A. BACKGROUND.
1. This appeal emanates from the ruling and order of Hon. L.N. Kiniale, Senior Principal Magistrate delivered on 11th December, 2025 in Nyando SPMCC No. E141 of 2025.
2. As this is a first appeal, I am obligated, pursuant to Section 78 of the Civil Procedure Act and as articulated in Selle v Associated Motor Boat Co. Ltd [1969] E.A. 123, to re-assess, re-analyze and re-evaluate the evidence presented before the trial court and to arrive at my own conclusions, bearing in mind that I neither saw nor heard the witnesses testify.
3. In Selle, Sir Clement De Lestang observed that:
“This Court must consider the evidence, evaluate it itself and draw its own conclusions, though in doing so it should always bear in mind that it neither heard witnesses and should make due allowance in this respect.
However, this Court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he had clearly failed on some point to take account of particular circumstances or probabilities, materially to estimate the evidence or if the impression based on the demeanour of a witness is inconsistent with the evidence in the case generally.”
4. The duty of the first appellate court was also discussed by the Court of Appeal for East Africa in the case of Peters v Sunday Post Limited [1958] EA 424 in which it was held that the appropriate standard of review established in cases of appeal can be stated in three complementary principles:
“i. First, on first appeal, the Court is under a duty to reconsider and re-evaluate the evidence on record and draw its own conclusions;
ii. In reconsidering and re-evaluating the evidence, the first appellate court must bear in mind and give due allowance to the fact that the trial court had the advantage of seeing and hearing the witnesses testify before her; and
iii. It is not open to the first appellate court to review the findings of a trial court simply because it would have reached different results if it were hearing the matter for the first time.”
5. The matter before the trial court was commenced by way of a plaint dated 4th September, 2025 vide which the 1st Respondent herein (the Plaintiff before the lower Court) sued the Appellant (the Defendant before the trial Court) and the 2nd Respondent (the Interested Party before the trial Court) and pleaded that for a considerable period, the 1st Respondent had maintained a business relationship with the Appellant pursuant to which the Appellant supplied it with fuel and petroleum products on credit, with the 1st Respondent making payment within the timelines agreed between the parties.
6. The 1st Respondent stated that it operated fuel stations in Sondu and its environs and further pleaded that, arising from the cordial business relationship between the it and the Appellant, the parties extended their arrangement to involve the 2nd Respondent, which was the 1st Respondent’s bank, for purposes of providing a bank guarantee as security to facilitate the continued supply of fuel products by the Appellant to the 1st Respondent.
7. The 1st Respondent averred that the 2nd Respondent duly issued a bank guarantee dated 25th July, 2025 in favour of the Appellant, pursuant to which the business relationship between the parties continued. According to the 1st Respondent, the guarantee was limited to a maximum sum of Ksh.10,000,000/- and could only be invoked or enforced to the extent of the specific amount actually owed by the 1st Respondent to the Appellant at the time of default.
8. The 1st Respondent pleaded that, by a letter dated 1st September, 2025, the Appellant demanded payment from the 2nd Respondent under the bank guarantee on the allegation that the 1st Respondent had defaulted in its obligations. The Appellant sought to invoke and enforce the entire guaranteed sum of Ksh.10,000,000/-.
9. The 1st Respondent disputed the Appellant’s demand and alleged that it was founded on falsehoods and fraudulent representations, particularly because the Appellant had included invoices which pre-dated the bank guarantee and which, according to the 1st Respondent, had already been fully settled.
10. The 1st Respondent averred that the Appellant had supplied it with fuel on three occasions pursuant to three local purchase orders, the value of the supplies amounting in aggregate to Ksh.5,126,430/-. It was therefore the 1st Respondent’s case that, at most, that was the amount which the Appellant was entitled to claim under the bank guarantee, and not the entire sum of Ksh.10,000,000/-.
11. In support of its allegation of fraud, the 1st Respondent specifically referred to tax invoices Nos. 376958 dated 21st July, 2025, 379001 dated 24th July, 2025, 378755 dated 26th July, 2025 and 379008 dated 29th July, 2025, which the Appellant had included in its demand and alleged remained unpaid.
12. The 1st Respondent pleaded that the said invoices amounted to Ksh.4,893,850/- but had in fact been paid, save for a difference of Ksh.1,110/-, and pleaded that it would rely on bank transfer records as evidence of the payments.
13. The 1st Respondent consequently pleaded that the Appellant’s demand for enforcement of the entire bank guarantee was an attempt to defraud it and was founded upon fictitious invoices and statements of account. It maintained that the demand was therefore unenforceable.
14. The 1st Respondent further pleaded that the trial court had jurisdiction to restrain enforcement of the bank guarantee on the ground of fraud and that it would suffer prejudice if the 2nd Respondent honoured the guarantee after the same had been invoked by the Appellant.
15. It was also pleaded that it was necessary for the parties to reconcile and take their respective statements of account in order to establish the actual amount, if any, outstanding between them.
16. On that basis, the 1st Respondent contended that it was in the interests of justice that injunctive relief be granted restraining the enforcement or payment of the bank guarantee pending reconciliation of the accounts between it and the Appellant.
17. The 1st Respondent consequently sought an order of permanent injunction restraining the Appellant and the 2nd Respondent from enforcing or paying bank guarantee No. MD2520600002R until the statements of account between the 1st Respondent and the Appellant had been taken and reconciled; a declaration that the Appellant’s demand letter dated 1st September, 2025 seeking enforcement or payment of the bank guarantee was unenforceable on account of its alleged reliance on fictitious invoices; and an award of the costs of the suit together with interest thereon.
B. THE APPLICATION DATED 4TH SEPTEMBER, 2025.
18. Contemporaneous with the plaint, the 1st Respondent filed a notice of motion dated 4th September, 2025 in which it sought the following substantive orders:
1. THAT….
2. THAT….
3. THAT pending the hearing and determination of this application the Honourable Court be pleased to order the Appellant and the 1st Respondent to take accounts and file in court as to the status of any indebtedness between the parties.
4. THAT this Honourable Court be pleased, in the first instant, to issue an order of temporary injunction restraining the Appellant and the 2nd Respondent from enforcing/paying the Bank Guarantee No. MD2520600002R pending the hearing and determination of the main suit.
5. THAT the costs of this Application be awarded to the 1st Respondent against the Appellant, together with interest thereon.
