Vulcan Lab Equipment Limited v School Equipment Production Unit & Ethics & Anti-Corruption Commission [2017] KEHC 637 (KLR) | Breach Of Contract | Esheria

Vulcan Lab Equipment Limited v School Equipment Production Unit & Ethics & Anti-Corruption Commission [2017] KEHC 637 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

ANTI-CORRUPTION AND ECONOMIC CRIMES CASE NO. 27 OF 2016

FORMERLY HIGH COURT CIVIL SUIT NO. 110 OF 2010

VULCAN LAB EQUIPMENT LIMITED.............................PLAINTIFF

VERSUS

SCHOOL EQUIPMENT PRODUCTION UNIT.........1ST DEFENDANT

ETHICS & ANTI-CORRUPTION COMMISSION...2ND DEFENDANT

JUDGMENT

1. By a further amended plaintiff dated 2nd May, 2013 the plaintiff instituted this suit against the defendants jointly and severally seeking recovery of Kshs.222,291,559. 12/- being general and special damages for breach of contract together with costs and interest of Kshs.7,224,612. 70 with costs and interest.  The 1st defendant filed their defence to the further amended plaint on 14th May, 2013 while the 2nd defendant filed their defence to further amended plaint and counter-claim on 15th May, 2013.  The plaintiff pleaded illegality, breach of contract, malice and bad faith against the defendant at paragraph 13 of the further amended plaint.

THE PLAINTIFF’S CASE

2. The plaintiff called two (2) witnesses to prove its case against the defendants.  PW1 Vishal Kacha testified that he was the Managing Director (MD) of the plaintiff’s company.  He adopted his statement dated 14. 2.2012 and another dated 24. 04. 2016 as his evidence in chief.  He stated that the company deals with supply of lab equipment and chemicals to schools and that he had been supplying the 1st defendant since 2007.  He said that in 2007, the 1st defendant approached the plaintiff to quote the price, terms and conditions for supplying the 1st defendant with various science equipment and laboratory chemicals for distribution to secondary schools.  The plaintiff prepared and dispatched to the 1st defendant a pro forma invoice quoting the price of each item requested which was received by signing and stamping by the 1st defendant’s agent.

3. A contract was then signed between the plaintiff and the 1st defendant and its terms were that the plaintiff would supply the 1st defendant with lab equipment and chemicals at a consideration of Kshs.226,772,450/= VAT inclusive.  That the contract was valid for 2. 5 months and that the 1st defendant was to make a down payment of 33% of the contract sum at execution of the contract, 33% upon delivery of 50% of the goods and the balance upon delivery of all the goods.

4. Upon execution of the contract, the 1st defendant issued a cheque of Kshs.75,086,880/= in favour of the plaintiff.  The 1st defendant further informed the plaintiff that the equipment and chemicals were urgently required and that they should be labelled “Ministry of Education; Not for Sale” to avoid pilferage and misplacement of equipment once supplied to schools.  He banked the cheque in the plaintiff’s bank account at Southern Credit Commercial Bank Westlands branch and travelled to India to source for the goods.

5. PW1 further testified that the 2nd defendant obtained an order from the Chief Magistrate’s Court at Kibera and froze the plaintiff’s accounts and that his attempts to have the same unfrozen by the 2nd defendant were futile.

He went ahead and imported chemicals and equipment worth 94,279,202/=.  Upon arrival of the goods, he sought advice from the 1st defendant on delivery but the 1st defendant declined to accept delivery of the said goods.

6. The reason he was given was that the supply contract was under investigation by the 2nd defendant and that he could not carry on with the transaction by the 2nd defendant and that he could not carry on with the transaction until there was clearance by the 2nd defendant.  He stated that the 1st defendant’s failure to accept delivery of or pay for the goods and/or fulfill its obligations under the supply contract is illegal, unjustified and constitutes a blatant breach of the supply contract.

7. Following the 1st defendant’s refusal to accept delivery of the goods, the plaintiff stored them at Express Kenya Limited in October, 2009 and as at December 2011, the total accrued storage charges were Kshs.8,544,498. 33 with accrued insurance premiums of Kshs.1,024,363/=.

8. He further testified that him and 4 other officers were charged and convicted in the Chief Magistrate’s Court but the High Court later acquitted him but upheld the conviction of the others.  He explained that the fact that the equipment were labelled made it difficult to resale them and that some of them were likely to be damaged or wasted.  He stated that there was part performance of the contract given that the plaintiff had already received 33% of the payment and that he had performed his part of importing the goods.

