Attorney General v Equip Agencies Limited

2. (c) ground (i) is whether the court considered public interest; (d) grounds (m), (n) and (o) can be combined under award of interest; (e) the other grounds deal with the awards made, and the issue being whether the awards were merited. The appellant’s prayers are that the judgment dated 2nd December, 2011 be set aside or varied and costs of the appeal be awarded to the appellant. 3. A brief background to this appeal is that this case arose from two supply contract agreements between the appellant and the respondent being contract agreement No. S/4056 made on 15 th July, 1993 and contract agreement No. S/4420 entered into on 14th July, 1995. The brief facts were that in May 1993, the appellant through the Ministry of Works and Housing advertised a tender for the supply of insecticides to Government Ministries, Departments and Institutions for the period ending 30th June, 1995. This culminated into the respondent being contracted through contract agreement S/4056 on 5 th July, 1993 for the supply of insecticides, agricultural chemicals and other related equipment to Government Ministries and Institutions on “as and when required”, which contract was executed by the designated parties. Consequently, and pursuant to the terms of the contract, the Ministry of Health requisitioned for various Page 2 of 28

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goods in the sum Page 3 of 28

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of Kshs 156,800,000/= supported by five Local Purchase Orders (LPOs). The respondent then raised various invoices in respect of the goods supplied to the Ministry in the total sum of Kshs 156,800,000/=. 4. In July 1995, the respondent was further contracted through Contract Agreement No. S/4420 made on 14 th July, 1995 for the supply of insecticides, agricultural chemicals and other related equipment to Government Ministries and Institutions for the period ending 30th June, 1997. Under this contract, the Permanent Secretary, Ministry of Health by a letter dated 11 th April, 1996, requisitioned for certain anti-mosquito chemicals and equipment, whose specifications in terms of quantities were set out. The respondent was further instructed by a letter dated 29th April, 1996 to deliver the Malaria HS Oil as requisitioned by the Ministry of Health’s regional depots in Mombasa, Nairobi, Nakuru, Kisumu, Eldoret and Nyeri. The respondent supplied the requisitioned goods to the various depots as evidenced by delivery notes. The goods so delivered were received by the Medical Supplies Co-ordinating Unit of the Ministry of Health. 5. The respondents subsequently raised its invoices totaling Kshs.1,001,046,150/=. Soon thereafter after effecting the Page 4 of 28

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supplies, the respondent received a letter dated 19 th July, 1996, from the PS Ministry of Health communicating the Government decision to cancel various LPOs which had been issued to the respondent, but against which no deliveries or supplies had been made. Further by a letter dated 29th July, 1996, the PS Ministry of Health originated a letter dated 23 rd August, 1996 informing the respondent of the withdrawal and cancellation of LPOs No. C047170 which was issued under contract S/4056; LPO C312204 and LPO C312205 issued under contract No. S/4420 with immediate effect. At the time of this cancellation, the goods had already been supplied by the respondent, accepted and distributed by the Government. 6. Aggrieved by this action, the respondent by way of a plaint dated 22nd July, 1999, moved the trial court for special damages in the sum of Kshs. 1,862,302,792.50/=, comprising Kshs. 1,157,846,150/= being the principal amount for the goods supplied and Kshs. 704,456,642.50/= being interest thereon at the rate of 18% per annum up to February, 1999 and interest thereon at the rate of 18% p.a from 1st March, 1999 up to payment in full and costs of the suit. Page 5 of 28

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7. From the record, on diverse dates between 26 th June, 1995 and 30th October, 1996, the respondent supplied and delivered various anti-malarial equipment and drugs to the Ministry of Health. The respondent averred that the deliveries were made at the request of the Ministry of Health and the same were received and accepted. The respondent further averred that despite several requests for payment, the Ministry of Health failed to honour the requests. 8. The respondent averred that it suffered loss and damage. The respondent claimed for special damages being Kshs.1,157,846,150/= as the principal amount owing for goods supplied, interest thereon at the rate of 18% per annum which stood at Kshs. 704,456,642.50/= as at 28 th February, 1999, all totaling to Kshs. 1,862,302,792.50/= which amount continued to attract interest at the said rate of 18% per annum from 1 st March, 1999 till payment in full. The respondent also prayed for the costs of the suit. 9. The appellant in its defence dated 22nd November, 1999, denied the allegations. It stated that whereas the Ministry of Health had business dealings with the respondent for supply of goods, it denied that the Ministry was indebted to the respondent. It averred that the Ministry did not request for various antiPage 6 of 28

