'1. This suit was tried on the Re-amended plaint dated 13/11/2012. The plaintiffs sought judgment against the defendants for various reliefs some of which were overtaken during the pendency of the suit. In the main, they claimed Kshs. 83,041,133.51 and Kshs. 61,460,012/- respectively for loss of business and other related claims, interest at commercial rates from due dates and costs.
2. It was their case that, on or about 31/7/2007, the 1st plaintiff entered into an agreement with the 1st defendant whereby the latter appointed the 1st plaintiff as its distributor of petroleum products including motor fuels, kerosene, lubricants, greases and LPG. The agreement required the 1st plaintiff to operate his business of a petrol station at the 1st defendant’s premises on L.R. No. 209/6409, Hurlingham, Nairobi, as a licensee (“the Station”).
3. On 1/2/2008, the 1st plaintiff took possession of the station and commenced operations. He operated the station under the terms of the agreement whereby he was granted the right to use the 1st defendant’s equipment, trade name, trademarks and goodwill. He was required to maintain a working capital of Kshs. 12,500,000/- and provide a bank guarantee.
4. At the 1st plaintiff’s request, the 2nd plaintiff procured the required guarantee from the 2nd defendant. The last guarantee issued was No. TFBG09699 dated 16/7/2009 in the sum of Kshs. 3,500,000/-, valid until 30/6/2010.
5. The 1st plaintiff was to pay to the 1st defendant, monthly royalties of Kshs. 950,000/- in advance for the use of the station, the trademarks and goodwill and access to facilities such as the tyre center, car wash, garage and convenience store. He was also to purchase all petroleum products exclusively from the 1st defendant and to maintain minimum monthly stock levels of Unleaded Petrol (UPMS) 250,000 litres, Diesel (AGO) 90,000 litres, Kerosene (IK): 10,000 litres and LPG (cylinders) 1,000 litres.
6. It was contended that consistent supply of products from the 1st defendant was crucial to the operations of the station. However, that the 1st defendant persistently failed to meet its supply obligations despite numerous complaints. As a result, the 1st plaintiff suffered product outages and customer dissatisfaction, leading to various losses particularized in the re-amended plaint. That the 1st defendant revised pump prices downwards without the required 30-day notice, despite having already received payment at higher wholesale prices resulting in loss of Kshs. 995,249.46.
7. That despite the 1st plaintiff paying Kshs. 0.23 per litre as a maintenance fee, the 1st defendant failed to maintain the station equipment, causing breakdowns and downtime. These led to various losses totaling Kshs. 104,298,144/- which he claimed.
8. It was further claimed that the 1st defendant, who had administrative control of the store’s computer system, negligently allowed unauthorized access to sales staff, resulting in manipulation of stock, pricing and sales data leading to loss of Kshs. 1,649,704.97.
9. For alleged delayed remittance of funds received through Bon Voyage Card transactions, the 1st plaintiff claimed interest losses of Kshs. 874,727.41 at 18% p.a. Short-landed fuel while he was billed for full quantities, he claimed a loss of Kshs. 2,302,575.47.
10. Following ongoing disputes, the 1st plaintiff yielded up the station on 20/3/2010 and handed over fuel stock, store items, and accrued credits to the 1st defendant amounting to Kshs. 3,333,592.72 which he claimed.
11. That on 17/6/2010, the 1st defendant issued a demand for Kshs. 1,970,131.35, after conducting a unilateral reconciliation without involving the 1st plaintiff. The 1st defendant threatened to call in the Bank Guarantee No. TFBG09699, despite no proven default. The 1st plaintiff contended that the value of his business as at 20/3/2010 was Kshs.61,460,012/- which he claimed as a loss resultant from the alleged breaches by the 1st defendant.
12. He alleged that the closure of the station was due to the 1st defendant’s breaches of failure to supply fuel, maintain equipment, safeguard system access and credit card payments. That he had been unable to enter into any similar distributorship due to lack of capital and a new guarantor.
13. In opposition to the suit, the 1st defendant filed a statement of defence dated 4/12/2012. It acknowledged the agreement dated 31/7/2007 appointing the 1st plaintiff as a dealer and confirmed that the business was to be carried out at Argwings Kodhek Total Service Station on L.R. No. 209/6409. It admitted the issuance of Bank Guarantee No. TFBG09699 by the 2nd defendant for Kshs. 3,500,000/- but that the same allowed it to demand payment thereon unconditionally, without requiring proof of default or notice to the plaintiffs.
14. That royalties were payable but did not cover technical and management assistance. That the 1st plaintiff had the responsibility to follow proper ordering, delivery and product receipt procedures under the agreement and that the stock-outs were as a result of the 1st plaintiff’s mismanagement, including bounced cheques and late payments.
15. It denied responsibility for price losses or maintenance failures and stated that any equipment issues arose from the 1st plaintiff’s negligent handling thereof for which it was not liable. It denied negligence in the computer system and stated that the 1st plaintiff controlled passwords and was responsible for staff conduct. The allegation of data manipulation or failure to credit Bon Voyage card sales were denied. That shortages on delivery were subject to a laid-down complaint procedure which the 1st plaintiff failed to follow.
16. It refuted the claimed value of surrendered stock and credit notes and stated that the correct amount was Kshs. 2,298,009.61 which had been credited to the 1st plaintiff’s account and maintained that the 1st plaintiff still owed Kshs. 1,970,131.35. That this justified the demand on the Bank Guarantee on 28/6/2010.
17. It dismissed the claim of Kshs. 61,460,012/- for loss of business as speculative and unsupported and denied that the 1st plaintiff was prevented from entering into similar agreements thereafter. Finally, it contended that disputes under the agreement were subject to arbitration.
18. At the trial, Pw1, David Njane, adopted his witness statement dated 12/4/2011 as his evidence-in-chief and produced his bundles of documents dated 20/6/2020 and 19/3/2020 as PExh1, 2 and 3, respectively. He testified that he signed an offer letter dated 26/7/2007 but declined to sign a Marketing Licence, as negotiations were still ongoing before the agreement was terminated. His evidence rehearsed the contents of the plaint as set out above.