9. He adopted his list of documents filed on 18th April, 2017 as exhibits.  He said the goods stored at Express Kenya were later auctioned as the plaintiff failed to pay for the storage charges.  He concluded by stating that as a result of the illegal and unreasonable actions of the 1st and 2nd defendants the plaintiff suffered loss and damage.

10. In cross examination by M/s Omwakwe for the 1st defendant, he confirmed that he had been convicted by the trial court and that he was acquitted on appeal by the High Court.  He said that the goods were ready for delivery within the contract period but the 1st defendant declined to take delivery.  He confirmed receiving a cheque for the deposit amount and that he continued making orders because neither the 1st nor the 2nd defendant informed him that the contract had been cancelled.

11. He stated that he ordered goods worth 95,000,000/= using his own money as his account was already frozen.  He reiterated that the illegality was on the part of the 1st defendant and that he as a businessman had been approached by the 1st defendant to supply goods and that he was not party to the 1st defendant’s procedures.  He stopped ordering the goods when he could not by any more.

12. On cross examination by Mrs. Okwara for the 2nd defendant, he stated that he was aware that the 2nd defendant had the mandate to investigate corruption.  He said that he challenged the 2nd defendant’s act of freezing his account through a judicial review application which was dismissed.  He stated that at the conclusion of the criminal case, a sum of Kshs.70,000,000/= was transferred from his frozen account to the Ministry of Education.  His view was that he could not stop the procurement process as the goods had already arrived.  He found the decision to freeze his account as illegal since he had already been acquitted and the conviction of the 1st defendant’s officers was upheld.

13. In re-examination, he stated that the goods were not rejected because of late delivery but because the 1st defendant was under investigations by the 2nd defendant as he was told.  He sued the 1st defendant because its officers were acting as its agents.  It was his evidence that the 1st defendant approached him and he asked for a deposit since the goods were customized.  The terms and conditions of the supply contract are in the pro forma invoice, he said.

14. PW2 Wilfred Abincha Onono testified that he was the MD at the Interest Rates Advisory Center.  He stated that he considered the plaintiff’s documents before writing his statement.  He adopted his statement dated 24. 6.2017 and stated that the Interest Rates Advisory Center consults on matters of finance and bank interest rates.

15. In cross examination by M/s Omwakwe for the 1st defendant, he reiterated that he is a member of certified public accountants membership number 0788.  He said that he had looked at the supply contract which he found to be valid for 2½ months.  He stated that the goods were ready for delivery by 10th October, 2010 and that there was no extension of the contract.  He added that 33% of the initial amount would have been Kshs.74,834,905. 50/=.  He worked with the actual amount paid by the 1st defendant and frozen by the 2nd defendant.

16. In cross examination by the Mrs. Okwara for the 2nd defendant, he admitted that a lot had happened since he recorded his statement.

THE DEFENDANTS’ CASE

17.  DW1 Perpetua Sidi Wanaswa testified as a common witness to both the 1st and 2nd defendants.  She stated that she was the MD of the 1st defendant.  She adopted her statement dated 12. 07. 2017 as her evidence in chief.  In her statement, she stated that the 1st defendant received a grant of Kshs.261,326,532/= from the Ministry of Education for the purpose of procuring science equipment for schools.  She confirmed that the plaintiff and the 1st defendant entered into a contract for supply of the said equipment and that the 1st defendant made a prepayment of Kshs.75,086,880/=.

18.  She added that the prepayment was frozen in the plaintiff’s account after the 2nd defendant commenced investigations between the plaintiff and the 1st defendant.  She further stated that since the supply contract was under investigations, the 1st defendant could not go on with the transaction until they got clearance from the 2nd defendant.  It was her evidence that the 1st defendant informed the plaintiff that they would neither accept the goods procured nor make arrangements for the storage.

19.  On further hearing, DW1 testified that she was a witness in the criminal case involving the 1st defendant’s officials and PW1.  She confirmed that she was aware of the contract between the plaintiff and the 1st defendant and that she was aware that the 2nd defendant froze the plaintiff’s account because the payments were illegal as the procurement procedure had not been followed.