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malaria Page 7 of 28

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equipment and drugs. It stated that the alleged deliveries were unlawful and not supported by any proper documents as required by law. It was the appellants defence that the suit was bad in law because it offended the express provisions of section 3 of the Public Authorities Limitation of Actions Act, Cap 39. 10. The trial court considered the evidence adduced together with the filed written submissions. By a judgment dated 2 nd December, 2011, the trial court entered judgment in favour of the respondent. The trial court further issued a ruling dated 27 th September, 2012 amending its judgment in the following terms — (a) that the appellant pays the sum of Kshs.1,862,302,792/= together with compounded interest at 18% per annum from 1st March, 1999 until payment in full. (b) that the appellant to bear the costs of the suit. 11. Dissatisfied with that decision, the appellant lodged the instant appeal before this Court and filed its notice of appeal dated 14 th November, 2012. The appellant also filed its memorandum of appeal dated 7th February, 2022 that raised the twenty-two grounds stated above, disputing the findings of the trial court. 12. By a consent letter dated 6th February, 2026, the parties Page 8 of 28

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dispensed with the requirement for the hearing of the appeal and relied on their written submissions. Learned counsel Mr. Kamau, appearing Page 9 of 28

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for the appellant, filed submissions dated 30 th September, 2022 while learned counsel Mr. Gatonye SC, appearing for the respondent filed submissions dated 19 th October, 2022. 13. The appellant in its submissions, condensed the twenty-two grounds of appeal into three grounds; (a) whether the learned Judge erred in law and in fact in awarding not only the interest but also awarding compound interest at the rate of 18% per annum; (b) whether the learned Judge erred in law and in fact by entertaining the contractual claims before him while in fact the same were statute barred by dint of the provisions of section 3(2) of the Public Authorities Limitations Act; and (c) whether the learned Judge erred in law and in fact in disregarding the irregularities and inconsistencies surrounding the respondent’s claim thereby arriving at an erroneous conclusion and determination. 14. Counsel for the appellant urged this Court to re-evaluate the evidence adduced in the trial court and arrive at its own conclusions in respect of facts and the law. Reliance was placed on the cases of Selle vs Association of Motor Boat Co. of Kenya & Others [1968] EA 123, Jabane vs Olenja [1986] KLR 661 and Mbogo & Another vs Shah [1968] E.A. 15. Learned counsel for the appellant opened his submissions by noting that the decision and orders of the trial court were not based on evidence on record, that the trial court proceeded Page 10 of

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on Page 11 of

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wrong principles of law as held in Jabane vs Olenja [1986] KLR 661 and exercised its discretion injudiciously. 16. On the first issue regarding the award of both interest and compound interest at the rate of 18% per annum to the respondent, counsel submitted that the trial court failed to appreciate that the contract between the parties did not provide for payment of any interest. Counsel further submitted that the respondent did not seek payment of compound interest in its pleadings at the trial court. Counsel relied on the cases of Five Forty Aviation Limited vs Erwan Lanoe [2019] eKLR, Caltex Oil (Kenya) Limited vs Rono Limited [2016] eKLR and Midrock Water Drilling Co Limited vs National Water Conservation and Pipeline Corporation [2020] eKLR. 17. The appellant further submitted that it amounted to wrong exercise of jurisdiction for the court to not only award interest but compound interest in the peculiar circumstances of the case. The peculiarity according to the appellant, being that the contract was one where payment was to be effected from public funds. The appellant contends that to safeguard public funds from wastage or misappropriation, it was specifically provided in that requisitions for supply of contractual materials Page 12 of

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would be done through Page 13 of

