Hydro Water Well (K) Limited v Sechere & 2 others (Sued in their representative

capacity as the ocers of Chae Kenya Society) (Civil Suit E212 of 2019)
[2021] KEHC 22 (KLR) (Commercial and Tax) (10 August 2021) (Judgment)
Hyrdo Water Well (K) Limited v Nelson Mukara Sechere & 2 others [2021] eKLR
Neutral citation: [2021] KEHC 22 (KLR)

REPUBLIC OF KENYA
IN THE HIGH COURT AT NAIROBI (MILIMANI
COMMERCIAL COURTS COMMERCIAL AND TAX DIVISION)
COMMERCIAL AND TAX
CIVIL SUIT E212 OF 2019
JM MATIVO, J
AUGUST 10, 2021

BETWEEN
HYDRO WATER WELL (K) LIMITED ................................................... PLAINTIFF

AND
NELSON HENRY SECHERE .......................................................... 1ST DEFENDANT
HENRY NANDWA NAMAYI ........................................................ 2ND DEFENDANT
GILBERT MUTHENGI WAMBUA ................................................ 3RD DEFENDANT
SUED IN THEIR REPRESENTATIVE CAPACITY AS THE OFFICERS OF CHAE
KENYA SOCIETY

Legal requirements relating to establishing a claim for lost prots as a remedy for breach of contract.
Reported by Beryl Ikamari
Law of Contract - breach of contract - establishing a claim of breach of contract - where a plaintiff claimed that
a contract had been terminated by a defendant's failure to perform certain contractual obligations - circumstances
in which a litigant would be said to have established a claim for breach of contract.
Law of Contract - breach of contract - damages - lost profits - factors that a litigant would have to prove in
establishing a claim for damages for lost profits.
Construction Law – contractor equipment – claim for damages for idle equipment – rule that gross idle
equipment damages had to be reduced by 50% to reflect lack of wear and tear - what considerations did a court
look into in measuring damages payable for idle equipment - what principles did the court take into consideration
when awarding special damages
Law of Contract - breach of contract - damages - special damages - pleading for and proving claims for special
damages - claim for a refund of premium paid for the advance payment bond - circumstances under which the
court would award special damages.

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Brief facts
The parties entered into a contract for the drilling, equipping of boreholes and construction of elevated plastic
tanks by the plainti. The contract value was Kshs. 398,237,280 and the contract was entered into after a tender
process had been undertaken. According to the plainti, the contract was one that would be terminated by a
failure to begin works within 21 days of its execution.
The plainti alleged that the defendants failed to perform some of their obligations under the contract. In
particular, it stated that contrary to the requirements of article 4.1 of the contract the defendants failed to
give the plainti information on the exact location, names, sites for the boreholes to be drilled, Hydrological
Survey Reports for each borehole, WRMA Authorization for each borehole, EIA reports and NEMA licences
for each borehole and the names of contact persons and their mobile numbers in each county. The plainti
also stated that the defendants refused to release the original advance payment bond to enable the discharge
of the security.
The plainti sought monetary compensation for breach of contract. The compensation sought for lost prots
was Kshs. 106,985,953.33, for idle machinery and equipment they sought compensation amounting to Kshs.
28,800,000 and for the premium paid for the advance payment bond they sought compensation of Kshs.
3,200,635. They also sought costs of the suit and interest on all the sums that they claimed as compensation
at court rates.
The defendants explained that it was not mandatory for the contract to be terminated if work did not begin
within 21 days of the signing of the contract. The defendants added that the contract required the plainti to
present a bank guarantee for issuance of advance payment for purposes of mobilization, but in breach of that
requirement, the plainti supplied the defendant with an Advance Payment Bond from its insurer.
Issues
i. What elements was a litigant required to prove in a claim for breach of contract?
ii. What was the denition of loss of prot as used as a remedy for breach of contract?
iii. What requirements did a litigant have to prove to succeed in a claim for loss of prots as a remedy for
breach of contract?
iv. What considerations did a court look into when measuring the monetary compensation to be awarded
as loss of prot as a remedy for breach of contract?
v. What requirements did a litigant (contractor) have to prove to succeed in a claim for idle equipment?
vi. What considerations did a court look into in measuring damages payable for idle equipment?
vii. What principles did the court take into consideration when awarding special damages?
Held
1. Contract law gave eect to consensual agreements entered into by parties to the contract. Remedies
granted by the court were designed to give eect to what was voluntarily undertaken by the parties.
Damages in the contract were intended to place the claimant in the position he would have been in if
the contract had been performed.
2. The principal remedy under common law for breach of contract was an award of damages, with the
purpose of damages being to compensate the injured party for the loss suered as a result of the breach,
rather than (except for very limited circumstances) to punish the breaching party.
3. A contract was the source of primary legal obligations upon each party to it to procure that whatever
he had promised will be done was done. Leaving aside the comparatively rare cases in which the court
was able to enforce a primary obligation by decreeing specic performance of it, breaches of primary
obligations gave rise to substituted or secondary obligations on the part of the party in default. Those
secondary obligations of the contract breaker arose by implication of law.
4. To successfully claim damages for breach of contract, the plainti had to show that a contract was
in existence, that the contract was breached by the defendant and that the plainti suered damage
(loss) as a result of the defendant's breach. The plainti was not required to show a causal link between