20. In cross examination by the plaintiff’s counsel, she stated that she recorded a statement with the 2nd defendant on 24. 07. 2009 which was also adopted in evidence.  On cross examination by the 2nd defendant’s counsel, she stated that she knew one Edward Makamu who worked with the 1st defendant as a gatekeeper who had been appointed by the 1st defendant’s MD.  The minutes of the tender committee indicated that the meeting was attended by 4 people, 3 of whom are no longer in the 1st defendant’s employment.  She said she was aware that the 2nd defendant had raised a counter-claim and that Kshs.70,000,000/= had been transferred from the plaintiff’s account to the Ministry of Education and there was a balance of Kshs.5,086,880 still owing.

21. In re-examination, she stated that the contract between the plaintiff and the 1st defendant was invalid because the tender committee was not properly constituted.  She admitted that the plaintiff was not involved in the setting up of the tender committee and that it is the MD who sets up such committees.  She stated that Edward Makamu, one of the committee members was not qualified to sit in that committee.  It was her evidence that she took over the position of the 1st defendant’s MD in 2010 and that before then, her duty was to ensure that proper procedures are followed.

22. She confirmed signing the cheque for Kshs.75,068,880/- while at her house while on sick leave.  The cheque was delivered to her house from where she signed it.  She stated that she doubted the procedure under which the said cheque was issued but had been assured by the then MD and cashier that all was well.  She confirmed that the equipment was to be distributed to schools and the contract had timelines.  She said the contract was signed by the 1st defendant’s MD and that it bore the 1st defendant’s stamp.

23. She blamed the plaintiff for not ensuring that the procurement procedure was followed.  On examination by the court, DW1 said that she signed the cheque because she was assured by the MD, that it was safe to do so.

24. DW2 Stephene Waweru Ndungu is an employee of the 1st defendant.  He testified on behalf of the 2nd defendant.  He stated that he was the cashier at the time of execution of the impugned contract.  He confirmed recording a statement dated 21. 7.2009 which he adopted as his evidence in chief.  He also confirmed that he drew the cheque in favour of the plaintiff for Kshs.75,086,880/= and that he used the list of the plaintiff’s pro forma invoice to arrive at the figure.  He gave the pro forma invoice to the MD who instructed him to draw the cheque.

25. The MD had assured him that the board of directors had approved that particular procurement because the items were urgent.  He stated that the documents usually relied on were the requisition, the quotation, the LPO, delivery and invoice but that in the current transaction, there was only the requisition.

26. DW2 further stated that after drawing the cheque, the MD instructed him to send it to DW1 and that after DW1 signed it, he then took it back to the MD who instructed him to record it in the cheque release register.  He was later informed by the MD that the 1st defendant had collected the cheque.  It was later that he learnt that Kshs.70,000,000/= had been returned to the Ministry of Education.

27. In cross examination, DW2 admitted that the process of preparing the cheque was not proper.  He said that he had worked for the 1st defendant for 30 years and that though the MD had told them the transaction was urgent, he could not tell the urgency.  He identified a memo from a Mrs. Ondiek and confirmed that the memo confirmed that the transaction was urgent.

28. DW3 Pascal Mweru also testified on behalf of the 2nd defendant.  He stated that he was an assistant director forensic investigation with the 2nd defendant.  He stated that before 2014, he served the 2nd defendant as a forensic investigator, preliminary investigations.  He confirmed recording a statement on 30. 1.2010 which he adopted as his evidence in chief.  He stated that he carried out investigations in respect to embezzlement of funds and irregular procurement of goods at the Ministry of Education.

29. He wrote to the 1st defendant requesting for documents and that upon acquiring them, he realized that the 1st defendant did not comply with the procurement procedure in procuring goods from the plaintiff.  He indicated that the minutes which were used to go for a special procurement committee were a forgery.  On completion of investigations, he forwarded the file to the Director of Public Prosecution with a recommendation for prosecution.  He stated that all the accused in the criminal case were convicted and an order made for forfeiture of Kshs.70,000,000/= from the plaintiff.  He stated that an appeal was filed and it was confirmed that the goods procured were never supplied.  He confirmed that the 2nd defendant had raised a counter-claim for Kshs.5million which was never returned and interest accrued on the Kshs.5million.

30. In cross examination, he stated that he has been an investigator since 2006 and that he did a thorough job.  He interviewed all the relevant people and reviewed all the procedures.  He stated that the procurement procedure was not followed and that the plaintiff did not supply the goods.  He confirmed that he did not visit the plaintiff’s office but that his colleagues may have done so.  He could not remember whether he interviewed the plaintiff’s officers nor was he aware that the 1st defendant refused to accept delivery.  He stated that his team visited the warehouse where the goods were allegedly stored but found nothing.  He said he was not aware that PW1 was acquitted by the High Court.