19. The grounds upon which the motion was premised were that the 1st Respondent and the Appellant had, over a period of time, maintained a business relationship involving the sale and purchase of fuel, pursuant to which the Appellant supplied petroleum products to the 1st Respondent on credit, with payment being made within the timelines agreed between the parties. The 1st Respondent operated fuel stations in Sondu and its environs.
20. It was further contended that, arising from the cordial business relationship between the parties, the 2nd Respondent, being the 1st Respondent’s bank, was brought into the arrangement for purposes of issuing a bank guarantee to the Appellant as security for the continued supply of fuel products to the 1st Respondent.
21. The 1st Respondent stated that the 2nd Respondent duly issued a bank guarantee dated 25th July, 2025 in favour of the Appellant, following which the business relationship between the parties continued.
22. It was contended that the guarantee was limited to a maximum sum of Ksh.10,000,000/- and could only be invoked or enforced to the extent of the specific amount actually owed by the 1st Respondent to the Appellant at the time of default.
23. The 1st Respondent contended that, by a letter dated 1st September, 2025, the Appellant demanded payment from the 2nd Respondent under the bank guarantee on the allegation that the 1st Respondent had defaulted in its obligations, and sought to invoke the guarantee for the entire sum of Ksh.10,000,000/-.
24. It was the 1st Respondent’s case that the Appellant’s demand was founded on falsehoods and was fraudulent, having included invoices which pre-dated the bank guarantee and which had already been paid by the 1st Respondent.
25. The 1st Respondent contended that the Appellant had supplied fuel on three occasions pursuant to three local purchase orders issued by the 1st Respondent, with the total value of the supplies being Ksh.5,126,430/-. It was therefore argued that this was the maximum amount which the Appellant could properly claim under the bank guarantee, rather than the entire guaranteed sum of Ksh.10,000,000/-.
26. The 1st Respondent maintained that some of the invoices claimed as unpaid, which totalled Ksh.4,893,850/-, had in fact been substantially settled, with payments amounting to Ksh.4,892,740/- having been made through bank transfers.
27. It was consequently contended that the Appellant’s attempt to enforce the entire bank guarantee amounted to an attempt to defraud the 1st Respondent and was based on fictitious invoices and statements of account. The 1st Respondent maintained that the demand was therefore unenforceable.
28. It was also contended that it was necessary for the 1st Respondent and the Appellant to take and reconcile their respective statements of account in order to establish the true amount, if any, outstanding between them.
29. On those grounds, the 1st Respondent urged the trial court, in the interests of justice, to grant the injunctive orders sought and restrain the enforcement or payment of the bank guarantee pending ascertainment of the parties’ respective accounts.
C. THE 1ST RESPONDENT’S SUPPORTING AFFIDAVIT.
30. The motion was supported by the affidavit sworn on 4th September, 2025 by Khali Mohamed Hassan in which the said deponent deposed that he was sole Director and Shareholder of the 1st Respondent, and was therefore conversant with the facts of the matter and competent to swear the affidavit. He annexed a copy of the 1st Respondent’s CR-12 as evidence of his position.
31. The deponent deposed that the 1st Respondent and the Appellant had, over a period of time, engaged in the business of selling and purchasing fuel, pursuant to which the Appellant supplied fuel to the 1st Respondent on credit, with payment being made within the timelines agreed between the parties. He stated that the 1st Respondent operated fuel stations in Sondu and its environs.
32. He further deposed that, arising from the cordial business relationship between the 1st Respondent and the Appellant, the parties extended the arrangement to involve the 2nd Respondent, which was the 1st Respondent’s bank, for purposes of issuing a bank guarantee to serve as security and facilitate the continued supply of fuel products by the Appellant.
33. The deponent stated that the 2nd Respondent duly issued a bank guarantee dated 25th July, 2025 in favour of the Appellant, following which the business relationship between the 1st Respondent and the Appellant continued. He deposed that the guarantee was limited to a maximum sum of Ksh.10,000,000/- and could only be invoked or enforced to the extent of the specific amount owed by the 1st Respondent to the Appellant at the point of default.
34. He deposed that, by a letter dated 1st September, 2025, the Appellant addressed a demand to the 2nd Respondent seeking payment under the bank guarantee on the allegation that the 1st Respondent had defaulted in its obligations. The Appellant sought to invoke and enforce the entire guaranteed amount of Ksh.10,000,000/-.
35. The deponent disputed the basis of the demand and alleged that the Appellant’s claim contained falsehoods and bordered on fraud, on the basis that it included invoices which pre-dated the bank guarantee and which had already been fully paid by the 1st Respondent.
36. He further deposed that the Appellant had supplied fuel on three occasions pursuant to three local purchase orders issued by the 1st Respondent, the total value of the supplies being Ksh.5,126,430/-. According to the deponent, that was the amount which the Appellant was entitled to claim under the bank guarantee and not the entire sum of Ksh.10,000,000/-.
37. In support of the allegation of fraud, the deponent referred to tax invoices Nos. 376958 dated 21st July, 2025, 379001 dated 24th July, 2025, 378755 dated 26th July, 2025 and 379008 dated 29th July, 2025, which had been included in the Appellant’s demand and alleged to be unpaid. He deposed that the invoices totalled Ksh.4,893,850/- but that the 1st Respondent had already paid Ksh.4,892,740/- in respect thereof, as demonstrated by the available bank transfer records.
38. The deponent consequently asserted that the Appellant’s attempt to enforce the entire bank guarantee amounted to an attempt to defraud the 1st Respondent and was founded upon fictitious invoices and statements of account. He maintained that the demand was therefore unenforceable.
39. He further deposed that the trial court had the power to restrain enforcement of the bank guarantee on account of the alleged fraud and that the 1st Respondent would suffer prejudice if the 2nd Respondent honoured the guarantee after its invocation by the Appellant.
40. The deponent maintained that it was necessary for the parties to take and reconcile their respective statements of account in order to establish the true position regarding any amount outstanding between them. He therefore urged that, in the interests of justice, the injunctive orders sought in the motion be granted.
D. THE APPELLANT’S PRELIMINARY OBJECTION.
41. The Appellant filed a preliminary objection to the suit dated 17th September, 2025, contending that the suit was premature, incompetent, misconceived and bad in law for failure by the 1st Respondent to comply with the agreed dispute resolution mechanism contained in Clause 19 of the Retail Supply (Dealership Agreement) dated 24th March, 2023.
