonoured. It was clear that a benefit was clearly made at the expense of the Respondent, in a manner meeting the criteria for restitution.

46. Hon. Justice Emukule in Bid Insurance Brokers Ltd -vs- British United Provident Fund [2016] eKLR stated:“Indeed, at common law, the law of restitution is subordinate to the law of contract in that if a contractual relationship subsists between the parties, the contractual regime will prevail (see Guinness PLC-vs- Saunders [1990] EAC, 603, 697-8(Lord Goff). It will then only be possible to resort to restitutionary remedies if the contract has been set aside for some reason so that it is no longer inoperative”

47. Secondly, the contracts executed by the Plaintiff and the Defendant herein did not contain a term/terms to deal with “wet-stock” losses which would have crystallized the basis and formulae for computation of such loss. Thirdly, nowhere in the plaint has the plaintiff pleaded his case to include a restitutionary claim or remedy.

c. Whether there was an absolute obligation on the part of the Defendant for renewal of the “rebates structure” and if so, whether the Plaintiff suffered a loss of Kshs 4,853,774. 13 attributable thereto 48. The Defendant retained the right to exercise discretion either to review the rebates structure or not. A schedule appearing at the last page of the Long-Term Supply Agreement contained the scale/rate of discounts allowable on the different ranges of volumes of fuel products purchased by the plaintiff from the defendant for re-sale. The claim for Kshs 4,853,774. 13 falling under this rubric is a liquidated Claim. How should the Court know the formula for the computation of the sum and how it was arrived at? What scale/rate of adjustment would the Court use to confirm whether the amount prayed for by the Plaintiff is justified? The defendant submits that the plaintiff has not discharged its burden of proof to provide the basis on which this Court can make the award sought. They urged the court to consider the decision in Bid Insurance Brokers.

d. Whether the Plaintiff suffered loss of profits of Kshs 19,520,000 attributable to wrongful termination of the Long-Term Supply Agreement? 49. The Plaintiff produced as PExh 15, a document titled “management accounts”. Pw1 explained that on average the Plaintiff Company was making about Kshs 2,440,000/= in profits per years on which the now claimed the sum of Kshs 19,520,000/- on what he called “anticipated earnings”. The defendant submits that the plaintiff was obligated to discharge the burden of proof in demonstrating that it lost profits. Pw1 on cross-examination admitted that the document titled “Management Accounts” was not drawn on the Plaintiff’s Letterhead and was not signed or stamped/sealed as a document emanating from, or authenticated by, the Plaintiff. Further, on cross-examination Pw1 was shown the letter dated 29th July, 1997 produced as DExh 6(b) [See page 19 – 20 of the Defendant’s Bundle of Documents] in which the Plaintiff’s arrears owed to the Defendant as well as the Plaintiff’s Management issues were highlighted. He was further showed a letter dated 19th June, 1998 [See page 32 of the Defendant’s Bundle of Documents] in which the Plaintiff admitted to making losses and finally, letters dated 11th December, 2000, 10th August, 2001 29th and 31st August, 2001 [See page 36, 47 – 49 of the Defendant’s bundle of documents] which alluded to the Plaintiff issuing cheques which were dishonoured and the Defendant withdrawing credit facilities to the Plaintiff. This evidence, goes to demonstrate that contrary to the Plaintiff’s witness’ assertions based on the unauthenticated “Management Accounts”, the Plaintiff Company was not doing very well from the outset of the dealership which began on 1st April, 1996.