kenyalaw.org/caselaw/cases/view/218372/ 2
 the breaches of an agreement and the damages with certainty. He was only required to establish that
the wrongful conduct was probably a cause of the loss. A plainti who at the end of a trial can show
no more than a probability that he would not have suered the loss if the contract had been properly
performed, would succeed unless the defendant could discharge the onus of proving that there was no
such probability.
5. The test to be applied was whether there was evidence upon which a court, applying its mind
reasonably to such evidence, could nd for the plainti. That implied that the plainti had to make
out a prima facie case, in the sense of showing that there was evidence relating to all the elements of
the claim. The court had to consider whether there was reasonable evidence upon which a reasonable
man could nd for the plainti.
6. The existence of a contract between the parties was not disputed. Since the defendant led a defence
but failed to attend the trial, the plainti's evidence which showed that the defendants were in breach
of contract was uncontroverted.
7. Damages for breach of contract were a substitute for performance; such damages were generally
regarded as an adequate remedy. The courts would not prevent self-interested breaches of contract
where the interests of the innocent party could be adequately protected by an award of damages. Nor
would the courts award damages designed to deprive the contract breaker of any prot he may have
made as a consequence of his failure in performance. The court’s function was conned to enforcing
either the primary obligation to perform, or the contract breaker’s secondary obligation to pay damages
as a substitute for performance.
8. The objective of compensating the claimant for the loss sustained as a result of non-performance made
it necessary to quantify the loss which he sustained as accurately as the circumstances permitted. What
was crucial was to identify the loss: the dierence between the claimant’s actual situation and the
situation in which he would have been if the primary contractual obligation had been performed. Once
the loss had been identied, the court then had to quantify it in monetary terms.
9. Where a breach of contract aected the operation of a business, the court would have to select the
method of measuring the loss which was the most apt in the circumstances to secure that the claimant
was compensated for the loss which it had sustained. It could estimate the eect of the breach on
the value of the business, or the eect on its prots, or the resultant management costs, or the loss
of goodwill. The assessment of damages in such circumstances often involved the exercise of a sound
imagination and the practice of the broad axe.
10. Lost prots were available where the parties’ contract clearly anticipated them and the party seeking
them could prove the amount with relative certainty. Lost-prot damages were available in a variety
of civil contexts; tort actions (both personal and business), breach of contract actions, antitrust suits,
and claims for trademark and patent infringement. Nonetheless, courts continued to face the often-
dicult questions of how to assess whether the parties contemplated lost-prot damages, whether a
party actually suered them, and if so, how to measure those lost prots.
11. The most important consideration in any lost prots case was how much and what type of evidence
a party needed to prove the alleged lost prots. Typically, lost prots damages referred to the loss of
net prots rather than gross prots or revenue. Lost prots were damages for the loss of net income
to a business and broadly speaking they reected income from lost business activity, less expenses that
would have been attributable to that activity. After calculating net prots, the plainti had to show:
a. that the conduct upon which the claim was based caused the lost prot damages (proximate
cause);
b. that the parties contemplated the possibility of lost prot damages or that the lost prot
damages were a foreseeable consequence of the conduct (forseeability); and
c. that the lost prots were capable of proof with a reasonable degree of certainty (reasonable
certainity).

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12. In a claim for lost prots, the plainti had to show, by a preponderance of the evidence, that the
plainti’s alleged loss was the proximate result of the breach, the so-called “but-for test” (but for the
breaching conduct, the plainti would have earned prot). A “proximate” cause was a cause that
produced a result in a natural and continuous sequence and without which the result would not have
occurred.
13. The second element was foreseeability, which was a determination about whether the parties
contemplated that such damages would arise or should have reasonably foreseen that they would
arise. The parties’ relationship was typically governed by a contract, usually with a specic term. The
language in the contract usually determined whether lost prots were foreseeable.
14. Determining whether contracting parties contemplated lost-prots damages typically involved
answering whether the contract allowed lost prots at all. A well-drafted contract could provide for
the possibility of lost prots and the period for which such prots would be recoverable. Without such
a contractual provision, lost prots would be legally foreseeable if the loss was natural and inevitable
upon breach or if the breach resulted in lost prots because of a special circumstance known to the
defaulting party at the time of the breach. The rule required only a reasonable reason to foresee,
not actual foresight. To meet that standard, courts required signicant contractual evidence of the
reasonable contemplation of lost prots.
15. If the plainti was able to demonstrate that lost prots were actually available under the contract, it
would typically then have to establish the applicable duration for which lost prots were recoverable.
The period for calculating lost prots was the damage period or the loss period. Calculating the
loss period was fact-specic. Contract terms, statutory requirements, prior custom and practice, and
industry standards could, and typically would, inuence the extent of the loss period. The loss period
could be relatively short and, in the past, or may be on-going into the future, particularly when a
franchisee continued to operate its business while pursuing litigation.
16. The third element to be proved was that lost prot damages were reasonably certain and not
speculative. Generally, the certainty of damages was sucient if the evidence enabled the court to make
a fair and reasonable approximation of damages.
17. There was no attempt to show that the contract allowed the claim at all or whether the claim was
foreseeable at the time of contracting and whether the loss was natural and inevitable upon the breach
so that the defaulting party may be presumed from all the circumstances to have foreseen it. There was
no cogent evidence to show that the breach resulted in lost prots because of a special circumstance, a
circumstance that must have been known to the defaulting party at the time of the contracting. Such a
claim required a professional in the eld to give expert evidence and explain how the amount claimed
was explained and the rationale upon which the amounts are arrived at. There was no attempt to bring
the claim within the tests laid down above. The claim for loss of prots had not been proved.
18. The plainti did not adduce evidence that laid a basis for the grant of damages for lost prots. The
plainti did not show that the claim was foreseeable at the time of contract and whether the loss was
natural and inevitable upon breach or that there was a special circumstance, known to the defaulting
party, that resulted in the loss. There was a need for professional evidence to explain the amount claimed
as lost prots. The plainti did not attempt to bring its claim within the framework of the existing
authorities on lost prots.
19. Idle equipment (or equipment which must remain on the job site because the project was delayed)
was a real and quantiable loss to the contractor, whether rent was paid to another or charged to
the contractor himself as an accounting expense, and it was recoverable. The contractor was only
entitled to compensation for the delay period attributable to the owner. The delay was attributed to
the defendant. The contractor had the burden of proof to establish that the equipment was actually
idle during the delay period and that the equipment was necessary to complete the work. The plainti
had met those two tests.

