Reprieve for KPC as Sh5bn award to KenolKobil set aside

The High Court on Tuesday allowed an appeal by Kenya Pipeline Company (KPC) and set aside Sh5 billion awarded to KenolKobil by an arbitrator for an alleged breach of contract.
Consequently, Commercial Court judges—Daniel Musinga and George Kimondo referred the dispute to the sole arbitrator Ahmednasir Abdullahi for reconsideration.

“We are satisfied that we should disturb the award for being so inordinately high as to represent an erroneous estimate,” said the judges in their ruling.

The judges also declined to uphold a counter-claim of Sh1.6 billion awarded to KPC by the arbitrator. Although Mr Abdullahi was cleared of bias during the proceedings, the judges found him to have acted beyond the boundaries of his contract and exceeding jurisdiction.

However, the judges observed that awards must take into consideration the capacity of the economy to absorb them, saying that such a high figure of damages, which at the current rate exceeds Sh6 billion “is on then face of it inordinately high.”

On December 10, 2009, Mr Abdullahi, ordered KPC to pay the oil marketer Sh2 billion and another $43,290,085 for loss of consumer and financial goodwill, cost of public relations and marketing campaign after they were denied the use of KPC facility at Kipevu on terminal in Mombasa.

The dispute was triggered in 2005 by an increase in the tariffs charged by the parastatal to oil companies for use of the facilities.
KenolKobil contested the new tariffs and in exercise of its rights under the agreement, KPC shut out the oil marketer from use of storage and pipeline facilities.

Following the shutdown, KenolKobil complained that it could not transport its products upcountry, a situation the marketer claimed that it nearly led to a near dry-out of its petrol outlets.

Aggrieved with the arbitral award, KPC though lawyer John Ohaga, filed an appeal in the High Court on January 18 last year, citing 23 grounds and accusing the arbitrator of failing to determine the dispute in accordance with the contract between the parties.

The arbitrator had ruled that KPC breached some fundamental provisions of the contract signed between it and KenolKobil.

Pursuant to the contract, KPC was not permitted to extend to any other party the usage of its systems in the transportation, storage and delivery of the oil products apart from KenolKobil. The marketer moved to court in 2006 accusing KPC of failing to facilitate the berthing of various ships carrying its petroleum products and declining to allocate them storage space.

Mr Ohaga on Tuesday said the ruling was well reasoned and “we will compile with the orders of the court.”