19. In cross-examination, he testified that the bouncing of cheques was only in isolated incidents. That the 1st defendant would not supply fuel unless payment was actually made. Some of the cheques that bounced were from late 2009 and 2010, a period when the business had already collapsed. That the fuel had mixed with water due to damaged underground fuel tanks, a matter he had reported to the 1st defendant on several occasions.
20. That while he made fuel orders, the 1st defendant delayed in supplying the same. Despite invoking the standard procedure for ordering fuel, delays persisted. That even when the fuel industry faced shortages, the 1st defendant continued to collect royalties from him regardless the absence of products. That sometimes, the 1st defendant would have stock but decline to release it, to him, presumably to avoid incurring losses.
21. That the 1st defendant set sales targets it knew could not be met, and that although it had the discretion to review those targets downwards, it failed to do so. He testified that neighboring stations, such as Shell and former Caltex, could have fuel during the alleged shortage periods when the 1st defendant would still fail to supply him with the same. That although the 1st defendant had the required bank guarantees in place, it lacked the capacity to deliver the full quantities ordered. For instance, he would order a 28,000-litre tanker but receive only 10,000 litres. He maintained that there was no signed Marketing Licence and that his claim was based on the offer letter.
22. That he reported engineering issues and maintenance problems to the 1st defendant, but received no support. He admitted that there was no written contract with respect to the car bay and convenience store save for a verbal agreement between the parties. That all maintenance issues were reported as directed by the 1st defendant.
23. He claimed that the 1st defendant advised him not to purchase any equipment. That the target earnings, which form part of his claim, were based on expected profits over two years. That the Kshs. 37 million figure in the claim represented the 1st defendant’s projected sales figures less what was actually earned over a 24-month period.
24. On fraud, he testified that the 1st defendant did not allow him to use external POS systems. The station was handed over to him with existing POS systems and PDQ machines, which were susceptible to double entries. Fraud occurred when cashiers ran fraudulent card transactions, pretended to sell products and then took the equivalent amount in cash. That if the system had proper controls preventing double entries, such fraud would not have occurred.
25. He complained that the 1st defendant acted with impunity by failing to respond to emails and failing to secure the system. That while he had a password, it was being leaked to his employees. That on the Bon Voyage program, he would sell to the 1st defendant’s customers products but payments would be received after one to two weeks. This delay significantly impacted cash flow amounting to unfair business practices.
26. Regarding the loss and delivery claim of Kshs. 2,302,575/-, he testified that he consistently received less products than ordered. As documented in the Supplementary Bundle at page 32, delivery documents were signed by the driver and supervisor and discrepancies were reported to the 1st defendant.
27. In re-examination, he confirmed that he paid Kshs. 15.7 million as working capital and procured a bank guarantee of Kshs. 3.5 million. He underwent a one-month training as required and inherited the 1st defendant’s existing workforce. That he never signed the Marketing Licence as it was one-sided and was not mutually agreeable.
28. That reconciliation of stocks was not conducted before the 1st defendant recalled the guarantee and this was unjustified. He acknowledged that four cheques bounced during the final stages of operation, but stated that even after paying the amounts, there would still be a positive balance on the guarantee. He raised complaints about stock shortages, specifically citing page 74 of PExh1. That documents supporting the claim of Kshs. 18 million in losses due to lack of stock appeared at pages 260 to 350 of PExh1. That the 1st defendant made him incur losses by asking him to reduce fuel prices after delivery, thereby affecting profitability and planning.
29. PW2, Edward Mugo, an accountant by profession, testified that he prepared a business valuation report for the plaintiff. In conducting the valuation, he took into account the contents of the offer letter issued to the plaintiffs. He explained that the valuation methodology applied was based on discounted cash flow analysis, which is a standard method for assessing the value of a business based on projected future earnings. That the plaintiffs had incurred a loss during the relevant period. In the absence of audited financial statements, he relied on internal documents generated by the service station to assess the business''s performance and to estimate its value. In his testimony, he told the Court that the plaintiff’s business was worth Kshs. 61,460,012/- as at March, 2010. He also detailed the plaintiffs’ various claims using the data supplied and quantified the same. He produced the said report as an exhibit in P. Exh1.
30. The 1st defendant called five (5) witnesses in support of its defence. D1w1, Caleb Apungu, adopted his witness statement dated 23/2/2012 as part of his evidence-in-chief. He produced the 1st defendant’s bundles of documents dated 22/6/2015 and 4/7/2022 as DExh1 & 2, respectively.
31. He testified that he was the 1st defendant’s Network Sales Manager at the material time. That the letter of offer was a preliminary document, intended only to show intent. That the Licence Agreement was the document that provided detailed terms and conditions governing how the station was to be operated.
32. He confirmed that the 1st defendant set up the station’s infrastructure, including computers and hardware, but the software operations and system use were managed by the dealers and their staff. The passwords and system access were the sole responsibility of the dealers and their employees.
33. Regarding product targets, he told the Court that the monthly fuel target was 350,000 litres, constituting 250,000 litres super petrol, 90,000 litres diesel and 10,000 litres kerosene. There were also monthly targets for auxiliary products: 3,000 litres of lubricants and 15,000 litres of liquefied petroleum gas (LPG).
34. On non-delivery of fuel, he confirmed that there were instances when oil was ordered but not delivered, the reason being non-payment therefor or bounced cheques. He also acknowledged that fuel shortages could have been a contributing factor to delayed or failed deliveries. That there was no contract with the plaintiff requiring 1st defendant to supply six million shillings worth of products per month regardless of circumstances as contended by the plaintiffs. That there were no documented targets for the car wash business and that he had not seen any document showing actual sales or earnings of Kshs. 250,000/- per month for the Tyre Centre.
35. He stated that the 1st defendant provided the software through a contractor but the dealer was responsible for operating the system at the station. He recalled a discussion in which the 1st plaintiff requested to implement his own system, but this was declined because the 1st defendant required uniformity and visibility across its more than 100 service stations. That allowing each dealer to use a different system would have been unmanageable. He stated that the plaintiff’s claim of Kshs. 61 million was not payable because it was based on projected or targeted sales rather than actual performance.
