Court sets precedent in Sh138 million franchise dispute against Total Kenya

The Commercial Court in Nairobi has ordered oil marketer Total Kenya to pay a businessman more than Sh138 million in a landmark judgment that has implications for the petroleum products sale business in the country.

Justice Alfred Mabeya directed the firm to pay David Njane after finding that it caused the loss of his business through theft that occurred at a Total-branded petrol station in Nairobi. 

The judge observed that Njane could only sell products from Total and despite not having a formal marketing licence agreement, the business relationship between the two from 2008 to 2010 amounted to a contract, which was enforceable.

Total blamed Njane’s employees for the loss. But the judge found that the company had admitted that the workers were using its systems.

Mabeya said it was unfair for the oil marketer to shift blame while its systems could not detect anything wrong.

“The court’s view is that the moment the first defendant restricted its dealer to the use of its system, it guaranteed its safety and security.

“Although the first defendant contended that the said losses were sheer theft by the plaintiff’s employees, it could not explain why such theft could be achieved by use of its own system if it was secure as it contended,” said Mabeya.

“It admitted that it retained the system for uniformity and for daily monitoring. What is daily monitoring if it is not being in control of the system? The conclusion is that the first defendant retained control of the system so that it could monitor the business of the plaintiffs.”

In the case, Njane cited frustration and skewed agreement by Total. His lawyer, Phillip Nyachoti, told the court that the oil marketer would delay supplying its products while other petrol stations in the area, such as Shell, would have products to sell.

At the same time, the court heard that when fuel got mixed with water due to underground tank issues, the marketer did nothing despite being informed about it.

Njane testified that the dealership agreement was to sell Total’s products, including motor fuels, kerosene, lubricants, greases and Liquefied Petroleum Gas (LPG).

He told the court that he started operating the petrol station on Argwings Kodhek road on February 1, 2008, and was required to maintain a Sh12.5 million working capital and provide a bank guarantee.

However, the businessman said Total persistently failed to meet its supply obligations despite numerous complaints. As a result, Njane claimed he suffered product outages and customer dissatisfaction.

He said he would order a 28,000-litre tanker but receive only 10,000 litres. The businessman said there was no signed marketing licence and the business relationship was based on the offer letter.

According to him, Total did not allow him to run the business using his own systems. He stated that he inherited the point of sale system from the company, which was prone to double-entry breaches.

“The first defendant did not allow me to use external point of sale systems. The station was handed over to me 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. If the system had proper controls preventing double entries, such fraud would not have occurred,” he argued.

In its response, Total stated that it acknowledged the agreement dated July 31, 2007. It also admitted that there was a Sh3.5 million bank guarantee. However, it argued that it could demand payment without giving Njane a notice.

At the same time, the marketer claimed that royalties were payable but did not cover technical and management assistance, adding that the businessman had the responsibility to follow proper ordering, delivery and product receipt procedures.

Total blamed Njane for stockouts. In addition, it asserted that it had nothing to do with price losses or maintenance failures and stated that any equipment issues arose at the petrol station.

At the same time, the oil marketer stated that Njane had jumped the gun by filing the case before the court. It stated that disputes under the agreement were subject to arbitration.