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issuance of official Local Purchase Orders. He stated that it was also expressly stated in bold on all official LPOs that “suppliers are warned that this Order is INVALID unless availability of funds is confirmed here below by the Accountant I/C VBC”. 18. Counsel for the appellant further contended that the contract was one where payment was to be effected from public funds and it was specifically provided that requisitions for supply of contractual materials would be done through issuance of official Local Purchase Orders (LPOs). Counsel further contended that none of the LPO’s that the respondent produced before the trial court were signed by any accountant showing availability of funds thus all of the LPO’s were invalid. The appellant concludes this line of argument by urging this Court to note that none of the LPO’s that the Respondent produced before the trial court were signed by any Accountant signifying availability of funds and to that extent, all of the LPO’s were invalid on the face of them. The appellant observed that the respondent had express notice of the invalidity of the LPO’s and more importantly, the respondent could not benefit from wrong doing that it was a privy to. It was Counsel’s further submission that there was infraction of procurement procedures by the respondent. Page 14 of

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19. Counsel further submitted that no evidence was adduced before the trial court that the respondent had financed the supply of the contractual material through a commercial loan from a commercial bank to support the award of compound interest. He contended that the learned judge erred in law and fact by accepting the premise by the respondent’s witness that all commercial contracts contemplated the payment of damages by way of interest, and further erred by accepting the premise that the two contracts in issue implicitly contemplated payment of interest without reference to any provision of the contract or conduct of the parties. 20. On the second issue on whether the trial court erred by considering the contractual claims yet they were stature barred, the appellant’s counsel submitted that the contractual claims at the trial court were barred by dint of section 3(2) of the Public Authorities Limitation Act, (Cap 39). Counsel submitted that since the plaint was filed on 22nd July, 1999, only claims accruing after 23rd July, 1996 could be maintained in law. 21. The appellant’s counsel averred that the supply contract was conditioned on “as and when required” basis. Counsel further submitted that the contractual terms provided that payment was Page 15 of

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to be effected within thirty (30) days of delivery upon issuance of invoices which, were to be issued immediately upon delivery. Counsel submitted that the cause of action accrued on individual requisitions upon thirty (30) days from delivery or issuance of invoices. 22. It was the appellant’s counsel’s submission that all the claims hinged on contract No. S/4056 which was running for the period ending 30th June, 1995, were statute barred. Counsel went on to submit that in respect of the LPO’s and contract No. S/4056, deliveries and invoices on the same could not be undertaken upon expiration of the duration of the contract being 30 th June, 1995. Counsel relied on the following cases: Anaclet Kalia Musau vs Attorney General & 2 Others [2020] eKLR, Mary Osundwa vs Nzoia Sugar Co. Ltd [2002] eKLR, Willis Onditi Odhiambo vs Gateway Insurance Co Limited [2014] eKLR, Hilton vs Sultan S. Team Laundry [1946] 1KB 61, 81, B Mathayo Obonyo vs South Nyanza Sugar Company Ltd [2019] eKLR and David Ngugi Waweru vs Attorney General & Another [2017] eKLR. 23. On whether the trial court misconstrued the relevant laws and facts, it was counsel’s averment that the respondent failed to mitigate its losses upon advice Page 16 of of cancellation of the

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invoices. Page 17 of

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Counsel urged the court to consider the report on evaluation of procurement procedures, financial and budgetary practices in the Ministry of Health and submitted that none of the LPO’s produced by the respondent in the trial court were signed by any accountant signifying availability of funds. Counsel relied on the cases of Kenya Airways Limited vs Satwant Singh Flora [2013] eKLR and African Highland Produce Limited vs John Kisorio [2001] eKLR. The appellant prays that the appeal be allowed with costs and the judgment of the superior court be set aside. 24. The appeal was opposed. The respondent in its submissions identified the following issues for determination: whether it’s suit before the superior court was statutorily time barred according to Section 3(2) of the Public Authorities Limitation Act; whether the superior court failed to consider the evidence on record; whether the superior court erred in awarding the respondent interest which was also compounded at the rate of 18% from 1st March, 1999 until payment in full; and who should bear the costs of the appeal. 25. On whether the respondent’s suit at the trial court was time barred, counsel submitted that the relationship between the appellant and the respondent was anchored on two contractual Page 18 of

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agreements being agreements Nos. S/4056 and S/4420 Page 19 of