42. The Appellant contended that the said clause required disputes arising between the parties to be referred to arbitration before recourse could be had to the jurisdiction of the court. It was therefore argued that the 1st Respondent had improperly invoked the jurisdiction of the trial court without first exhausting the agreed arbitral process.
43. The Appellant further contended that the suit offended Sections 6(1) and 10 of the Arbitration Act. It maintained that Section 6(1) required the court to stay proceedings where the parties had entered into an arbitration agreement, unless the agreement was null and void, inoperative or incapable of being performed, while Section 10 restricted the intervention of the court in matters governed by the Arbitration Act to the circumstances expressly provided for under the Act.
44. It was further contended that, having voluntarily executed the Retail Supply (Dealership Agreement), the 1st Respondent was bound by the principle of pacta sunt servanda and could not disregard the binding arbitration clause or approbate and reprobate by invoking the jurisdiction of the trial court contrary to the agreed dispute resolution mechanism.
45. The Appellant consequently maintained that the suit violated the principle of party autonomy in arbitration and that, by reason thereof, the trial court lacked jurisdiction to entertain the suit.
46. On those grounds, the Appellant urged the trial court to uphold the preliminary objection, strike out the suit dated 4th September, 2025 with costs, and direct the 1st Respondent to pursue the dispute through arbitration in accordance with the Arbitration Act.
E. THE APPELLANT’S REPLYING AFFIDAVIT.
47. The motion was opposed by the Appellant, through a replying affidavit sworn on 17th September, 2025 by Gibson Mutua, in which he deposed that he was the Appellant’s Retail Manager and had been duly authorized to swear the affidavit.
48. The deponent deposed that the 1st Respondent and the Appellant had entered into a written Retail Supply Agreement dated 1st March, 2023 for a period of fifteen years, ending on 28th April, 2038. A copy of the agreement was annexed to the affidavit.
49. He deposed that, under the Retail Supply Agreement, the relationship between the parties was exclusive, such that the 1st Respondent was required to obtain all its fuel products from the Appellant unless the Appellant was unable to supply. In such circumstances, the 1st Respondent was required either to obtain the Appellant’s written consent to purchase from a third party or source the products from a nominee appointed by the Appellant.
50. The deponent further stated that the Appellant had extended to the 1st Respondent a product loan of Ksh.5,000,000/- and had undertaken to brand the 1st Respondent’s Nguvu Service Station, situated on Land Title Number KERICHO/KAPLELARTET/1055, using the Appellant’s corporate colours and logos. He added that the agreement entitled the Appellant to surcharge the 1st Respondent for lost margins on fuel volumes purchased from unapproved suppliers.
51. He further deposed that the Appellant retained the right under the agreement to apply any sums due to the 1st Respondent, or recover such sums from collateral provided by the 1st Respondent or its affiliates, towards reduction of any amounts owed by the 1st Respondent.
52. The deponent stated that, pursuant to the parties’ arrangement and as security for the 1st Respondent’s obligations, the parties procured a bank guarantee in the sum of Ksh.10,000,000/- from the 2nd Respondent in favour of the Appellant. The guarantee was issued on 25th July, 2025 and a copy thereof was annexed to the affidavit.
53. He deposed that, under the terms of the bank guarantee, the 2nd Respondent undertook to pay the guaranteed amount to the Appellant upon presentation of the original guarantee, a signed statement from the Appellant and copies of unpaid invoices.
54. The deponent stated that, notwithstanding the continued supply of petroleum products, the 1st Respondent persistently defaulted in making payments and that, as at 1st September, 2025, it was indebted to the Appellant in the sum of Ksh.10,000,000/-. He stated that the indebtedness comprised Ksh.5,000,000/- advanced as a product loan and approximately Ksh.5,000,000/- in respect of unpaid invoices for petroleum products supplied pursuant to valid purchase orders. He annexed the Appellant’s demand letter to the 2nd Respondent dated 1st September, 2025 together with the supporting statement of account.
55. The deponent disputed the 1st Respondent’s allegation that the Appellant’s demand was based on fictitious or pre-dated invoices. He maintained that the invoices were properly raised, legitimate and remained unpaid.
56. He further stated that the 1st Respondent’s contention that invoices predating the bank guarantee could not be included in the demand was based on a misinterpretation of the guarantee, which, according to him, covered all amounts legitimately due as at the date of demand and did not exclude debts accrued before its issuance.
57. He explained that the Appellant applied the First-In-First-Out (FIFO) accounting principle, under which older debts were cleared before payments were applied to newer invoices. He therefore stated that payments made by the 1st Respondent had been applied towards earlier invoices, leaving the newer invoices outstanding as at the date of the demand.
58. The deponent further stated that, although the 1st Respondent had produced copies of bank transfers, it had not provided remittance advices identifying the particular invoices which the payments were intended to settle. In the absence of such remittance advices, he maintained that the Appellant was entitled to allocate the payments to older debts in accordance with the FIFO principle.
59. He therefore asserted that the Appellant had acted correctly and in good faith and that the Ksh.10,000,000/- demanded under the bank guarantee represented amounts legitimately due.
60. The deponent further stated that the 1st Respondent had breached the exclusivity provisions of the Retail Supply Agreement by sourcing petroleum products from other suppliers without the Appellant’s consent, which he characterized as a fundamental breach of the agreement.
61. He maintained that the 1st Respondent’s claims of fraud and misrepresentation against the Appellant were baseless and malicious and were intended to frustrate the Appellant’s lawful rights under the bank guarantee.
62. The deponent further asserted that the bank guarantee constituted an independent contract between the 2nd Respondent and the Appellant and that its operation could only be restrained in clear and exceptional circumstances of fraud, which, in his view, the 1st Respondent had failed to establish.
63. He maintained that the Appellant had made a valid demand in accordance with the terms of the guarantee and that the 2nd Respondent was under a legal obligation to honour the demand.
64. He further deposed that the 1st Respondent had failed to satisfy the legal requirements for the grant of a temporary injunction, having neither established a prima facie case with a probability of success nor demonstrated that it would suffer irreparable injury incapable of compensation by an award of damages.
65. The deponent maintained that, in any event, the balance of convenience favoured the Appellant, which stood to suffer substantial financial loss if the bank guarantee was not honoured. He also contended that the 1st Respondent’s request for an order for taking of accounts was premature and intended to delay enforcement of the guarantee.
