BLUE WATERS RESTAURANT LIMITED VS KENYA ELECTRICITY GENERATING COMPANY PLC

1. The application before this Court is a Notice of Motion dated 24th July, 2023 brought under the provisions of Section 7 of the Arbitration Act, 1995, Order 40 Rules 1 & 2 and Order 51 of the Civil Procedure Rules, 2010.  The applicant seeks the following orders -
i) Spent;
ii) That this Honourable Court do issue an order restraining the respondent herein from actualizing the contract for provision of catering and housekeeping services already awarded to a third (3rd) party during the pendency of its contract with the applicant herein;
iii)  That this Honourable Court do issue an order restraining the third party awarded the contract from accessing and/or interfering with the business premises and sites where the applicant is rendering its services at the respondent’s sites and business premises at Ol’Karia, Naivasha and Eburu, Naivasha;
iv)  Spent;
v) That this Honourable Court be pleased to grant a temporary injunction barring the respondent by themselves, their servants, agents and/or employees from terminating the contract dated 30th September, 2021 pending the hearing and determination of the dispute through informal negotiations and/or arbitration; and
vi)  That the costs of this application be provided for.
2. The application is premised on the grounds on the face of the Motion and is supported by an affidavit sworn on 26th July, 2023 by Pauline Ogutu-Onditi, the applicant’s director. In opposition thereto, the respondent filed grounds of opposition dated 29th July, 2023 raising the following grounds –
i) The application does not meet the legal threshold set in Giella v Cassman Brown & Company Limited [1973] EA 358 on the grant of interlocutory injunctions to the extent that:
a) the applicant has failed to demonstrate a prima facie case by passing off a notice of “end of contract” as a “notice of termination” of the contract;
b) the application is founded on a fixed-term public procurement contract with a liquidated, ascertainable and fixed amount of money payable to the Applicant;
c) given the matters set in paragraph (b) above, the apprehended loss and damage can be adequately compensated by an award of damages if the envisioned arbitral proceedings are determined in favour of the applicant;
d) the balance of convenience militates against the grant of the application, especially given the disruptive effects injunctive orders would have on –
(i). the discharge of the respondent’s public utility mandate;
(ii). the respondent’s annual budgeting and public procurement processes; and
(iii). the respondent’s compliance with the law especially Section 139 of the Public Procurement and Asset Disposal Act, 2015 (which constrained the respondent to issue the notice of “end of contract”).
ii) The applicant will not suffer any loss and damage if the order for an injunction is denied, as it (i.e. the applicant) has been paid the monies payable under the contract and even received an extra 25% variation (being the maximum variation permitted under Section 139(4)(d) of the Public Procurement and Asset Disposal Act, 2015).
iii)  The issuance of the notice of “end of contract” was constrained by the operation of the law, the applicant’s contract having already been increased by the maximum 25% prescribed under Section 139(4)(d) of the Public Procurement and Asset Disposal Act, 2015.
iv)  Injunctive orders (and other equitable reliefs) cannot issue where their object or effect would be to defeat a positive provision of a statute (since equity follows the law).
v) The application seeks orders that would affect a third party’s contractual rights and interests, awarded to the applicant’s successor through a public procurement process similar to the one through which the applicant was onboarded (and whom the applicant has omitted to join to the instant proceedings).
vi)  The application effectively seeks, through the judiciary, and contrary to the provisions of Sections 139(2A) and (4) of the Public Procurement and Asset Disposal Act, 2015 –
a) to extend a fixed-term public procurement contract beyond the period and budget limits fixed by law; and
b) to give the Applicant an undeserved continuity and monopoly in catering and housekeeping services.
vii) The application effectively seeks to stretch this Honourable Court’s jurisdiction to rewrite contracts between parties contrary to the decision of the Court of Appeal in (inter alia) National Bank of Kenya Ltd v Pipe Plastic Samkolit (K) Ltd [2001] eKLR.
viii) The applicant is guilty of “serious violations of fair employment laws” contrary to the provisions of Article 227(2) d) of the Constitution, besides admitting to being guilty of breach of the contract.