50. The Plaintiff’s claim for Kshs 19,520,000/= is a substantial claim which necessitated the Plaintiff to produce the Plaintiff’s Audited Accounts. Under the Companies Act, Cap 486 of the Laws of Kenya, which was in force at the period in question, the law laid out clear provisions under Sections 148 and 155 for the preparation and signing of the Company’s balance sheet to show its financial affairs/profits/losses, which was among the documents to be included in Annual Returns to be lodged by dint of Sections 125 read together with Section 128 of the Companies Act in force in the period between year 1996 – 2002. It was insufficient for the plaintiff to merely present the one-page document titled “Management Accounts” to support its claim for loss of profits. Reliance was placed on the case of Mitchell Cotts (K) Ltd -vs- Musa Freighters [2011] eKLR and Bid Insurance Brokers (op cit).

e. Whether the equipment installed by the Defendant on the suit-premises were subject to the agreement between the parties and the consequence thereof upon termination 51. Although the Loan Agreement and the Agreement for the Loan of Storage and/or Dispensing Equipment were collateral to the main dealership agreement, it is clear that that the Agreement for the Loan of Storage and/or Dispensing Equipment (DExh 3) was specifically for purposes of loaning of the fuel dispensing equipment, which are the subject of the Claim for Kshs 3,850,075/= set out under paragraph 19 of the Further Amended Defence & Counterclaim with an alternative prayer for repossession of the equipment. At the last page of the Agreement for the Loan of Storage and/or Dispensing Equipment DExh 3, the following items are listed:1 Air compressor, 2 Air gauge with hose, 1 Grease lubricator, 1 Oil drain bucket, 6 L&T pumps, 1 canopy (2 square). The Defendant is entitled to either recover the value for the fuel dispensing equipment or alternatively, to repossess the equipment which the Plaintiff prevented them from collecting as per the terms of the agreement which the Parties had when they entered into the relationship.

f. Whether the Defendant is entitled to an award of Kshs 1,132,608. 05 on a loan owing and outstanding from the Plaintiff? 52. Pw1 testified that the plaintiff was given two loans, Kshs 150,000/- and Kshs 350,000/- for fitting out the petrol station. The defendant however submits that it is ludicrous for the Plaintiff to contend that the above amounts were the values for the fuel dispensing equipment which was installed by the Defendant. The Defendant extended credit facilities to the Plaintiff. In the letter dated 14th October, 2003 the defendant wrote to the plaintiff requesting the payment of the amount of Kshs 1,132,608. 05 which was outstanding on its ac 1402 -01 -1863. This letter was produced as PExh 4(a) [See page 57 of the Defendant’s Bundle of Documents]. Among the documents produced by the defendant to support its claim for outstanding amounts owing from the Plaintiff are the documents produced as DExhibits 6(a), 6(b) and 6(c) [see page 18 – 21 of the Defendant’s Bundle of Documents]. The defendant submits that the Plaintiff does still owe them Kshs 1,132,608. 05 on account of unpaid loan facility balances.

g. Whether the Defendant is entitled to an award of Kshs 478,750/=for products sold to and/or at the Request of the Plaintiff? 53. As per the Invoice No. 183181 produced by DW1 as DExh 7(a) [See page 55 of the Defendant’s Bundle of Documents] the said invoice does show that Cheque No. 100784 for Kshs 478,750 which was issued by the Plaintiff Company was intended to pay for fuel products totalling to 10,000 litres of Diesel and Petrol products “own collected” by the Plaintiff. Pw1 admitted on cross-examination that the Plaintiff had never settled the amount which was stated in the Cheque.

h. Whether it is the Plaintiff or the Defendant who is entitled to Damages for breach of contract 54. The Plaintiff has requested this Honourable Court to make an award of Kshs 20,000,000/-. The defendant submits that to succeed in such a case, the Plaintiff would have had to make out a clear case by setting out in its pleading facts and adducing evidence of facts showing the matters pleaded. Only then, based on specific prayers set out in the Plaint, would a Court of law make such declaratory Orders that there existed such oppressive, arbitrary or unconstitutional actions or that the Defendant is guilty of unconscionable conduct to warrant the relief of “exemplary damages”. The Plaintiff pleaded in the Further Amended Plaint is a prayer for “General Damages for Breach of Contract.” The defendant maintains that it was the plaintiff who orchestrated the determination of the dealership between the parties. The defendant argues that since the plaintiff was in breach of Clause 7a the Defendant is entitled to an award of Kshs 2,000,000/- being Damages for breach of as pleaded under prayer F of the Defendant’s Further Amended Defence & Counterclaim.

