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Fuel supplier wants Fly 540 dissolved over debts

COMMENTARY
By BY WAHOME THUKU | August 6th 2012

BY WAHOME THUKU

A local airline could be wound up over a $656,304 (Sh55m) debt if a winding up petition filed in court is granted.

The debt arose from the supply of 542,977 litres of jet fuel by aviation supplies company Finejet Ltd in June, last year. The 540 Aviation is a Nairobi-based low cost airline, which has been operating domestic and international passenger and freight services in Kenya since November 2006.

In December 2008, Finejet entered into a contract with 540-Aviation to supply the airline with jet fuel.

According to Finejet Managing Director John Kimani his company would send to 540 Aviation a price notification at the beginning of every month and the airline would order for the fuel, which would be supplied to various airports and airfields in Kenya, Uganda and Southern Sudan.

The airline would then pay on weekly basis. Up to May, last year, everything went smoothly.

In June, Finejet supplied the airline with the 542,977 litres of fuel, which according to them was worth $507,833 (Sh42.6 million).

The airline sent three cheques of $90,000 (Sh7.5 million) to Finejet, which were returned unpaid. The airline claimed that the fuel supplier had been overcharging them for the supply.

platt’s pricing

The airline argued that Finejet was not using Platt’s pricing rates as agreed. Platts is a company founded in 1909 in the US by Warren Platt to provide reliable price information in the oil industry.

The airline demanded a reduction in the price, failing which they would contract another supplier. They exchanged several acrimonious emails and correspondences over the pricing, ending the relationship.

In August, last year, Finejet took the matter to court. They filed bundles of

the emails and other electronic evidence of the exchange between Mr Kimani and the 540 Aviation CEO Mr Donald Earle Smith.

On their part, 540 Aviation denied owing the company the money. They claimed they had only entered into the contract on the basis that the fuel prices would be competitive. According to Mr Smith, they had discovered that Finejet was not using the Platt benchmarks and price tariffs in the supply. Finejet had silently changed the mode of charging without informing them.

Smith said after doing their own calculations, they had established the supplier actually owed them money. They had, however, not made a counter claim in the suit nor filed the calculations alongside his affidavit. The case went before High Court judge JB Havelock.

On October 19, last year, Finejet filed an application to have the defence struck out and judgement entered in their favour. Through lawyer Fred Adhuok, they argued that 540 Aviation’s defence was a sham amounting to mere denials and abuse of the court process.

TRIABLE ISSUES

 Their claim for the money had been admitted and there was nothing to contest.

“This is a straight forward case of Sale of Goods in which the respondent has taken delivery of the goods but has blatantly declined to pay the price thereof,” Adhuok argued.

Finejet said they had been issuing the airline with the price notification before supplying hence the question of silent departure from the mode of pricing did not arise. They had never agreed that the supply would be based on the Platt’s rates, as they did not import fuel into Kenya.

They said 540 Aviation had already taken the fuel and consumed it and was not in a position to return the same. The goods were of perishable nature and as a result their business continued to suffer. They put the figure of the debt including interests at $656,304 (Sh55m).

GOOD FAITH

On the legal issue, Finejet said for the case to go to full trial, there had to be a bona fide triable issue. The denials and averments by 540 Aviation in this case were not bona fide and their defence did not raise any issue.

They asked the court to determine which of the two parties had acted in good faith before the dispute. They argued that under section 49 of the Sale of Goods Act, where goods have passed to the buyer, the seller may maintain an action for the price if the buyer neglects of refuses to pay.

The airline asked the court to consider there were triable issues in their defence. They denied having admitted the claims by Finejet adding that the whole issue of fuel pricing was triable and their defence should not be struck out.

To decide whether there were triable issues, Justice Havelock retraced the history of the contract and the point at which the relationship broke down.

The judge said the fact that Finejet had filed a replying affidavit to the defence filed by 540 Aviation meant there were triable issues in that defence.

“The plain fact is that Finejet has supplied fuel to the defendant for which it has not been paid,” he said.

 “The defendant has had plenty of opportunity to obtain Platt’s pricing tables for the period in which fuel was supplied. Such would have allowed the defendant to make the relevant calculations and work out what it claims it has overpaid and file a counterclaim therefore.”

Judge Havelock observed that 540 Aviation had never revealed the calculations they claimed to have made of the overpayment. They had not even applied to the court to file those calculations.

POOR DEFENCE

“I am of the opinion that the defence raised in this regard is a sham,” he added. With that, on February 14, he allowed the application by Finejet to have the defence struck out and ordered the airline to pay the amount demanded.

In the latest application Finejet says the airline has subsequently made promises to settle the amount in $20,000 (Sh1.6m) per week but has failed to make the payments.

On June 26, they served the airline with a demand to pay up the $656,304 within 21 days but nothing came of it. They now want the airline wound up and the tussle continues.

The writer is a court reporter.

Email:[email protected]

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