ix)  Given the matters in paragraph 8 above, the applicant is undeserving of the order of injunction or any other equitable relief (as anyone who seeks equity must do equity and come with clean hands). Moreover –
a) the application offends the decision of the Court of Appeal in Kenya Breweries Limited & another v Washington O. Okeyo [2002] eKLR, which says “a contracting party who fails to perform his part of the contract cannot obtain an injunction to restrain a breach of covenant by the other party; and
b) although the applicant has admitted its own breaches of the contract and the law (at grounds 4 to 7 of the application and paragraph 6 of the affidavit in support of the application), it has conveniently omitted to annex the letter dated 2nd May, 2023, which particularizes the serious violations of fair employment laws.
3. The application herein was canvassed by way of oral submissions. Ms. Olendo, learned Counsel for the applicant submitted that Clause 15 of the contract between the applicant and the respondent provides for 30 days’ notice of termination but in this case, the respondent issued the applicant with a fourteen (14) days’ notice of termination of contract. She contended that the consequence of breach of the said contract by the respondent is that the applicant has not paid its employees and suppliers, and there are unpaid invoices for May and June 2023.  She stated that the applicant has 48 employees who need to be served with 30 days’ notices of termination of sevice.
4. It was stated by the applicant’s Counsel that in the letter dated 18th July, 2023, which purported to serve the applicant with a fourteen (14) days’ notice for termination of contract, it was indicated that the said contract has been awarded to a third party with effect from 1st August, 2023. She further stated that the variation of contract by 25% was done on 5th June, 2023 and a letter of acceptance was signed by the applicant on 6th June, 2023. Ms. Olendo submitted that the applicant’s contract with the respondent is due to end on 30th September, 2023, therefore the applicant should be allowed to serve the full term of the contract or be issued with a 30 days’ notice of termination of contract by the respondent.
5. Mr. Muthomi, learned Counsel for the respondent submitted that the documents the applicant has annexed indicate that the contract between the applicant and the respondent is a fixed term contract, entered into pursuant to the provisions of public procurement laws. He cited the provisions of Section 139(4) of the Public Procurement Act and submitted that the remuneration under the contract cannot be varied by more than 25%, and since the applicant had been awarded 25% variation of contract, it stands to suffer no loss, and in the event any damages are suffered by the applicant as a result of termination of the contract entered into with the respondent, the same can be remedied by an award of damages.
6. It was stated by Counsel for the respondent that an injunction whose effect is to defeat the statutory provisions cannot issue and in any event, the applicant has acknowledged that it is in breach of Clause 5.2 of the said contract. Mr. Muthomi asserted that an injunction would affect the budgetary cycle of the respondent since the said contract has already been awarded to a third party. He indicated that the respondent is willing to pay damages to the applicant since this is a liquidated claim. He stated that since the respondent is a public utility company, granting an injunction would be disruptive. Counsel for the respondent cited the Waluke case and contended that there are times when Courts issue orders and a state corporation is charged with corruption in instances where public money was used contrary to public interest.
ANALYSIS AND DETERMINATION.
7. I have considered the instant application, the grounds on the face of the Motion and the affidavit filed in support thereof. I have also considered the grounds of opposition filed by the respondent as well as the oral submissions by Counsel for the parties. the issue that arises for determination is if the applicant has satisfied the conditions for grant of an order of an injunction.
8.  In the affidavit filed by the applicant, it deposed that it won a bid for provision of catering and housekeeping services crew at Geothermal Development Division and it was awarded the tender by the respondent. Subsequently, the parties herein entered into a contract dated 30th September, 2021 for Kshs. One Hundred and Three Million, Three Hundred and Ninety-One Thousand, Two Hundred (Kshs. 103,391,200/=) running for a period of two (2) years.
