[2022] KEHC 219 (KLR)

Clinix Health Care Limited v National Hospital Insurance Fund Board (Civil Suit 35 of 2018) [2022] KEHC 219 (KLR) (Commercial and Tax) (11 March 2022) (Judgment)

Neutral citation: [2022] KEHC 219 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Civil Suit 35 of 2018

MW Muigai, J

March 11, 2022

Between

Clinix Health Care Limited

Plaintiff

and

National Hospital Insurance Fund Board

Defendant

Judgment

1. By a Plaint dated 24th January,2017, the Plaintiff seeks judgement against the Defendant for:-a.A declaration that the Defendant breached the first contractb.A declaration that the Defendant breached the second contractc.A declaration that the Defendant’s purported termination of the second contract was illegal and therefore null and void and consequently of no legal effectd.An order directing the Defendant to pay the Plaintiff special damages as particularized in paragraph 11 hereofe.An order directing the Defendant to pay the Plaintiff general damages for breach of the first and second contractsf.Costs of the suitg.Interest on (e) and (f) above at the compounded rate of 13% per annum from the date of breach until payment in fullh.Any other relief that this Hon Court deems fit to grant.

2. The Plaintiff pleaded at paragraph 4 of the Plaint that on 1st July, 2008 vide Tender No. NHIF/014/2008-2009 hereinafter called “the said Tender”, the Defendant invited bids for the provision of “Outpatient Healthcare Services” to the Defendant’s Members hereinafter called “the NHIF Members” on the following key conditions:-a.The duration of assignment would comprise of a pilot phase of 6 months followed by a nationwide rollout phase of 5 years;b.The Tender price quoted by the Tenderer would remain fixed during the first 18 months of the contract after which the price variation would be allowed subject to medical inflation; andc.That the tenderers were to demonstrate the ability to provide primary health services to the NHIF Members.

3. It is not in dispute that the Plaintiff won the bid with other health service providers and a contract hereinafter referred to as “the 1st Contract” was signed between the Plaintiff and Defendant in December, 2009. According to the Plaintiff, the contract was based on the following terms.a.That the healthcare provider would provide the outpatient medical care and treatment in the 8 clinics described in the contract;b.That the healthcare provider would provide effective quality services and treatment in the 8 clinics described in the contract;c.That the healthcare provider would provide effective quality services and treatment to the fund’s beneficiaries according to the current evidence based standards and treatment guidelines as provided by the Ministry of Medical Services and the Ministry of Public Health and Sanitation;d.That the contract would run for a period of six (6) months from 7th December 2009 to 7th June, 2010;e.That the healthcare provider would be paid under the capitation payment method;f.That the healthcare provider would be allocated Kshs.2,000 per beneficiary totaling Kshs.99,136,000/- for a period of 6 months;g.That the contractual sum would be disbursed on a monthly basis in equal monthly installments of Kshs. 16,522,666 per month during the first week of every month.

4. According to the Plaintiff, it rendered the healthcare services as per the 1st Contract and paid for the services rendered except for the last installment of Kshs.16, 522,666/- which is the outstanding amount.

5. Pursuant to Clause 1. 2 and 1. 30 of the said Tender, a nationwide roll-out was effected on January,2012 and a 2nd contract was signed between the Plaintiff and Defendant on the following terms:-a.That the contract would ran for a period of 3 years commencing 1st January,2012 to 1st January,2015;b.That the Plaintiff would be paid for services provided to the scheme members and their declared dependents under the capitation payment method;c.That all beneficiaries under the scheme would be allowed to receive services for their selecting facility through either medical referral or need for emergency medical services and that payment for the services received by a beneficiary away from his selected facility shall be made by his facility;d.That the Defendant would be obligated to pay all capitation amounts due to the Plaintiff on a quarterly basis in advance at the start of every quarter;e.That the Plaintiff would be paid at the rate of Kshs.2,850 per beneficiary per year;f.That the total capitation amount payable to the service provider would be calculated using;One quarter x 2850 x annual premium x 5(number of members per family x members who would select the service provider)g.That either party would terminate the contract by giving the other party a three months written notice;h.That the Plaintiff would be at liberty to use the facilities of other health care providers with whom it had service level agreements, in all areas where the Plaintiff did not have facilities.

6. The Plaintiff pleaded that under the 2nd Contract there were a total number of 56,747 principal members who chose the Plaintiff as their preferred health care provider.

7. According to the Plaintiff, it was entitled to payment of the 1st and 2nd quarter in the sum of Kshs. 404, 322,375/- but the Defendant paid only Kshs. 202,161,187. 50 leaving a balance of Kshs. 202,161,875. 50 (being the sum due for the 1st quarter) which according to the Plaintiff has not been paid despite numerous demands from the Plaintiff and the Hon. Attorney General advice on the need to settle the debt to avoid unnecessary accrual of interest.

8. According to the Plaintiff, the Defendant breached the terms of the 2nd Contract by illegally terminating it hence causing the Plaintiff to suffer and continue to suffer loss and damage pleaded in paragraph 11 of the Plaint as follows:a.Kshs. 16,522,666/- being the unpaid capitation fees for services rendered under the 1st Contract;b.Kshs.202, 161,187. 50 being the unpaid capitation fees for services duly rendered under the 2nd Contract;c.Kshs.2,021,611,875 being loss of profit for the unexpired period of the contract during which the Plaintiff was prevented from rendering services under the 2nd Contract owing to the purported wrongful and illegal termination of the 2nd Contract;d.Kshs. 72,031,191 being compensation for expenses incurred by the Plaintiff in establishing, refurbishing and equipping its medical facilities countrywide to better serve the NHIF members who chose it under the second contract;e.Kshs.111,500,000/- being losses incurred on account of loans borrowed by the Plaintiff from commercial banks to enable it render services under the second contract;f.Kshs.25,000,000/- being other miscellaneous losses;g.Interest on each of the losses particularized in paragraphs 10(a)(b)(c)(d)(e) and (f) hereof at the rate of 20. 38% p.a from the date when each of the above heads of losses were sustained to the date of payment in full.

9. In support of the Plaintiff’s case, Toddy Modahana, the Plaintiff’s Chief Executive Officer Witness statement dated 24th January, 2018 was filed on 25th January, 2018. According to him, the Plaintiff has been a provider of modern outpatient medical services through its chain of clinics operating across the various parts of the country (Plaintiff facilities, list of Plaintiffs licenses, copies of licences, business permits and investment certificates are attached on pages 1-147 of the Plaintiff’s bundle of documents). He stated that the purported termination of the 2nd Contract was illegal, null and void and of no legal effect as confirmed by:-a.The report prepared by the Medical Practitioners and Dentist Board dated 20th April,2012(pages 161-274);b.The report dated 16th October,2012 prepared by Kenya National Audit Office (pages 275-280);c.The Hon. Attorney General letters dated 5th November, 2012 and 11th January, 2013(pages 246-258);d.Union of Kenya Civil servants letters (pages 379-392);e.Ministry of Medical Services letter dated 30th May,2012 and other letters (page 393-400);f.Hon. Martha Mutuku (SPM) Judgement before the Anti-Corruption Court, Criminal Case No. 18 of 2013(pages 401-593).

10. According to him, the purported illegal termination led to monumental loss and damage since the Plaintiff could not discharge its obligations under the 2nd contract.

11. The Plaintiff urge the court to issue mandatory orders compelling the Defendant to pay the Plaintiff the sums of money by way of damages as pleaded in the Plaint.

Statement of defence dated 8/3/2018 12. The Defendant at paragraph 4 of its defense admitted the details of the said Tender pleaded in paragraphs 4 and 5 of the Plaint. The Defendant denied that it has not paid a balance of Kshs.16, 522,666/- as pleaded in paragraph 6 of the Plaint.

13. According to the Defendant, the Plaintiff has pleaded partial terms of the 2nd contract. The Defendant pleaded that the rights of the Plaintiff would be guaranteed only if not based on falsified information, fraudulent misrepresentation and conduct in the execution of the contract. The Defendant pleaded that grave concern of public interest arose during the implementation of the contract which have been documented after a thorough and professional investigations by the following government agencies namely:-i.Efficiency Monitoring Unitii.Kenya National Audit Officeiii.Ethics and Anti-corruption Commissioniv.Price Water House Coopers commissioned by the National Treasuryv.Criminal Investigation Department

14. According to the Defendant, to safeguard the public funds, His Excellency the President and Commander-in-Chief of the Kenya Defense Forces vide a Gazette Notice No.6259 of 9th May, 2012 revoked the Defendant’s Board of Management and appointed a Caretaker Board. The Defendant pleaded that the contract was terminated on 14th June, 2012 and the caretaker ordered for re-inspection of all health care providers and published the same for the members of the scheme to choose preferred facilities.

15. According to the Defendant, the investigation led to interdictions and criminal prosecutions before the Criminal Court which according to the Defendant only made a finding on the individual criminal culpability of the accused persons before it and but never adjudged them innocent in respect of contractual liability.

16. The Defendant pleaded that the contract was vitiated on account of fraud, intentional misrepresentation and falsified information by the Plaintiff. According to the Defendant, its liability is limited as per Clause 14. 0 of the 1st contract and Clause 18. 0 of the 2nd contract such that the Plaintiff’s claims are not justified.

17. Jurisdiction of this court was challenged on the basis that it was prematurely invoked as the Plaintiff ought to have exhausted the dispute resolution mechanism enshrined in Clause 15. 0 and 19. 0 of the 1st and 2nd contract respectively.