31. In re-examination, he stated that procurement laws must be complied with, and further that the 2nd defendant acted within its mandate in this case.

SUBMISSIONS

32. Parties filed their written submissions.  The plaintiff filed its submissions on 22nd May, 2017, the 1st defendant filed on 11th July, 2017 while the 2nd defendant filed theirs on 9th June, 2017.

PLAINTIFF’S SUBMISSIONS

33. Mr. Mogere Guto for the plaintiff submitted that this matter was initially filed in the commercial and Admiralty Division before it was transferred to the Anti-Corruption & Economic Crimes Division.  He stated that there was no element of corruption in the transaction.  He submitted that there was an issue with the constitution of the procurement committee which was an internal management process.

34. The non-compliance with the process could not absolve the contracting party from its obligations as the plaintiff was not involved in the selection of the committee members.  He submitted that the plaintiff was given a specification of goods to supply and that the goods were urgently required.  He stated that the plaintiff gave conditions which were accepted by the defendant and had to be complied with.

35. Counsel further submitted that the defendant refused to have possession of the goods and that the contract has never been terminated.  On the element of corruption, counsel submitted that the High Court had cleared the plaintiff of any wrong doing.  He referred to the cases of Kredit Bank Cassel GMBH –vs- Shnkers Ltd. & Others[1927] All ER 421, Marjaria –vs- Kenya Batteries (1981) Ltd. & 2 Others [2002] eKLR,and submitted that the 1st defendant’s agents’ decisions were binding on the 1st defendant.

36.  He also referred to China Wu Yi Co. Ltd. –vs- Edermann Property Ltd. & 2 Others [2013] eKLRand Kimani Kabucho Karuga & co. Advocates –vs- Sundowner Lodge Limited[2011] eKLR and submitted that the plaintiff was not bound to see that all the preliminary requirements had been fulfilled before entering into a contract with the 1st defendant.  He prayed that the plaintiff’s suit be allowed.

1ST DEFENDANT’S SUBMISSIONS

37. Miss Omwakwe for the 1st defendant submitted that the contract was executed in breach of procurement laws and was thus illegal, null and void.  She stated that as a supplier, the plaintiff was expected to know and abide by the law and that he had a duty to ensure compliance.  She stated that the plaintiff could not benefit from an illegal contract.  The defendant being a government entity had to ensure that the law is strictly complied with.  None compliance led to misappropriation of public resources.

38. She relied on the case of D. Njogu & Co. Advocates –vs- National Bank of Kenya [2009] eKLR; Five Forty Aviation Limited –vs- Richard Olaka [2015] eKLR,where the court held that the court cannot sanction an illegal contract.  In Kenya Airways Limited –vs- Satwant Singh Flora [2013] eKLR; Root Capital Incorporated –vs- Tekangu Farmers’ Cooperative Society Ltd. & Another [2014] eKLR and Purple Rose Trading Company Limited –vs- Bhanoo Shashikant Jai [2014] eKLR the courts held that a contract tainted with illegality cannot be enforceable at the instance of either party.  She urged the court to dismiss the plaintiff’s claim with costs.

2ND DEFENDANT’S SUBMISSIONS

39. Mrs. Okwara for the 2nd defendant submitted that the 2nd defendant acted within its mandate. She said that the 2nd defendant investigated the matter as a result of which, some people were prosecuted and convicted and a sum of Kshs.70,000,000/= recovered and refunded to the ministry of education.  She contended that the 2nd defendant could not be punished for carrying out its mandate.  She submitted that the contract was founded on an illegality in that there was breach of the procurement process and that the plaintiff cannot benefit from an illegality.  She referred to the case of National Bank of Kenya Ltd. –vs- Pipe plastic Samkolit (K) Ltd. & Another [2001] eKLR.

40. On the 2nd defendant’s counter-claim, counsel submitted that Kshs.70,000,000/= of the contract amount had been refunded to the Ministry of education and that the 2nd defendant sought a refund of the balance of Kshs.5,000,000/= and stated that the 2nd defendant never induced any breach of contract.

41. She submitted that the plaintiff had not proved its case against the 2nd defendant as he had the option of terminating the contract and claim damages to mitigate its losses.  She prayed that the plaintiff’s case against the 2nd defendant be dismissed and that the 2nd defendant’s counterclaim against the defendant be allowed.