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20. The proper measure of damages for idle equipment was the equipment’s actual rental value or the
actual cost to own the equipment; absent such rate information, a rental rate book could be used as a
guide. Gross idle equipment damages had to be reduced by fty percent (50%) to reect lack of wear
and tear.
21. The plainti's evidence showed that their equipment had been idle for 120 days. The plainti stated
that the rate applicable was Kshs. 10,000 per hour translating to Kshs. 28,800,000. In determining
such claims the position was that gross idle equipment damages had to be reduced by 50% to reect
lack of wear and tear. Therefore, the amount payable would be Kshs. 14,400,000.
22. Typically in a construction project an advanced payment bond would be required by the client if the
contractor requested advance payment to help them meet signicant start up or procurement costs
that may have to be incurred before construction began. For example, where the contractor has had to
purchase high-value plant, equipment or materials specically for the project. The bond would protect
the client in the event that the contractor failed to full its contractual obligations, for example if the
contractor became insolvent. An advance payment bond would normally be an on-demand bond,
meaning that the bondsman pays the amount of money set out in the bond immediately on demand,
without any preconditions having to be met. That was as opposed to a conditional bond (or default
bond) where the bondsman was only liable if it had been established that there has been a breach of
contract.

Claim partly allowed.

Orders
i. Judgment entered in favor of the plaintiff against the defendants jointly and severally for the total sum
of Kshs. 17,600,635/= (Kshs. 14,400,000/= for idle machinery and Kshs. 3,200,635/= in respect of the
claim for premium for the Advance Payment Bond).
ii. The said sums were to attract interests at court rates from the date of filing the suit until payment in full.
iii. The defendants were to pay the plaintiff the costs of the suit plus interests on the costs at court rates that
was applicable from the date of taxation.

Citations
Cases
East Africa;
1. African Highland Produce Ltd v John Kisorio Civil Appeal 264 of 1999; [2001] eKLR – (Mentioned)
2. CMC Aviation Ltd v Cruisair Ltd Civil Application NAI 12 of 1978; [1978] eKLR— (Cited)
3. Ethics and Anti-Corruption Commission v Nderitu Wachira & 2 others Miscellaneous Civil Application
19 of 2015; [2016] eKLR—(Cited)
4. Nalinkumar M Shah v Mumias Sugar Company Commercial Civil Case 40 of 2009 [2010] eKLR -
(Cited)
5. Omulo, John Didi v Small Enterprises-Finance Co Ltd & another Civil Case 232 of 1996; [2005] eKLR
— (Cited)
6. Republic v Rosemary Wairimu Munene; Ex-Parte Applicant v lhururu Dairy Farmers Co-operative
Society Ltd Civil Case 6 of 2004; [2004] eKLR — (Cited)
7. Richard Okuku Oloo v South Nyanza Sugar Co Ltd Civil Appeal 278 of 2010; [2013] eKLR— (Cited)
8. Shaneebal Limited v County Government of Machakos Civil Suit 25 of 2016; [2018] eKLR —
Explained
9. Thumbi, Waweru v Samuel Njoroge Thuku Civil Appeal No 445 of 2003; [2006] eKLR— (Explained)
10. Total (Kenya) Limited Formally Caltex Oil (Kenya) Limited v Janevams Limited Civil Appeal 178 of
2005; [2015] eKLR— (Explained)

kenyalaw.org/caselaw/cases/view/218372/ 5
 11. Trust Bank Limited v Paramount Universal Bank Limited & 2 others Civil Suit 1243 of 2001; [2009]
eKLR— (Explained)
United Kingdom;
1. British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of
London Ltd (No 2) [1912] AC 673—(Cited)
2. Bunge SA v Nidera NV (formerly Nidera Handels compagnie BV) [2015] UKSC 43 — (Explained)
3. Ford Contracting, Inc v Kentucky Transportation Cabinet 429 SW3d 397— (Explained)
4. Griffin v Colver 22 Barb 587 (1855)— (Cited)
5. Parabola Investments Ltd v Browallia Cal Ltd (formerly Union Cal Ltd) [2010] EWCA Civ 486—
(Cited)
6. Photo Production Ltd v Securicor Transport Ltd [1978] 1 WLR 856 — (Explained)
7. Robinson v Harman (1848) 1 Exch 850 — (Cited)
8. Victoria Laundry v Newman [1949] 2 KB 528— (Cited)
9. Wertheim v Chicoutimi Pulp Co [1911) AC 301— (Cited)
United States of America;
National Controls Corporation v National Semiconductor Corp Inc 833 F2d 491 (3d Cir 1987) — Explained
Statutes
1. Companies Act (cap 486) In general - (Cited)
2. Societies Act (cap 108) In general - (Cited)
Advocates
M/S Mohammed Muigai LLP Advocates for defendants

JUDGMENT

1. By a plaint dated June 27, 2019, the plainti, a limited liability company incorporated under the
provisions of the Companies Act1 brings this action against Chae Kenya Society, a society registered
under the Societies Act,2 (sued through its oce bearers, Mr Nelson Mukara Sechere, Henry Nandwa
Namayi and Gilbert Muthengi Wambua) for breach of contract. The plainti’s claim is that following
an invitation by the defendants for interested bidders to submit their bids for Tender No. CKS/01/
W4A/2018-19 for drilling, equipping of boreholes and construction of elevated plastic tanks, it
submitted its bid and vide a letter dated August 1, 2018, the defendants notied it that it’s bid for 122
boreholes in various regions was successful at cost of Kshs 3,264,240/= per borehole translating to a
contract value of Kshs 398,237,280/=.