18. The Defendant urge the court to find that no action lie against it.

Counterclaim dated 8/3/2018 19. According to the Defendant, the Plaintiff acted fraudulently towards the Defendant and/or misrepresented material facts to the Defendant hence the whole contract was wholly founded on fraud and/or misrepresentation, the particulars being that: -i.The Plaintiff misrepresented itself to the Defendant on the number and locations of the outlets that were to offer and were indeed offering the services to members of the Civil Service and Disciplined Services.ii.The Plaintiff knowingly and fraudulently circumvented the Defendant’s clearly laid down accreditation process, policy and Facility Assessment for In and Out Patient Healthcare providers, which process and policy formed the core of the Plaintiff’s contractual obligation and such environment was detrimental to the Defendant’s interestiii.On perusal of the Defendant’s In and Out Patient facilities which were taken through the accreditation process and assessment, it was discovered that the Plaintiff only had accredited facilities in Nairobi despite their representation that they had clinics spread and accredited countrywide.iv.Moreover, the Plaintiff failed to demonstrate that their engagement was indeed licenced as per the requirements of the Medical Practitioners and Dentists Board.v.It is evident that the Plaintiff intentionally misrepresented key material facts to achieve selfish ends of securing the contract when their misrepresentation was critical to the assessment of their ability to meet the expectation of the Defendant.vi.Had there been full disclosure to the Defendant before the execution of the Contract, then the Defendant would not have engaged them in the contract nor would they have qualified for the same.vii.That notwithstanding clause 5. 8 of the contract stated patently that the Plaintiff shall not in the performance of its obligations under the contract engage in any fraudulent practice.

20. The particulars of breach of contract being that: -i.The Plaintiff from the time the contract was signed has breached several fundamental clauses of the agreement and sought shortcut alternatives that directly and dangerously compromised the very noble idea by the Defendant and by extension the Government of the Republic of Kenya.ii.The Plaintiff’s obligation in the contract were lucidly stated under clause 3 of the said contract.iii.The Defendant’s duty was to pay the healthcare provider to provide medical care and treatment services to the Civil Servants and Disciplined Service.iv.On perusal of the Defendant’s In and Out Patient facilities which were taken through the accreditation process and assessment, it was discovered that the Plaintiff only had accredited facilities in Nairobi despite their representation that they had clinics spread and accredited countrywide.v.Moreover, the Plaintiff failed to demonstrate that their engagement was indeed licensed as per the requirements of the Medical Practitioners and Dentists Board thus the entity and services were illegal and fraudulentvi.The Plaintiff accepted capitation for the Defendant’s beneficiaries countrywide yet the upcountry facilities had not been assessed and/or gone through an accreditation process.vii.The Plaintiff thus could not perform its obligation as per the contract on the upcountry facilities despite the clear term of the contract.

21. The Defendant pointed out Clause 18. 1 of the contract where it is stated that the Defendant shall have no liability to the Plaintiff in respect of any breach of the contract for any loss of business profit, revenue, misused contractual opportunity or good will or for any indirect or consequential loss.

22. The Defendant urged the court to dismiss the Plaintiff’s claim with costs and enter judgement against the Plaintiff for:-a.A declaration that the Plaintiff breached several fundamental terms of the contractb.A declaration that the Plaintiff intentionally misrepresented itself to the Defendantc.A declaration that the Plaintiff did commit several acts of fraud and is guilty of fraudulent misrepresentation and falsification of recordsd.A declaration that the fraud, misrepresentation and falsification of records and information was to the detriment of the Defendant.e.A permanent injunction against the Plaintiff from demanding any payments whatsoeverf.Damages for breach of contractg.Any other relief that this Hon Court may deem fith.Costs of defending the suit and costs on the counterclaim.HearingPW1 Toddy Madahana stated;The plaintiff rendered health care services as per the aforesaid first contract and were duly paid for the services rendered thereafter except for the last installment of kshs.16,522, 666/- which remains outstanding to date.

23. Under the second contract, a total number of 56,747 principal members chose the plaintiff as their preferred healthcare provider and the plaintiff duly performed its obligations thereunder to the said principal members for the 1st and 2nd quarter and thus became entitled to the sum of Kshs.404,322,375 out of which they were only paid kshs.202,161,187. 50.

24. The purported termination of the second contract was illegal and therefore null and void and consequently, it was of no legal effect whatsoever as was confirmed by the following:a.Report prepared by the medical Practioners and dentist board dated 20th April, 2012 which confirmed the factual allegations which grounded the purported illegal termination were all untrue.b.Report dated 16th October, 2012 prepared by Kenya National Audit Office which confirmed that the factual allegations which grounded the purported illegal termination were all untrue.c.Report prepared by the efficiency monitoring unit dated November 2012 which confirmed that the factual allegations which grounded the purported illegal termination were all untrue.d.The letters written by the Honourable Attorney general dated 5th November, 2012 and 11th January, 2013 both of which confirm that NHIF board had no legal power to terminate the second contract and also that (even if they had not such power at the time) the purported termination would still be illegal and consequently null and void by reasons of failure to terminate in accordance with the provisions of the contract.e.Several letters written by the Union of Kenya Civil Servants all of which proved beyond doubt that the factual allegations which grounded the purported illegal termination were all untrue.f.Various letter from the Ministry of Medical Services which confirm beyond doubt that the NHIF Board had no power in law to terminate the second contract when they purported to do so and also that the purported termination was not done in accordance with the law. The letter dated 30th May, 2012 further confirms that the factual allegations which grounded the purported termination were untrue.

25. Particulars loss and damagea.Kshs.16,522,666/- being the unpaid capitation fees for services rendered under the first contract.b.Kshs.202,161,187. 50 being the unpaid fees for each of the remaining quarters for services duly rendered under the second contract;i.2nd quarter Kshs.202,161,187. 50ii.3rd quarter Kshs.202,161,187. 50iii.4th quarter Kshs.202,161,187. 50

DW1 Robert Odero Otom stated; 26. That the first contract (for Pilot Phase) ended successfully and all payments due to the Plaintiff for which verifiable services were rendered and returns filed, were made. In the circumstances, the Defendant’s claim for allegedly an unpaid sum of Kshs.16,522,666/- is baseless and is not backed by any copies of filed returns.

27. That the Government’s decision approving the roll-out of Scheme under the second contact was made on 28th December 2011, to take effect form 1st January, 2012. As such, the plaintiff and other service providers whose bids were successful were randomly allocated beneficiaries based on their declared capacities, with the Plaintiff being allocated by Defendant 56, 747 principal members.

28. That the aforesaid investigations were undertaken by the following agencies:a.The Efficiency Monitoring Unit (EMU) then domiciled at the Office of the President;b.The Kenya National Audit Office;c.The Ethics and Anti-Corruption Commission (EACC)d.Price Waterhouse Coopers (Commissioned by the National Treasury); ande.The Criminal Investigations Department (CID);

29. That the investigations led to interdictions of some officers of NHIF and later prosecution of high ranking officers of the NHIF including the then Chief Executive Officer (CEO) as well as senior officials and directors of the Plaintiff in criminal offences in Criminal Case No. 18 of 2013 (Before Hon. Mutuku, Anti-Corruption Court).

30. That the contract between the Plaintiff and the Defendant was solely vitiated by the Plaintiff due to the Plaintiff’s misrepresentation other than an innocent misrepresentation and/or fraud in connection with the operations of its business and as such, even before the Defendant’s decision to terminate the contract, the same stood vitiated in law due to breach of a fundamental and/or material term of the contract.

31. That the cause and/or reason that led to the termination of the contract between the Plaintiff and the Defendant was a breach of the said contract by the Plaintiff on the basis of mis-representation other than an innocent mis-representation and/or fraud on the part of the Plaintiff and this being the case, the Defendant was not required to issue the Plaintiff any notice of termination.

32. That the Plaintiff’s vitiated the contract by breach of fundamental/material term thereof and/or misrepresented other than an innocent misrepresentation regarding the number,location and/or accreditation status of the Plaintiff’s health care facilities available for purposes of performing the Plaintiff’s obligation under the contracts.

33. That in the circumstances, the Plaintiff’s claim in this suit in respect to capitation fees allegedly for services rendered in the 2nd, 3rd and 4th Quarters of 2012 under the second contract are baseless and ridiculous as there is no proof that the Plaintiff delivered any verifiable contractual services during the said period, neither were any returns filed. In any case, the contract had already being vitiated by the Plaintiff’s breach and/or terminated.

Plaintiff’s Submissions dated 9/6/2021 34. The Plaintiff’s submissions were premised on the following issues:-

Why this court lacks jurisdiction to admit nor act upon the defendant’s evidence to the effect that the plaintiff failed to submit returns 35. On the Plaintiff’s part, it is submitted that this court lacks jurisdiction to receive, admit, consider, nor act on the evidence adduced during the hearing by the Defendant that the Plaintiff was not paid the outstanding sums claimed herein because of not submitting returns. According to the Plaintiff, the issue had never been raised in any letter or documents emanating from the Defendant from 2012, a period of 8 years. It is submitted that the issue was never in all the pleadings hence a violation of the Plaintiff’s right to fair hearing under Article 50 of the Constitution.

36. According to the Plaintiff, the issue of returns appeared for the first time in the Defendant’s comprehensive witness statement which was filed in June, 2020 long after the pleadings had closed, after pre-trial conference had been conducted, after the matter came up twice in court for hearing and after the Plaintiff had lost the procedural opportunity to present evidence in rebuttal.

37. It is submitted that the court lacks jurisdiction to hear, receive, admit, consider nor act on evidence presented to prove an unpleaded issue nor even to find its judgement on such issues. Reliance was placed on the case of Gandy vs. Caspar Air Charter Limited (1956)23 EALA 139and Blay V. Pollard and Morris (1930) 1 KB 682.

Why the false claims of alleged non-submission of returns are in any event sufficiently rebutted by the scanty evidence that were accidentally filed herein before such claims were raised 38. According to the Plaintiff, it rebutted the Defendant’s false claims that the Plaintiff did not file returns through its demand letter dated 27th August,2012, the Efficiency Monitoring Report (EMU Report) as well as the Ruling of the Learned Magistrate, Hon. Martha Mutuku(SPM).