66. The deponent consequently urged the trial court to dismiss the motion with costs.
F. THE 2ND RESPONDENT’S REPLYING AFFIDAVIT.
67. The 2nd Respondent filed a replying affidavit sworn on 15th September, 2025 by Dorcas Muvea in which she deposed that she was the Manager, Trade Operations of the 2nd Respondent and was conversant with the matters raised in the application. She stated that, by virtue of her designation and office, she was duly authorized to swear the affidavit on behalf of the 2nd Respondent.
68. The deponent stated that pursuant to instructions from the 1st Respondent, the 2nd Respondent issued a bank guarantee dated 25th July, 2025, whose primary purpose was to provide security to the Appellant and facilitate the continued supply of fuel products by the Appellant to the 1st Respondent. A copy of the bank guarantee was annexed to the affidavit.
69. The deponent confirmed that the bank guarantee was limited to a maximum sum of Ksh.10,000,000/- and that its enforcement was conditional upon the 1st Respondent being indebted to the Appellant.
70. She further confirmed that the 2nd Respondent received a letter dated 1st September, 2025 from the Appellant demanding payment of Ksh.10,000,000/- under the bank guarantee on the ground that the 1st Respondent had defaulted on its obligations under the Retail Supply (Dealership) Agreement. A copy of the demand letter was annexed to the affidavit.
71. The deponent stated that, before the 2nd Respondent could act upon the Appellant’s demand, the 1st Respondent served it with court orders restraining both the 2nd Respondent and the Appellant from enforcing or making payment under the bank guarantee. She confirmed that the 2nd Respondent had complied with the orders issued by the trial court.
72. She further deposed that the 2nd Respondent only became aware, through the pleadings filed before the trial court, that the 1st Respondent disputed the amount demanded by the Appellant under the bank guarantee.
73. The deponent stated that the 2nd Respondent’s role in the transaction was purely ancillary and limited to the issuance of the bank guarantee pursuant to the 1st Respondent’s instructions. She maintained that the 2nd Respondent was not privy to, and had no interest in, the underlying contractual relationship between the 1st Respondent and the Appellant.
74. The 2nd Respondent consequently expressed its readiness and willingness to comply with any orders that the trial court might issue. It nevertheless sought an award of the costs occasioned by its participation in the proceedings as against both the 1st Respondent and the Appellant.
G. DIRECTIONS OF THE TRIAL COURT.
75. It is instructive from the impugned ruling of the trial court, the parties were directed to file submissions on both the notice of motion and the preliminary objection.
H. THE 1ST RESPONDENT’S SUBMISSIONS BEFORE THE TRIAL COURT.
76. In its submissions, the 1st Respondent identified two issues for determination, namely, whether it was a party or privy to the Retail Supply (Dealership) Agreement dated 24th March, 2023 and, secondly, whether the preliminary objection was merited.
77. On the first issue, the 1st Respondent submitted that the Appellant’s reliance on the Retail Supply (Dealership) Agreement was misplaced. It drew the trial court’s attention to the copy of the agreement annexed to the replying affidavit of Gibson Mutua and marked as GM-1, contending that a perusal of the agreement showed that it was entered into between an individual known as Ahmed Ali Abdi and the Appellant.
78. The 1st Respondent submitted that Ahmed Ali Abdi was neither the 1st Respondent nor a director thereof. It pointed out that, according to the CR-12 annexed to the affidavit of its director, Khali Mohamed Hassan, and marked as KMH-1, its director was Khali Mohamed Hassan.
79. It was therefore submitted that neither the 1st Respondent nor its director was a party to the Retail Supply (Dealership) Agreement relied upon by the Appellant and that, consequently, the arbitration clause contained therein could not bind the 1st Respondent. The 1st Respondent urged the trial court to dismiss the preliminary objection with costs.
80. The 1st Respondent further submitted that the preliminary objection raised evidentiary and factual issues which could not properly be determined by way of a preliminary objection, but required evidence to be adduced and considered either at the conclusion of the matter or through an appropriate application supported by evidence.
81. In support of that proposition, the 1st Respondent relied on the principles set out in Mukisa Biscuits Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696, submitting that a preliminary objection ought to raise a pure point of law capable of disposing of the suit and should not encompass contested factual matters requiring ascertainment through evidence.
82. The 1st Respondent consequently maintained that the Appellant’s preliminary objection was not merited and urged the trial court to dismiss it.
I. THE APPELLANT’S SUBMISSIONS BEFORE THE TRIAL COURT.
83. On its part, the Appellant submitted that the 1st Respondent’s suit was incompetent for want of jurisdiction on account of the mandatory arbitration clause contained in Clause 19 of the Retail Supply (Dealership) Agreement dated 24th March, 2023.
84. The Appellant submitted that the parties had enjoyed a longstanding commercial relationship involving the supply of petroleum products on agreed credit terms and that, as security for the continued supply and the increasing credit exposure, the 1st Respondent had procured bank guarantee No. MD2520600002R dated 25th July, 2025 for Ksh.10,000,000/- from the 2nd Respondent in favour of the Appellant.
85. It was submitted that, under the express terms of the bank guarantee, the 2nd Respondent undertook to make payment upon presentation of the original guarantee, a signed statement by the Appellant and copies of unpaid invoices. The Appellant maintained that the guarantee was subject to the Uniform Rules for Demand Guarantees (URDG 758) and constituted an independent documentary obligation on the part of the 2nd Respondent.
86. The Appellant submitted that, following persistent default by the 1st Respondent in meeting its payment obligations, it invoked the bank guarantee by its demand letter dated 1st September, 2025, supported by a statement of account and copies of outstanding invoices amounting to Ksh.10,000,000/-. It contended that the demand was made strictly in accordance with the terms of the guarantee.
87. The Appellant submitted that the 1st Respondent subsequently moved the trial court seeking to restrain enforcement of the guarantee, alleging that certain invoices relied upon by the Appellant were fictitious or pre-dated. The Appellant disputed those allegations and maintained that the invoices represented legitimate debts arising from the parties’ continuing commercial relationship.
88. It further contended that the 1st Respondent had failed to demonstrate either settlement of the amounts claimed or the egregious fraud necessary to justify interference with a demand guarantee.