36. In Cross-examination, D1w1 stated that his assistant, Mr. Kombe, dealt directly with the plaintiffs. He admitted that there was no evidence to show that he himself visited the petrol station. He confirmed that all records and business operations were maintained in the system and that the station was fully computerized, with transactions being entered manually.
37. That the offer letters dated 7/6/2007 and 26/7/2007 had lapsed after 30 days. That the 1st defendant commenced trading with the plaintiff on 1/2/2008. He acknowledged receiving bankers’ cheques totaling Kshs. 10 million as working capital and not Kshs. 15 million. A bank guarantee of Kshs. 3.5 million was also provided. He admitted not having produced an agreement dated 31/7/2007 referred to in his witness statement.
38. He admitted there having been issues of supply failure. He stated that as at the time of trial, the 1st defendant was owed Kshs. 1.7 million and that the bank guarantee had been recalled. He disagreed with the performance report of September 2009 and maintained that any such reports could not be discussed after the termination of the business relationship. According to him, any losses were attributable to the plaintiff’s failure to operate the station in accordance with the terms of the Management Licence.
39. In re-examination, D1w1 stated that the business between the parties officially commenced on 1/7/2008. He reiterated that the plaintiff''s bounced cheques affected the supply of products. That no complaints had been raised regarding tank calibration or pressure testing.
40. D1w2, Wycliffe Nyongesa, adopted his witness statement dated 4/6/2012 as part of his evidence-in-chief. He testified that he was a computer specialist by profession, holding a Bachelor of Commerce degree in Accounting. In addition, he run a Petrol Service Station known as Webuye Total Energies Service Station, which he had operated for five years.
41. That the primary purpose of the computer system used at Total Stations was to assist dealers in closing shifts. Each station may have one or more shifts per day, and at the end of each shift, the dealer is required to perform reconciliation and balance the books.
42. He explained that all data was manually entered into the system, including purchases such as fuel deliveries. That at the end of each shift, the dealer must read the pump meter readings and record them in a meter book. These readings were then entered into the system, which automatically calculated the total white product sales for that period. That the system captured various forms of credit sales, including those made through credit invoices and multiple card platforms such as Bon Voyage (BV) cards, Visa, ABSA (formerly Barclays), KCB and Equity cards. That reconciliation was expected to be done at the end of each shift.
43. That he personally installed the system at the Argwings Service Station. At the time of installation, he designated the dealer as the system’s super user, or dealer-level access (level 3), which enabled the dealer to create accounts for other users, such as employees. That supervisors were typically given access level 7. That there was no remote or central connection and that the dealer received prior training at Airport View Total Service Station from another dealer. In his view therefore, the 1st defendant had no role in the day-to-day system management at the station.
44. In Cross-examination, he confirmed that he was contracted by the 1st defendant in 2006 to install the system. When asked how many times he carried out maintenance on the system at Argwings Station from the time of installation to the closure of the business, he could recall none. That during the dealer’s training at Airport View Petrol Station, there was no representative from Kenserve present.
45. D1w3 – Lucy Gakuru, adopted her witness statement dated 18/4/2013 as her evidence-in-chief. She testified that her company was contracted by oil companies to maintain fuel dispensers. That although she did not personally attend to the maintenance complaints at the Argwings Service Station, she dispatched technicians to handle the reported issues. However, she confirmed that she did not have any documentation or evidence to demonstrate that maintenance was actually conducted at the Argwings Station.
46. D1w4 – Josephat Koech, adopted his witness statement dated 4/6/2012 as his evidence-in-chief and told the Court that he held a diploma in Information Technology. He denied any claim of system manipulation. He stated that the dealer was the sole custodian of the system password which was never shared with the 1st defendant. He confirmed that while the system was built with security features, it could potentially be manipulated by individuals with access.
47. In cross-examination, he testified that he installed the RMS system at Argwings in 2007. He trained the dealer’s personnel and provided them with system passwords. That the 1st defendant did not contact him regarding any complaints about the system. He had no evidence that the 1st defendant had paid him for system maintenance.
48. D1w5 – Fredrick Odhiambo Ochieng adopted his witness statement dated 19/2/2015 as part of his evidence in chief and testified that he prepared a financial report using the Capital Asset Pricing Model (CAPM), which was also referenced by Mr. Mugo (Pw2). That in his opinion, the report by Pw2 should not have relied on expected or projected figures in the manner it did. That he should have used actual performance.
49. In cross-examination, he testified that he based his report on the loss figure reported in the Mashimba Associates account, after deducting depreciation. He did not include the 2009 loss figure of Kshs. 2,294,881/- specifically, but instead relied on the figure as at 31/12/2009.
50. He admitted that he did not take into account the parties’ obligations under the contract. He also did not include an analysis of the company’s net assets. According to him, the valuation report was negative due to the losses incurred by the plaintiff in 2008 and 2009.
Submissions
51. Parties filed their respective submissions which I have duly considered. It was submitted for the plaintiffs that the 1st plaintiff took possession of the Station and operated the business in accordance with the terms of the agreement, as outlined in the offer letter dated 31/7/2007. That the 1st defendant failed to meet its contractual obligations to supply the minimum product quantities agreed upon. This failure disrupted the plaintiff’s ability to maintain consistent sales and revenue.
52. The plaintiff engaged a qualified accountant to analyze the various heads of claim and prepared a comprehensive financial report. It was submitted that the figures contained in the report were not challenged or rebutted by the 1st defendant and, therefore, should be deemed as admitted.
53. Regarding the losses arising from lack of stock, it was submitted that this was persistent from the inception of the business relationship. The shortage of stock was attributed solely to the 1st defendant’s failure to deliver the products and not to any inability on the part of the plaintiff to pay. It was submitted that the plaintiff had provided a guarantee of Kshs 3,500,000/- to secure product supply in case the working capital fell below the agreed threshold. Thus, at no point did the 1st defendant face any actual credit risk that would justify withholding deliveries.
54. On unilateral price changes, the plaintiff submitted that the agreement required either party to give at least 30 days’ written notice prior to any revision of retail margins. That the 1st defendant unilaterally revised prices without the requisite notice, thereby inflicting financial losses on the 1st plaintiff. That on the bon voyage card payments, the 1st defendant delayed reimbursement by up to two weeks which adversely affected the plaintiff’s cash flow.
