Vulcan Co. Limited v Attorney General on behalf of the Ministry of Health [2015] eKLR

Key Facts

Transaction Type

Issues

• 5. Was the Ministry of Health justified in cancelling the tender for supply of blood taking sets on the ground of change of name of the manufacturer from PENINSULA POLYMERS LIMITED to TERUMO PENPOL LIMITED (inspite of explanations offered by the plaintiff), even if there was no change in the quality of the goods it tendered for?
• 1. Did the Defendant breach any of the contracts between itself and the Plaintiff for the supply of any of the following items; sodium hypochlorite solution, disposable dental needles, hartmann's solution, blood taking sets, cotton stockinette and trifluoperazine hydrochloride tablets, as pleaded in paragraph 4 (a)-(f) of the plaint or is the Plaintiff's claim unfounded?
• 3. Did the second consignment of 2396 packs of 5 litres each of sodium hypochlorite solution meet the specifications set out in the letter of offer and if not, was the Ministry entitled to reject it?
• 2. Did the sum of Kshs. 4,817,442/-, paid by the Ministry of Health to the Plaintiff settle the full value of the consignment of 13,800 packs (of 5 litters each of sodium hypochlorite solution), supplied by the plaintiff or did it constitute part settlement of the Ministry's liability to the Plaintiff?
• 4. Had the Plaintiff procured the balance of the consignment of sodium hypochlorite solution by 31st July 1997, when the Permanent Secretary, Ministry of Health issued a directive terminating the order and if so, was that decision well founded in facts and justifiable?

Holdings

• The court awarded the plaintiff the costs of the suit.
• The court awarded US$ 56,870.00 for lost profits related to Blood Taking Sets with court rate interest from the date of filing until payment in full.
• The court awarded US$ 183,348.00 for lost profits related to Sodium Hypochlorite Solution with court rate interest from the date of filing until payment in full.
• The court awarded US$ 740,094.44 for the pending account of Sodium Hypochlorite Solution with 2% monthly compounded interest from 31st May 2005 until payment in full.
• The court awarded US$ 33,490.00 for lost profits related to Trifluoperazine Tablets with court rate interest from the date of filing until payment in full.
• The court awarded US$ 195,362.96 for the pending account of Hartmann's Solution with 2% monthly compounded interest from 31st May 2005 until payment in full.
• The court awarded US$ 50,343.26 for the pending account of Disposable Dental Needles with 2% monthly compounded interest from 31st May 2005 until payment in full.
• The court awarded GBP 77,100.00 for lost profits related to Cotton Stockinette with court rate interest from the date of filing until payment in full.

Remedies

• The court awarded US$183,348.00 in lost profits for Sodium Hypochlorite Solution, with interest at court rates from the suit filing date until full payment.
• The court granted US$56,870.00 in lost profits for Blood Taking Sets, with interest at court rates from the suit filing date until full payment.
• The court ordered payment of US$33,490.00 in lost profits for Trifluoperazine Tablets, with interest at court rates from the suit filing date until full payment.
• The court granted US$50,343.26 for Disposable Dental Needles, with 2% monthly compounded interest from 31st May 2005 until full payment.
• The court ordered the Plaintiff to be awarded the costs of the suit.
• The court awarded US$740,094.44 for Sodium Hypochlorite Solution, with interest at 2% per month compounded monthly from 31st May 2005 until full payment.
• The court awarded GBP 77,100.00 in lost profits for Cotton Stockinette, with interest at court rates from the suit filing date until full payment.
• The court ordered payment of US$195,925.26 for Hartmann's Solution, with interest at 2% per month compounded monthly from 31st May 2005 until full payment.

Monetary Damages

Legal Principles

• The court criticized the Ministry of Health for acting in bad faith by breaching tenders it had awarded to the plaintiff. This included awarding contracts to higher bidders in violation of its own procurement regulations, which the court characterized as a breach of natural justice.
• The court held that parties are bound by their lawful contracts freely entered into. It refused to rewrite the contractual interest rate of 2% per month, stating that doing so would violate the principle that agreements must be honored as per their terms.
• The court emphasized that in civil cases, the burden of proof lies with the plaintiff to establish their claims as more likely than not true. The defendant's argument that the plaintiff failed to meet this burden was rejected, as the court found the plaintiff's evidence sufficient.
• The court applied the literal rule of contract interpretation, enforcing the 2% monthly interest rate as explicitly stated in the contractual documents. It rejected the defendant's attempts to challenge the rate, noting the terms were clear and unambiguous.
• The defendant initially argued the plaintiff's claims were time-barred under the Public Authorities Limitation Act. The court, however, found the Ministry's 2007 letter acknowledging the debt and agreeing to pay interest negated this objection, allowing the claims to proceed.

Precedent Name

• Equip Agencies Limited & Others -Vs- Attorney General
• Sigma Engineering Company Ltd vs the Attorney General
• SIMPSON SENDA WA KWAYERA -VS- THE ATTORNEY GENERAL & ANOTHER
• TIMOTHY U.K. M'MELLA -VS- SAVINGS & LOAN (K) LTD
• Nabro Properties Ltd. Vs Sky Structures Ltd. & 2 Others
• BIO - MEDICAL LABORATORIES LIMITED-VS-THE ATTORNEY GENERAL
• PREMIER BAG & CORDAGE LIMITED - VS - NATIONAL IRRIGATION BOARD

Key Disputed Contract Clauses

• Clause 22 of the tender document outlines termination for supplier default. The court found this inapplicable, as the termination was for convenience, not due to the plaintiff's failure to meet contractual obligations.
• The contract stipulated payment via Cash Against Documents through the Central Bank of Kenya with a 30-day grace period. Interest at 2% per month, compounded, was to apply to overdue amounts. The court upheld these terms as valid and enforceable.
• Clause 25.2 of the tender document allows the buyer to terminate the contract at any time for convenience, requiring payment for completed goods ready within 30 days of termination notice. The court found the Ministry of Health improperly invoked this clause without valid justification.
• The tender documents specified a 2% monthly interest rate on overdue amounts, compounded monthly. The court ruled this rate was contractual and not punitive, rejecting the defendant's argument that it was unconscionable.
• The 1981 Central Tender Board circular required revalidation of prices after bid expiry. The Ministry awarded the Cotton Stockinette tender to a higher bidder despite the plaintiff's validated lower bid, breaching procurement regulations.

Cited Statute

• Public Authorities Limitation Act
• Public Procurement and Disposal Act, 2005
• Civil Procedure Act
• Sale of Goods Act

Judge Name

Passage Text

• The Plaintiff's case has not been challenged nor controverted by the Defendant.
• This court finds that the Ministry should have accepted all the goods which the Plaintiff was ready to supply and paid for them.
• The court cannot rewrite contracts for parties, but is obligated to honour and enforce all contractual terms which parties willfully enter into.

Damages / Relief Type

• Blood Taking Sets lost profits: US$56,870.00 with court rate interest
• Disposable Dental Needles: US$50,343.26 with 2% monthly interest
• Hartmann's Solution: US$195,925.26 with 2% monthly interest
• Sodium Hypochlorite Solution: US$740,094.44 with 2% monthly interest
• Sodium Hypochlorite Solution lost profits: US$183,348.00 with court rate interest
• Plaintiff awarded costs of the suit
• Trifluoperazine Tablets lost profits: US$33,490.00 with court rate interest
• Cotton Stockinette lost profits: GBP 77,100.00 with court rate interest