2. The plainti states that it accepted the oer vide its letter dated August 9, 2019 and the parties entered
into a contract dated September 21, 2018. Additionally, the plainti avers that its bid included a Bill
of Quantities containing the schedule of rates that would apply once parties entered into a contract.
It avers that article 1.01 (g) of the contract dened the term contract to include the Schedule of
Rates and Work Plan that had been submitted by the plainti. Also, it avers that article 3.01 of the
contract obligated the plainti to start drilling the boreholes within 21 days from the date of signing
the contract. Further, it was a term of the contract that failure to comply with the said condition could
result in cancellation of the contract. Additionally, the plainti avers that article 3.02 of the contract
required it to mobilize drilling rigs for the contracted works and undertake not to deploy drilling rigs
for any other works until completion of works under the contract.
1
Cap 486, Laws of Kenya-Repealed by Act No 17 of 2015.
2
Cap 108, Laws of Kenya.

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3. The plainti avers that on the work plan shared with the defendants and in order to meet its obligations
under the contract, it assigned and set aside three drilling rigs for purposes of performing the works
under the contract as follows: -

a. Rig 1 (KCB 489 Y) would carry out works in Nakuru, Baringo, Kerich, Uasin Gishu, Elgeyo
Marakwet and Turkana where it would drill a total of 42 boreholes.

b. Rig 2 (KBX 779 Y) would carry out works in Narok, Bomet, Nyamira, Kisii, Kitui, Machakos,
Isiolo and Meru where it would drill a total of 67 boreholes.

c. Rig 3 (KBZ 236 U) would carry out works in Garissa where it would drill a total of 13
boreholes.

4. The plainti states that article 3.01 of the contract obligated it to commence the works within 21 days
of signing the contract, and in compliance with article 5.03 of the contract, it processed an advance
payment of Kshs 159,294,912/= being 40% of the contract sum and it incurred a premium of Kshs
3,200,635/=. It states that despite fullling the above obligations, the defendant failed to perform its
obligations under article 4.01 of the contract. Specically, it states that the defendants failed to provide
the plainti with the following data, documentation and information : -

a. Exact location names/sites for the boreholes to be drilled.

b. Hydrological Survey Reports for each borehole.

c. WRMA Authorization for each borehole.

d. EIA reports & NEMA licenses for each borehole.

e. Contact persons and their mobile numbers in each county.

5. The plainti contends that its attempts to procure the above information from the defendant were in
vain, and, also, the defendants refused to release the original advance payment bond to enable discharge
of the security. It states that in order to mitigate loses, it was forced to treat the contract as terminated on
February 14, 2019, and, consequent to the defendant’s breach, it is entitled to damages as particularized
below: -

a. Wasted expenditure incurred to procure the Advance Payment Bond-Kshs 3,200,635/=

b. Idle Machinery Time/Standby Time for 120 days- Kshs 28,800,000/= calculated as per the
schedule of rates at 10,000 per hour.

c. Loss of expected prots-Kshs 106,985,953.33.

6. The plainti avers that it has been in the business of drilling boreholes for over 18 years and it entered
into the subject contract with a view of making a reasonable prot. As a consequence of the foregoing,
it prays for judgment against the defendant for: -

a. Loss of prots in the sum of Kshs 106,985,953.33.

b. Compensation for idle machinery and equipment in the sum of Kshs 28,800,000/=.

c. Premium paid for the advance payment bond of Kshs 3,200,635/=.

d. Interest on (a), (b) & (c) above at court rates from the date of ling suit until payment in full.

e. Costs of this suit together with interest thereon at such rate and for such period of time as this
court may deem t to grant.

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 f. Any such other or further relief as this court may deem appropriate.

The Defendant’s Defense

7. In their Statement of defence dated August 29, 2019 led by the rm of M/S Mohammed Muigai LLP
Advocates, the defendants inter alia denied the claim and averred that the notication of the award
preceded the signing of the contract which would govern the party’s relationship. They averred that
article 5.03 of the contract provided that the defendant was to advance a mobilization advance of 40%
upon presentation of a bank guarantee. Further, they averred that cancellation of the contract was
not a mandatory consequence of failure to commence works within 21 days of signing the contract.
They averred that mobilization was to be accomplished upon identifying the exact drilling site and
remittance of the advance payment. The defendant averred that the contract obligated the plainti
to present a bank guarantee for issuance of advance payment for purposes of mobilization, but in
breach of the aforesaid requirement, the plainti alleges to have supplied the defendant with an advance
payment bond from its insurer. They denied that the plainti suered any loss. In its reply to defense
dated September 19, 2019, the plainti joined issues with the defense and reiterated the contents of
the plaint.

8. Vide an application dated October 2, 2020, the rm of Mohamed Muigai LLP applied to cease acting
for the defendants. On February 16, 2021, the 1st defendant attended court for the hearing of the said
application and asked for 2 weeks to engage another lawyer. The matter was scheduled for directions
on March 8, 2021, but on the said date he did not attend court. The matter was listed before me on
April 13, 2021, but despite the defendants having been served, they did not attend court. I scheduled
the matter for hearing on May 19, 2021 and directed that they be served. On the said date, despite being
served, there was no appearance for the defendants, hence hearing proceeded ex parte.

The Plainti ’s Evidence

9. Deepti Vara, the plaintis nance manager testied on behalf on the plainti. She adopted her witness
statement dated June 27, 2019 and the plaintis bundle of documents which were marked as plaintis
exhibits 1 to 13. Her testimony is essentially a replica of the averments in the plaint and the aforesaid
witness statement; hence, it will add no value to rehash the same here.

The Plainti ’s Advocates Submissions

10. The plaintis’ counsel submitted that because the defendant failed to attend hearing and adduce
evidence, their defense remains unproved statements of fact, and that the plaintis case is
uncontroverted. To buttress his argument, he cited CMC Aviation Ltd v Cruisair Ltd3 which cited
John Didi Omulo v Small Enterprises-Finance Co Ltd & another 4which held that unless averments the
pleadings are proved by evidence, no decision can be founded upon them. He also cited Shaneebal
Limited v County Government of Machakos5 which adopted Trust Bank Limited v Paramount
Universal Bank Limited & 2 others6 for the proposition that where a party fails to call evidence in
support of its case, that party's pleadings remain mere statements of fact since in so doing the party

3
{2005} eKLR
4
{2005} eKLR
5
{2018} eKLR
6
Nairobi (Milimani) HCCS No 1243 of 2001.

kenyalaw.org/caselaw/cases/view/218372/ 8
 fails to substantiate its pleadings and failure to adduce evidence means that the plainti’s evidence is
uncontroverted and therefore unchallenged.