89. The Appellant identified three principal issues for determinat
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1. This appeal emanates from the ruling and order of Hon. L.N. Kiniale, Senior Principal Magistrate delivered on 11th December, 2025 in Nyando SPMCC No. E141 of 2025.
2. As this is a first appeal, I am obligated, pursuant to Section 78 of the Civil Procedure Act and as articulated in Selle v Associated Motor Boat Co. Ltd [1969] E.A. 123, to re-assess, re-analyze and re-evaluate the evidence presented before the trial court and to arrive at my own conclusions, bearing in mind that I neither saw nor heard the witnesses testify.
3. In Selle, Sir Clement De Lestang observed that:
“This Court must consider the evidence, evaluate it itself and draw its own conclusions, though in doing so it should always bear in mind that it neither heard witnesses and should make due allowance in this respect.
However, this Court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he had clearly failed on some point to take account of particular circumstances or probabilities, materially to estimate the evidence or if the impression based on the demeanour of a witness is inconsistent with the evidence in the case generally.”
4. The duty of the first appellate court was also discussed by the Court of Appeal for East Africa in the case of Peters v Sunday Post Limited [1958] EA 424 in which it was held that the appropriate standard of review established in cases of appeal can be stated in three complementary principles:
“i. First, on first appeal, the Court is under a duty to reconsider and re-evaluate the evidence on record and draw its own conclusions;
ii. In reconsidering and re-evaluating the evidence, the first appellate court must bear in mind and give due allowance to the fact that the trial court had the advantage of seeing and hearing the witnesses testify before her; and
iii. It is not open to the first appellate court to review the findings of a trial court simply because it would have reached different results if it were hearing the matter for the first time.”
5. The matter before the trial court was commenced by way of a plaint dated 4th September, 2025 vide which the 1st Respondent herein (the Plaintiff before the lower Court) sued the Appellant (the Defendant before the trial Court) and the 2nd Respondent (the Interested Party before the trial Court) and pleaded that for a considerable period, the 1st Respondent had maintained a business relationship with the Appellant pursuant to which the Appellant supplied it with fuel and petroleum products on credit, with the 1st Respondent making payment within the timelines agreed between the parties.
6. The 1st Respondent stated that it operated fuel stations in Sondu and its environs and further pleaded that, arising from the cordial business relationship between the it and the Appellant, the parties extended their arrangement to involve the 2nd Respondent, which was the 1st Respondent’s bank, for purposes of providing a bank guarantee as security to facilitate the continued supply of fuel products by the Appellant to the 1st Respondent.
7. The 1st Respondent averred that the 2nd Respondent duly issued a bank guarantee dated 25th July, 2025 in favour of the Appellant, pursuant to which the business relationship between the parties continued. According to the 1st Respondent, the guarantee was limited to a maximum sum of Ksh.10,000,000/- and could only be invoked or enforced to the extent of the specific amount actually owed by the 1st Respondent to the Appellant at the time of default.
8. The 1st Respondent pleaded that, by a letter dated 1st September, 2025, the Appellant demanded payment from the 2nd Respondent under the bank guarantee on the allegation that the 1st Respondent had defaulted in its obligations. The Appellant sought to invoke and enforce the entire guaranteed sum of Ksh.10,000,000/-.
9. The 1st Respondent disputed the Appellant’s demand and alleged that it was founded on falsehoods and fraudulent representations, particularly because the Appellant had included invoices which pre-dated the bank guarantee and which, according to the 1st Respondent, had already been fully settled.
10. The 1st Respondent averred that the Appellant had supplied it with fuel on three occasions pursuant to three local purchase orders, the value of the supplies amounting in aggregate to Ksh.5,126,430/-. It was therefore the 1st Respondent’s case that, at most, that was the amount which the Appellant was entitled to claim under the bank guarantee, and not the entire sum of Ksh.10,000,000/-.
11. In support of its allegation of fraud, the 1st Respondent specifically referred to tax invoices Nos. 376958 dated 21st July, 2025, 379001 dated 24th July, 2025, 378755 dated 26th July, 2025 and 379008 dated 29th July, 2025, which the Appellant had included in its demand and alleged remained unpaid.
12. The 1st Respondent pleaded that the said invoices amounted to Ksh.4,893,850/- but had in fact been paid, save for a difference of Ksh.1,110/-, and pleaded that it would rely on bank transfer records as evidence of the payments.
13. The 1st Respondent consequently pleaded that the Appellant’s demand for enforcement of the entire bank guarantee was an attempt to defraud it and was founded upon fictitious invoices and statements of account. It maintained that the demand was therefore unenforceable.
14. The 1st Respondent further pleaded that the trial court had jurisdiction to restrain enforcement of the bank guarantee on the ground of fraud and that it would suffer prejudice if the 2nd Respondent honoured the guarantee after the same had been invoked by the Appellant.
15. It was also pleaded that it was necessary for the parties to reconcile and take their respective statements of account in order to establish the actual amount, if any, outstanding between them.
16. On that basis, the 1st Respondent contended that it was in the interests of justice that injunctive relief be granted restraining the enforcement or payment of the bank guarantee pending reconciliation of the accounts between it and the Appellant.
17. The 1st Respondent consequently sought an order of permanent injunction restraining the Appellant and the 2nd Respondent from enforcing or paying bank guarantee No. MD2520600002R until the statements of account between the 1st Respondent and the Appellant had been taken and reconciled; a declaration that the Appellant’s demand letter dated 1st September, 2025 seeking enforcement or payment of the bank guarantee was unenforceable on account of its alleged reliance on fictitious invoices; and an award of the costs of the suit together with interest thereon.
B. THE APPLICATION DATED 4TH SEPTEMBER, 2025.
18. Contemporaneous with the plaint, the 1st Respondent filed a notice of motion dated 4th September, 2025 in which it sought the following substantive orders:
1. THAT….
2. THAT….
3. THAT pending the hearing and determination of this application the Honourable Court be pleased to order the Appellant and the 1st Respondent to take accounts and file in court as to the status of any indebtedness between the parties.
4. THAT this Honourable Court be pleased, in the first instant, to issue an order of temporary injunction restraining the Appellant and the 2nd Respondent from enforcing/paying the Bank Guarantee No. MD2520600002R pending the hearing and determination of the main suit.
5. THAT the costs of this Application be awarded to the 1st Respondent against the Appellant, together with interest thereon.