39. It is submitted that in the demand letter found at page 655 of the PBD confirms that the returns were duly submitted and if indeed they had not been submitted, the Defendant ought to have immediately replied to the Plaintiff’s letter to clarify that it had not received any returns from the Plaintiff hence the reason why the payment had not been made. Reliance was placed on Cross on Evidence, 6th Edn. Butterworths (1985) at page 29 where it was stated that the failure to speak or act when circumstances demand speech, communication or action usually has a very high probate value.

40. According to the Plaintiff, the EMU team would have picked up the issue of returns as it was a term of reference for the team and resolved. It is submitted that the EMU Report confirmed that the return were indeed submitted. Reference was made to page 15 of the Report found at page 289 of PBD that all the documents which were annexed to the Report were listed, in particular listed as Serial No. 110(b) read “Returns submitted by the (Plaintiff)”. However, it is submitted by the Plaintiff that the only reason why it omitted the annexures to the EMU Report was because they were too bulky, running into more than 1000 pages. According to the Plaintiff, it was the Defendant who released the returns to the EMU Team hence a reason why the Defendant’s witness, Robert Otom could not locate the said returns at the Defendant’s office. It is submitted that Robert Otom testified that he was not based at NHIF Headquarters in 2012 when the returns were submitted hence he could not be expected to know they were submitted and released to EMU Team.

41. Reference was made to the ruling delivered by Hon. Martha Mutuku at paragraph 122 where the Learned Magistrate narrated the evidence of the Defendant’s General Manager in charge of Finance, Mr. Lawrence Nyamichaba Ondari that he told court that the Plaintiff’s payment had been “approved” and that payment voucher had been “processed” and the proceeds thereof placed in the provisional account. According to the Plaintiff, the process would not have happened if the Plaintiff had not submitted the returns since the submission of returns was a condition to payment.

42. It is submitted that all the pleadings filed by the Defendant including the Defendant’s own List of Agreed issues filed on 2nd September, 2019 never made any mention of the alleged non-submission of returns. The Plaintiff’s urge the court to ignore such wild allegations.

What is capitation and whether it enjoins the capitation provider to establish facilities and clinic wherever capitated members happen to reside 43. As to what is Capitation, the Plaintiff made reference to the definition by Theresa W. Bourdon, Keith Passwater and Mark Priven in their article entitled “An Introduction to Capitation and Healthcare Provider Excess Insurance” as follows:“Defined formally, capitation is a fixed sum a person is paid in advance of the coverage period to a healthcare entity in consideration of Its “Providing” or “Arranging to Provide” contracted healthcare services to the eligible person for the specified period”

44. According to the Plaintiff the essence of capitation is that a healthcare provider has the option to either “provide the services” directly by itself or alternatively to “arrange for the provision of the services” indirectly through some other contracted third party providers. According to the Plaintiff, to construe capitation in terms that require the capitation provider to render the services to every member of the capitated population as a condition precedent to receiving his entitlements under the contract would be to stretch capitation out of shape and squeeze all commercial sense out of it. It is the argument by the Plaintiff that the sum of Kshs.2, 850/- (which was case herein) cannot take care of a person’s entire medical and surgical needs for a whole year hence capitation would only make commercial sense if the capitation provider retains the liberty to decide which services he will offer directly and which services he will offer through other providers.

45. Reference was made to Clause 1. 24. 12 of the RPF (Page 157 of the PBD) which provided that as part of the post-qualification evaluation, the Defendant will ascertain for itself the availability of “Owned’ or Contracted Facilites. Further the Plaintiff pointed out Clause 4. 1 and 4. 2 of the Second contract (Pages 433 and 434 of PBD) provided that the Plaintiff could render services through 3rd parties with whom it had a referral system and in Clause 6 of the same contract (Page 235 of the PBD) provided that the Plaintiff would be invoiced for services rendered by the third party providers. According to the Plaintiff, it would be impossible for them to build facilities and clinics where capitated members reside. It is submitted that such members can be treated at the third party health facilities and invoice the Plaintiff as provide under Clause 6. 3 of the Second contract (page 235 of the PBD).

46. The Plaintiff urge the court to ignore the Defendant’s argument that the Plaintiff did not have the capacity to deliver the contractual services under the contract ostensibly because they did not have facilities and clinics everywhere.

What was the true nature of the contractual services? was it “to render medical and surgical services to all members wherever they reside?” as the defendant contends or “to ensure that they have access to such services for the duration of the contract” as the plaintiff maintains 47. According to the Plaintiff, it discharged its obligation by making all necessary arrangement as required under Clause 1. 139(Page 228 of the PBD) as well as 2. 1(Page 229 of the PBD) of the 2nd contract. The Plaintiff argument is that whether the services were actually utilized or not had absolutely no bearing on the Plaintiff’s obligation under the contract. According to the Plaintiff, once the medical insurance provider makes all such arrangements as would ensure that any insured member who falls sick receives the requisite medical and surgical services he has discharged his obligations under the contract whether the insured member actually falls sick and receive such services or not. It is submitted that the medical insurance contract would lose commercial sense if it imposes on the provider the obligation to treat every insured member and therefore ties the entitlement to premium with the actual delivery of such services. According to the Plaintiff, it would only make profit when some of the members do not seek the requisite services within the contract period.

48. Reference was made to the evidence of Mary Adhiambo Maungu who confirmed during cross-examination that the scheme was a “medical insurance cover” whereby the government was to pay premium to NHIF and NHIF was to pay a “Premium” to the providers. According to the Plaintiff, her evidence was corroborated by the RFP as well as the contract signed by the parties. Reference was made to the phrase “Member Insurance Cover” in Declaration 1 and in Declaration 2 the statement “Insurance Member” (Page 160 of PBD). At page 26 (Page 168 PBD) the RFP used the phrase “The tender is expected to provide “premium” per individual for the said period of time”. It is submitted that Clause 1. 13 of the second contract (Page 228 of PBD) used the word “cover” which implied insurance “cover” as well as Clause 2. 1 (page 229 of the PBD) where it is stated that “The Cover” is for medical and surgical expenses necessary and reasonably incurred by the member and/or his dependent…..Within the Period of Insurance..”

49. It is submitted that the gravamen of the Plaintiff’s obligation under the scheme involved ensuring the medical and surgical expenses necessary and reasonably incurred by members are met during the entire contractual period. According to the Plaintiff, the true nature of the services that they contracted for was therefore “insurance service” or construed more broadly “financial service” therefore the Plaintiff’s obligation was to ensure that the capitated members have access to the medical and surgical services required under the scheme for the entire duration of the contract and not necessarily to provide those services themselves in part performance of their obligations under the contract. Reference was made to Clause 1. 13(page 228 of PBD) and 2. 1 which explicitly stated that the responsibility of the Plaintiff was to ensure that the medical and surgical Expenses necessary and reasonably incurred by the members or their dependents are paid Within the Period of the Insurance.

50. According to the Plaintiff, the term “within the period of insurance” under Clause 2 in the second contract was intended to emphasize the fact that the Plaintiff was expected to render an “insurance service” and not necessarily “medical service” although the provision of medical services were comprised within the broader responsibility to render a purely “insurance” or “financial” service. It is submitted that just as an insurer cannot lose its entitlement to the premium by reason only of the fact that the insured risk did not occur the Plaintiff cannot be expected to lose his entitlements under the contract simply because the capitated members chose not to utilize the financial services that the Plaintiff had made available for the entire duration of the contract, pursuant to their obligations under the contract. According to the Plaintiff, the fact that the capitated members did not utilize such services because the Defendant asked them not to utilize those services on the false and mistaken belief that the contract had been terminated did not in any way affect the Plaintiff’s entitlement to his payment under the contract for the entire duration of the insurance. According to the Plaintiff it established a total of 71(page 4-18 of PBD) facilities and entered into the referral system with 202(page 200-220 of PBD) other healthcare providers to serve its members in those areas where it may have not had a facility.

51. Reference was made to Hon. Martha Mutuku narration of the Defendant’s General Manager in charge of Finance that a bank guarantee had been placed before him hence the Plaintiff had the capacity under Section 9 of the Public Procurement and Disposals Act. According to the Plaintiff, the statement first confirms that the nature of services that the Plaintiff was contracted to provide was a financial service and second that the Plaintiff had duly discharged his obligations under the contract. Finally, that the Plaintiff had the capacity to deliver under the contract. It is submitted that based on Sections 34(1) (d), 17, 18 and 24 of the Evidence Act, the testimony of Lawrence Nyamichaba Ondari should be treated as an admission against the Defendants with regard to the aforementioned three issues.

Why otom was incompetent as a witness 52. The Plaintiff submitted that Robert Otom evidence was based wholly on hearsay for the reasons that:a.He was not the Defendant’s Finance Manager or CEO in 2012 and confirmed that he never received any communication about the contracts hence he could not competently testify on the contracts in particular whether the parties thereto had discharged their obligations thereunder.b.He was not a procurement expert or procurement manager or part of the tender committee or evaluation committee hence he could not competently testify as to whether the entire procurement process was carried out in accordance with the law.c.He was not based at the NHIF Headquarters at the material time and the communications between the Plaintiff and Defendant were legally required to be kept strictly confidential hence he had absolutely no opportunity nor ability to know what had been done by which party and when regarding the subject matter of this case and what had not been done.d.He contradicted the then General Manager In charge of Finance Lawrence Nyamichaba Ondari by stating that the reason why the payment had not been done was because the Plaintiff had not submitted returns and/or did not perform yet the said General Manager testified before Hon. Mutuku that the Plaintiff’s payment of the second quarter of the second contract had been “approved” by all Senior Officers who were tasked with the responsibility of approving payment which could not have happened if the Plaintiff had not submitted returns as a condition precedent to payment and the payment voucher had been processed by the time the board stopped the payment(page 222 of the ruling).e.The evidence of Mary Adhiambo Mahugu and Lawrence Ondari before Hon. Mutuku is admissible and constituting an admission by the Defendant regarding why the Plaintiff was not paid and the question whether the Plaintiff submitted the returns.f.The EMU Report and the ruling of Hon. Mutuku confirmed that if the allegations raised by the Defendant in their defence were to be used to terminate providers of medical services then all other providers under the scheme and NOT just the Plaintiff and Meridian Medical Services ought to have been terminated.g.The EMU report confirms that the Plaintiff was a victim of an infighting among the senior staff of the Defendant.