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respectively. Counsel submitted that the breach occurred upon cancellation of the LPO’s by the Ministry of Health. The respondent’s counsel further averred that the cause of action accrued on 23rd August, 1996 and that the respondent had up to three years to institute the suit. Counsel submitted that the suit was filed on 22nd July, 1999 well within the prescribed time. 26. On whether the trial court failed to consider the evidence on record, counsel for the respondent submitted that the respondent discharged its burden of proof at the trial court. The respondent further contended that it called two witnesses who testified and produced various documents in support of its case. It submitted that the two Contract Agreements No. S/4056 and S/4430 were produced as evidence, including the Government Circulars, the Local Purchase Orders from the Ministry of Health, delivery notes and the Invoices raised by the respondent in fulfilment of its contractual obligations. The appellant relied on the case of Charterhouse Bank Limited (Under Statutory Management) vs Frank N. Kamau [2016] eKLR. 27. In respect of the appellant faulting the trial court for awarding the respondent interest which, was also compounded at the rate of 18% from 1st March, 1999 until payment in full, counsel Page 20 of

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for the Page 21 of

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respondent relied on Section 26(1) of the Civil Procedure Act. Counsel submitted that the learned Judge exercised his discretion judiciously. Counsel for the respondent further averred that the absence of a provision for interest in the contracts did not preclude the respondent from pleading an award of interest in its case. Counsel relied on the cases of Prem Lata vs Peter Musa Mbiyu [1965] EA 592, where this Court held that; “Where the successful party was deprived of the use of goods or money by reason of a wrongful act on part of the defendant, the party who has been deprived of the use of goods or money to which he is entitled should be compensated for such deprivation by the award of interest.” The appellant cited other cases on including Odd Jobs vs Mubia [1970] EA 476 and Ann Wairimu Wanjohi vs James Wambiru Mukabi [2021] eKLR. 28. It was the respondent’s counsel’s submission that the appellant decided to close its case at the trial court without controverting the respondent’s case. The respondent’s counsel submitted that it led evidence on the merits of the award of compounded interest and the appellant has not shown the need for this court’s intervention. Reliance was placed on the cases of Omega Enterprises Limited vs Eldoret Sirikwa Hotel Page 22 of

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Limited & Others, CA No. 235 of 2001, Housing Finance Company of Kenya vs Sharok Kher Mohamed Page 23 of

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Ali Hirji & Another [2019] eKLR and Mbogo & Another vs Shah [1968] EA. 29. Counsel for the respondent urged this Court to reject the appellant’s argument that the respondent failed to mitigate its losses as the same was never raised in the trial court. Counsel for the respondent relied on the case of Trans Mara Sugar Co. Ltd & another vs Ben Kangwaya Ayiemba & Another [2020] eKLR. Counsel for the respondent prays that the appeal be dismissed and that the respondent be awarded the costs. 30. We have carefully considered the record of appeal, the grounds of appeal, the submissions and the law. We discern two issues for determination as being: whether the contractual claims before the superior court were time barred by dint of Section 3(2) of the Public Authorities Limitation Act and whether the trial court was justified in awarding the respondent compounded interest at the rate of 18% per annum from 1 st March, 1999 until payment in full and. 31. On whether the contractual claims were statute barred, it is the appellant’s contention that the contractual claims before the trial court were statute barred by dint of section 3(2) of the Page 24 of

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Public Authorities Limitation Act because since the plaint was filed on Page 25 of

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22nd July, 1999, only claims accruing after 23 rd July, 1996 could be maintained in law. He further submitted that since the supply contract was conditioned on ‘as and when required basis’ and since the contract terms provided that payment was to be effected within 30 days of delivery upon issuance of invoices, the cause of action accrued on individual requisitions upon 30 days from delivery/issuance of invoices. 32. The trial court while holding that the claim was not statute barred held as follows— “This court finds as a fact that the cause of action actually accrued on 23rd August, 1996 upon receipt of the letter from the permanent Secretary Ministry of Health under reference MOH/SUPP/07/59 informing the company of the immediate withdrawal and cancellation of Local Purchase Order No. C047170, Local Purchase Order No. C 312204 and Local Purchase Order C 312205, despite the fact that goods had already been supplied, accepted and distributed for use by the Government.” 33. Section 3(2) of the Public Authorities Limitation Act (Cap 39) provides; “No proceedings founded on contract shall be brought against the Government or a local authority after the end of three years from the date on which the cause of action accrued.” From this provision, the respondent had three years within which to file its claim from the date on which the cause of action accrued. A cause of action accrues in a contract on the Page 26 of