9. The applicant averred that in order to adequately perform its obligations under the contract, it took out a term loan facility with Credit Bank PLC, Koinange branch for Kenya Shillings Twenty Million, Eighty-Nine Thousand, One Hundred and Twenty-Four (Kshs. 20,089,124.00) payable within 24 months from 1st October, 2021. The applicant also took out a performance bond of Kenya Shillings One Million, Thirty-Three Thousand, Nine Hundred and Twelve (Kshs. 1,033,912/=) against the contract it has with the respondent.
10.  It was stated by the applicant that it performed its duties as per the terms of the contract without any interference and/or complaints from the respondent and any complaints raised by the respondent were dealt with promptly. That on or about 2nd May, 2023, the respondent informed the applicant that it was in breach of clause 5.2(i) of the contract and accused it of being in breach of a lot of labour practices as against its employees. The respondent then warned the applicant to comply with the respective statutory and financial obligations as per the contract, failure of which final dues would not be paid at the effluxion of time.
11.  The applicant contended that although the respondent’s demands were made outside the scope of the contract and addressed the interest of third parties not covered by the contract, it endeavored to comply with the said demands. The applicant contended that the reason for the said non-compliance was largely contributed by the respondent’s conduct of late payments contrary to the provisions of Clause 10.1 of the contract between the parties herein.
12.  The applicant deposed that it received another letter from the respondent dated 18th July, 2023 which purported to serve as a fourteen (14) days’ notice for termination of the contract dated 30th September, 2021, but the said letter did not disclose any reason for the intended premature termination of the contract. The applicant asserted that the said notice of termination is in contravention of its contract with the respondent which provides for either fourteen (14) days’ notice period or thirty (30) days’ notice depending on the grounds of termination.
13.  The applicant deposed that it is aggrieved by the respondent’s actions and it intends to initiate informal negotiations with the respondent pursuant to the provisions of Clause 20.1 of the contract in a bid to settle the dispute between the parties herein.
14.  The applicant alleged that the respondent has not paid outstanding amounts for the months of May 2023 and June 2023 contrary to the provisions of Clause 10.1 of the contract and as a consequence thereof, the applicant has not been able to settle invoices for its suppliers.
15.  The applicant averred that in the event the respondent is allowed to actualize its notice, the applicant will be forced to terminate the employment of over forty-eight (48) employees without notice and/or within shorter notice periods, leading to unfair termination. In addition, it will also fall into arrears on the loan facility taken out which was meant to run until 1st October, 2023 and thereby lose the securities issued therein, causing prejudice to the directors of the applicant company, who are individual guarantors of the facility.
If the applicant has satisfied the conditions for grant of an order of an injunction.
16.  An interlocutory injunction is a discretionary remedy that is granted on the basis of evidence and sound legal principles. The conditions for consideration when dealing with an application for an interlocutory injunction were laid down by the Court in the case of Giella v Cassman Brown & Company Limited [1973] EA 358, where the Court expressed itself as hereunder -
"Firstly, an applicant must show a prima facie case with a probability of success.  Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which would not adequately be compensated by an award of damages.  Thirdly, if the Court is in doubt, it will decide an application on the balance of convenience."
17.  A prima facie case with a probability of success was defined by the Court of Appeal in the case of Mrao Ltd v First American Bank of Kenya Ltd & 2 Others [2003] eKLR as follows -
“So, what is a prima facie case" I would say that in civil cases it is a case in which on the material presented to the Court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.  A prima facie case is more than an arguable case. It is not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the Applicant’s case upon trial. That is clearly a standard, which is higher than an arguable case.”
18.  At this juncture, it is worth noting that the respondent has not challenged, rebutted and/or controverted the applicant’s averments contained in its affidavit in support of the instant application by way of a replying affidavit. Instead, it opted to file grounds of opposition. For this reason, it is believed that all the averments contained in the applicant’s affidavit are true.
19.  It is not disputed that the parties herein got into a two-year contract dated 30th September, 2021 which was expected to elapse on 30th September, 2023. It was stated by the applicant that in order to adequately perform its obligations under the contract, it took out a term loan facility with Credit Bank PLC, Koinange branch for Kshs. 20,089,124.00 payable within 24 months from 1st October, 2021, together with a performance bond of Kshs. 1,033,912/= against the said contract. The applicant asserted that it performed its duties as per the terms of the contract and any complaints, if any, raised by the respondent were dealt with promptly.