11. Counsel submitted that the defendant breached article 4.01 of the contract by failing to provide
the plainti with the exact location names/sites for the boreholes to be drilled; Hydrological Survey
Reports for each borehole; WRMA Authorization for each borehole; EIA reports & NEMA licenses
for each borehole; and contact persons and their mobile numbers in each county.

12. Regarding loss of prots, he submitted that prot is a remedy available to an innocent party in
cases of breach of contract. He argued that the plainti arrived at the gure claimed for prots by
calculating the costs of the works to be undertaken based on the work plan submitted. He referred to
the documents at pages 34 to 38 in the plainti’s bundle of documents which contain a calculation of
the expected prots and cited Victoria Laundry v Newman7 which laid down four-fold requirement for
a party to succeed in a claim for loss of prots. One, the party in breach must reasonably have expected
that the plainti would make prots had the contract been executed. Two, the claim for loss of prots
would be what would be reasonably foreseeable by the parties. Three, reasonably foreseeable depends
on what the parties knew during the contract making process. Four, the kind of knowledge parties
have must be ordinary in any sense. He argued that the plainti met the above tests, that the plainti
has been in the business of drilling boreholes for over 18 years and it entered into the contract with a
view of making reasonable prots. He argued that the defendants knew that the plainti would make
a prot if the contract was faithfully performed. He urged the court to be persuaded by Nalinkumar
M Shah v Mumias Sugar Company.8

13. Additionally, counsel submitted that a plainti claiming damages must also show that he mitigated the
loss upon breach of contract. He cited African Highland Produce Ltd v John Kisono9for the proposition
that it is the duty of the plainti to take reasonable steps to mitigate the loss he has sustained. He argued
that in order to mitigate against losses, the plainti was forced to treat the contract as terminated on
February 14, 2019.

14. Regarding the claim for compensation for idle machinery and equipment in the sum of Kshs
28,800,000/=, counsel cited article 3.02 of the contract which provides that "the contractor shall not,
upon mobilization of the assigned drilling rigs for the contracted works with the client, deploy the rigs
to undertake any other works outside the scope of this contract until he has completed all the Works
under this contract. Failure to comply with this condition may result in cancellation of the contract."
He argued that in order to meet its obligations, the plainti assigned and set aside three drilling rigs
for purposes of performing the works under the subject contract and that the plainti had a legitimate
expectation that works would commence within 21 days and as such it had to assign drilling rigs to
the 4 regions covered by the contract. He argued that the drilling rigs assigned and set aside by the
plainti remained idle for 120 days until when the plainti treated the contract as terminated. As per
the schedule of rates prepared by the plainti the rate of calculating the cost of idle machinery was Kshs
10,000 per hour totaling to Kshs 28,800,000. He submitted that the plainti has proved the claim for
compensation for idle machinery and equipment and this court should award the same.

15. Regarding the Premium paid for the advance payment bond of Kshs 3,200,635/=, counsel submitted
that as part of compliance with the contract, the plainti processed an advance payment bond of Kshs
159,294,912/= being the 40% of the contract sum and incurred a premium of Kshs 3,200,635/=. He

7
{1949} 2 KB 528.
8
{2010} eKLR.
9
CA 264199 {2001} eKLR.

kenyalaw.org/caselaw/cases/view/218372/ 9
 submitted that this being a claim for special damages, it is trite law that it must be specically pleaded
and proved. He argued that the plainti produced the receipt for Kshs 3,200,635/=.

16. Lastly, counsel urged the court to award interests on the sums claimed plus costs of the case. He relied
on Ethics and Anti-Corruption Commission v Nderitu Wachira & 2 others10 which cited Republic v
Rosemary Wairimu Munene, ex-parte applicant v lhururu Dairy Farmers Co-operative Society Ltd for
the holding that the issue of costs is the discretion of the court.

Determination
17. The law of contract gives eect to consensual agreements entered into by particular individuals in
their own interests. Remedies granted by the courts are designed to give eect to what was voluntarily
undertaken by the parties. Damages in contract are therefore intended to place the claimant in the same
position as he would have been in if the contract had been performed. This position was appreciated
as early as in 1848 in Robinson v Harman11 in which Parke B said “the rule of the common law is, that
where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be
placed in the same situation, with respect to damages, as if the contract had been performed.”

18. The above statement of the law has been endorsed in numerous judicial pronouncements in literally all
jurisdictions of the world to the extent it can safely be said that it has acquired the singular distinction
of the force of law. For instance, in 2015, it was endorsed in Bunge SA v Nidera NV (formerly Nidera
Handelscompagnie BV)12 where it was described as the “fundamental principle of the common law of
damages.” In Wertheim v Chicoutimi Pulp Co,13 it was described as the “ruling principle.” In British
Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd
(No 2)14 it was described as the “fundamental basis for assessing damages.”

19. The principal remedy under common law for breach of contract is an award of damages, with the
purpose of damages being to compensate the injured party for the loss suered as a result of the
breach, rather than (except for very limited circumstances) to punish the breaching party. This general
rule, which can be traced back to Robinson v Harman (supra) is to place the claimant in the same
position as if the contract had been performed, with the guiding principle being that of restitution. The
compensatory nature of damages for breach of contract, and the nature of the loss for which they are
designed to compensate, were explained by Lord Diplock in Photo Production Ltd v Securicor Transport
Ltd:-15

“ The contract, however, is just as much the source of secondary obligations as it is of primary
obligations ... Every failure to perform a primary obligation is a breach of contract. The
secondary obligation on the part of the contract breaker to which it gives rise by implication
of the common law is to pay monetary compensation to the other party for the loss sustained
by him in consequence of the breach ...” (p 849)

10
{2016} eKLR
11
{1848} 1 Exch 850.
12
{2015} UKSC 43; [2015] Bus LR 987, para 14.
13
{1911} AC 301, 307.
14
{1912} AC 673 at 689.
15
{1980} AC 827, 848- 849.