55. On the losses related to maintenance and servicing of equipment, it was submitted that the plaintiff was contractually obligated to pay the 1st defendant 0.23% per litre as a maintenance fee. Despite receiving this payment, the 1st defendant failed to fulfill its obligations to service or maintain the equipment in working order. Pw2, who testified on this aspect, was not cross-examined on the stated figures.
56. Lastly, it was submitted that the 1st defendant consistently delivered less fuel than indicated in the delivery notes but billed the plaintiff the full quantities stated. This discrepancy resulted in losses amounting to Kshs 2,302,575.47.
57. On its part the 1st defendant submitted that there was no valid or enforceable contract between it and the 1st plaintiff. While several offer letters were exchanged in 2007 regarding a proposed Marketing Licence for operating a service station on the 1st defendant’s premises, only one offer letter dated 26/7/2007 was signed on 31/7/2007 and that too by Twin Buffalos Safaris Ltd, not the 1st plaintiff personally. That the offer letter was expressly subject to the signing of a formal Marketing License Agreement, which the 1st plaintiff never executed. Consequently, no binding contract was formed as the preconditions for contract formation were not met. That an unsigned or lapsed offer, particularly one contingent on further formal agreement, could not give rise to a claim for breach. That therefore, the 1st plaintiff’s claim failed for lack of a valid contractual foundation.
58. That while the 1st plaintiff had sued in his personal capacity under the business name "Twin Service Station," no proof was provided showing that the business was registered or that the 1st defendant was its proprietor. That the involvement of Twin Buffalos Safaris Ltd, which signed one of the documents, was not clarified. That the offer letter of 26/7/2007 on which the 1st plaintiff based his claim was time bound, signed by a 3rd party and was subject to execution of a Marketing Licence Agreement which was never executed.
59. The cases of East African Fine Spinners Ltd v Bedi Investments (1994) eKLR and Keppel v Wheeler (1927) 1KB 577 were cited in support of the contention that an offer "subject to contract" does not give rise to legal obligations unless a formal contract is signed. That therefore, reliance on the offer letter alone was misplaced and the 1st plaintiff could not sue for breach where no enforceable agreement existed.
60. Without prejudice, the 1st defendant submitted that, the forgoing notwithstanding the claim for special damages must be specifically pleaded and strictly proven. The cases of Stephen Wasike Wakho vs Security Express Ltd (2006) eKLR and Hahn vs Singh (1985) eKLR were cited in support of that submission. That in the present case, no such prove had been established.
61. That for loss of profits to be recoverable, the 1st plaintiff should have provided both the certainty of loss and that the loss was proximately caused by the 1st defendant’s breach. Since it had not been proved that any alleged lost profits resulted directly from the 1st defendant’s action, the claim failed both in substance and evidentiary standard. That even if a contract were found to exist, the 1st plaintiff''s claim for special damages was unsupported by evidence and should be dismissed.
62. That the plaintiff’s claim for Kshs. 4,892,674.97 for alleged lack of stock, was unfounded, speculative, and stemmed out of the plaintiff’s own operational failures. Reliance was placed on Article IV and Appendix 4 of the unsigned Marketing Licence. That the plaintiff was contractually expected to maintain minimum stock levels and ensure timely payments. The force Majeure clause, under Article IX(ii) of the Marketing Licence was invoked. That the national and international supply disruptions was beyond the 1st defendant.
63. That the 1st plaintiff presented emails complaining about stockouts but failed to produce proof of up-to-date payments or valid orders that would have entitled him to deliveries. That many of the complaints fell during periods there was default. That the stock issues was due to financial difficulties admitted by 1st plaintiff in his letter of 4/11/2009, internal conflict between 1st plaintiff’s family members, use of a fake bank guarantee acknowledged via an email dated 25/2/2010 and failure to provide working capital as required by the letter of offer.
64. That the Kshs. 65 million equipment breakdown claim was unsupported by any binding contractual terms and was based on speculative sales targets rather than actual loss. That the claim for Kshs. 4,628,975/- allegedly lost through manipulation of the convenience store system by his own employees was unsubstantiated. The plaintiff operated as an independent contractor, as expressly stated under Article II(iv) of the Marketing Licence, page 34 of P. Exhibit 1. That the 1st defendant had no access codes as stated by D1w2 and D1w4 respectively. That the alleged manipulation and theft were criminal acts committed by own staff and the claim wrongly sought to impute liability on the 1st defendant. Additionally, that no different system could be installed because of standardization.
Analysis
65. I Have considered the pleadings, the evidence on record as well as the detailed submissions filed by Learned Counsel. I am grateful to counsel for their industry. That I have not referred to all the authorities referred to is not out of disrespect. I have considered the same. The issues that arise for determination are: -
a) Whether the 1st plaintiff is non-suited.
b) Whether there existed a valid and enforceable contract between the plaintiffs and the 1st defendant.
c) Whether there was a breach of the contract, if any.
d) Whether the plaintiffs are entitled to the orders sought.
e) Whether the 1st defendant is entitled to the counterclaim.
f) What orders as to costs.
66. The 1st issue is whether the 1st plaintiff was non-suited. This is an issue that was raised by the 1st defendant in its submissions. It was submitted that the 1st plaintiff had no locus standi to bring the suit. That there was no evidence to show that there was an entity by the name Argwins Twin Service Station and that he was its proprietor. The Court did not see the plaintiffs’ response to this submission understandably because the filing of submissions was time bound and probably for what the Court will observe.
67. Firstly, the Court observes that this was an issue that was first raised by the 1st defendant at the submission level. It is expected that parties are to raise their objections to the others’ claim, if any, at the earliest, and in any, case in the pleadings themselves and not otherwise. To the extent that this issue was never raised at any stage before submissions, it is not a proper objection for consideration as the 1st plaintiff was never given any notice of the same for him to prove whether or not he was trading in the name and style of Argwins Twin Service Station or not. Had it been raised earlier, he would have been expected to respond by producing the Certificate of Registration, if any or tender evidence towards the issue.