20.  The applicant stated that through a letter dated 2nd May 2023 addressed to the applicant by the respondent, the latter stated that the applicant was in breach of Clause 5.2(i) of the contract and a lot of labour practices as against its employees. That in the said letter, the respondent warned the applicant to comply with the respective statutory and financial obligations as per the contract, failure to which final dues would not be paid at the effluxion of time. The applicant contended that in as much as the aforementioned demands were made outside the scope of the contract and addressed the interest of third parties not covered by the contract, it endeavored to comply with the said demands. It disclosed that the reason for the said non-compliance was largely contributed by the respondent’s conduct of late payments, contrary to the provisions of Clause 10.1 of the contract between the parties herein.
21.  It is not disputed that vide a letter dated 18th July, 2023, the respondent served the applicant with a fourteen (14) days’ notice, informing the applicant that the defendant had issued an award for provision of the same services the applicant was rendering to another entity, thus its last working day would be 31st of July, 2023. The applicant averred that the said notice was in contravention of the contract dated 30th September, 2021 since it did not disclose why the respondent sought to terminate the said contract prematurely and because the contract provides for thirty (30) days’ notice of termination at the respondent’s discretion and/or 30 days’ written notice of default in the event of breach of contract.
22.  Clauses 15.1, 15.2 & 15.5 of the contract dated 30th September, 2021 provides thus-
“15.1. The employer may in its sole discretion terminate this agreement upon the provision of one (1) month written notice to the contractor.
15.2. The employer may, without prejudice to any other remedy for breach
   of contract, by a thirty (30) days’ written notice of default sent to the    
   contractor, terminate this contract in whole or in part…
15.3. …
     15.4. …
    15.5. This agreement may be terminated by either party upon occurrence of
  any of the following events but upon issuance of thirty (30) days’ 
written notice…”
23.  Based on the above clauses, it is evident that in the event of termination of the contract dated 30th September, 2021 by either of the parties to the said contract for whatever reason, the party terminating the contract is required to issue the other party with a 30 days’ written notice of termination of contract prior to the said termination. It contended by the respondent that the letter dated 18th July, 2023 was not a notice of termination, and instead, it was a notice of end of contract. I have perused the said letter and paragraph 2 provides that –
“This serves as a 14 days’ notice of the end of contract between Blue Waters Restaurant Ltd and KenGen following the successful completion of the award of a new contract for provision of the catering and housekeeping services. The last working day will be 31st July, 2023.”
24.  On perusal of the contract dated 30th September, 2021, Clause 17 provides for termination by convenience. Clause 17.1 states that the employer may by at least 14 days’ notice sent to the contractor terminate the contract in whole or in part at any time for its convenience. The clause further states that the notice of termination shall specify that the termination is for the procuring entity’s convenience, the extent to which performance of the contract has been completed prior to termination and the date on which such termination becomes effective.
25.  Accordingly, the only inference that can be drawn from the contents of the letter dated 18th July, 2023 is that the respondent was notifying the applicant that the contract dated 30th September, 2021 was to end on 31st July, 2023. It is my finding that the said letter was a notice of end of contract and not a notice of termination of the contract dated 30th September, 2021. It is noteworthy that Clause 3 of the said agreement provides that the agreement between the parties herein is valid for two (2) years from the effective date. The commencement date shall be the date of contract signature, which in this case was 30th September, 2021, or such other date as may be agreed by the parties in writing.
26.  Based on the foregoing, this Court finds that the contract between the parties herein was set to elapse on 30th September, 2023 and not 31st July, 2023 as indicated in the letter dated 18th July, 2023. For this reason, it is my finding that the applicant has demonstrated that it has a prima facie case against the respondent with high chances of success.
