[2023] KEHC 26369 (KLR)

Chevron Kenya Limited (Formerly Caltex Oil (Kenya) Limited) v Edward Alfred Kimani Mburu (Trading as Waiyaki Way Service Station) (Civil Suit 503 of 2008) [2023] KEHC 26369 (KLR) (Commercial and Tax) (8 December 2023) (Judgment)

Neutral citation: [2023] KEHC 26369 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Suit 503 of 2008

FG Mugambi, J

December 8, 2023

Between

Chevron Kenya Limited (Formerly Caltex Oil (Kenya) Limited)

Plaintiff

and

Edward Alfred Kimani Mburu (Trading as Waiyaki Way Service Station)

Defendant

Judgment

Background 1. The plaintiff filed the present suit through a plaint dated 1st September, 2008 and amended on 16th June, 2009 against the defendant for breach of contract. The plaintiff seeks special damages of Kshs 3,618,083. 11, costs of the suit, and interest until payment in full.

2. The plaintiff’s case is premised on an operator’s agreement entered into with the defendant on 1st September, 1995 (the 1st agreement) which was subsequently renewed on 1st October, 2000 (the 2nd agreement). The said agreements were dealership agreements, by which the defendant was required to purchase and sell the plaintiff’s products exclusively.

3. The terms of the agreement were that unless otherwise provided for by the plaintiff, the defendant would pay cash on delivery for all petroleum products supplied. The plaintiff accuses the defendant of failing to comply with the payment terms of the agreement by failing to pay the plaintiff the sum of Kshs 2,698,083. 11 for goods sold and delivered on diverse dates between 10th June, 2003 and 1st July, 2003.

4. Alongside the operator’s agreement was a Star Mart Operator’s License Agreement (the Star Mart agreement) entered into on 21st May, 1999 for a term of 5 years. Under the agreement, the defendant agreed to rent a flower shed at the premises for Kshs 2,000/= per month and to pay/contribute monthly Star Mart fees of Kshs 90,000/= as provided in the schedule to the license of fees.

5. The plaintiff claims that on diverse dates between 31st September, 2002 and 30th June, 2003 the defendant failed to pay the amounts due and owing for the Star Mart support fee and flower shade rentals. Consequently, the plaintiff terminated the aforementioned agreement and license on 3rd July, 2003 as a result of the breach. The plaintiff asserted that it has suffered loss and damage as a result of the defendant’s breach of contract.

6. The defendant filed a statement of defence dated 3rd June, 2009, denying the averments contained in the plaint and seeking dismissal of the plaintiff’s suit. The defendant particularly denied entering into an operator’s agreement with the plaintiff. He averred that if any agreement was entered into, the same was with Waiyaki Way Service Station Limited (the company) which was incorporated on 22nd December, 1995. It was his case that the company took over the operations of the service station from the defendant with the defendant’s role restricted to that of a Managing Director.

The Plaintiff’s Evidence. 7. PW1, one Arthur Ombimah, testified on behalf of the plaintiff. He confirmed that the plaintiff was and is still the registered owner of the service station premises located at LR No 209/990/14 Waiyaki Way Nairobi (the premises). He confirmed the existence of the two operators’ agreements; the first running between 1st September 1995 to 30th September 2000 and the second between 1st October 2000 up to 3rd July 2003 when it was terminated at the plaintiff’s instance, due to the defendant’s breach.

8. PW1 noted that during the pendency of the 1st agreement the defendant operated under the name of Waiyaki Way Service Station. Despite having incorporated the company by the time of entering into the 2nd agreement, the defendant continued to run the service station in similar terms to the 1st agreement. This according to the plaintiff meant that the 1st agreement had been renewed.

9. For these reasons the witness was also of the view that the agreement dated 1st October, 2000 was not performed by either party since the defendant continued to operate as an individual and not a company. In order to prove this, the witness produced correspondence between the plaintiff and the defendant in the letter head of Waitaki Way Service Station as well as the defendant’s personal cheques that were used to make remittances to the plaintiff.

10. During cross-examination, the witness confirmed as per Clause 18 of the 1st agreement that any variation of terms of the agreement needed to be in writing. Finally, it was his testimony that the defendant had been sued in his capacity as a director of Waiyaki Way Service Station Limited.

The Defendant’s Evidence. 11. DW1 was Mr. Edward Alfred Kimani Mburu, a shareholder and director of Waiyaki Way Service Station Limited. He confirmed having entered into the 1st agreement as well as the Star Mart agreement with the plaintiff, while trading as Waiyaki Way Service Station.

12. It was his testimony that the Star Mart agreement was terminated on 30th September, 2000 upon expiry of the 1st operator’s agreement and by this time, he did not owe the plaintiff any money. He denied having renewed the said agreement and averred that upon incorporation, the company took over operations of the service station as well as the trading name Waiyaki Way Service Station which was the banner under which the service station operated.

13. DW1 contended that when the plaintiff entered into the 2nd agreement with the company on 1st October, 2000, his role was restricted to that of a Managing Director hence he could not have incurred any debts in his personal capacity as a result of the said agreement.

14. During cross-examination, DW1 admitted that the debit notes, invoices and cheques dated 24th September, 2001 and 3rd May, 2002 were actually issued in the name of Waiyaki Way Service Station.

15. Upon close of the plaintiff’s and the defendant’s case, the Court directed parties to file written submissions. I will not regurgitate those submissions as I will refer to them in my analysis hereafter.