19. The grounds upon which the motion was premised were that the 1st Respondent and the Appellant had, over a period of time, maintained a business relationship involving the sale and purchase of fuel, pursuant to which the Appellant supplied petroleum products to the 1st Respondent on credit, with payment being made within the timelines agreed between the parties. The 1st Respondent operated fuel stations in Sondu and its environs.
20. It was further contended that, arising from the cordial business relationship between the parties, the 2nd Respondent, being the 1st Respondent’s bank, was brought into the arrangement for purposes of issuing a bank guarantee to the Appellant as security for the continued supply of fuel products to the 1st Respondent.
21. The 1st Respondent stated that the 2nd Respondent duly issued a bank guarantee dated 25th July, 2025 in favour of the Appellant, following which the business relationship between the parties continued.
22. It was contended that the guarantee was limited to a maximum sum of Ksh.10,000,000/- and could only be invoked or enforced to the extent of the specific amount actually owed by the 1st Respondent to the Appellant at the time of default.
23. The 1st Respondent contended that, by a letter dated 1st September, 2025, the Appellant demanded payment from the 2nd Respondent under the bank guarantee on the allegation that the 1st Respondent had defaulted in its obligations, and sought to invoke the guarantee for the entire sum of Ksh.10,000,000/-.
24. It was the 1st Respondent’s case that the Appellant’s demand was founded on falsehoods and was fraudulent, having included invoices which pre-dated the bank guarantee and which had already been paid by the 1st Respondent.
25. The 1st Respondent contended that the Appellant had supplied fuel on three occasions pursuant to three local purchase orders issued by the 1st Respondent, with the total value of the supplies being Ksh.5,126,430/-. It was therefore argued that this was the maximum amount which the Appellant could properly claim under the bank guarantee, rather than the entire guaranteed sum of Ksh.10,000,000/-.
26. The 1st Respondent maintained that some of the invoices claimed as unpaid, which totalled Ksh.4,893,850/-, had in fact been substantially settled, with payments amounting to Ksh.4,892,740/- having been made through bank transfers.
27. It was consequently contended that the Appellant’s attempt to enforce the entire bank guarantee amounted to an attempt to defraud the 1st Respondent and was based on fictitious invoices and statements of account. The 1st Respondent maintained that the demand was therefore unenforceable.
28. It was also contended that it was necessary for the 1st Respondent and the Appellant to take and reconcile their respective statements of account in order to establish the true amount, if any, outstanding between them.
29. On those grounds, the 1st Respondent urged the trial court, in the interests of justice, to grant the injunctive orders sought and restrain the enforcement or payment of the bank guarantee pending ascertainment of the parties’ respective accounts.
C. THE 1ST RESPONDENT’S SUPPORTING AFFIDAVIT.
30. The motion was supported by the affidavit sworn on 4th September, 2025 by Khali Mohamed Hassan in which the said deponent deposed that he was sole Director and Shareholder of the 1st Respondent, and was therefore conversant with the facts of the matter and competent to swear the affidavit. He annexed a copy of the 1st Respondent’s CR-12 as evidence of his position.
31. The deponent deposed that the 1st Respondent and the Appellant had, over a period of time, engaged in the business of selling and purchasing fuel, pursuant to which the Appellant supplied fuel to the 1st Respondent on credit, with payment being made within the timelines agreed between the parties. He stated that the 1st Respondent operated fuel stations in Sondu and its environs.
32. He further deposed that, arising from the cordial business relationship between the 1st Respondent and the Appellant, the parties extended the arrangement to involve the 2nd Respondent, which was the 1st Respondent’s bank, for purposes of issuing a bank guarantee to serve as security and facilitate the continued supply of fuel products by the Appellant.
33. The deponent stated that the 2nd Respondent duly issued a bank guarantee dated 25th July, 2025 in favour of the Appellant, following which the business relationship between the 1st Respondent and the Appellant continued. He deposed that the guarantee was limited to a maximum sum of Ksh.10,000,000/- and could only be invoked or enforced to the extent of the specific amount owed by the 1st Respondent to the Appellant at the point of default.
34. He deposed that, by a letter dated 1st September, 2025, the Appellant addressed a demand to the 2nd Respondent seeking payment under the bank guarantee on the allegation that the 1st Respondent had defaulted in its obligations. The Appellant sought to invoke and enforce the entire guaranteed amount of Ksh.10,000,000/-.
35. The deponent disputed the basis of the demand and alleged that the Appellant’s claim contained falsehoods and bordered on fraud, on the basis that it included invoices which pre-dated the bank guarantee and which had already been fully paid by the 1st Respondent.
36. He further deposed that the Appellant had supplied fuel on three occasions pursuant to three local purchase orders issued by the 1st Respondent, the total value of the supplies being Ksh.5,126,430/-. According to the deponent, that was the amount which the Appellant was entitled to claim under the bank guarantee and not the entire sum of Ksh.10,000,000/-.
37. In support of the allegation of fraud, the deponent referred to tax invoices Nos. 376958 dated 21st July, 2025, 379001 dated 24th July, 2025, 378755 dated 26th July, 2025 and 379008 dated 29th July, 2025, which had been included in the Appellant’s demand and alleged to be unpaid. He deposed that the invoices totalled Ksh.4,893,850/- but that the 1st Respondent had already paid Ksh.4,892,740/- in respect thereof, as demonstrated by the available bank transfer records.
38. The deponent consequently asserted that the Appellant’s attempt to enforce the entire bank guarantee amounted to an attempt to defraud the 1st Respondent and was founded upon fictitious invoices and statements of account. He maintained that the demand was therefore unenforceable.
39. He further deposed that the trial court had the power to restrain enforcement of the bank guarantee on account of the alleged fraud and that the 1st Respondent would suffer prejudice if the 2nd Respondent honoured the guarantee after its invocation by the Appellant.
40. The deponent maintained that it was necessary for the parties to take and reconcile their respective statements of account in order to establish the true position regarding any amount outstanding between them. He therefore urged that, in the interests of justice, the injunctive orders sought in the motion be granted.
D. THE APPELLANT’S PRELIMINARY OBJECTION.
41. The Appellant filed a preliminary objection to the suit dated 17th September, 2025, contending that the suit was premature, incompetent, misconceived and bad in law for failure by the 1st Respondent to comply with the agreed dispute resolution mechanism contained in Clause 19 of the Retail Supply (Dealership Agreement) dated 24th March, 2023.