Why allegations of misrepresentation and fraud lacked merit 53. The Plaintiff submitted that despite Section 81 of the Public Procurement and Disposal Act (PPD) which required bidders to give the information required in the request for proposal to determine their capacity to deliver in the contract, the RFP did not require the bidders to give any information relating to the number, location nor accreditation status of its facilities or clinics. According to the Plaintiff, all the documents and information which the bidders were required to give were listed therein. It is submitted that Section 85 of the PPD prohibits including a new term in the contract which was not included in the RFP hence it was not legally possible for the Plaintiff to furnish the Defendant with information touching on the number, location nor accreditation status of its facilities. According to the Plaintiff, the allegations of fraud, misrepresentation or falsified information should therefore be dismissed in limine as they are incapable of proof.

Why allegations to the effect that some of the plaintiff’s facilities were not accredited lack merit 54. According to the Plaintiff, the allegations should be ignored for the reasons that, one, no provision of the RFP, contracts or even the NHIF Act expressly provided that medical services to NHIF members can only be rendered in accredited facilities. It is submitted that the Defendant’s Director Jackline Mugo stated at paragraph 105 of Hon. Mutuku’s judgement (page 472 of PBD) that the accreditation was practice of NHIF and not entrenched in NHIF Act or the Accreditation Rules, 2003. It is submitted that Jackline Mugo stated that the accreditation was to ascertain the daily claim rate applicable in-patient services. According to the Plaintiff, that since the contract between the Plaintiff and Defendant related solely to outpatient services then accreditation was not necessary. The Plaintiff therefore has submitted that Jackline Mugo evidence has explained why no provision of the RFP imposed an obligation on bidders to ensure that their facilities are accredited. Reference was made to Clause 3. 1, 3. 3 and 3. 11(Page 230 of PBD) which provided that “NHIF has agreed to accredit the “healthcare provider” and NOT it’s “Clinics or its facilities”. It is submitted that it did not therefore impose any obligation on the provider to ensure that its clinics or facilities are accredited. According to the Plaintiff, those clauses’ imposed obligation on the Defendant and not the Plaintiff.

55. As regards Clause 3. 2 which provided that the healthcare provider shall “maintain accreditation standards stipulated in a manual annexed to the contract as Annex 1. .”, it is submitted that the Clause did not impose any obligation on the Plaintiff to accredit facilities as no manual was annexed to the contract and no accreditation standards were spelt out which the Plaintiff could maintain. According to the Plaintiff, the phrase “maintaining certain accreditation standards” cannot be equated with the phrase “ensuring that facilities or clinics are accredited”. It is the Plaintiff’s argument that none of the two contracts contained any provision which obliged the Plaintiff to render services only through accredited facilities nor to ensure that its facilities are accredited. It is therefore the Plaintiff’s assertion that the fact that some of the facilities may not have been accredited had no bearing at all on its capacity to deliver under the contracts.

56. According to the Plaintiff, despite the Defendant’s obligation to evaluate and ascertain the bidder capacity to deliver before awarding any of them a contract as stipulated under Regulation 49 of the PPRA, 2006, it means that by failing to ascertain whether the Plaintiff had the capacity to deliver and by awarding the contract to a bidder who the Defendant claim to have no capacity now, the Defendant essentially violated Regulation 49(supra) and cannot therefore now seek to raise a defense out of their own illegal action.

Why allegations to the effect that the plaintiff lacked capacity to deliver on the two contracts ostensibly because it did not have clinics/facilities everywhere are ludicrous 57. The Plaintiff submitted that the allegations is preposterous for the reasons that:a.The obligation to ensure the bidder had the capacity to deliver under the contract is imposed on the procuring entity rather than the bidder. Reference was made to Regulation 49(2) of the PPRA which requires the procuring entity not to award a tender to a bid that is non-responsive i.e to the bidder has no capacity.b.Pursuant to Clause 1. 24. 12 of the RFP(Page 157 of PBD) it was the responsibility of the Defendant to establish whether the Plaintiff will use “Owned” or “Contracted” facilities or a mixture of both and also number and precise location of the same. It is submitted that before the magistrate court the Defendant’s General Manager in charge of Finance, Lawrence Ondari informed the court that the Plaintiff had made all financial arrangements to ensure all capitated members had access to medical and surgical services in the form of a guarantee which had been placed before him. According to the Plaintiff, this was a confirmation that the Plaintiff had the requisite capacity to deliver under the contract as observed in paragraph 120 of the ruling found at page 481 of the PBD.c.According to the Plaintiff, the attempt to associate “capacity to deliver” with the number and/or location of owned facilities” is equally ludicrous as capacitation involves “ensuring” that the capacitated population has access to medical service as and when needed either directly by the provider or some third party on behalf of the provider.d.It is the Plaintiffs argument that there was no provision in either the RFP nor in any of the two contracts which provided that a capacitated member could only be served where he ordinarily reside or his preferred clinic.

Why the allegations to the effect that the palintiff’s clinics were not licenced equally lacked merit. 58. The Plaintiff refutes the allegations by submitting that by a letter dated 30th May, 2012(page 393 of PBD) the Director of Medical Services confirmed that there were no ghost clinics offering services to the public. Reference was also made to the Parliamentary Committee of Health report appearing on pages 260-274 of the PBD wherein it was confirmed that the Plaintiff’s clinics were duly licensed. According to the Plaintiff, the physical copies of the licenses duly issued by the Medical Practitioners and Dentists Board are annexed at pages 20-147 of the PBD.

Why allegations to the effect that the plaintiff was not paid on account of alleged non-submission of the returns or alleged failure to perform should be ignored 59. Reference was made to paragraph 7 of the then Attorney General’s letter (page 251 of the PBD) where he stated-“We note that the NHIF Board have concurred with the opinion of this office on payment to the two service providers for the second quarter period and approved the said payment subject to our opinion on whether the payment should await the outcome of the pending investigation.”

60. According to the Plaintiff, the statement confirmed: -a.The Attorney General was convinced that the Plaintiff and Meridian Medical Services Limited were entitled to be paidb.The NHIF Board was also of the same opinion and had even gone ahead and approved the paymentc.The only question on what the Attorney General’s opinion was sought was whether the release of the payment should await the conclusion of the pending investigations or not (page 252 of PBD).

61. It is submitted that money would not have been kept in a provisional account if the Defendant believed that the payment was not due. Reference was made to the evidence of Nyamichaba Ondari (paragraph 122 of the judgement). According to the Plaintiff, the evidence of Board Chairman, Prof. Richard Muga is contradictory since he stated that the board had no role to play in the management of the Defendant but at paragraph 49 of the judgement (page 438 of PBD), he stated that the management had Approved and even Processed the Plaintiff’s payment before he intervened to stop the release the same.

Why allegations to the effect that the contracts were terminated lack merit 62. According to the Plaintiff, the letter appearing on page 259 of the PBD only mentioned the termination of the second contract and not the first contract hence the allegation that the first contract was terminated must be dismissed in limine. It is the Plaintiff’s argument that the said letter dated 14th June, 2012 was also not capable of terminating the second contract for the reasons that: -a.It was indicated in the letter that the alleged termination had been affected by the NHIF Board yet it was the NHIF Management which had the power in law to exercise the management function.b.Korir J. of the High Court held that the NHIF Board that purported to terminate the second contract was illegal and therefore incompetent to transact any business(see paragraph 2 on page 248 of PBD)c.At page 5 of the Hon. Attorney General letter dated 11th January, 2013 in respect of the NHIF Board that purported to terminate the second contract, the Attorney General stated that the instant Board has not been constituted properly or competent to transact its business hence any decision taken at the meeting could be challenged in court as illegal for want of quoram.d.Pursuant to Regulation 32(1) of Public Procurement and Disposals Regulations the reasons for termination must be spelt out lest the termination is invalid and null and void. According to the Plaintiff the letter dated 14th June, 2012 did not give reasons for the purported termination, and consequently the termination was null and void.e.Under Regulation 32(2), termination of the contract must be approved by the tender committee. It is submitted that the Defendant witness confirmed that there was no evidence of any approval of the tender committee.f.At Page 162 and 163 of the EMU (back page of 361 and 362 of PBD) it is stated “If the allegations made as against the Plaintiff herein justify termination of the Plaintiff’s contract, then all contracts under the scheme ought to have been terminated as well. The same observation was made by Hon. Martha Mutuku at paragraph 23 of her judgement (Page 425 of PBD)

Why the contention that the plaintiff was “allocated” members should be ignored 63. The Plaintiff submitted that it was not true that it was “allocated” 56,747 members but 56,747 members of whom had additional 4 dependants “selected” the Plaintiff. According to the Plaintiff, the amount payable per beneficiary was indicated as Kshs. 2,850 per beneficiary, consequently the amount payable per quarter was Kshs. 202, 161, 187. 50/- which was the same amount paid to the Plaintiff in the first quarter.

64. According to the Plaintiff, the Defendant’s assertions must fail for the reason that:-a.The contract expressly provided that the beneficiaries would “choose” or “select” their service providers.b.The Defendant had no power under the contract to “allocate” beneficiaries under the contractc.The Plaintiff had no power to influence the “allocations” to itself whose infrastructure to select the preferred service provider is wholly controlled by the Defendantd.It is ridiculous for the Defendant to argue that it “allocated” beneficiaries to the Plaintiff and on the other hand to argue that the allocation “ought not to have been done” and consequently the Plaintiff should not be paid.