42. In reply, Mr. Mogere Guto for the plaintiff submitted that the plaintiff was acquitted from any wrong doing by the High Court and that having been absolved, the 1st defendant is liable to pay him.  He prayed that the court gives its judgment in the plaintiff’s favour.

43. I have read and considered the pleadings, the evidence, the oral and written submissions as well as the authorities supplied by the parties herein, the issues arising herein therefore are;

(i) Whether there existed a contract between the plaintiff and the 2nd defendant and if it was, whether it was breached.

(ii) If the contract was breached, whether the 1st plaintiff is entitled to damages.

(iii) Whether the 2nd defendant’s freezing of the plaintiff’s account was illegal and if so whether the plaintiff is entitled to damages.

(iv) Whether the 2nd defendant’s counter-claim against the defendant succeeds.

(v) Who bears the costs of this suit?

Issue No. (i) Was there a contract between the plaintiff and the 1st defendant?

44. In his evidence in chief, PW1 testified that the 1st defendant approached the plaintiff to quote the price, terms and conditions for supplying the 1st defendant with various science equipment and laboratory chemicals for distribution to secondary schools.  The plaintiff prepared and dispatched to the 1st defendant a pro forma invoice quoting the price of each item requested, which was received by signing and stamping by the 1st defendant’s agents.  A contract was then signed by the plaintiff and the MD of the 1st defendant for supply of the goods enumerated in the pro forma invoice/quotation.

45. The parties then signed a contract between the plaintiff and the 1st defendant as follows;

“Subject of Agreement

This agreement is for supply of school laboratory equipment, chemicals and teaching aids.

Parties to this agreement: This contract agreement is between –

Vulcan Lab Equipment Limited

P O Box 4118 – 00200

NAIROBI

And

School Equipment Production Unit

P O Box 25140 – 00603

NAIROBI–(Herein referred to as the client)

Whereas:-Vulcan Lab Equipment Ltd is able to supply the consignment in full as per terms and conditions of this contract.  The supplier having presented to school Equipment Production Unit that has the capacity and professional skill to supply proper materials as agreed and stated later in this document

It is Hereby Agreed

The terms of agreement and assignment of this contract is valid from 16th July, 2009 for a period of 2 ½ months as it deems fit and can be renewed at the dissemination of the client subject to agreement of both parties.  The agreement expires once both parties discharge their obligation.

Conditions and Terms of Payment

School Equipment Production Unit shall pay 33% of the total sum of contract of Kshs.226,772,450 (VAT inclusive), 33% on delivery of 50% of the total goods and the remaining upon delivery in full of the items and documentation entered  properly subject to quality agreed.  It is agreed that if the supplier is guilty of any misconduct or serious breach of agreement or neglect, SEPU may summarily disengage without notice.

Signed and stamped

Benson Anyona Ombakion behalf of SEPU on 16th July, 2009 and

Vishal Kocharon behalf of Vulcan Lab Equipment Ltd. on 16th July, 2009”

The answer to issue No. (i) is therefore in the affirmative.

Issue No. (ii)  If the contract was breached, whether the 1st plaintiff is entitled to damages.

46. The terms and content of this agreement were confirmed by DW1 Perpetual Sidi Wanaswa,who was the 1st defendant’s accountant and current managing director.  She stated that she raised her concerns with the MD who assured her that all was well and that she signed the deposit cheque of Kshs.75,086,880/=.  She later learnt that the contract was illegal because the procurement procedure was not followed before requisitioning the goods from the plaintiff.  Both the plaintiff and the defendant herein acknowledge the fact that there existed a contract for the supply of lab chemicals and equipment between the plaintiff and the defendant.

47. The goods to be supplied were mentioned by both PW1 and DW1 as those appearing on the pro forma invoice issued by the plaintiff to the 1st defendant.  The only reason this contract is impugned is because the 1st defendant did not comply with the procurement laws and procedures.  Indeed, the 1st defendants’ officers were convicted of the same which conviction was upheld by the High Court in Benson Anyona Ombaki & 5 Others –vs- Republic[2015] eKLR.The plaintiff was however, absolved of any wrong doing and acquitted by the same court.  While acquitting the plaintiff, Kimaru J. held that

“In respect of the 5th and 6th appellants, their respective appeals are allowed.  Their conviction is quashed.  The sentence imposed upon them is set aside …..   The 5th and 6th appellants’ remedy lies in the civil court …”

48. In National Bank of Kenya Ltd. –vs- Pipeplastic Samkolit (K) Ltd. & Another [2001] KLR 112, it was held that;

“A court of law cannot re-write a contract between parties.  The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”

The parties herein have neither pleaded fraud nor undue influence between the plaintiff and the 1st defendant.  Can a contract then be illegal just because parties’ internal procedures were not followed?  Put in other way, was the plaintiff supposed to inquire whether the 1st defendant had followed its internal procedures before entering into a contract with them?