68. Secondly, parties are bound by their pleadings. See Githaiga vs Mwangi (Civil Appeal No. E064 OF 2022) [2024] KEHC 13449 (KLR) (30th October, 2024). In this regard, a party cannot be permitted to tender any evidence that is at variance wi
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2. It was their case that, on or about 31/7/2007, the 1st plaintiff entered into an agreement with the 1st defendant whereby the latter appointed the 1st plaintiff as its distributor of petroleum products including motor fuels, kerosene, lubricants, greases and LPG. The agreement required the 1st plaintiff to operate his business of a petrol station at the 1st defendant’s premises on L.R. No. 209/6409, Hurlingham, Nairobi, as a licensee (“the Station”).
3. On 1/2/2008, the 1st plaintiff took possession of the station and commenced operations. He operated the station under the terms of the agreement whereby he was granted the right to use the 1st defendant’s equipment, trade name, trademarks and goodwill. He was required to maintain a working capital of Kshs. 12,500,000/- and provide a bank guarantee.
4. At the 1st plaintiff’s request, the 2nd plaintiff procured the required guarantee from the 2nd defendant. The last guarantee issued was No. TFBG09699 dated 16/7/2009 in the sum of Kshs. 3,500,000/-, valid until 30/6/2010.
5. The 1st plaintiff was to pay to the 1st defendant, monthly royalties of Kshs. 950,000/- in advance for the use of the station, the trademarks and goodwill and access to facilities such as the tyre center, car wash, garage and convenience store. He was also to purchase all petroleum products exclusively from the 1st defendant and to maintain minimum monthly stock levels of Unleaded Petrol (UPMS) 250,000 litres, Diesel (AGO) 90,000 litres, Kerosene (IK): 10,000 litres and LPG (cylinders) 1,000 litres.
6. It was contended that consistent supply of products from the 1st defendant was crucial to the operations of the station. However, that the 1st defendant persistently failed to meet its supply obligations despite numerous complaints. As a result, the 1st plaintiff suffered product outages and customer dissatisfaction, leading to various losses particularized in the re-amended plaint. That the 1st defendant revised pump prices downwards without the required 30-day notice, despite having already received payment at higher wholesale prices resulting in loss of Kshs. 995,249.46.
7. That despite the 1st plaintiff paying Kshs. 0.23 per litre as a maintenance fee, the 1st defendant failed to maintain the station equipment, causing breakdowns and downtime. These led to various losses totaling Kshs. 104,298,144/- which he claimed.
8. It was further claimed that the 1st defendant, who had administrative control of the store’s computer system, negligently allowed unauthorized access to sales staff, resulting in manipulation of stock, pricing and sales data leading to loss of Kshs. 1,649,704.97.
9. For alleged delayed remittance of funds received through Bon Voyage Card transactions, the 1st plaintiff claimed interest losses of Kshs. 874,727.41 at 18% p.a. Short-landed fuel while he was billed for full quantities, he claimed a loss of Kshs. 2,302,575.47.
10. Following ongoing disputes, the 1st plaintiff yielded up the station on 20/3/2010 and handed over fuel stock, store items, and accrued credits to the 1st defendant amounting to Kshs. 3,333,592.72 which he claimed.
11. That on 17/6/2010, the 1st defendant issued a demand for Kshs. 1,970,131.35, after conducting a unilateral reconciliation without involving the 1st plaintiff. The 1st defendant threatened to call in the Bank Guarantee No. TFBG09699, despite no proven default. The 1st plaintiff contended that the value of his business as at 20/3/2010 was Kshs.61,460,012/- which he claimed as a loss resultant from the alleged breaches by the 1st defendant.
12. He alleged that the closure of the station was due to the 1st defendant’s breaches of failure to supply fuel, maintain equipment, safeguard system access and credit card payments. That he had been unable to enter into any similar distributorship due to lack of capital and a new guarantor.
13. In opposition to the suit, the 1st defendant filed a statement of defence dated 4/12/2012. It acknowledged the agreement dated 31/7/2007 appointing the 1st plaintiff as a dealer and confirmed that the business was to be carried out at Argwings Kodhek Total Service Station on L.R. No. 209/6409. It admitted the issuance of Bank Guarantee No. TFBG09699 by the 2nd defendant for Kshs. 3,500,000/- but that the same allowed it to demand payment thereon unconditionally, without requiring proof of default or notice to the plaintiffs.
14. That royalties were payable but did not cover technical and management assistance. That the 1st plaintiff had the responsibility to follow proper ordering, delivery and product receipt procedures under the agreement and that the stock-outs were as a result of the 1st plaintiff’s mismanagement, including bounced cheques and late payments.
15. It denied responsibility for price losses or maintenance failures and stated that any equipment issues arose from the 1st plaintiff’s negligent handling thereof for which it was not liable. It denied negligence in the computer system and stated that the 1st plaintiff controlled passwords and was responsible for staff conduct. The allegation of data manipulation or failure to credit Bon Voyage card sales were denied. That shortages on delivery were subject to a laid-down complaint procedure which the 1st plaintiff failed to follow.
16. It refuted the claimed value of surrendered stock and credit notes and stated that the correct amount was Kshs. 2,298,009.61 which had been credited to the 1st plaintiff’s account and maintained that the 1st plaintiff still owed Kshs. 1,970,131.35. That this justified the demand on the Bank Guarantee on 28/6/2010.
17. It dismissed the claim of Kshs. 61,460,012/- for loss of business as speculative and unsupported and denied that the 1st plaintiff was prevented from entering into similar agreements thereafter. Finally, it contended that disputes under the agreement were subject to arbitration.
18. At the trial, Pw1, David Njane, adopted his witness statement dated 12/4/2011 as his evidence-in-chief and produced his bundles of documents dated 20/6/2020 and 19/3/2020 as PExh1, 2 and 3, respectively. He testified that he signed an offer letter dated 26/7/2007 but declined to sign a Marketing Licence, as negotiations were still ongoing before the agreement was terminated. His evidence rehearsed the contents of the plaint as set out above.
19. In cross-examination, he testified that the bouncing of cheques was only in isolated incidents. That the 1st defendant would not supply fuel unless payment was actually made. Some of the cheques that bounced were from late 2009 and 2010, a period when the business had already collapsed. That the fuel had mixed with water due to damaged underground fuel tanks, a matter he had reported to the 1st defendant on several occasions.