Why interest on the outstanding amounts due to the plaintiff should be calculated at commercial rates compounded monthly 65. Reference was made to Section 48(b) of the PPDA, 2005 that the interest should be paid in accordance with the prevailing commercial rates. According to the Plaintiff, none of the two contracts expressly provided that no interest shall be payable on overdue amounts. It is submitted that Section 48(supra) is couched in mandatory terms. According to the Plaintiff, since PPDA governed the two contract, Section 26(1) of the Civil Procedure Act that donates the court with discretion to award interest is ousted hence Section 48 of the PPDA, 2005 is applicable. Reliance was placed on the cases of Shah vs. Guilders International Bank Ltd [2003] KLRand in Jane Wanjiku Wambui vs. Anthony Kigamba & Others [2018] eKLR.

66. It is submitted that the calculation of the commercial rates must be based on daily rates averaged at the end of every month and compounded monthly. According to the Plaintiff, the Defendant has withheld its money for a long time hence it is entitled to interest at commercial rates compounded monthly. Reliance was placed on the case ofFaram E.A Ltd vs. Attorney General & 2 Others(2016)eKLRwhere the court held that where the Defendant willfully deliberately subject the Plaintiff to unnecessary but substantial economic detriment then they ought to be compelled to pay compound interest. In Veleo (K) Ltd vs. Barclays Bank of Kenya Ltd (2013) eKLRthe court was also of the same view.

What reliefs are the plaintiff’s entitled to 67. The Plaintiff urge the court to find that it is entitled to:-1. Declarations sought in prayers (a),(b) and (c) of the Plaint

2. An order directing the Defendant to pay the Plaintiff special damages as particularized in paragraph 11 of the Plaint as follows:-

(a)Under paragraph 11(a) of the Plaint the Plaintiff claimed Kshs. 16,522,666 which remain outstanding from the 1st contract together with interest at commercial rates from 30th January, 2012 when it ought to have been paid till payment in full. Accrued interest on this sum at commercial rate from 30th January, 2012 to date is Kshs. 92,293,935. 38 calculated in accordance with the Central Bank of Kenya rates(b)under paragraph 11(b) of the Plaint, the Plaintiff claimed Kshs. 202,161,187. 50/- being unpaid capitation fees, per quarter, for the services rendered during the 2nd contract. The first quarter was paid but the second quarter was not paid. Accrued interest on the sum from 30th April, 2012 is Kshs. 670, 898,079. 37 calculated in accordance with the Central Bank of Kenya rates.(c)The total amount for the remaining 10 quarters of the second contract being Kshs. 2,021,611,875 and accrued interest from the date when it ought to have been to be paid till to date comes to Kshs. 1,192, 787,323. 33. (d)Special damages claim as particularized in paragraph 11(c), (d) (e) and (f) of the Plaint are abandoned and are not being claimed.(e)Claim for an order to direct the Defendant to pay general damages for the breach of the 1st and 2nd contracts is abandoned and will not be pursued. 3. Costs of the suit

4. Dismissal of the Defendant’s counterclaim with costs.

Defendant’s submissions dated 17/6/2021 68. The Defendant’s submissions are premised on the following issues: -

Whether the plaintiff is entitled to the sum of kshs 16, 522,666/- under the first contract as claimed in paragraph 11(a) of the plaint 69. On behalf of the Defendant, it is submitted that the bone of contention is whether the Plaintiff is entitled to payment of the last monthly instalment in the sum of Kshs. 16,522,666/- in respect of the final (6th) month under the 1st Contract.

70. According to the Defendant, the Plaintiff is not entitled to the payment since:-a.The burden of proof is on the person who alleges hence the Defendant was under no obligation to adduce any evidence to disapprove the Plaintiff’s claim in paragraph 11(a) of the Plaint. The burden to prove the Plaintiff’s allegations cannot be shifted to the Defendant. The Plaintiff is under an obligation to prove entitlements by providing evidence that it submitted the returns in accordance with the requirements under the 1st Contract. Reliance was placed on the cases of Susan Mumbi vs. Kefafaf Grebedhin HCC No.332 of 1993, Christoper Maina Kimaru vs. Josepine Wairimu Ngari & Another [2 016] eKLR, Dave vs. Business Machines Limited [1974] EA 68, Kipkebe Limited vs. Peterson Ondieki Tai [2016] eKLR, Mourine Mukonyo vs. Embu Water and Sanitation Company [2020]eKLR, Allied Wharfage Limited vs. Ganja Mavumba Nyawa [2020]eKLRand Samason Gwer & 5 others vs. Kenya Medical Research Institute & 3 others [2020]eKLR.b.The Plaintiff failed and/or refused to comply with the express term of the 1st Contract which required him to submit returns for the previous month as a pre-condition for payment under clause 5. 4 of the special conditions of the Contract that stated that “the fund shall disburse subsequent payment upon receipt of the returns.” According to the Defendant, the use of the word “subsequent payments” denotes by implication that only the payment for the first month under the 1st Contract was to be made upfront automatically but payments for the 2nd, 3rd, 4th, 5th and 6th months respectively would be conditioned on submissions and receipt of appropriate returns in respect of the previous month. Reference was made to Clause 5. 2 and 5. 4. In addition, the parties are bound by the terms of the contract they made and the court may only interpret and apply the contract. Reliance was placed on the cases of Trollope & Colls Limited vs. North West Metropolitan Regional Hospital Board [1973] and Allied Cards Limited vs. Jaswinder Singh Enterprises & Another [2008] eKLR in support of this argument. According, to the Defendant, the Plaintiff did not fulfill the terms of the contract hence in breach of the contract. Reliance was placed on the case Nakana Trading Co.Ltd vs. Coffee Marketing Board [1990-1994]EA 448 relied upon by Makau J. in Gatobu M’Ibuutu Karatho vs Christopher Muriithi Kubai[2014]eKLR.c.Granting the relief would legitimize the Plaintiff’s material breach of an essential term in the contract and no evidence had been adduced to vary the terms of the contract. According to the Defendant, by failing to submit returns for the 5th months to trigger the advance payment for the last instalment was a violation of Clause 5. 4 of the 1st Contract as read together with Clause 5. 2 of the same contract. Reliance was placed on the case of Hassan Zubedi vs. Patrick Mwangangi Kibaiya & Another [2014]andPhoto Production vs. Securicor Limited [1980] 1ALL ER 56 on performance of contractual duties or obligations in a contract. It is submitted that the absence of the returns made it impossible for the Defendant to ascertain if any services had been provided at all. The Defendant argues that the instalment to be paid in the last (sixth) month of the contract was predicted on returns in respect of the 5th month in the absence of which payment could not be justified, verified and paid. Reliance was placed on Woodar Investment Development Ltd vs. Wimpey Construction UK Ltd(1980)1 ALL ER 571. d.Kshs. 16,522,666 was a special damage that was supposed to be specifically pleaded and strictly proven while citing the Court of Appeal decision in Captial Fish Kenya Limited vs. The Kenya Power and Lighting Company limited. It is submitted that the Plaintiff never submitted the returns for the 5th month in order to trigger payment for the 6th month. While relying on Order 4 Rule 4 of the Civil Procedure Rules, 2010, it is submitted that the issue of returns does not fall under “matters which must specifically be pleaded”. In addition, the Defendant contends that that if the Plaintiff was ambushed, he should have filed supplementary evidence before the hearing commenced after being served on 20th June 2020 with the Defendant’s witness statement. The Defendant denied that the issue of returns arose after the Plaintiff had closed their case or that the Plaintiff had no opportunity to respond to the Defendant’s position that the returns had not been filed.

Whether under the second contract, the plaintiff was entitled to the payment for the second quarter of 2012 instalment of kshs. 202,161,187. 50 71. As to whether the Plaintiff was entitled to the payment for the second quarter of April, May and June of 2012 instalment of Kshs. 202,161,187. 50, it is submitted that he was not entitled to the same because the necessary returns had not been filed and the Plaintiff had not proved that he is owed the amount. Reference was made to paragraph 7 of the Plaintiff’s Reply to Defense and Defense to Counterclaim that the Plaintiff admitted that it was paid Kshs.202,161,187. 50 in respect of the services delivered in the 1st quarter of 2012 under the 2nd Contract. According to the Defendant, the Plaintiff never submitted the first quarter returns due by 31st March 2012 and the same were never received by the Defendant as captured in the Defendant’s minutes for the meeting held on 6th June, 2012. Reference was made to Clause 5. 4 and 6. 2 of the 2nd Contract. The Defendant adopted his submissions and court decision relied upon in issue 1.

72. It is submitted that the Defendant met on 4th June,2012 to consider a request for payment of the 2nd quarter installment whereby the Defendant adopted the presentation of the management that the payment was not declined because of the pending investigation by various government agencies but also because the Plaintiff had not filed 1st quarter returns (See Minute 28. 2.2012 of the Defendant’s Board found at pages 304 and 305 of the bundle).