49. In Royal British Bank –vs- Turquand (1856) 6 E&B 327 commonly known as “indoor management rule” or the “Rule of Turquand” case, as applied in the case of China Wu Yi Co. Ltd. –vs- Edermann Property Ltd. & 2 Others[2013] eKLR,the court held that;

“While persons dealing with a company are assumed to have read the public documents of the company and to have ascertained that the proposed transaction is not inconsistent therewith, they are not required to do more; they need not inquire into the regularity of the internal proceedings – what Lord Hatherly called “the indoor management” and may assume that all is being done regularly.  This rule, which is based on the general presumption of law, is eminently practical, for business could not be carried on if a person dealing with the apparent agents of a company was compelled to call for evidence that all internal regulations had been duly observed.  Thus, where the articles give power to borrow with sanction of an ordinary resolution of the general meeting, a lender who relies on this power need not inquire whether such sanction has in fact been obtained.  He may assume that it has, and if he is acting bona fide, he will, even though the sanction has not been obtained, stand in as good position as if it had been obtained.” (emphasis added)

50. Being guided by the above authority, I am of the view that the plaintiff did not have to inquire whether the 1st defendant’s internal procedures particularly whether the composition of the procurement committee was in compliance with the law.  The plaintiff reasonably expected the 1st defendant to have followed the right procedure in composing the procurement committee.  The plaintiff could not by any standard have known that a gate keeper’s name was appearing as a committee member.  I find that a valid contract existed between the plaintiff and the 1st defendant.

51. The contract was for supply of school lab equipment, teaching aid and chemicals.  PW1 testified that upon receipt of payment, he travelled to India and sourced for the goods as ordered by the 1st defendant.  That when the goods arrived, he wrote to the 1st defendant who replied and informed them that they could not accept delivery of the goods as the contract was under investigations and that they could not cater for storage expenses.  This information was confirmed by PW1.  The plaintiff further testified that he procured goods worth kshs.94,279,202/=.  As at the date of hearing, the 1st defendant had cancelled the contract between themselves and the plaintiff.

52. Besides, the contract did not limit the plaintiff on the value of goods to procure after payment of the deposit.  I find that the defendant’s refusal to accept the goods it had ordered amounted to breach of contract.  It failed to offer any mitigation to the plaintiff who was not a party to the conspiracy by the 1st defendant’s employees.  The plaintiff is therefore entitled to recover the value of the goods it bought as ordered by the 1st defendant.  It is also entitled to damages for breach of contract.

Issue (iii) Whether the 2nd defendant’s freezing of the plaintiff’s account was illegal and is so whether the plaintiff is entitled to damages

53.  Section 13 of Ethics and Anti-Corruption Commission Act provides;

“1. The Commission shall have all powers generally necessary for the execution of its functions under the Constitution, this Act and any other written law.

2. Without prejudice to the generality of subsection (1), the Commission shall have the power to -

(a) educate and create awareness on any other matter within the Commission’s mandate;

(b) undertake preventive measures against unethical and corrupt practices;

(c) conduct investigations on its own initiative or on a complaint made by any person;

(d) conduct mediation, conciliation and negotiation; and

(e) hire such experts as may be necessary for the performance of any of its functions.”

I need not add more.  The 2nd defendant acted well within its mandate in investigating and freezing the plaintiff’s account.  A lawful order to investigate and freeze the account was issued by the court.  The plaintiff cannot therefore recover any damages from the 2nd defendant.

54. The plaintiff in prayer (a) sought for a permanent injunction restraining the 1st defendant whether by itself, its directors, officers, servants or agents from rescinding terminating, cancelling, retendering to a third party or any other person and/or breaching in any manner whatsoever the supply contract dated 16th July, 2009.  The High Court in the case of Benson Anyona Ombaki and 5 Others –vs- Republic[2015] eKLRfound that the 1st defendant did not comply with the procurement rules.  It then convicted Benson Anyona Ombaki together with other officers of the 1st defendant.  This court cannot therefore proceed to enforce such a contract.  Further, the court cannot force parties into a contract or choose for them who to trade with.  This prayer is unenforceable as it has been overtaken by events.  The prayer fails.