20. That while he made fuel orders, the 1st defendant delayed in supplying the same. Despite invoking the standard procedure for ordering fuel, delays persisted. That even when the fuel industry faced shortages, the 1st defendant continued to collect royalties from him regardless the absence of products. That sometimes, the 1st defendant would have stock but decline to release it, to him, presumably to avoid incurring losses.
21. That the 1st defendant set sales targets it knew could not be met, and that although it had the discretion to review those targets downwards, it failed to do so. He testified that neighboring stations, such as Shell and former Caltex, could have fuel during the alleged shortage periods when the 1st defendant would still fail to supply him with the same. That although the 1st defendant had the required bank guarantees in place, it lacked the capacity to deliver the full quantities ordered. For instance, he would order a 28,000-litre tanker but receive only 10,000 litres. He maintained that there was no signed Marketing Licence and that his claim was based on the offer letter.
22. That he reported engineering issues and maintenance problems to the 1st defendant, but received no support. He admitted that there was no written contract with respect to the car bay and convenience store save for a verbal agreement between the parties. That all maintenance issues were reported as directed by the 1st defendant.
23. He claimed that the 1st defendant advised him not to purchase any equipment. That the target earnings, which form part of his claim, were based on expected profits over two years. That the Kshs. 37 million figure in the claim represented the 1st defendant’s projected sales figures less what was actually earned over a 24-month period.
24. On fraud, he testified that the 1st defendant did not allow him to use external POS systems. The station was handed over to him with existing POS systems and PDQ machines, which were susceptible to double entries. Fraud occurred when cashiers ran fraudulent card transactions, pretended to sell products and then took the equivalent amount in cash. That if the system had proper controls preventing double entries, such fraud would not have occurred.
25. He complained that the 1st defendant acted with impunity by failing to respond to emails and failing to secure the system. That while he had a password, it was being leaked to his employees. That on the Bon Voyage program, he would sell to the 1st defendant’s customers products but payments would be received after one to two weeks. This delay significantly impacted cash flow amounting to unfair business practices.
26. Regarding the loss and delivery claim of Kshs. 2,302,575/-, he testified that he consistently received less products than ordered. As documented in the Supplementary Bundle at page 32, delivery documents were signed by the driver and supervisor and discrepancies were reported to the 1st defendant.
27. In re-examination, he confirmed that he paid Kshs. 15.7 million as working capital and procured a bank guarantee of Kshs. 3.5 million. He underwent a one-month training as required and inherited the 1st defendant’s existing workforce. That he never signed the Marketing Licence as it was one-sided and was not mutually agreeable.
28. That reconciliation of stocks was not conducted before the 1st defendant recalled the guarantee and this was unjustified. He acknowledged that four cheques bounced during the final stages of operation, but stated that even after paying the amounts, there would still be a positive balance on the guarantee. He raised complaints about stock shortages, specifically citing page 74 of PExh1. That documents supporting the claim of Kshs. 18 million in losses due to lack of stock appeared at pages 260 to 350 of PExh1. That the 1st defendant made him incur losses by asking him to reduce fuel prices after delivery, thereby affecting profitability and planning.
29. PW2, Edward Mugo, an accountant by profession, testified that he prepared a business valuation report for the plaintiff. In conducting the valuation, he took into account the contents of the offer letter issued to the plaintiffs. He explained that the valuation methodology applied was based on discounted cash flow analysis, which is a standard method for assessing the value of a business based on projected future earnings. That the plaintiffs had incurred a loss during the relevant period. In the absence of audited financial statements, he relied on internal documents generated by the service station to assess the business''s performance and to estimate its value. In his testimony, he told the Court that the plaintiff’s business was worth Kshs. 61,460,012/- as at March, 2010. He also detailed the plaintiffs’ various claims using the data supplied and quantified the same. He produced the said report as an exhibit in P. Exh1.
30. The 1st defendant called five (5) witnesses in support of its defence. D1w1, Caleb Apungu, adopted his witness statement dated 23/2/2012 as part of his evidence-in-chief. He produced the 1st defendant’s bundles of documents dated 22/6/2015 and 4/7/2022 as DExh1 & 2, respectively.
31. He testified that he was the 1st defendant’s Network Sales Manager at the material time. That the letter of offer was a preliminary document, intended only to show intent. That the Licence Agreement was the document that provided detailed terms and conditions governing how the station was to be operated.
32. He confirmed that the 1st defendant set up the station’s infrastructure, including computers and hardware, but the software operations and system use were managed by the dealers and their staff. The passwords and system access were the sole responsibility of the dealers and their employees.
33. Regarding product targets, he told the Court that the monthly fuel target was 350,000 litres, constituting 250,000 litres super petrol, 90,000 litres diesel and 10,000 litres kerosene. There were also monthly targets for auxiliary products: 3,000 litres of lubricants and 15,000 litres of liquefied petroleum gas (LPG).
34. On non-delivery of fuel, he confirmed that there were instances when oil was ordered but not delivered, the reason being non-payment therefor or bounced cheques. He also acknowledged that fuel shortages could have been a contributing factor to delayed or failed deliveries. That there was no contract with the plaintiff requiring 1st defendant to supply six million shillings worth of products per month regardless of circumstances as contended by the plaintiffs. That there were no documented targets for the car wash business and that he had not seen any document showing actual sales or earnings of Kshs. 250,000/- per month for the Tyre Centre.
35. He stated that the 1st defendant provided the software through a contractor but the dealer was responsible for operating the system at the station. He recalled a discussion in which the 1st plaintiff requested to implement his own system, but this was declined because the 1st defendant required uniformity and visibility across its more than 100 service stations. That allowing each dealer to use a different system would have been unmanageable. He stated that the plaintiff’s claim of Kshs. 61 million was not payable because it was based on projected or targeted sales rather than actual performance.
36. In Cross-examination, D1w1 stated that his assistant, Mr. Kombe, dealt directly with the plaintiffs. He admitted that there was no evidence to show that he himself visited the petrol station. He confirmed that all records and business operations were maintained in the system and that the station was fully computerized, with transactions being entered manually.