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 20. As his Lordship stated in the above case, a contract is the source of primary legal obligations upon
each party to it to procure that whatever he has promised will be done is done. Leaving aside the
comparatively rare cases in which the court is able to enforce a primary obligation by decreeing specic
performance of it, breaches of primary obligations give rise to “substituted or secondary obligations”
on the part of the party in default. Those secondary obligations of the contract breaker arise by
implication of law.

21. To successfully claim damages, a plainti must show that: (a) a contract exists or existed; (b) the
contract was breached by the defendant; and (c) the plainti suered damage (loss) as a result of the
defendant's breach. The plainti ‘is not required to establish the causal link (between breaches of an
agreement and damages) with certainty, but only to establish that the wrongful conduct was probably a
cause of the loss, which calls for a sensible retrospective analysis of what would probably have occurred,
based upon the evidence and what could be expected to have occurred in the ordinary course of human
aairs, rather than an exercise in metaphysics.’16 A plainti who at the end of a trial can show no more
than a probability that he would not have suered the loss if the contract had been properly performed,
will succeed unless the defendant can discharge the onus of proving that there was no such probability.

22. The test to be applied is whether there is evidence upon which a court, applying its mind reasonably
to such evidence, could or might (not should, nor ought to) nd for the plainti. This implies that
the plainti has to make out a prima facie case, in the sense that there is evidence relating to all the
elements of the claim. The court must consider whether there is evidence upon which a reasonable
man might nd for the plainti. In the instant case, the existence of the contract is not disputed. The
defendant led a statement of defense, but failed to attend the trial. As a consequence, the plaintis
evidence is uncontroverted. I have considered the evidence before me and the documents submitted. I
am persuaded that the plainti has demonstrated that the defendants were in breach of the contract.
What remains is whether the plainti has proved the loss suered and whether it is entitled to various
heads of damages claimed.

23. Damages for breach of contract are in that sense a substitute for performance. That is why they
are generally regarded as an adequate remedy. The courts will not prevent self-interested breaches of
contract where the interests of the innocent party can be adequately protected by an award of damages.
Nor will the courts award damages designed to deprive the contract breaker of any prot he may have
made as a consequence of his failure in performance. The court’s function is conned to enforcing
either the primary obligation to perform, or the contract breaker’s secondary obligation to pay damages
as a substitute for performance.

24. The objective of compensating the claimant for the loss sustained as a result of non-performance makes
it necessary to quantify the loss which he sustained as accurately as the circumstances permit. What
is crucial is rst to identify the loss: the dierence between the claimant’s actual situation and the
situation in which he would have been if the primary contractual obligation had been performed. Once
the loss has been identied, the court then has to quantify it in monetary terms.

16
Minister of Safety and Security v Van Duivenboden 2002 (6) SA 431 (SCA) 449.

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 25. The quantication of economic loss is often relatively straightforward. There are, however, cases
in which its precise measurement is inherently impossible. As Toulson LJ observed in Parabola
Investments Ltd v Browallia Cal Ltd (formerly Union Cal Ltd): -17

“ Some claims for consequential loss are capable of being established with precision (for
example, expenses incurred prior to the date of trial). Other forms of consequential loss are
not capable of similarly precise calculation because they involve the attempted measurement
of things which would or might have happened (or might not have happened) but for the
defendant’s wrongful conduct, as distinct from things which have happened. In such a
situation the law does not require a claimant to perform the impossible, nor does it apply
the balance of probability test to the measurement of the loss.”

26. An example relevant to the present case is the situation where a breach of contract aects the operation
of a business. The court will have to select the method of measuring the loss which is the most apt
in the circumstances to secure that the claimant is compensated for the loss which it has sustained.
It may, for example, estimate the eect of the breach on the value of the business, or the eect on its
prots, or the resultant management costs, or the loss of goodwill.18The assessment of damages in such
circumstances often involves what Lord Shaw described in Watson, Laidlaw at pp 29-30 as “the exercise
of a sound imagination and the practice of the broad axe.”

27. The American case of Griffin v Colver19 in which the New York Court of Appeals set the tone for the
more modern rule of lost prots damages is apposite. It stated: -

“ It is a well-established rule of the common law that the damages to be recovered for a breach
of contract must be shown with certainty, and not left to speculation or conjecture; and it is
under this rule that prots are excluded from the estimate of damages in such cases, and not
because there is anything in their nature which should per se prevent their allowance. Prots
which would certainly have been realized but for the defendant’s default are recoverable;
those which are speculative or contingent are not.Grin thus concluded that lost prots
are recoverable in contract cases, but only if the aggrieved party proved them with certainty.
Grin quickly became the “leading American case on recovery of lost prots.”