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date that a breach Page 27 of

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of contract occurs. The claim begins the day a party does something they were not supposed to do, or fails to do what they agreed to do. In the instant case, this was a supply contract conditioned on ‘as and when requested basis’. The general rule is that for contracts based on “as and when requested basis”, they are treated as a series of individual obligations rather than a single, continuous event but within the framework agreement. Thus, as long as the supply is made within the terms of the framework agreement, cause of action accrues from the time there is breach of individual supplies. 34. The contested issue is when the cause of action accrued. The respondent contends that the breach occurred on 23 rd August, 1996 when the appellant cancelled the LPO’s. It was the respondent’s contention that the suit was filed on 22 nd July, 1999 well within the prescribed time. 35. The appellant on the other hand contends that the supply contract was conditioned on “as and when required” basis and further that the contractual terms provided that payment was to be effected within 30 days of delivery of invoices. The appellant contends that the cause of action accrued on individual requisitions upon thirty days from delivery. It was the appellant’s contention that since the Page 28 of

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plaint was filed on 22nd July, 1999, only claims accruing after 23rd July 1996 could be maintained in law. 36. In the case of E. Torgbor vs Ladislaus Odongo Ojuok [2015] KECA 512 (KLR), this Court pronounced itself as follows at paragraph 17: “…..Whenever a cause of action is statute barred, a court has no jurisdiction to deal with the matter. In Gathoni vs. Kenya Co-operative Creameries Ltd Civil Application No. 122 of 1981, Potter, J. observed in obiter that; “The law on limitation is intended to protect defendants against unreasonable delay in bringing of suits against them. The statute expects the intending plaintiff to exercise reasonable diligence and to take reasonable steps in his own interest.” 37. This Court has considered the record at pages 263 - 265 of the Record of Appeal and therein is a letter dated 21 st July, 1993 addressed to all government ministries, departments and institutions. The letter is signed on behalf of the permanent secretary by one D.R Sambai, officer in charge of supplies branch. The terms in respect of orders is stated as follows: “orders will be placed direct with the contractor/s by means of an official Local Purchase Order/s quoting the contract number and the correct price.” In respect of payments, it states as follows: “invoices must be Page 29 of received from the supplier

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immediately on delivery of goods. Page 30 of

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Payments should be made within thirty (30) days after receipt of the invoices.” 38. From the records before us, it is clear that the supplies were made under the two contracts i.e., Contract Agreement Nos. S/4056 and S/4420 all at the request of the Ministry. Even after the supplies were made, accepted, received and utilized, and invoices raised, the Permanent Secretary, Ministry of Health vide letter dated 19th July, 1996 decided to suspend further supplies to “allow stock taking”. There was no dispute at all regarding the quality of the supplies, quantity of the supplies, pricing of the supplies neither was there any notifications for rejection of the supplies or request for replacement. It was not until 23rd August, 1996 that the Ministry of Health sent a letter withdrawing and cancelling the three Local Purchase Orders Nos. C 047170, 312204 and C 312205. 39. Thus, the matters in issue relates to withdrawal of three Local Purchase Orders Nos. C 047170, 312204 and C 312205 respectively which were cancelled by the Ministry of Health vide letter dated 23rd August, 1996. It’s imperative to note that at the time of cancellation, supplies had been made, accepted and distributed for use by the Government, the appellant herein. It is Page 31 of

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also important it note that after the supplies were made, the respondent submitted invoices as required in fulfillment of its contractual obligation. Despite this, the appellant proceeded to cancel the LPOs. At the trial court, the respondent filed its defence but did not call any witness to challenge the respondent’s evidence. 40. We therefore agree with the finding of the trial court that the cause of action arose on 23rd August, 1996 and therefore the claims were not time barred under section 3(2) of the Public Authorities Limitations Act. We therefor see no grounds for overturning the findings of the trial court on this issue. 41. As part of its submissions, the appellant has submitted that the LPOs in question were illegal because they were not signed by the AIE holder. It further submitted that even then, the supplies were made and yet there was no budgetary allocation against the same and that this amounted to an illegality. Generally, a government institution cannot solely rely on its internal processes failures to deny or invalidate an otherwise legally binding contract. Under the principles of contract and administrative law, once a government entity enters into an agreement with a private party, it is held to the contract. The government cannot escape its obligation simply Page 32 of