37. That the offer letters dated 7/6/2007 and 26/7/2007 had lapsed after 30 days. That the 1st defendant commenced trading with the plaintiff on 1/2/2008. He acknowledged receiving bankers’ cheques totaling Kshs. 10 million as working capital and not Kshs. 15 million. A bank guarantee of Kshs. 3.5 million was also provided. He admitted not having produced an agreement dated 31/7/2007 referred to in his witness statement.
38. He admitted there having been issues of supply failure. He stated that as at the time of trial, the 1st defendant was owed Kshs. 1.7 million and that the bank guarantee had been recalled. He disagreed with the performance report of September 2009 and maintained that any such reports could not be discussed after the termination of the business relationship. According to him, any losses were attributable to the plaintiff’s failure to operate the station in accordance with the terms of the Management Licence.
39. In re-examination, D1w1 stated that the business between the parties officially commenced on 1/7/2008. He reiterated that the plaintiff''s bounced cheques affected the supply of products. That no complaints had been raised regarding tank calibration or pressure testing.
40. D1w2, Wycliffe Nyongesa, adopted his witness statement dated 4/6/2012 as part of his evidence-in-chief. He testified that he was a computer specialist by profession, holding a Bachelor of Commerce degree in Accounting. In addition, he run a Petrol Service Station known as Webuye Total Energies Service Station, which he had operated for five years.
41. That the primary purpose of the computer system used at Total Stations was to assist dealers in closing shifts. Each station may have one or more shifts per day, and at the end of each shift, the dealer is required to perform reconciliation and balance the books.
42. He explained that all data was manually entered into the system, including purchases such as fuel deliveries. That at the end of each shift, the dealer must read the pump meter readings and record them in a meter book. These readings were then entered into the system, which automatically calculated the total white product sales for that period. That the system captured various forms of credit sales, including those made through credit invoices and multiple card platforms such as Bon Voyage (BV) cards, Visa, ABSA (formerly Barclays), KCB and Equity cards. That reconciliation was expected to be done at the end of each shift.
43. That he personally installed the system at the Argwings Service Station. At the time of installation, he designated the dealer as the system’s super user, or dealer-level access (level 3), which enabled the dealer to create accounts for other users, such as employees. That supervisors were typically given access level 7. That there was no remote or central connection and that the dealer received prior training at Airport View Total Service Station from another dealer. In his view therefore, the 1st defendant had no role in the day-to-day system management at the station.
44. In Cross-examination, he confirmed that he was contracted by the 1st defendant in 2006 to install the system. When asked how many times he carried out maintenance on the system at Argwings Station from the time of installation to the closure of the business, he could recall none. That during the dealer’s training at Airport View Petrol Station, there was no representative from Kenserve present.
45. D1w3 – Lucy Gakuru, adopted her witness statement dated 18/4/2013 as her evidence-in-chief. She testified that her company was contracted by oil companies to maintain fuel dispensers. That although she did not personally attend to the maintenance complaints at the Argwings Service Station, she dispatched technicians to handle the reported issues. However, she confirmed that she did not have any documentation or evidence to demonstrate that maintenance was actually conducted at the Argwings Station.
46. D1w4 – Josephat Koech, adopted his witness statement dated 4/6/2012 as his evidence-in-chief and told the Court that he held a diploma in Information Technology. He denied any claim of system manipulation. He stated that the dealer was the sole custodian of the system password which was never shared with the 1st defendant. He confirmed that while the system was built with security features, it could potentially be manipulated by individuals with access.
47. In cross-examination, he testified that he installed the RMS system at Argwings in 2007. He trained the dealer’s personnel and provided them with system passwords. That the 1st defendant did not contact him regarding any complaints about the system. He had no evidence that the 1st defendant had paid him for system maintenance.
48. D1w5 – Fredrick Odhiambo Ochieng adopted his witness statement dated 19/2/2015 as part of his evidence in chief and testified that he prepared a financial report using the Capital Asset Pricing Model (CAPM), which was also referenced by Mr. Mugo (Pw2). That in his opinion, the report by Pw2 should not have relied on expected or projected figures in the manner it did. That he should have used actual performance.
49. In cross-examination, he testified that he based his report on the loss figure reported in the Mashimba Associates account, after deducting depreciation. He did not include the 2009 loss figure of Kshs. 2,294,881/- specifically, but instead relied on the figure as at 31/12/2009.
50. He admitted that he did not take into account the parties’ obligations under the contract. He also did not include an analysis of the company’s net assets. According to him, the valuation report was negative due to the losses incurred by the plaintiff in 2008 and 2009.
Submissions
51. Parties filed their respective submissions which I have duly considered. It was submitted for the plaintiffs that the 1st plaintiff took possession of the Station and operated the business in accordance with the terms of the agreement, as outlined in the offer letter dated 31/7/2007. That the 1st defendant failed to meet its contractual obligations to supply the minimum product quantities agreed upon. This failure disrupted the plaintiff’s ability to maintain consistent sales and revenue.
52. The plaintiff engaged a qualified accountant to analyze the various heads of claim and prepared a comprehensive financial report. It was submitted that the figures contained in the report were not challenged or rebutted by the 1st defendant and, therefore, should be deemed as admitted.
53. Regarding the losses arising from lack of stock, it was submitted that this was persistent from the inception of the business relationship. The shortage of stock was attributed solely to the 1st defendant’s failure to deliver the products and not to any inability on the part of the plaintiff to pay. It was submitted that the plaintiff had provided a guarantee of Kshs 3,500,000/- to secure product supply in case the working capital fell below the agreed threshold. Thus, at no point did the 1st defendant face any actual credit risk that would justify withholding deliveries.
54. On unilateral price changes, the plaintiff submitted that the agreement required either party to give at least 30 days’ written notice prior to any revision of retail margins. That the 1st defendant unilaterally revised prices without the requisite notice, thereby inflicting financial losses on the 1st plaintiff. That on the bon voyage card payments, the 1st defendant delayed reimbursement by up to two weeks which adversely affected the plaintiff’s cash flow.