55. Finally, on the issue of whether the defendant’s counter-claim was statute-barred, it was submitted that section 35 of the Limitation of Actions Act, Cap 22 Laws of Kenya which is clear to the effect that: -“Section 35. Set-off and counterclaimFor the purposes of this Act and any other written law relating to the limitation of actions, any claim by way of set-off or counterclaim is taken to be a separate action and to have been commenced on the same date as the action in which the set-off or counterclaim is pleaded.”

56. To further buttress their submissions, they cited the case of Arumba –Vs- Mbega & Anr [1988] K.L.R 121 where Hon Platt J.A. had this to say in relation to section 35 of the Limitation of Actions Act:“Perhaps it was that everyone had turned up Section 35 of the Limitation of Actions Act and found that the amendment must be backdated to the date of the writ on the 30th September 1977……. The Appellant lost his best defence on the Respondent’s own case, which in accordance with the latest views in England that I am aware of, he ought not to have lost…”

Analysis And Determination 57. The relationship between the plaintiff and the defendant arises from the parties entering into a series of contracts: the Long Term Supply Agreement, Loan Agreement and the Memorandum of Agreement for the Storage and/Dispensing all dated 1/4/1996. It is common ground that the plaintiff agreed that that it would exclusively procure the products offered at its service station from the defendant. The agreement between the parties was be to be in force for a duration of 15 years. When their relationship turned sour, the defendant terminated the contract through its letter dated 30/9/2003 which I have reproduced below:Dear Mr. Mogere,In response to your letter to me of September 25,2003, I am sorry that your meeting with Paul Mwaponda was so unproductive.You suggest it is your desire to find an amicable solution so that South Westen and Mobil may both move forward. I strongly support doing just that. Unfortunately, we have continued to be in disagreement on a number of issues for several years and frankly I do not see us finding any common ground. It is also apparent that while you have Mobil equipment at your sight, you have in the recent past purchased products from others and utilized Mobil’s equipmentI therefore think that the only reasonable way forward is to find a way for you to repay your loan and either purchase our equipment or allow us to take the equipment back.While we always regret losing a dealer, sometimes the objectives and directions of dealers and Mobil are so significantly different that separation is the only viable route.You enclosed a letter from Paul addressing the issue of Retroactive Rebate. We continually look at our entire program with respect to dealer owned sites. In the case of Western Kenya we believe that what we offer today is more than competitive for a marketer that provides equipment. If anything, given the low degree of profitability we are more likely to reduce the amount of retroactive rebate rather than increase it, in the future.Yours,R.D. PetersonManaging Director

58. Having carefully considered the submissions by parties, the issues to be determined by the court can be crystalized as follows:a.Whether the defendant violated the provisions of clause 5 of the Long-Term Supply Agreement.b.Whether the plaintiff is eligible for damages as a result of wet losses.c.Whether the termination of the contract was lawful.d.Whether the defendant is entitled to the equipment or value of the equipment in the plaintiff’s possession.e.Whether the plaintiff defaulted on the repayment of its loan to the defendant, and if so, whether the defendant is justified in claiming the sum of Kshs 1,132,608. 05/-.f.Whether the defendant is justified in claiming Kshs. 478,750/-

a. Whether the defendant violated the provisions of clause 5 of the Long-Term Supply Agreement. 59. The plaintiff has argued that it was the defendant who failed to honour the terms of the contract as it failed to renew the structure of the rebate as provided for in clause 5. Clause 5 of the Long-Term Supply Agreement, provides as follows:“Esso agrees to allow the dealer on all deliveries of Gasoline, automotive diesel and kerosene to the said station under this agreement a discount as per the attached schedule per litre payable quarterly in arrears or in any other manner that Esso may at its discretion decide subject to review every five years.”