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because its own officials failed to follow internal protocols, bureaucratic steps or administrative circulars. 42. This protection to private parties is founded on two central legal principles of the Indoor Management Rule famously known as the Turquand Rule and the apparent or ostensible Authority. Under the Turquand rule, developed in the celebrated case of Royal British Bank vs Turquand (1886) 6 E & B 327, outsiders dealing with a government body or corporation in good faith are entitled to assume that all internal regulations and approvals have been properly completed by the institution. The Turquand Rule being a common law principle has been given statutory backing under section 34 of the Companies Act which protects third parties dealing with a company or an organization in good faith. 43. Similarly, under the Ostensible Authority Rule, if a government agent appears to have the authority to sign or execute a contract on behalf of the institution, and the private party has no reason to doubt it, the institution is bound by that agent’s actions. Thus, barring any legislative overrides, these rules cannot be overlooked. In the instant case, the appellant argued that the LPOs were not signed by the competent authorities or were not signed by the Authority to Incur Expenditure holders Page 33 of

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(AIE holder) and therefore Page 34 of

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were illegal. This cannot hold any water. Not even the reliance on lack of budgetary allocation will suffice. The contracts in issue including the LPOs are therefore valid and claim based on the same are not statute barred. 44. On the issue of payment of interest, the respondent in its plaint dated 22nd July, 1999 sought the following prayers: special damages in the sum of Kshs. 1,862,302,792.50/=, interest thereon at the rate of 18% per annum from 1st March, 1999 up to payment in full and costs of this suit. The appellant on the other hand contends that the contract between the parties did not provide for payment of any interest and thus it faults the trial court for arriving at the wrong decision. 45. The trial court in its judgment relied on the evidence of PW2, Mr. Wilfred Abincha Onono, who was the Managing Consultant at Interest Rates Advisory Centre Limited. The trial court found that the respondent was awarded the tenders, it borrowed money from commercial banks in order to fulfil its obligations and thus the respondent was justified in requesting to be paid 18% interest since three-quarters of its capital was financed from commercial banks. The trial court referred to Section 26(1) of the Civil Procedure Act, Cap 21, (Rev, 1998) which provides: Page 35 of

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“ 26 (1) Where and in so far as a decree is for the payment of money, the court may in the decree, order interest such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period before the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit.” 46. The issue before this Court is whether the finding of the trial court in awarding compound interest was proper. As already stated, the respondent pleaded in its plaint for a principal sum of Kshs. 1,157,846,150/=, for the invoiced goods, interest (at the rate of 18%) of Kshs. 715,489,730/= accumulated from 26 th June, 1995 to 28th February, 1999, all totaling Kshs.1,873,335,880/= which it pleaded as special damages and awarded by the Court, and a further 18% on the said sum until full settlement. These the trial court awarded plus cost of the suit. 47. The general rule is that interest is not automatic unless it is a contractual term in which case it is claimed as a contractual right. However, courts have discretion to award interest in a money judgment to compensate a judgement debtor as long as the payment is delayed. In the instant case, there was no Page 36 of

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express provision in the contract for the contractual interest and therefore Page 37 of

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claiming the interest whether simple or compound, was not a contractual right. The respondent in their plaint had pleaded for interest at the rate of 18% per annum up to 28 th February, 1999 and the same to continue attracting interest at the said rate of 18% per annum from 1st March till payment in full. 48. For compound interest, the party must specifically plead it and prove their claim for compound interest. It is not an automatic right. Indeed, to successfully claim compound interest especially based on a loan taken out to deliver contractual obligations, the claim must satisfy the strict requirements of special damages resulting from a breach of contract. Accordingly, if a party breaches a contract by withholding payment or delaying progress payments, that breach directly forces the supplier to take out a loan or use an overdraft facility to fulfill their end of the contract, the supplier can claim the actual financing costs incurred including the compound interest as special damage. 49. In the instant case, the respondent did not plead compound interest and in our view did not prove the same to warrant the award by the trial court. The respondent alluded through their expert witness to the fact that it had sourced some of its working capital from the Bank of India. That in the period of Page 38 of