28. Since the above decision, (Grin), it has been relatively clear that lost prots are available where the
parties’ contract clearly anticipated them and the party seeking them could prove the amount with
relative certainty. Lost-prot damages are now available in a variety of civil contexts—tort actions (both
personal and business), breach of contract actions, antitrust suits, and claims for trademark and patent
infringement.20 Nonetheless, courts continue to face the often-dicult questions of how to assess
whether the parties contemplated lost-prot damages, whether a party actually suered them, and if
so, how to measure those lost prots.21

29. Perhaps the most important consideration in any lost-prots case is how much and what type of
evidence a party needs to prove the alleged lost prots. To understand the necessary quantum of
17
{2010} EWCA Civ 486; [2011] QB 477, para 22.
18
See Chitty on Contracts, 32nd ed (2015), paras 26-172 - 26-174.
19
Griffin v Colver, 16 NY 489, 491 (1858).
20
Erwin v Mendenhall, 433 P 3d 1090, 1095 (Alaska 2018).
21
Todd R Smyth, Recovery of Anticipated Lost Prots of New Business: Post-1965 cases, 55 ALR 4th 507 (1987).

kenyalaw.org/caselaw/cases/view/218372/ 12
 evidence, it is helpful rst to understand the denition of lost-prots damages. Typically, lost-prots
damages refer to the loss of net prots, rather than gross prots or revenue.22 “Lost prots are damages
for the loss of net income to a business and, broadly speaking, reect income from lost business activity,
less expenses that would have been attributable to that activity.”23 However, courts may award gross
prots when operating expenses are xed.24 After calculating net lost prots, the plainti (typically,
but not always) must show:- (a) that the conduct upon which the claim is based caused the lost
prot damages; (b) that the parties contemplated the possibility of lost prot damages or that the lost
prot damages were a foreseeable consequence of the conduct; and (c) that the lost prot damages are
capable of proof with reasonable certainty.25 These three elements of the claim are commonly known
as proximate cause, foreseeability, and reasonable certainty.

30. Except where the defendant does not dispute liability, this rst element of a claim for lost prots
(proximate cause) typically requires an in-depth analysis of both the applicable law and the facts.
Specically, the plainti must show, by a preponderance of the evidence, that the plainti’s alleged loss
was the proximate result of the breach, the so-called “but-for test” (ie, but for the breaching conduct,
the plainti would have earned prot). A “proximate” cause is a cause that (a) produces a result in
a natural and continuous sequence and (b) without which the result would not have occurred.26 For
example, in National Controls Corp v National Semiconductor Corp,27 the court considered in detail the
type and quantum of evidence needed to demonstrate proximate causation for purposes of lost-prots
damages. The court described the required proof as follows: -

“ The damages sought must be “a proximate consequence of the breach, not merely remote
or possible . . . The element of causation denes the range of socially and economically
desirable recovery and requires not only ‘but-for’ causation in fact but also that the conduct
be a substantial factor in bringing about the harm. Where the losses cannot be allocated
between those caused by the defendant’s breach and those not, an entire claim may be
rejected. The plainti thus must prove that any lost prots were proximately caused by
defendant’s breach, and not through some other cause. In essence, the proximate causation
requirement demands that the plainti prove that the defendant’s breach was a substantial
factor in causing some harm.”

31. The second element of a lost-prots claim is foreseeability, which is essentially a determination if the
parties contemplated such damages or should have reasonably foreseen that they would arise.28 The
parties’ relationship is typically governed by a contract, usually with a specic term. The language in
the contract usually determines whether lost prots were foreseeable.

32. Determining whether contracting parties contemplated lost-prots damages typically involves two
questions. First, does the contract allow lost prots at all? In a well-drafted contract, this rst issue

22
Erwin v Mendenhall, 433 P 3d 1090, 1095 (Alaska 2018).
23
Ginn v Stonecreek Dental Care, 30 NE 3d 1034, 1043 (Ohio Ct App 2015).
24
22 Am Jur 2d Damages § 57 (2019).
25
Jonathan Dunitz & Nancy Fannon, The Comprehensive Guide to Economic Damages (5th ed, 2018); Bona Fide Conglomerate, Inc v
Source America, 2017 US Dist LEXIS 116329, at *13 (SD Cal July 24, 2017).
26
Racicky v Farmland Indus, Inc, 328 F 3d 389, 396 (8th Cir 2003).
27
Nat’l Controls Corp v Nat’l Semiconductor Corp, 833 F 2d 491, 496 (3d Cir 1987).
28
HSS Enters, LLC v Amco Ins Co, 2008 WL 1787127, at *13 (WD Wash Apr 16, 2008).

kenyalaw.org/caselaw/cases/view/218372/ 13
 may be determinative, and the contract may expressly exclude any possibility of lost prots. Absent
controlling contractual terms, lost prots are legally foreseeable if, at the time of contracting, (a) the
loss was natural and inevitable upon the breach so that the defaulting party may be presumed from
all the circumstances to have foreseen it; or (b) if the breach resulted in lost prots because of a special
circumstance, a circumstance that must have been known to the defaulting party at the time of the
contracting.29 Importantly, the rule requires only a reasonable reason to foresee, not actual foresight.
To meet this standard, courts require signicant contractual evidence of the reasonable contemplation
of lost prots.30

33. If the plainti is able to demonstrate that lost prots are actually available under the contract, it will
typically then have to establish the applicable duration for which lost prots are recoverable. Parties
often refer to this period for calculating lost prots as the “damage period” or the “loss period.”
Calculating the loss period is typically fact-specic. Contract terms, statutory requirements, prior
custom and practice, and industry standards can, and typically will, inuence the extent of the loss
period. The loss period may be relatively short and, in the past, or may be ongoing into the future,
particularly when a franchisee continues to operate its business while pursuing litigation.

34. The third element the plainti must prove is that lost prot damages are “reasonably certain and not
speculative.”31 Generally, the certainty of damages is sucient if the evidence enables the court to make
a fair and reasonable approximation of damages.32

35. I have carefully examined the plainti’s claim for lost prots. I have considered the documents relied
upon by the plainti. The plainti claims Kshs 106,985,953.300/= for loss of prots. I have herein
above dened lost prots which broadly reects income from lost business activity, less expenses that
would have been attributable to that activity. I have also enumerated the applicable tests in such claims.