42. The Appellant contended that the said clause required disputes arising between the parties to be referred to arbitration before recourse could be had to the jurisdiction of the court. It was therefore argued that the 1st Respondent had improperly invoked the jurisdiction of the trial court without first exhausting the agreed arbitral process.
43. The Appellant further contended that the suit offended Sections 6(1) and 10 of the Arbitration Act. It maintained that Section 6(1) required the court to stay proceedings where the parties had entered into an arbitration agreement, unless the agreement was null and void, inoperative or incapable of being performed, while Section 10 restricted the intervention of the court in matters governed by the Arbitration Act to the circumstances expressly provided for under the Act.
44. It was further contended that, having voluntarily executed the Retail Supply (Dealership Agreement), the 1st Respondent was bound by the principle of pacta sunt servanda and could not disregard the binding arbitration clause or approbate and reprobate by invoking the jurisdiction of the trial court contrary to the agreed dispute resolution mechanism.
45. The Appellant consequently maintained that the suit violated the principle of party autonomy in arbitration and that, by reason thereof, the trial court lacked jurisdiction to entertain the suit.
46. On those grounds, the Appellant urged the trial court to uphold the preliminary objection, strike out the suit dated 4th September, 2025 with costs, and direct the 1st Respondent to pursue the dispute through arbitration in accordance with the Arbitration Act.
E. THE APPELLANT’S REPLYING AFFIDAVIT.
47. The motion was opposed by the Appellant, through a replying affidavit sworn on 17th September, 2025 by Gibson Mutua, in which he deposed that he was the Appellant’s Retail Manager and had been duly authorized to swear the affidavit.
48. The deponent deposed that the 1st Respondent and the Appellant had entered into a written Retail Supply Agreement dated 1st March, 2023 for a period of fifteen years, ending on 28th April, 2038. A copy of the agreement was annexed to the affidavit.
49. He deposed that, under the Retail Supply Agreement, the relationship between the parties was exclusive, such that the 1st Respondent was required to obtain all its fuel products from the Appellant unless the Appellant was unable to supply. In such circumstances, the 1st Respondent was required either to obtain the Appellant’s written consent to purchase from a third party or source the products from a nominee appointed by the Appellant.
50. The deponent further stated that the Appellant had extended to the 1st Respondent a product loan of Ksh.5,000,000/- and had undertaken to brand the 1st Respondent’s Nguvu Service Station, situated on Land Title Number KERICHO/KAPLELARTET/1055, using the Appellant’s corporate colours and logos. He added that the agreement entitled the Appellant to surcharge the 1st Respondent for lost margins on fuel volumes purchased from unapproved suppliers.
51. He further deposed that the Appellant retained the right under the agreement to apply any sums due to the 1st Respondent, or recover such sums from collateral provided by the 1st Respondent or its affiliates, towards reduction of any amounts owed by the 1st Respondent.
52. The deponent stated that, pursuant to the parties’ arrangement and as security for the 1st Respondent’s obligations, the parties procured a bank guarantee in the sum of Ksh.10,000,000/- from the 2nd Respondent in favour of the Appellant. The guarantee was issued on 25th July, 2025 and a copy thereof was annexed to the affidavit.
53. He deposed that, under the terms of the bank guarantee, the 2nd Respondent undertook to pay the guaranteed amount to the Appellant upon presentation of the original guarantee, a signed statement from the Appellant and copies of unpaid invoices.
54. The deponent stated that, notwithstanding the continued supply of petroleum products, the 1st Respondent persistently defaulted in making payments and that, as at 1st September, 2025, it was indebted to the Appellant in the sum of Ksh.10,000,000/-. He stated that the indebtedness comprised Ksh.5,000,000/- advanced as a product loan and approximately Ksh.5,000,000/- in respect of unpaid invoices for petroleum products supplied pursuant to valid purchase orders. He annexed the Appellant’s demand letter to the 2nd Respondent dated 1st September, 2025 together with the supporting statement of account.
55. The deponent disputed the 1st Respondent’s allegation that the Appellant’s demand was based on fictitious or pre-dated invoices. He maintained that the invoices were properly raised, legitimate and remained unpaid.
56. He further stated that the 1st Respondent’s contention that invoices predating the bank guarantee could not be included in the demand was based on a misinterpretation of the guarantee, which, according to him, covered all amounts legitimately due as at the date of demand and did not exclude debts accrued before its issuance.
57. He explained that the Appellant applied the First-In-First-Out (FIFO) accounting principle, under which older debts were cleared before payments were applied to newer invoices. He therefore stated that payments made by the 1st Respondent had been applied towards earlier invoices, leaving the newer invoices outstanding as at the date of the demand.
58. The deponent further stated that, although the 1st Respondent had produced copies of bank transfers, it had not provided remittance advices identifying the particular invoices which the payments were intended to settle. In the absence of such remittance advices, he maintained that the Appellant was entitled to allocate the payments to older debts in accordance with the FIFO principle.
59. He therefore asserted that the Appellant had acted correctly and in good faith and that the Ksh.10,000,000/- demanded under the bank guarantee represented amounts legitimately due.
60. The deponent further stated that the 1st Respondent had breached the exclusivity provisions of the Retail Supply Agreement by sourcing petroleum products from other suppliers without the Appellant’s consent, which he characterized as a fundamental breach of the agreement.
61. He maintained that the 1st Respondent’s claims of fraud and misrepresentation against the Appellant were baseless and malicious and were intended to frustrate the Appellant’s lawful rights under the bank guarantee.
62. The deponent further asserted that the bank guarantee constituted an independent contract between the 2nd Respondent and the Appellant and that its operation could only be restrained in clear and exceptional circumstances of fraud, which, in his view, the 1st Respondent had failed to establish.
63. He maintained that the Appellant had made a valid demand in accordance with the terms of the guarantee and that the 2nd Respondent was under a legal obligation to honour the demand.
64. He further deposed that the 1st Respondent had failed to satisfy the legal requirements for the grant of a temporary injunction, having neither established a prima facie case with a probability of success nor demonstrated that it would suffer irreparable injury incapable of compensation by an award of damages.
65. The deponent maintained that, in any event, the balance of convenience favoured the Appellant, which stood to suffer substantial financial loss if the bank guarantee was not honoured. He also contended that the 1st Respondent’s request for an order for taking of accounts was premature and intended to delay enforcement of the guarantee.