60. A reading of the clause reveals that the discounted amount was payable quarterly in arrears but the defendant reserved the right to determine how the discounted amount could be paid. The agreed-upon discount as per the schedule was subject to review every five years. However, this meant that the defendant after its review could maintain the discount as per the schedule or adjust it upwards or downwards. At the time the defendant terminated the contract, it informed the plaintiff that it was more likely to reduce the amount of the retroactive rebate rather than increase it. There was no complaint by the plaintiff that the defendant neglected to pay it as per schedule 1 of the Long-Term Supply Agreement. Having carefully considered the provisions of clause 5 of the contract, I find that the defendant was not in breach of the said clause.

b. Whether the plaintiff is eligible for damages as a result of wet losses. 61. I now turn to consider the plaintiff’s claim for wet losses. Pw1 testified that the purchases made before 13/3/2001 were not temperature corrected and over that period they lost 151,153 litres of fuel. Pw1 advanced that the cost of the lost fuel at the market price would have amounted to Kshs 7,112,004/-. The defendant on the other hand argued that there wasthere was no contractual term agreed between the plaintiff and the defendant existing before the date of their letter dated 13th March 2001 for “conversion”. They also argued that the plaintiff’s claim was a liquidated claim yet no evidence was tabled before the Court, to support the volumes amounting to 13,259,000.

62. It is not in dispute that the contract did not have any provisions relating to wet stock loss occasioned by temperature changes. It was only after 19th February 2000 that the defendant agreed to start temperature correcting volumes for the plaintiff station. The defendant's Manager, R.D Peterson wrote to the plaintiff in his letter dated 13th March 2001 capturing what the parties agreed to:“Dear Mr. Mogere,This note is in response to the meeting we had with you, Dr. Mogere and Tom Mogere and myself and Sam Irungu with reference to your letter to Al Pine, Managing Director of Mobil Kenya dated February 19, 2000. At the meeting we revised the four major points you made in your letter to Al. Your major concern is the lack of profitability and the concern that your shareholders have with their level of return.We agreed at thus meeting to the following: 1. We would start to temperature correct volumes for your Kisii station to 20° C. As I explained to you, this is not standard practice in retail sales transactions and we only have one other station that we temperature correct. However, you (sic) case, like the other one is unique. Therefore, Sam will effect this change as soon as feasible.”

63. In my view, therefore, as of 19th February 2000 the defendant was required to temperature correct following the meeting they had with the plaintiff and the agreement arrived at on that day. The defendant’s argument that they were required to temperature correct as of 13th March 2001 is without any basis. However, there is no evidence showing the volumes produced in the year 2000 which should be subjected to temperature corrections. Therefore, I find that this prayer fails.

64. The defendant’s failure to temperature correct the fuel volumes immediately following the meeting amounted to breach of contract. Therefore, what was the effect of the defendant’s breach? In this case, despite the defendant’s breach, failing to carry out temperature corrections from 19th February 2000, the plaintiff continued to meet its obligation as per their agreement. It continued to source fuel from the defendant. If at all the plaintiff had a right to terminate the contract on account that the defendant had breached the contract through its failure to temperature correct, the plaintiff would be estopped to do so as it had subsequently affirmed the contract.

65. The Court of Appeal faced with a similar issue in Dhanjal Investments Limited v Shabana Investments Limited (Civil Appeal 80 of 2019) [2022] KECA 366 (KLR) (18 February 2022) (Judgment) held as follows:“41. As indicated earlier, the effect of the said breach is that it entitled the Appellant, as the innocent party in the circumstances, the option of treating itself as discharged from further performance of the contract, and to also claim damages for any loss it had suffered. However, neither the Appellant or Respondent repudiated or rescinded the contract either on 15th April 1995 when the respective obligations were not performed, or on 22nd February 1996 when they were sued by third parties over the suit property in Mombasa HCCC 85 of 1996. On the contrary, it is not in dispute that the Appellant took physical possession of the suit property on 27th January 1996 after payment of a deposit of 10% of the purchase price, and that a transfer of the suit property to the Appellant was effected on 15th February 1996. The Respondent thereafter provided the Appellant with a signed Deed of Indemnity in February 1996, and later on entered into the consent dated 7th September 2012, when the balance of the purchase price was paid by the Appellant.