Whether the plaintiff is entitled to the sum of kshs.2, 021,611, 875/- being loss of profit for the unexpired term of the 2nd contract as claimed under paragraph 11(c) of the plaint(abandoned by the plaintiff as per submissions) 73. According to the Defendant, the Plaintiff is not entitled to Kshs. 2,021,611,875/- based on 5 grounds:-i.The Defendant is protected by clause18. 1 of the……….contract from any liability to the Plaintiff for any breach of the contract for any loss of business profit, revenue, missed contractual opportunity or good will of for any indirect or consequential loss. According to the Defendant, the court should not award the amount as doing so would amount to the court rewriting the 2nd Contract on limitation of liability. Reliance was placed on the cases of MTN Service Provider (PTY) Limited vs. Belet Industries CC t/a Bellet Cellular [2021] ZASCA., John Mburu vs. Consolidated Bank of Kenya [2018]Eklr (D & C Builders vs. Sidney Rees[1965]3 All ER 837), Amatsi Water Services Company vs. Francis Shire Chachi [2018] eKLR, National Bank of Kenya Lts vs. Pipelastic Samkolit (K) Ltd [2001]eKLR and Transfield Shipping Inc. vs. Mercator Shipping Inc. [2008] UKHL. According to the Defendant, no fraud, coercion or undue influence has been pleaded or proved by the Plaintiff to justify the intervention of the court to rewrite and/or interpret the provisions of the 2nd Contract to remove the limitation of liability in favour of the Defendant under Clause 18. 1 of the 2nd Contract.ii.According to the Defendant, it produced a copy of the 2nd contract in which Clause 7. 0 is incompletely drafted and by use of an ink pen, the period is changed from the printed one (1) year to a suspiciously scribbled three (3) years. It is submitted that the three (3) year as the unexpired term of the contract is not based on the express terms of the 1st contract or the 2nd contract that the parties willingly and intentionally negotiated and signed. According to the Plaintiff the term of the 2nd contract was never pleaded by the Plaintiff or indicated in his witness statement or adduced in court orally. The Plaintiff has relied on an erroneous and non-existent term of three (3) years for 12 quarters in respect of the 2nd contract.iii.It was wrong for the Plaintiff to assume in its calculation that it would have been paid a constant sum of Kshs. 202,161,187. 50 per quarter since the number of beneficiaries getting health services from the Plaintiff was not remain constant for the entire term of the 2nd contract. Reference was made to Clause 6. 4 of the 2nd Contract which gave the members option to change facilities every 3 months.iv.The figure is not based on any scientific or expert calculation or evidencevi.The loss of profit claimed by the Plaintiff as a special damages is remote for the same to attach to the Defendant. The Defendant cannot be held responsible for a sum wrongly computed using a non-existent three (3) year term and based on wrong assumption that the number of Principal beneficiaries attached to the Plaintiff would remain constant during the validity of the remainder of the 2nd Contract. Reference was made to the view of Harvey McGregor at page 98 of his book McGregor on Damages, 17th Edn. on remoteness of damages.

Whether either of the plaintiff or defendant breached the terms of the first and/or second contract 74. It is submitted that the Plaintiff breached the terms of the contracts for failing and/or refusing to file returns for the 5th month under clause 5. 4 “Special Conditions of Contract” of the first contract and returns for the first quarter of the 2nd Contract contrary to clause 5. 4 and 6. 2 of the 2nd Contract. According to the Defendant, the Plaintiff misrepresented that it had adequate and qualified personnel to deliver the services under the 2nd contract that even lead to investigations by the Parliamentary Committee on health and Criminal Investigations department after public outcry against the Plaintiff.

75. The Defendant’s view is that it had no obligation to specify the reasons for termination as no such obligation was agreed upon by the parties in the contract and to impose such an obligation would amount to rewriting the contract. According to the Defendant, the Plaintiff did not rebut the Defendant’s counterclaim that it breached several fundamental Clauses of the contract or it misrepresented on its capacity to perform in the contracts. It is submitted that the Plaintiff did not address the issue of breach of the express provisions of the contract, misrepresentation and/or fraud.

76. According to the Defendant, the bank guarantee provided to it by the Plaintiff was simply an assurance that the bank would indemnify the procuring entity in case of failure to deliver on their obligations and not proof of capacity to deliver on the contract. It is submitted that the list of the alleged clinics/facilities of the Plaintiff was unauthenticated and unsupported by any concrete documentary or other evidence of their existence, operational and delivered services as required under the contracts.

Whether the plaintiff’s conduct constituted misrepresentation and/or fraud 77. It is submitted that the conduct of the Plaintiff amounted to misrepresentation and/ or fraud by misrepresenting the number, location and accreditation status of its facilities. In response to the Plaintiff’s argument that it was entitled to utilize its own facilities or those of 3rd parties, the Defendant made reference to Clause 16. 1 of the 2nd Contract which provided that “the Healthcare provider shall not assign, in whole or in part, its obligations to perform under this contract.” According to the Defendant, the unauthenticated lists of 71 facilities, list of service providers and third party service providers was most likely computer generated and fabricated hence cannot be the basis of support for the claim herein. It is submitted that the Plaintiff began obtaining licenses for registration of additional facilities after entering into the 2nd Contract in January 9th, February 19th and 7th April yet it’s payment for the first quarter of 2012(January-March) was based on a representation that it had 56 facilities countrywide yet it only had 16 outlets. According to the Defendant, this was an indication of lack of capacity to provide the contractual services. As to what amount to misrepresentation, reliance was placed on the case of Muriithi Imanyara & 2 Others vs. Equity Bank Limited & 3 Others [2019] eKLR.

78. Reference was made to the report dated November, 2012 at paragraph 26 where the Efficiency Monitoring Unit (EMU) is said to have noted that there was an “outcry at the roll out of the scheme..” whereby the Plaintiff with another provider are said to have been paid for non-existent facilities or for facilities opened after the scheme roll-out. It is submitted that EMU at page 85 of its report noted that some of the facilities including those of the Plaintiff had “obtained licenses even when registration from the Medical Practitioners and Dentist Board (MPDB) had not been done exposing patients to risk of safety”. According to the Defendant, despite the unlicensed facilities being recognized and accredited by NHIF, the EMU report at page 86 found it to be unlawful under Section 30 of the NHIF Act and recommended appropriate action be taken against the Defendant’s CEO. According to the Defendant, over 50 facilities were awaiting inspection and accreditation by the time the 2nd Contract came into effect in early 2012. It is submitted that page 119 of the EMU report established that before 2012 the Plaintiff had only 16 facilities/outlets registered by MPDB. According to the Defendant, curiously the copies of licenses for approximately 70 facilities are all backdated to 1st January2012 yet MPDB report show that the facilities were progressively registered and/or licenses during the year 2012. It is submitted that it is possible to be licensed but not operational and it is possible to be operational but no evidence that the Plaintiff offered the healthcare services under the scheme to which the 1st and 2nd contract applied. According to the Defendant, its investigation revealed that there were “ghost clinics that were capitated” and “issues of capacity and poor management” of the facilities and was corroborated by the MPDB report dated 20th April, 2012.

79. According to the Defendant, returns were filed for the first four months of the contract which led to accreditation of the Plaintiff’s eight (8) facilities in Nairobi that were gazetted but on the fifth month the Plaintiff stopped filing the returns and the contract subsequently collapsed. It is submitted that no returns were filed in the 2nd Contract hence the Defendant was unable to ascertain the levels of delivery despite the Plaintiff receiving the advance payment at the beginning of the first quarter.

80. According to the Defendant, the Auditor’s General report established out of the 56 facilities only 22 were licensed by MPDB and the remaining 34 were unlicensed. Further that 35 of the facilities did not have licenses by January, 2012. Reference was made to the MPBD report dated 20th April, 2012 that the Kiserian and Meru facility weer not registered/licensed, Embu, Maua and Kangaru had questionable licenses, Kakamega and Kwale had unqualified personnel and Mumias, Ukunda, Wundanyi, Loitotok and Malindi had inadequate facilities.

81. It is submitted that the 2nd Contract envisaged a referral system under Clause 4. 1 but was only permitted subject to mandatory “agreement with NHIF” but no with agreement with any third party service providers on page 200 to 224 of the Plaintiff’s bundle had been provided. Further that the specialized services like dental, radiology, ENT, optical care and other consultant services, Clause 4. 2 of the 2nd Contract required outsourcing for such services to be done subject to “an agreement with NHIF” but not such agreement was tendered in court. It is submitted that the list of third parties is unauthenticated. Reference was made to Clause 16. 1 of the 2nd Contract that provided that the Plaintiff shall not assign the contractual services to any third parties. According to the Defendant, the only exception to non-assignment was in cases of referrals from the Plaintiff’s facilities to a lower or higher level facility or to a specialized service like dental, optical, ENT unit or to specialists and in accordance with Clause 4. 1 and 4. 2 of the 2nd Contract subject to the agreement between the Plaintiff and Defendant. According to the Defendant, the Plaintiff’s tax returns and statutory deductions evidence during and after the existence of the 1st and 2nd Contract have no probative value. It is submitted the Plaintiff was required to have and operate its own facilities and adequate facilities pursuant to Clause 1. 27, 3. 4 and 12. 2 of the 2nd Contract

82. It is the Defendant’s assertion that if indeed as argued by the Plaintiff that Section 81 of the Public Procurement and Disposal Act and Regulation 49(2) made under the Act were flouted by the Defendant then the resultant 1st and 2nd Contract the basis on which the Plaintiff is now seeking reliefs were unlawful and void ab initio hence the Plaintiff is not entitled to any relief based on the contracts. According to the Defendant, if it knew the Plaintiff was incapable to deliver the services as the Plaintiff presented itself, then the Defendant would not have signed the 2nd Contract with the Plaintiff. It is submitted that the Plaintiff claimed to have the capacity that it did not have. Reliance was placed on the case of Derry vs. Peek [1889] UKHL 1, Esorfranki Pipelines (Pty) Limited & Another vs. Mopani District Municipality and others [2014]2 All SA 493(SCA), Nederlandse Industrie Van Eiprodukten vs. Rembrandt Enterprises , Inc. [2019] EWCA Civ. 596.

83. The Defendant has urged the court to find that the Plaintiff misrepresented to the Defendant and/or the Plaintiff engaged in fraudulent acts to warrant the court finding that the Plaintiff liable to the Defendant for the reliefs sought and prayed in the Counterclaim.