66. The deponent consequently urged the trial court to dismiss the motion with costs.
F. THE 2ND RESPONDENT’S REPLYING AFFIDAVIT.
67. The 2nd Respondent filed a replying affidavit sworn on 15th September, 2025 by Dorcas Muvea in which she deposed that she was the Manager, Trade Operations of the 2nd Respondent and was conversant with the matters raised in the application. She stated that, by virtue of her designation and office, she was duly authorized to swear the affidavit on behalf of the 2nd Respondent.
68. The deponent stated that pursuant to instructions from the 1st Respondent, the 2nd Respondent issued a bank guarantee dated 25th July, 2025, whose primary purpose was to provide security to the Appellant and facilitate the continued supply of fuel products by the Appellant to the 1st Respondent. A copy of the bank guarantee was annexed to the affidavit.
69. The deponent confirmed that the bank guarantee was limited to a maximum sum of Ksh.10,000,000/- and that its enforcement was conditional upon the 1st Respondent being indebted to the Appellant.
70. She further confirmed that the 2nd Respondent received a letter dated 1st September, 2025 from the Appellant demanding payment of Ksh.10,000,000/- under the bank guarantee on the ground that the 1st Respondent had defaulted on its obligations under the Retail Supply (Dealership) Agreement. A copy of the demand letter was annexed to the affidavit.
71. The deponent stated that, before the 2nd Respondent could act upon the Appellant’s demand, the 1st Respondent served it with court orders restraining both the 2nd Respondent and the Appellant from enforcing or making payment under the bank guarantee. She confirmed that the 2nd Respondent had complied with the orders issued by the trial court.
72. She further deposed that the 2nd Respondent only became aware, through the pleadings filed before the trial court, that the 1st Respondent disputed the amount demanded by the Appellant under the bank guarantee.
73. The deponent stated that the 2nd Respondent’s role in the transaction was purely ancillary and limited to the issuance of the bank guarantee pursuant to the 1st Respondent’s instructions. She maintained that the 2nd Respondent was not privy to, and had no interest in, the underlying contractual relationship between the 1st Respondent and the Appellant.
74. The 2nd Respondent consequently expressed its readiness and willingness to comply with any orders that the trial court might issue. It nevertheless sought an award of the costs occasioned by its participation in the proceedings as against both the 1st Respondent and the Appellant.
G. DIRECTIONS OF THE TRIAL COURT.
75. It is instructive from the impugned ruling of the trial court, the parties were directed to file submissions on both the notice of motion and the preliminary objection.
H. THE 1ST RESPONDENT’S SUBMISSIONS BEFORE THE TRIAL COURT.
76. In its submissions, the 1st Respondent identified two issues for determination, namely, whether it was a party or privy to the Retail Supply (Dealership) Agreement dated 24th March, 2023 and, secondly, whether the preliminary objection was merited.
77. On the first issue, the 1st Respondent submitted that the Appellant’s reliance on the Retail Supply (Dealership) Agreement was misplaced. It drew the trial court’s attention to the copy of the agreement annexed to the replying affidavit of Gibson Mutua and marked as GM-1, contending that a perusal of the agreement showed that it was entered into between an individual known as Ahmed Ali Abdi and the Appellant.
78. The 1st Respondent submitted that Ahmed Ali Abdi was neither the 1st Respondent nor a director thereof. It pointed out that, according to the CR-12 annexed to the affidavit of its director, Khali Mohamed Hassan, and marked as KMH-1, its director was Khali Mohamed Hassan.
79. It was therefore submitted that neither the 1st Respondent nor its director was a party to the Retail Supply (Dealership) Agreement relied upon by the Appellant and that, consequently, the arbitration clause contained therein could not bind the 1st Respondent. The 1st Respondent urged the trial court to dismiss the preliminary objection with costs.
80. The 1st Respondent further submitted that the preliminary objection raised evidentiary and factual issues which could not properly be determined by way of a preliminary objection, but required evidence to be adduced and considered either at the conclusion of the matter or through an appropriate application supported by evidence.
81. In support of that proposition, the 1st Respondent relied on the principles set out in Mukisa Biscuits Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696, submitting that a preliminary objection ought to raise a pure point of law capable of disposing of the suit and should not encompass contested factual matters requiring ascertainment through evidence.
82. The 1st Respondent consequently maintained that the Appellant’s preliminary objection was not merited and urged the trial court to dismiss it.
I. THE APPELLANT’S SUBMISSIONS BEFORE THE TRIAL COURT.
83. On its part, the Appellant submitted that the 1st Respondent’s suit was incompetent for want of jurisdiction on account of the mandatory arbitration clause contained in Clause 19 of the Retail Supply (Dealership) Agreement dated 24th March, 2023.
84. The Appellant submitted that the parties had enjoyed a longstanding commercial relationship involving the supply of petroleum products on agreed credit terms and that, as security for the continued supply and the increasing credit exposure, the 1st Respondent had procured bank guarantee No. MD2520600002R dated 25th July, 2025 for Ksh.10,000,000/- from the 2nd Respondent in favour of the Appellant.
85. It was submitted that, under the express terms of the bank guarantee, the 2nd Respondent undertook to make payment upon presentation of the original guarantee, a signed statement by the Appellant and copies of unpaid invoices. The Appellant maintained that the guarantee was subject to the Uniform Rules for Demand Guarantees (URDG 758) and constituted an independent documentary obligation on the part of the 2nd Respondent.
86. The Appellant submitted that, following persistent default by the 1st Respondent in meeting its payment obligations, it invoked the bank guarantee by its demand letter dated 1st September, 2025, supported by a statement of account and copies of outstanding invoices amounting to Ksh.10,000,000/-. It contended that the demand was made strictly in accordance with the terms of the guarantee.
87. The Appellant submitted that the 1st Respondent subsequently moved the trial court seeking to restrain enforcement of the guarantee, alleging that certain invoices relied upon by the Appellant were fictitious or pre-dated. The Appellant disputed those allegations and maintained that the invoices represented legitimate debts arising from the parties’ continuing commercial relationship.
88. It further contended that the 1st Respondent had failed to demonstrate either settlement of the amounts claimed or the egregious fraud necessary to justify interference with a demand guarantee.
89. The Appellant identified three principal issues for determinat
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