42. It is in this regard explained in paragraph 21-016 of Chitty on Contracts - Volume I, that the right to terminate the contract when there is a fundamental breach may be lost where the innocent party affirms the contract, is held to have waived it, or is estopped from exercising the right to terminate. Affirmance is defined in Black’s Law Dictionary, Ninth Edition as “a ratification, reacceptance or confirmation”, and in relation to contracts, it is explained therein that “a party who has the power of avoidance may lose it by action that manifests a willingness to go on with the contract. Such action is known as affirmance and has the effect of ratifying the contract”. However, a party will not be held to have elected to affirm to contract unless it has knowledge of the facts giving rise to the breach, and of its legal right to choose between the alternatives open to it. In addition, where a party having this knowledge elects to affirm the continued existence of the contract, it does not necessarily relinquish its claim for damages for any loss sustained as a result of the breach.”

c. Whether the termination of the contract was lawful. 66. It is not disputed that the party with the right to terminate the contract was the defendant. According to the termination clause, clause 8, of the Long-Term Supply Agreement it provided that:“Esso shall be entitled to determine this agreement forthwith and without notice, but without to any Esso’s other rights or remedies which have accrued herein, if the owner: -a)…b)…….g)fails to carry out any of his obligations hereunder or under any supply agreement for the time being in force between the parties hereto and in the event of any one of the foregoing conditions occurring the loan balance not then amortized shall become due and payable as provided in clause 7 herein”

67. The defendant has maintained that it was the plaintiff who violated the terms of their agreement. Under clause 2 of the Long-Term Supply Agreement, the plaintiff was to ensure that all motor fuels and other petroleum products sold in the petrol station were exclusively purchased from the defendant. The defendant in its letter dated 30/9/2003 pointed out that the plaintiff had in the recent past purchased products from others. The plaintiff did not respond to the defendant’s letter to deny the allegations. Dw1 testified that they discovered in June of 2003 that the plaintiff was not purchasing petroleum products from the defendant yet it continued to sell products. The defendant carried out a verification exercise on 21/7/2003 and confirmed that its equipment was still at the station. The defendant thereafter wrote to the plaintiff terminating the contract. Although Pw1 testified that they had invoices for June, July and August 2003 as proof of purchases made from the defendant, the same were never availed as evidence. This can only lead to the conclusion that indeed the plaintiff had procured fuel and other supplies from another supplier other than the defendant and therefore it breached the term on exclusivity under the Long Term Supply Agreement. Having considered the evidence on record, I find that the defendant had the right to terminate the contract and the termination was in line clause 8 of the Long-Term Supply Agreement. The plaintiff therefore failed to establish that it was entitled to compensation for loss of profit due to unlawful termination of the contract.

d. Whether the defendant is entitled to the equipment or value of the equipment in the plaintiff’s possession. 68. I now turn to consider whether the defendant proved its claim as per its counterclaim. According to the defendant, the equipment used by the plaintiff belongs to the defendant and it therefore claims Kshs 3,850,075/- being the value of the equipment.

69. The plaintiff on the other hand argued that the it was advanced a sum of Kshs. 150,000 for the supply and installation of the tanks or other equipment and a further sum of Kshs. 350,000 to enable it develop its premises into a filling station and install dispensing equipment. Therefore, the total loan for the installation of tanks, storage and dispensing equipment was Kshs. 500,000 which amounts were fully repaid.