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1997-1999, Page 39 of

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the respondent was forced in the circumstances to seek extra overdraft facilities to fiancé its working capital. It further averred that the base rates of the Bank of Baroda were 25%, 27%, 23% and 21% on various dates alluded to and that the 18% rate was a justifiable estimate for economic reality at the time. There was no evidence adduced before the trial court to show that the respondent financed contractual material through the supply of the a commercial loan from a commercial bank to support the award of compound interest. The respondent on the other hand contend that they had procured a facility from a bank and invited an expert whose evidence was not controverted. 50. The law in this area is fairly settled. A party cannot just point directly to a loan and demand compound interest. A claim for compound interest is evaluated against the following legal test; (a) proof of causation and actual loss; the claimant must prove that the loan was a direct consequence of the other party’s breach or late payment. If it is established that the supplier would have taken out the loan anyway for general business expansion, the link is broken; (b) foreseeability (remoteness), based on the standard law principles, the loss must have been within the contemplation of both parties at the time the contract was made. The parties especially the buyer ought to have reasonably known that the supplier would need third-party financing to execute the contract if payments is delayed; Page 40 of

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(c) compound interest cannot be awarded automatically as general damages. The party asking for it must explicitly plead it in their legal claim as special damages and precise details including the intervals at which the compound interest accrued and the specific borrowing rates; and (d) the claimant must demonstrate that they borrowed at commercially reasonable rates and did not worsen their financial position. 51. In the instant case, compound interest was never pleaded, the respondent has not proved any link or causation between the delayed payment and the breach, neither is there anything to show that the appellant was aware that the respondent was relying on a third-party financing to perform its obligation, and lastly, the respondent did not prove any loss that was within the contemplation of the appellant. It is at this point that we part ways with the trial court. We are not persuaded that the respondent met the basic requirements for an award of compound interest. 52. This Court in Pickwell Commercial Bank Properties Limited [2025] Limited vs Kenya KECA 110 (KLR) pronounced itself at paragraph 11 thus: “…. a claim for compound interest should be specifically pleaded and proved which was not done by the applicant. In that regard, I am persuaded by the holding of Tuiyott, J. (as he then was) in Baylem Limited vs. County Government of Nairobi [2021] eKLR that: “In addition, and this is where the Plaintiff’s Page 41 of

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claim for compound interest fails, a party seeking Page 42 of

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compound interest as opposed to interest must plead and then prove it… simple Because the Court’s order on interest would ordinarily be computed on simple interest, a party seeking compound computation must put the Defendant on notice, through pleadings, that it will be seeking extraordinary interest. In that way then Defendant has an opportunity to confront that claim.” 53. In the circumstances, we find no basis for the award of compound interest by the trial court. It is clear from the respondent’s plaint at the trial that the prayer for compound interest was not specifically pleaded as required by law. Further, the fact that the respondent stated that it accessed a bank facility at an average interest rate of 24% and invited an expert witness to adduce evidence, does not prove its case for the award of compound interest on a balance of probability. In our view, the respondent did not discharge its burden of proving the claim of compound interest to the required standard. 54. For the reasons above, the appeal partially succeeds. This court finds that the respondent had a right to base its cause of action on breach of the LPO’s and thus was not barred by the provisions of Section 3(2) of the Public Authorities Limitation Act. Taking into account the foregoing, we find that the appeal is partly merited and Page 43 of

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therefore the judgment of the trial court is varied in the following terms: (a) The appellant shall pay the respondent special damages in the sum of Kshs. 1,157,846,150/= which is the principal sum for the invoiced goods; (b) Interest thereon at court’s rate from 26th June, 1995 until payment in full; and (c) Since the appeal is partly successful, each party shall bear its costs. Dated and delivered at Nairobi this 25th day of September, 2026. J. MATIVO ..................................... ... JUDGE OF APPEAL PAUL LILAN ..................................... ... JUDGE OF APPEAL DR. J. O. OKELLO ..................................... ... JUDGE OF APPEAL I certify that this is a true copy of the original. Signed Page 44 of

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DEPUTY REGISTRAR Page 45 of

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