Analysis 16. I have carefully considered and analyzed the pleadings, evidence and submissions by rival parties. The main issues that arise for determination is whether there is a valid contract between the plaintiff and the defendant capable of being enforced by this Court and whether the plaintiff is entitled to the prayers sought.

17. On the first question, it is a settled principle of contract law that parties to a contract are bound by the terms that they have negotiated. Courts cannot rewrite their contracts. In National Bank of Kenya Ltd V Pipeplastic Samkolit (K) Ltd & Another, [2001] eKLR cited by the defendant, the Court of Appeal held that:“A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”

18. It is not controverted that the Operator’s Agreement of 1st September 1990 was entered into between the plaintiff and the defendant, trading then as Waiyaki Way Service Station. It is also not disputed that the agreement came to an end on 30th September, 2000. The plaintiff argues that the said agreement was renewed by the parties as they continued to trade in similar terms as they did in the 1st agreement.

19. While denying this submission the defendant highlighted the provisions of Clauses 18 & 20 of the 1st agreement which stated as follows:Clause 18:“No amendment, variation or modification of this agreement will be valid or binding on either party hereto unless reduced to writing and signed by both parties.”Clause 20:“The dealer acknowledges that, in entering into this agreement, he does not do so on the basis of or rely on any representations, warranties or other provisions except as expressly provided in this agreement and accordingly all conditions, warranties or other terms implied by statute or common law are hereby excluded to the fullest extent permitted by law.”

20. I note that the Star Mart agreement at Clause 33 also contains the same provisions as Clause 18 of the Operator’s agreement restricting the variation of terms unless in writing. On this strength the defendant argues that any renewal ought to have been in writing and as such denies that the agreement was renewed by the parties. I am persuaded by this argument.

21. The defendant further submitted that in any case, even if the plaintiff's claim was founded on the 1st agreement entered into on 1st September 1995, it would be liable for dismissal for being time barred in view of the fact that the plaint herein was filed on 4th September 2008. The same case would befall the Star Mart licence which was dated 21st May 1999 and expired on 30th September 2000.

22. Of importance is a discussion from the Halsbury’s Laws of England Vol. 9(1) at paragraph 622 which provides as follows:“Where the intention of the parties has in fact been reduced into writing under the so called ‘parole evidence rule’ it is generally not permissible to adduce extrinsic evidence whether oral or written whether to show that intention or to contradict, vary or add to the terms of the document including implied terms.”

23. It is clear from the record that the parties intended to enter into a new contract. This is evidenced by the execution of the 2nd agreement dated 1st October 2000, immediately after the 1st agreement expired. The parties in the 2nd agreement were different in that this time round, the contract was between the plaintiff and Waiyaki Way Service Station Limited. The agreement at clause 3 expressly recognized that the dealer was a company limited by guarantee. PW1 also confirmed during cross examination that the defendant had been sued since he was a director of Waiyaki Way Service Station Limited.

24. In my view, these express provisions would water down the extrinsic evidence provided in contradiction to the said 2nd contract. The fact that the dealer and the director had not provided the required guarantees does not ipso facto invalidate the contract which was otherwise executed. Likewise, while it is true that parties’ correspondence, invoices and debit notes all referred to Waiyaki Way Service Station, the same does not negate the fact that the parties’ intention was clearly put down on paper.

25. Accordingly, this Court is of the view that the 1st operator’s agreement dated 1st September, 1995 between the plaintiff and the defendant lapsed on 30th September, 2000. The same was not capable of extension by conduct of the parties pursuant to the provisions of Clauses 18 & 20 therein. In addition, the Star Mart Operator’s license agreement dated 21st May 1999 also lapsed on 30th September, 2000 pursuant to Clause 3 of the said agreement. It was not capable of extension by conduct of the parties pursuant to the provisions of Clause 33 therein.

26. I further disagree with the plaintiff’s submission that the 2nd operator’s agreement was not performed by any of the parties thereto. As I have stated, the agreement in itself was not invalid. At the very most, it may have been avoided by either of the parties but instead, both parties continued to trade under its terms. It is evident that this suit is also founded on the said agreement. This can be seen from the letters dated 23rd May 2003 and 3rd July, 2003 which referred to the 2nd operator’s agreement. Worthy of note is that the letter dated 3rd July, 2003 was in fact terminating the 2nd operator’s agreement.

27. Since the defendant was not a party to the 2nd agreement and the debt claimed by the plaintiff arose during the pendency of the said agreement, by virtue of the doctrine of privity of contract, the defendant cannot be affected by the terms of the said contract or sued for breach of the same. I refer to the holding of this Court in City Council of Nairobi V Wilfred Kamau Githua T/A Githua Associates & Another, [2016] eKLR, which cited the case of Agricultural Finance Corporation V Lengetia, [1982-88] I KAR 772 where it was held that:“As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it...”

28. This Court sympathizes with the plaintiff in as much as there might have been a breach of the agreement and licence as a result of which the plaintiff suffered loss and damage, the defendant cannot be sued on behalf of Waiyaki Way Service Station.

29. This is in line with the principle of separate corporate personality as firmly established in the case of Salomon V Salomon [1897] AC 22. It is a trite principle of company law that a company is a separate legal entity from its shareholders and directors in the eyes of the law, capable of acting in its own name, suing and/or being sued.

Determination and Final Orders 30. The upshot is that the plaintiff’s suit is not merited and it is hereby dismissed with costs to the defendant.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 8TH DAY OF DECEMBER 2023. F. MUGAMBIJUDGE