70. I have carefully read the Agreement for the loan of Storage and/or dispensing equipment, and I note that the defendant agreed to loan the plaintiff the equipment for a term of 15 years. The equipment listed in the schedule were 1 Air compressor, 2 Air gauge with hose, 1 Grease lubricator, 1 Oil drain bucket, 6 L&T pumps, 1 canopy (2 square). Although the defendant sought the value of the equipment, it failed to adduce any evidence or receipts or valuation report pertaining to the value of said equipment. Therefore, the only recourse available to the defendant is for it to collect the equipment that were leased out to the plaintiff which I have enumerated above and are also listed in the schedule of the Agreement for the loan of Storage and/or dispensing equipment.

71. However, the same cannot be said for the tanks installed by the defendant. Clause 7 (a) of the Long-Term Supply Agreement provided that a sum of Kshs 150,000/- was expended by the defendant in supplying and installing tanks or other equipment and was therefore converted into a loan. Therefore, there were no provisions that the tanks were leased to the plaintiff. There was no evidence that the plaintiff had failed to service the Kshs 150,000/- loan and as such the defendant is not entitled to the tanks installed at the plaintiff’s premises. Similarly, there was no evidence of non-repayment of the loan of Kshs 350,000/- extended to the plaintiff for purposes of developing the premises into a petrol filling and service station.

e. Whether the plaintiff defaulted on the repayment of its loan to the defendant, and if so, whether the defendant is justified in claiming the sum of Kshs 1,132,608. 05/-. 72. I now turn to consider whether the plaintiff failed to clear an outstanding amount of Kshs 1,132,608. 05/-. According to the letter dated 14/10/2003 the plaintiff had an existing loan with the defendant for Account No. 1402-01-1863. The defendants also relied on the plaintiff’s letter dated 29/7/1997 where the plaintiff wrote to the defendant that they had agreed to convert the overdue amount of Kshs 2,288,065. 50/- into a Kshs 1. 8 million shillings loan repayable within 5 months at a favourable interest. While I recognize that there was a loan agreement between the parties, I find that the defendant did not provide conclusive evidence that the loan balance was Kshs 1,132,608. 05/-. Despite the defendant being the custodian of the statement indicating how the loan had been repaid by the plaintiff over the years, it failed to produce the document showing the extent to which the plaintiff had paid the loan and that a balance of Kshs 1,132,608. 05/- remained unpaid. Their letter dated 14/10/2003 was not sufficient proof that the loan balance was Kshs 1,132,608. 05/-.

f. Whether the defendant is justified in claiming Kshs. 478,750/- 73. Finally, the defendant claimed a sum of Kshs 478,750 for products delivered to the Plaintiff’s petrol station, for which the Plaintiff issued a cheque which was dishonored. Pw1 in cross-examination admitted that it issued the cheque and was later made aware that the same had bounced. Pw1 further testified that they have not replaced the cheque and in my view, the defendant is entitled to the sum of Kshs 478,750/-

77. In view of the foregoing, it is clear that the plaintiff has failed to establish its case and the same is hereby dismissed. The defendant on the other hand proved that it is entitled to 1 Air compressor, 2 Air gauge with hose, 1 Grease lubricator, 1 Oil drain bucket, 6 L&T pumps, and 1 canopy (2 square) which are in the plaintiff’s possession. I hereby make the following orders:1. The defendant is granted access to the plaintiff’s petrol filling station situated on Kisii Municipality Block 11/193 for purposes of collecting the defendant’s equipment being:1 Air compressor, 2 Air gauge with hose, 1 Grease lubricator, 1 Oil drain bucket, 6 L&T pumps, 1 canopy (2 square).2. The defendant is awarded Kshs 478,750/- being the amount due and owing from the plaintiff in respect of products supplied and delivered to the plaintiff. Interest will be from the date of the judgment.3. The defendant is awarded the costs of the suit and counterclaim so far as it has succeeded.

DATED, SIGNED AND DELIVERED VIA MICROSOFT TEAMS THIS 15TH DAY OF DECEMBER 2023. R.E. OUGOJUDGEIn the presence of:Mr. Masese For the PlaintiffMr. Mugambi For the DefendantWilkister C/A