36. First, there was no attempt to show that the contract allowed the claim at all or whether the claim
was foreseeable at the time of contracting and whether the loss was natural and inevitable upon the
breach so that the defaulting party may be presumed from all the circumstances to have foreseen it.
Second, there is no cogent evidence to show that the breach resulted in lost prots because of a special
circumstance, a circumstance that must have been known to the defaulting party at the time of the
contracting. Third, such a claim requires a professional in the eld to give expert evidence and explain
how the amount claimed is explained and the rationale upon which the amounts are arrived at. Fourth,
there was no attempt to bring the claim within the tests laid down in the authorities discussed above.
Guided by the tests discussed earlier, I nd and hold that it is correct to state that there is no basis at
all upon which a court properly directing itself to the law and the material before me can entertain
the claim for prots in this case. It follows that the claim for loss of prots has not been proved. The
same is declined.

29
Precision Pine & Timber, Inc v United States, 63 Fed Cl 122, 130 (2004); Restatement (Second) of Contracts § 351(2)
30
Ashland Mgmt Inc v Janien, 82 NY 2d 395, 405 (1993).
31
Rubin Res, Inc v Morris, 237 W Va 370, 379 (2016); Stern Oil Co v Brown, 908 NW 2d 144, 151 (SD 2018).
32
Precision Pine & Timber, Inc v United States, 63 Fed Cl 122, 131 (2004).

kenyalaw.org/caselaw/cases/view/218372/ 14
 37. I no turn to the claim for idle machinery for 120 days. In addressing this issue, I may protably borrow
from the Kentucky Court of Appeals’ decision in Ford Contracting, Inc v Kentucky Transportation
Cabinet33 which held that idle equipment costs are compensable. It stated: -

“ Idle equipment (or equipment which must remain on the job site because the project is
delayed) is a real and quantiable loss to the contractor, whether rent is paid to another or
charged to the contractor himself as an accounting expense, and it is recoverable.”

38. The contractor is only entitled to compensation for the delay period attributable to the owner. There
is no doubt that the delay in this case is attributed to the defendant. The contractor has the burden
of proof to establish (a) that the equipment was actually idle during the delay period and (b) that the
equipment was necessary to complete the work. I have no doubt that the plainti has met these two
tests.

39. The other hurdle the plainti must surmount is persuading the court on the damages for idle
machinery in the particular case. The proper measure of damages is the equipment’s actual rental value
or the actual cost to own the equipment; absent such rate information, a rental rate book may be used as
a guide. Lastly, Gross idle equipment damages must be reduced by 50% to reect lack of wear and tear.

40. The plainti’s witness testied that they incurred stand by time and that they could have engaged their
equipment elsewhere. He testied that the defendant did not allow them to commence the work for
120 days. As for the rate, he stated that they applied the rate in their oer which had been accepted
which was Kshs 10,000/= per hour translating to Kshs 28,800,000/. Whereas I have no reason to doubt
the plaintis tabulation on the above sum, decided cases are in agreement that in such claims, the gross
idle equipment damages must be reduced by 50% to reect lack of wear and tear. Accordingly, I will
subject the above sum to 50% reduction which will translate to Kshs 14,400,000/=.

41. Regarding the claim for premium for the advance payment bond for the sum of Kshs 3,200,635/=,
perhaps, it is useful to mention that typically in a construction project an advanced payment bond will
be required by the client if the contractor requests advance payment to help them meet signicant start
up or procurement costs that may have to be incurred before construction begins. For example, where
the contractor has had to purchase high-value plant, equipment or materials specically for the project.
The bond will protect the client in the event that the contractor fails to full its contractual obligations,
for example if the contractor becomes insolvent. An advance payment bond will normally be an on-
demand bond, meaning that the bondsman pays the amount of money set out in the bond immediately
on demand, without any preconditions having to be met. This is as opposed to a conditional bond (or
default bond) where the bondsman is only liable if it has been established that there has been a breach
of contract.

42. It is trite law that special damages must not only be specically pleaded, but must also be strictly proved
with as much particularity as circumstances permit. The court of Appeal in Richard Okuku Oloo v
34
South Nyanza Sugar Co Ltd observed: -

“ …a claim for special damages must indeed be specically pleaded and proved with a degree of
certainty and particularity but we must add that, that degree and certainty must necessarily
depend on the circumstances and the nature of the act complained of…”

33
449 SW 3d 397 (Ky Ct App 2014).
34
{2013} eKLR.

kenyalaw.org/caselaw/cases/view/218372/ 15
 43. Our decisional law is quite clear that one consequence of this general principle is that a party claiming
special damages must demonstrate that they actually made the payments or suered the specic injury
before compensation is permitted. A natural corollary of this has been that the courts have insisted
that a party must present actual receipts of payments made to substantiate loss or economic injury.
In this regard, our courts have held that only a receipt meets the test. (See Total (Kenya) Limited
35
Formally Caltex Oil (Kenya) Limited v Janevams Limited; Zacharia Waweru Thumbi v Samuel
36
Njoroge Thuku ). Consequently, our case is clear that a party must produce actual receipts in order to
meet the test of specically proving special damages. On record is a receipt dated May 27, 2019 for the
sum of Kshs 3,200,635/= in support of the plaintis claim for the said sum. It is my nding that the
plainti has proved on a balance of probabilities that it incurred the said expense.

Conclusion
44. I nd and hold that the plainti has proved its case to the extent herein above stated. Accordingly, I
enter judgment in favour of the plainti against the defendants jointly and severally for the total sum
of Kshs 17,600,635/=. (Being Kshs 14,400,000/= for idle machinery and Kshs 3,200,635/= in respect
of the claim for premium for the Advance Payment Bond.

45. The said sum shall attract interests at court rates from the date of ling the suit until payment in full.
The defendants will also pay the plainti the costs of this suit plus interests on the costs at court rates
to apply from the date of taxation.
Orders accordingly
SIGNED, DATED AND DELIVERED VIA E-MAIL AT NAIROBI THIS 10THDAY OF AUGUST
2021
JOHN M. MATIVO
JUDGE

35
{2015} eKLR
36
{2006} eKLR

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