27.  On whether the applicant will suffer irreparable loss and damage incapable of being compensated by an award of damages in the event the instant application is  not allowed, the applicant asserted that if the application herein is disallowed, its interest in the contract in issue will be greatly infringed as it will be forced to terminate the employments of over 48 employees without notice and/or within a shorter notice period, and it will fall into arrears on the loan facility taken out which was meant to run until 1st October, 2023 thus losing the securities issued to the bank and thereby causing prejudice to the directors of the applicant company who are individual guarantors of the facility. The applicant also stated that it will not be able to settle invoices for its suppliers since the respondent has not paid outstanding amounts for the months of May and June 2023 contrary to the provisions of Clause 10.1 of the contract.
28.  The respondent on the other hand contended that since the applicant has been awarded 25% variation of the contract, it stands to suffer no loss, and in the event that any damages are suffered by the applicant as a result of termination of the contract herein, the same can be remedied by an award of damages. Counsel for the respondent submitted that the said contract has already been awarded to a third party and the respondent is willing to pay damages to the applicant since this is a liquidated claim.
29.  In the case of Victoria Pumps Ltd vs Kenya Ports Authority and 4 others [2015] eKLR, the Court stated the following on payment of damages in lieu of an injunction being granted -
“In those circumstances I find that the plaintiffs loss as far it touches on his right to be heard goes to the very root of administration of justice and that the defendant or any them ought not to be allowed to disregard the law with abandon merely because they are capable of paying damages.  To me that would create a situation and state where the financially strong would be above the rule of law merely by courtesy of their ability to pay damages.  That to me would ran affront (sic) the provisions of Article 27 of the Constitution.  I therefore find and hold that the plaintiff’s injury in this regard would be incapable of adequate compensation by an award of damages”. (emphasis added).
30.  Similarly, in the case of Joseph Siro Mosioma vs. Housing Finance Company of Kenya Limited & 3 Others [2008] eKLR it was held as follows by Warsame, J (as he then was)-
“......is not automatic remedy when deciding whether to grant an injunction or not. Damages is not and cannot be substituted for the loss which is occasioned by a clear breach of the law, in any case, the financial strength of a party is not always a factor to refuse an injunction.  More so a party cannot be condemned to take damages in lieu of his crystallized right which can be protected by an order of injunction.”
31.  It is my finding that the respondent’s letter dated 18th July, 2023 has a ripple effect since it not only affects the applicant but also its employees and its suppliers thus disallowing the instant application will be tantamount to exposing the applicant to legal action and/or redress by its employees and its suppliers on account of something that was beyond its control. I therefore hold that the applicant has demonstrated a prima facie case with high chances of success, as it stands to suffer irreparable damages that cannot be sufficiently compensated by an award of damages.
32.  The issue of balance of convenience does not arise in this case since this Court is not doubt. As a result, this Court is inclined to grant the applicant the orders sought, so as to give the parties herein room and/or time to pursue informal negotiations pursuant to the provisions of Clause 20.1 of the contract in a bid to settle the dispute between the parties herein amicably.
33.  In the circumstances, I find that the application dated 24th July, 2023 is merited and it is hereby allowed in the following terms -
i) This Court hereby issues an order restraining the respondent herein from actualizing the contract for provision of catering and housekeeping services already awarded to a third party during the pendency of its contract with the applicant herein;
ii) This Court hereby issues an order restraining the third party awarded the contract from accessing and/or interfering with the business premises and sites where the applicant is rendering its services at the respondent’s sites and business premises at Ol’ Karia, Naivasha and Eburu, Naivasha during the pendency of the applicant’s contract with the respondent;
iii)  This Court hereby grants a temporary injunction barring the respondents by themselves, their servants, agents and/or employees from terminating the contract dated 30th September, 2021 pending the hearing and determination of the dispute through informal negotiations and/or arbitration, and/or until the respondent issues the applicant with proper notices as provided for in the said contract; and/or until the contract period has elapsed; and
iv)  Costs of this application shall be borne by the respondent.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 9th day of August, 2023. Ruling delivered through Microsoft Teams Online Platform.
    In the presence of:
    Ms Olendo for the applicant
    Messrs Muthomi and Njoroge for the respondent
    Ms B. Wokabi – Court Assistant.