Whether the termination of the second contract on 14th june, 2012 was lawful 84. The Defendant submitted that the termination of the 2nd contract vide a letter dated 14th June, 2012 was lawful as it was based on Clause 17. 1.3 of the Second Contract for misrepresentation that gave the Defendant the right to terminate the contract pronto and further that it did not contain any clause requiring the terminating party to provide reasons and that he was entitled to termination order to promote public policy and secure public interest. Reference was made to the meeting held on 26th June, 2012 where the Defendant’s meeting of the Defendant’s Executive Committee of the Caretaker Board of 6th June, 2012 was adopted by the full Board to terminate the contracts with the Plaintiff and Meridian Medical Centres. It is submitted that the Plaintiff’s misrepresentation and/or fraudulent conduct entitled the Defendant to terminate the contract without reasons. Reliance was placed on the case of Car & Universal Finance Co.Ltd vs. Cladwell [1964] ALL ER 290, Merry Hill (PTY) vs. Engelbrecht 2008(2) SA 544 SCAaffirming the stamen of Freidman JP in Bekazaku Properties (PTY) Ltd vs. Pam Golding Properties (PTY) Ltd, 1956 (2) SA 537and Lazarus Estates Ltd vs. Beasley (1956) 1 All ER 341 page 345.

85. It is submitted that the Plaintiff had the choice of either rescinding the contract or to insist on its performance. Reliance was placed on the decision of the High Court of South Africa (Nyathi J.) in Tlakula & Others vs Absa Bank Ltd[2017] ZAGPJHC 158in respect of the doctrine of election to rescind a contract by the innocent party on account of fraudulent misrepresentation and the court cited the case of Bowditch vs. Peel & Magill (1921) AD 561.

86. According to the Defendant, the procurement laws and dictates of the Constitution relating to accountability for public funds purposely applied entitled the Defendant to terminate the 2nd contract that had been riddled with misrepresentation and /or fraud. Reliance was placed on the case of Republic vs. Public Procurement Administrative Review Board & Another ex parte Selex Sistemi integrati [2008] eKLR. According to the Defendant the court must consider the public interest when making determinations touching on public procurement and to give effect to the broad objectives of procurement law and in Albert Cheboi and another vs. Insurance Regulatory Authority [2020] eKLRthat it was not mandatory that reasons for termination be enumerated. As to what is public policy and or public interest reliance was placed on the case of Prudential Printers Limited vs. Carton Manufacturers Limited [2012]eKLR where the court cited the Supreme Court decision of Renusagar Power Company Ltd vs. General Electric Co. (1994) AIR 860, Christ for All Nations vs. Apollo Insurance Co. Ltd[2002]2EA 366, National Oil Company Ltd(1987) 2 ALL ER , Republic vs. Public Procurement Administrative Review Board; Principal Secretary, State Department of Interior, Ministry of Interior and Co-ordination of National Government(Interested Party) Ex parte Applicant CMC Motors Group Limited[2020]eKLR, Re Estate of Charles Millar, Deceased(1938) S.C.R , Fender vs. Mildway [1937]3 All ER 402 and Gherulal Parakh vs. Mehadeodas Maiya & Others 1959 AIR 781. According to the Defendant, the contracts ought not to be enforced as they are inimical to public policy and public interest. On proper use of the fund, reference was made to Article 10(2) (c), Chapter 12 on Public Finance and Article 226(5) of the Constitution.

87. As regards the extent of damages sought by the Defendant as a result of the Plaintiff’s conduct that gave rise to the termination of the 2nd contract, reliance was placed on Lord Denning’s statement at page 122 in the case of Doyle vs. Olby (Ironmongers) Ltd 1969]2 All ER 199 in respect of fraudulent inducement.

88. The Defendant urge the court to dismiss the suit with costs for lack of merit and find merit in the Defendant’s Counterclaim.

89. The court has considered the Plaintiff’s reply to the Defendant’s written submissions dated 19th June, 2021.

Determination 90. I have considered the pleadings, oral and documentary evidence, submissions and court decisions relied upon by respective parties. The issues referred to this Court to determine are;1. Whether this Court has jurisdiction in light of Arbitration Clause 15. 0 & 19. 0 of the contracts.2. Whether the 1st & 2nd Contracts between the parties were performed, breached or lawfully terminated?3. Whether the Plaintiff is entitled to special and general damages from/by the Defendant.4. Whether the Defendant is entitled to the Counterclaim against the Plaintiff.5. What rate of interest is applicable?

