NAIROBI, Kenya — The Court of Appeal has ordered the government to pay a private supplier Sh1.15 billion for goods delivered to the Ministry of Health, ruling that the State cannot rely on its own internal administrative failures to avoid a contractual obligation.
A three-judge bench comprising Justices Patrick Mativo, Paul Lilan and Dr John Okello found that Equip Agencies Limited was entitled to payment for insecticides, anti-malarial equipment and other supplies delivered to government facilities in the 1990s.
The judges directed the Attorney General to pay the company Sh1,157,846,150, being the principal amount for the invoiced goods, together with interest at the court rate from June 26, 1995, until payment is made in full.
Court Rejects State’s Internal Procedures Argument
The government had argued that the Local Purchase Orders (LPOs) used to procure the supplies were invalid because they had not been signed by the relevant officers to confirm the availability of funds.
The Court of Appeal rejected the argument, holding that government institutions cannot rely on failures by their own officials to escape contractual obligations to private parties.
“Generally, a government institution cannot solely rely on its internal process failures to deny or invalidate an otherwise legally binding contract,” the judges said.
The court added that once a government entity enters into an agreement with a private party, it is bound by the contract and cannot avoid its obligations simply because its officials failed to comply with internal procedures.
Supplies Delivered To Six Counties
The dispute arose from two supply contracts entered into in 1993 and 1995.
Equip Agencies supplied goods to Ministry of Health depots in Nairobi, Mombasa, Nakuru, Kisumu, Eldoret and Nyeri.
The ministry received and distributed the supplies but later cancelled three LPOs in August 1996.
The supplier sued the government in 1999, seeking more than Sh1.86 billion, including interest.
The Attorney General argued that the claim had been filed outside the statutory period.
The appellate court rejected that argument, finding that the cause of action arose when the ministry cancelled the LPOs on August 23, 1996.
Court Rejects Compound Interest Claim
While awarding the principal amount and court-rate interest, the judges overturned an earlier High Court award of compound interest.
The court found that Equip Agencies had neither specifically pleaded nor proved its claim for compound interest.
“Compound interest was never pleaded,” the judges said, adding that the supplier had also failed to establish that delayed payment directly caused the financing costs it claimed.
The appeal was therefore partially allowed, with each party ordered to bear its own costs.
