OIL SHORTAGE

National Oil to pay Sh38m to Total Kenya for breach of contract — court

Penalties for late delivery, under-delivery, non-delivery, among others

In Summary

The court heard that the two companies entered the deal in November 2010 for the supply of 7000MT of gas oil.

•Nock was ordered to pay the oil dealer for failing to deliver the commodity of  as agreed in the contract.

National Oil Corporation on Jogoo Road.
National Oil Corporation on Jogoo Road.

The High Court has ordered National Oil Corporation of Kenya to pay Total Kenya Sh38 million for breach of contract.

Justice Francis Tuiyott on ordered Nock to pay the oil dealer for failing to deliver the commodity of oil as agreed in the contract.

In the judgment on Wednesday, Justice Tuiyott directed Nock to pay $192,357.54 (Sh22,350,282) for breach of contract, $38,197.8 for late delivery penalty, $2,566 for under delivery penalty and $94,973 for non-delivery penalty.

He ordered all the monies to be converted to Kenyan shillings.

The court heard that the two companies entered the deal in November 2010 for the supply of 7000MT of gas oil.

What was not agreed and remains for determination is whether or not the pricing in the contract was outside the Kenya Open System Tender (OTS). It was  explained to be the tender under which the importation and sale of oil products in Kenya is operated.

However, the price was to be five days around the Bill of Lading (dates), whereas all other lading charges were to be per the OTS cost buildup.

Total Kenya argued that Nock unilaterally and arbitrarily abandoned the covenanted price mode and invoiced it at the price mean of $96,2562 bbl as opposed to the contractual price mean of 91.5420/bbl.

“As a result of the irregular and unilateral act, Total Kenya overpaid by $192,357.54,” the court was told.

But Nock contended that the contract was structured in the same manner as the OTS terms and conditions in which the pricing clause covered the applicable Free on Bond (FOB) freight and premium components.

National Oil argued that at the time of tender, there was no certainty as to what would be the FOB basis for cargoes arriving in November 2010. It said the Ministry of Energy had not given clarification as the applicable basis, that is whether to peg the pricing on the five days around the bill of loading date or on the whole month average.

Nock stated that in invoking clause 9(a) of the OTS, it chose and applied deemed bill of lading date and denied overpayment.

(Edited by V. Graham)

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