55. Prayer (b) is a mandatory order compelling the 1st defendant to affirm and abide by the terms of the supply contract dated 16th July, 2009 and in particular to accept delivery and pay for all the chemicals and equipment ready for delivery by the plaintiff.  It was the plaintiff’s testimony that the goods stored at the Express Kenya warehouse had already been auction.  This prayer has therefore been overtaken by events and cannot therefore be issued.  It also fails.

56. Prayer (c) is a declaration that the 2nd defendant’s action of freezing the plaintiffs bank account No. 4010000004 and 3010000608 at Southern Credit Commercial Bank Westlands branch is illegal, unwarranted and without any valid or legal justification whatsoever.  My finding is that the 2nd respondent acted well within its constitutional and legal mandate.  This prayer as well as prayer (d) and (f) of the plaint therefore fails.

57. On prayer (e) against defendant, jointly and severally for the sum of kshs.168,359,821/= being special damages for breach of and/or interference with the contract together with interest thereon till payment in full.  As discussed above, the 2nd defendant was acting within its mandate in freezing the plaintiff’s account.  The plaintiff should have however at the discovery of the investigations by the 2nd defendant terminated the supply contract and claimed damages from the 1st defendant.  The only challenge was that these goods were customized and not for sale, making it difficult for the plaintiff to dispose of them to mitigate the loss.

58. It is clear that the plaintiff acted on the instruction of the 1st defendant and on the urgent need of the goods as well as the contract and sourced for the goods.  PW1 was only informed of the investigation after notifying the 1st defendant of his intention to deliver the goods.  The 1st defendant ought to have informed the plaintiff of the investigations and the decision not to accept delivery of the goods as soon as they became aware of the investigations and the repercussions.

59. In prayer (g) is a claim for sums of Kshs.12,720,498. 33/= against defendants jointly and severally being accrued storage charges at the rate of Kshs.275,073. 12 with effect from 1st January, 2013 until the date of acceptance of the goods by the 1st defendant.  In his examination in chief, the plaintiff testified that the goods were stored at a warehouse owned by Express Kenya and that the plaintiff failed to pay for the storage charges and the same were auctioned by Express Kenya.  At page 3 of the plaintiff’s list of documents is a letter from Express Kenya giving notice for sale of the goods within 20 days.  The letter is dated 10th September, 2014.  The storage company auctioned the goods and paid itself.  It has not been shown that there are any storage charges pending. This prayer fails.

Issue No. (iv) Whether the 2nd defendant’s counter-claim against the defendant succeeds.

60. On the counter-claim by the defendant, High Court in the Criminal Appeal found the plaintiff to have committed no criminal offence.  The plaintiff could not know whether the 1st defendant’s internal mechanisms and particularly the procedure of appointment of the tender committee was flawed.  A whole Government entity placed a gateman on a Procurement Committee and the 1st defendant expects the plaintiff to have known that! Since the Kshs.70,000,000/= was paid, the balance of the deposit money must be paid as claimed in the counterclaim.

61. The 1st defendant through the acts of its employees caused all this mess and put the plaintiff in a very awkward position.  The High Court in the Criminal Appeal case of Benson Anyona Ombaki (supra) exonerated the plaintiff from the unlawful acts of the 1st defendant’s employees.  That finding by the High Court has not been overturned.

62. Prayer (h) was not proved.

63. The upshot is that the plaintiff’s suit has merit and I enter judgment in favour of the plaintiff as follows;

1. Kshs.94,279,202/= for the value of the first delivery of goods.

2. Kshs.50,000,000/= for breach of contract.

3. Kshs.5,000,000/= for accrued insurance premiums.

4. Prayers (a), (b), (c), (d), (e), (f), (g), and (i) are disallowed.

5. The counterclaim is allowed but will be offset from what is due and payable to the plaintiff.

6. Costs to the plaintiff and payable by the 1st defendant.

7. Interest on the above sums at court rates from the date of filing suit.

Orders accordingly.

Delivered, signed and dated, this 7th day of December, 2017 in open court at Nairobi.

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HEDWIG I. ONG’UDI

HIGH COURT JUDGE