55. On the losses related to maintenance and servicing of equipment, it was submitted that the plaintiff was contractually obligated to pay the 1st defendant 0.23% per litre as a maintenance fee. Despite receiving this payment, the 1st defendant failed to fulfill its obligations to service or maintain the equipment in working order. Pw2, who testified on this aspect, was not cross-examined on the stated figures.
56. Lastly, it was submitted that the 1st defendant consistently delivered less fuel than indicated in the delivery notes but billed the plaintiff the full quantities stated. This discrepancy resulted in losses amounting to Kshs 2,302,575.47.
57. On its part the 1st defendant submitted that there was no valid or enforceable contract between it and the 1st plaintiff. While several offer letters were exchanged in 2007 regarding a proposed Marketing Licence for operating a service station on the 1st defendant’s premises, only one offer letter dated 26/7/2007 was signed on 31/7/2007 and that too by Twin Buffalos Safaris Ltd, not the 1st plaintiff personally. That the offer letter was expressly subject to the signing of a formal Marketing License Agreement, which the 1st plaintiff never executed. Consequently, no binding contract was formed as the preconditions for contract formation were not met. That an unsigned or lapsed offer, particularly one contingent on further formal agreement, could not give rise to a claim for breach. That therefore, the 1st plaintiff’s claim failed for lack of a valid contractual foundation.
58. That while the 1st plaintiff had sued in his personal capacity under the business name "Twin Service Station," no proof was provided showing that the business was registered or that the 1st defendant was its proprietor. That the involvement of Twin Buffalos Safaris Ltd, which signed one of the documents, was not clarified. That the offer letter of 26/7/2007 on which the 1st plaintiff based his claim was time bound, signed by a 3rd party and was subject to execution of a Marketing Licence Agreement which was never executed.
59. The cases of East African Fine Spinners Ltd v Bedi Investments (1994) eKLR and Keppel v Wheeler (1927) 1KB 577 were cited in support of the contention that an offer "subject to contract" does not give rise to legal obligations unless a formal contract is signed. That therefore, reliance on the offer letter alone was misplaced and the 1st plaintiff could not sue for breach where no enforceable agreement existed.
60. Without prejudice, the 1st defendant submitted that, the forgoing notwithstanding the claim for special damages must be specifically pleaded and strictly proven. The cases of Stephen Wasike Wakho vs Security Express Ltd (2006) eKLR and Hahn vs Singh (1985) eKLR were cited in support of that submission. That in the present case, no such prove had been established.
61. That for loss of profits to be recoverable, the 1st plaintiff should have provided both the certainty of loss and that the loss was proximately caused by the 1st defendant’s breach. Since it had not been proved that any alleged lost profits resulted directly from the 1st defendant’s action, the claim failed both in substance and evidentiary standard. That even if a contract were found to exist, the 1st plaintiff''s claim for special damages was unsupported by evidence and should be dismissed.
62. That the plaintiff’s claim for Kshs. 4,892,674.97 for alleged lack of stock, was unfounded, speculative, and stemmed out of the plaintiff’s own operational failures. Reliance was placed on Article IV and Appendix 4 of the unsigned Marketing Licence. That the plaintiff was contractually expected to maintain minimum stock levels and ensure timely payments. The force Majeure clause, under Article IX(ii) of the Marketing Licence was invoked. That the national and international supply disruptions was beyond the 1st defendant.
63. That the 1st plaintiff presented emails complaining about stockouts but failed to produce proof of up-to-date payments or valid orders that would have entitled him to deliveries. That many of the complaints fell during periods there was default. That the stock issues was due to financial difficulties admitted by 1st plaintiff in his letter of 4/11/2009, internal conflict between 1st plaintiff’s family members, use of a fake bank guarantee acknowledged via an email dated 25/2/2010 and failure to provide working capital as required by the letter of offer.
64. That the Kshs. 65 million equipment breakdown claim was unsupported by any binding contractual terms and was based on speculative sales targets rather than actual loss. That the claim for Kshs. 4,628,975/- allegedly lost through manipulation of the convenience store system by his own employees was unsubstantiated. The plaintiff operated as an independent contractor, as expressly stated under Article II(iv) of the Marketing Licence, page 34 of P. Exhibit 1. That the 1st defendant had no access codes as stated by D1w2 and D1w4 respectively. That the alleged manipulation and theft were criminal acts committed by own staff and the claim wrongly sought to impute liability on the 1st defendant. Additionally, that no different system could be installed because of standardization.
Analysis
65. I Have considered the pleadings, the evidence on record as well as the detailed submissions filed by Learned Counsel. I am grateful to counsel for their industry. That I have not referred to all the authorities referred to is not out of disrespect. I have considered the same. The issues that arise for determination are: -
a) Whether the 1st plaintiff is non-suited.
b) Whether there existed a valid and enforceable contract between the plaintiffs and the 1st defendant.
c) Whether there was a breach of the contract, if any.
d) Whether the plaintiffs are entitled to the orders sought.
e) Whether the 1st defendant is entitled to the counterclaim.
f) What orders as to costs.
66. The 1st issue is whether the 1st plaintiff was non-suited. This is an issue that was raised by the 1st defendant in its submissions. It was submitted that the 1st plaintiff had no locus standi to bring the suit. That there was no evidence to show that there was an entity by the name Argwins Twin Service Station and that he was its proprietor. The Court did not see the plaintiffs’ response to this submission understandably because the filing of submissions was time bound and probably for what the Court will observe.
67. Firstly, the Court observes that this was an issue that was first raised by the 1st defendant at the submission level. It is expected that parties are to raise their objections to the others’ claim, if any, at the earliest, and in any, case in the pleadings themselves and not otherwise. To the extent that this issue was never raised at any stage before submissions, it is not a proper objection for consideration as the 1st plaintiff was never given any notice of the same for him to prove whether or not he was trading in the name and style of Argwins Twin Service Station or not. Had it been raised earlier, he would have been expected to respond by producing the Certificate of Registration, if any or tender evidence towards the issue.
68. Secondly, parties are bound by their pleadings. See Githaiga vs Mwangi (Civil Appeal No. E064 OF 2022) [2024] KEHC 13449 (KLR) (30th October, 2024). In this regard, a party cannot be permitted to tender any evidence that is at variance wi
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