Whether this Court has jurisdiction in light of Arbitration Clause 15. 0 & 19. 0 of the Defense and Notice of Preliminary Objection filed on 8/3/2018. JURISDICTIONIn Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1; Justice Nyarangi of the Court of Appeal held as follows:“....I think that it is reasonably plain that a question of jurisdiction ought to be raised at the earliest opportunity and the court seized of the matter is then obliged to decide the issue right away on the material before it. Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction...”See also on jurisdiction; Samuel Kamau Macharia & another – vs- Kenya Commercial Bank & 2 Others- Supreme Court Civil Appeal (Application) No. 2 of 2011Re the Matter of Interim Independent Electoral and Boundaries Commission [2011] eKLRThe Defendant (Fund)and Plaintiff (Healthcare Provider) agreed to make every effort to resolve amicably by negotiation any dispute or disagreement arising under or in connection with the contract.If after 30 days the negotiations the parties are unable to resolve the dispute either party may require an adjudication by an arbitrator appointed by Chartered Institute of Arbitrators.The Court record confirms parties sought negotiations before the matter was set down for hearing.The Court Record also confirms Preliminary Objection on the dispute being referred to Arbitration.Section 6 of the Arbitration Act provides;“A court before which proceedings are brought in a matter which is the subject of an Arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to Arbitration.”In the case of Africa Spirits Limited vs Prevab Enterprises Limited [2014] eKLR the High Court of Kenya at Nairobi held;“what section 6 requires is the defendant to file the summons to refer the matter to Arbitration at the earliest: that is at the time he enters an appearance in the matter.”The Defendant filed Notice of Preliminary Objection with the Defense but never sought to have the Preliminary Objection heard first at the earliest opportunity as it may dispose of the suit or have the Court stay proceedings to enable parties move to the forum of choice; arbitration.I note that the said clauses were not couched in mandatory terms; the use of ‘may’ strongly suggests that parties left arbitration as a viable dispute resolution option if any of the parties to the contractthat required adjudication by an Arbitrator but not the only forum of choice. I found no evidence that any of the parties took up the opportunity to pursue arbitration or moved the Court by application to pursue arbitration.The court notes that despite the Arbitration clause parties through Counsel proceeded with detailed case management exchanged statements and documents and willfully attended and participated in the Court proceedings.The Court finds the outlined circumstances depict that parties did not pursue the arbitration process instead by filing and exchanging documents and fully participating in these proceedings abandoned arbitration and acquiesced and submitted to the Court’s jurisdiction.Therefore, in the absence of pursuing arbitration as provided under Section 6 of Arbitration Act and hearing and determination of the Preliminary Objection, the Court was clothed with jurisdiction to hear and determine the dispute.Whether the 1st & 2nd Contracts between the parties were performed, breached or lawfully terminated?Burden of ProofWhoever claims a right was violated or contract breached loss, injury and/or damage sustained has the burden to prove the same; he who alleges must prove.Section 107 (1) of the Evidence Act, Cap. 80 places the legal burden of proof to a person in the following terms, that: -” Whoever, desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”Upon discharging the burden of proof, the burden is then shifted to the opposite party. This is the evidential burden of proof which is captured in Sections 109 and 112 of the same Act as follows:109. The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.112. In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving that fact is upon him.In Evans Nyakwana vs. Cleophas Bwana Ongaro (2015) eKLR it was held that:-“As a general preposition the legal burden of proof lies upon the party who invokes the aid of the law and substantially asserts the affirmative of the issue. That is the purport of Section 107(1) of the Evidence Act, Chapter 80 Laws of Kenya. Furthermore the evidential burden ... is cast upon any party, the burden of proving any particular fact which he desires the court to believe in its existence. That is captured in Section 109 and 112 of law that proof of that fact shall lie on any particular person...The appellant did not discharge that burden and as Section 108 of the Evidence Act provides the burden lies in that person who would fail if no evidence at all were given as either side.”1ST ContractIn the present case, the Plaintiff claims breach by the Defendant in the 1st Contract.It is not in disputed that the Plaintiff won the bid of the Tender floated by the defendant in July 2008 for provision of Outpatient healthcare services to the NHIF members.It is not disputed that the parties signed the Contract in December 2009 for provision of outpatient medical care and treatment services to NHIF beneficiaries under Pilot Project using Capitation Payment Method Tender no NHIF/014/2008-2009 for 6 months from 7/12/2009-7/6/2010The Plaintiff posited that it provided medical care and treatment services to the Fund beneficiaries and the Defendant made payments under the capitation system of payment except for the last instalment of Ksh 16,522,666 that remains outstanding.The Defendant took the position and denied that it had not paid the amount outstanding. The Defendant argued that parties are bound by terms of the contract relied on Clause 5. 4 of the Contract that provides;The Fund shall disburse subsequent payments upon receipt of the Returns.The Plaintiff reiterated that the Court should not admit any evidence and consider such evidence as the issue of returns was raised for the 1st time during the evidence of Defendant’s Witness Robert Otuom who testified in Court and claimed that payments were not made with regard to the 1st Contract 5th Quarter due to non-remittance of Returns. To allow such a position would be contrary to Article 50 of Constitution.In National Bank of Kenya v Pipelastic Samkolit (K) Ltd & another [2001] eKLR where it was held;that a court of law cannot purport to rewrite a contract between the parties, the parties are bound by the terms of their contract unless coercion, fraud or undue influence are pleaded.The 1st Contract stipulated at Clause3. 8 of the Contract;The Health care Provider shall submit returns to the Fund on the utilization of the benefit in monthly basisIt was a term of the contract between parties that Returns would be availed to the Defendant monthly and therefore with respect the issue of returns was an integral part of the contract and was raised vide the Statement of the Defendant’s statement filed on 20th June 2020 during Pre-trial. The Plaintiff would have applied to be granted an opportunity to rebut the claim of failure to avail returns.The Defendant confirmed Returns for 4 quarters were remitted and subsequent payments were made to the Plaintiff save for the 5th Quarter. It is this claim that is opposed.The Plaintiff’s testimony relying on his Witness Statement of 12th June 2020, made no reference to Returns as it was not pleaded or raised during case management.In Further Reply to Defendant’s submissions the Plaintiff reiterated that the issue of payment of outstanding funds was withheld pending investigations and not due to non- remittance of returns.I have perused the pleadings and documents exchanged during extensive case management, the Agreed issues, the Notices to produce and Notice to admissions Witness statements and documents; none of them allude to the issue of returns.Although it is a term of the contract and sought to be complied with it is admitted that it was raised during proceedings late in the day vide evidence of DW1 Robert Otuom.Despite being a term of the contract, the issue of compliance is contested, the Plaintiff stated that they presented returns not for payment of medical services rendered as they were paid through capitation method; where a fixed amount of money is paid in advance of the coverage period to a healthcare entity for provision of contracted healthcare services. The amounts paid were not to be confirmed as utilized wholly but returns would be confirmation that medical care services were rendered to members as required under the contract.The court finds that various reports and correspondence refer to returns availed by the Plaintiff but in relation to the 2nd Contract. The Court wonders why if the returns for the 6th quarter of the Pilot Phase 1st Contract were not delivered, the Defendant did not raise any question or demand in the Board/Management Meetings Minutes. Instead ,the Defendant went on to enter into the 2nd Contract for same services and on a larger scale a countrywide rollout and with the same party and made part payments?From the totality of the evidence on record; the issue of returns being provided monthly was not raised early on in the pleadings to necessitate response and/or rebuttal. There is no evidence from the Defendant despite admission of the returns filed and received by whom during the 1st 2nd 3rd 4th Quarters and why when the last batch of returns were not availed, there was no correspondence, notice or record that the last tranche of capitation payment was withheld as returns were not availed.It is not contested that medical care services were rendered from the 8 facilities (Clause 1. 4 Clinix Healthcare Ltd in Nairobi West, Haile Selassie Brancht, Daystar University Ngong Road, Embakasi Branch, Park road, Buruburu, Kenya Institute of Management- SouthC Campus, Industrial Area clinics) of the 1st Contract as payments were duly made with regard to 1st 2nd 3rd, 4th Quarters as admitted by the Defendant.There is also evidence from EMU Report that returns were availed but light was not shed on which period or contract the returns related to but confirmed members who obtained treatment and medical care from the Plaintiff.The evidence by DW1 was that the first contract (for Pilot Phase) ended successfully and all payments due to the Plaintiff for which verifiable services were rendered and returns filed, were made.The Court finds that the plaintiff rendered medical care services for the 6th Quarter and is entitled to the balance of the total capitation amount for 6 months Ksh 99,136,000/-at Ksh 2,000/- per beneficiary for 6 months. The outstanding amount was/is Ksh 16,522,666/-.2nd ContractThe 2nd Contract was on 1st January 2012, signed between the parties the National Hospital Insurance Fund Board of Management & Clinix Healthcare Hospital, as nationwide rollout for provision of Primary Healthcare & Treatment Services to Civil servants & Disciplined Services (Premium cover) for 1 year (Clause 7. 0)This time the Health Provider was to be licensed to provide medical care and treatment services subject to NHIF confirming that the Health Provider is licensed as per requirements of Medical Practitioners & Dentists Board. (Clause 2. 2)Payments to healthcare provider are to be made quarterly upfront upon signing of the contract and subsequently upon submissions of returns. (Clauses 5. 4 & 5. 5)The Plaintiff submitted that the Defendant in the 2nd Contract made payment of the 2nd Quarter of Ksh 202, 161,187. 50 leaving a similar amount outstanding for 1st Quarter.The plaintiff opined that medical care services were rendered across the country through Plaintiff’s facilities as outlined by the bundle of documents as licenses, business permits and Investment certificates as housed at Pg1-147 of PBD and instead of performing the contract for the period contracted, the Plaintiff was not paid the outstanding amount and the contract was terminated by the Defendant.INVESTIGATIONSThe Defendant took issue with the Plaintiff’s services as follows;a)the Plaintiff misrepresented the number locations of outlets that were to offer or offered medical care servicesb)the plaintiff circumvented the Defendant’s accreditation process and facility assessment for In and out- patient healthcarec)On inspection of Defendant’s In & Out patient facilities, the Plaintiff had accredited facilities only in Nairobi despite representation that they were spread across the country.d) the Plaintiff failed to prove that their engagement countrywide was indeed licensed as required under the Medical Practitioners Licensing Board.e)The Plaintiff accepted capitation for provision of medical care services countrywide yet the upcountry facilities were not accredited.The Plaintiff referred the Court to the Tender Document of PBD Pg 157 where it provides (Clause 1. 24. 12) Post qualifications;There shall be post qualification evaluation to verify the following; …..availability of owned or contracted service outlets ( Clinics/Hospitals)The Plaintiff also relied on Clause 4. 1 & 4. 2 of 2nd Contract that reads;The healthcare provider shall ensure that they have proper referral system in Agreement with NHIF and shall refer the beneficiaries to a lower level facility or higher level facility depending on the medical and healthcare services required under the Agreement with NHIF.Referrals to a specialized service like dental, radiology,ENT Clinic, optical care and Consultant specialists ..shall be via an agreement between the primary healthcare provider and the institution providing the special services.Healthcare Provider would be invoiced for a capitated member served away from his/her facility by referral or emergency services. (Clause 6. 3)The Court has considered the rival submissions on this issue of whether the 2nd Contract was breached or performed by parties.The Plaintiff was/is categorical that medical care services were provided across the country to Defendant’s beneficiaries. This was not proved by any evidence that services were indeed delivered across the country.The 1st Contract approved 8 facilities in Nairobi and outlined them specifically. The 2nd Contract rolled out the medical care services countrywide to facilities held out by the Plaintiff as licensed by Kenya Practitioners& Dentists Board and confirmed by NHIF (Clause 2. 2) and accredited by NHIF (Clause 3. 1) to offer effective quality services and treatment according to evidence-based standards and treatment guidelines by Ministry of Medical Services; Public Health & Sanitation and subject to close monitoring by NHIF (Clause3. 4 & 3. 5)Apart from the bundle of documents List of Clinics and Physical Addresses Licenses and Investment Certificates Pg 1-147 of PBD, except for Nairobi and environs Plaintiff’s Clinics/Hospitals that were licensed by the Kenya Dentist & Practitioners Board before January 2012, most of the other Health Centres & Clinics were licensed after the 2nd Contract was signed.Secondly, referral as outlined in Clause 4. 2 envisages members referred for specialized treatment not referral of general outpatient medical care services. Thirdly, the referral where specialized care was/is required with concurrence of NHIF.The evidence of medical care availed to members was not availed to this Court to confirm the Plaintiff was/is able to provide medical care services across the country from the Plaintiff’s clinics and if there are contracted outlets, NHIF evaluated and verified them for members to obtain medical care services.ReportsAfter investigations were undertaken by various statutory Agencies Regulatory & Law Enforcement bodies they found;Medical Practitioners Dentist Board of 20/4/2012 found of the 62 clinics countrywide most were licensed save for Kitui, Ngong Road, Kiserian ,DaystarUniversity,Valley Road,Maua ,Kangaru, Meru, Kakamega,Eldoret ,VihigaMumias, Kwale & Ukunda.Some were alleged to have fake licences and subjected to investigation, others did not have proper sanitation but most/all had qualified staff.Efficiency Monitoring Unit- November 2012 Pg119 confirmed that most clinics were registered by and with the in February, March & April 2012 after the 2nd Contract was signedMedical Practitioners Dentist Board.The recommendations were that there were structural challenges, the Rollout was hurriedly done without planning and the Defendant seemed to have granted the Plaintiff Company blanket approval without inspection before approval.With regard to Plaintiff availing returns the EMU Report Pg 289PBD confirms EMU saw Returns of NHIF members seen at the Plaintiff’s facilities.The demand letter from the Plaintiff’s advocate of 27/8/2012 indicated that the Plaintiff submitted returns.In light of the above evidence, the Court finds reference to returns submitted to the Defendant and does not confirm or substantiate the fact that returns were not made by the Plaintiff to the Defendant.Secondly, whether the returns referred to are with regard to the 1st Contract the pilot project that ran for 6 months and/or the 2nd Quarter in the 2nd Contract.Thirdly, if returns were availed in the 2nd Contract 2nd Quarter, when the returns availed to the Defendant and by who to whom and if any record correspondence confirms delivery of returns to come utilization of capitated funds for medical care services to members.On the other hand , the Defendant stated vide Minutes of the Board Meeting of 4th June 2012 Pg 315-319 of DBD; indicated that management tabled a request for 2nd Quarter payments for outpatient cover for members except Clinix & Meridian facilities which were subjected to investigations.The Board and Management noted that payments for 2nd Quarter were subject to returns which status had not been presented to the Board.The Defendant through meeting minutes of 6th June 2012 a Comprehensive legal opinion was presented and the contract by the Defendant and Plaintiff was cancelled.It was noted that Clinix continued to offer services for 2nd Quarter April 2012- June 2012 and the Board advised that accounts be taken.The Defendant relied on Clause 17. 1.3 that allowed NHIF to cancel the contract and Clause 6. 2 of the Contract, the 2nd Quarter was not payable until receipts of the 1st Quarter returns were availed and they would shed light on when the 1st service was offered.The contract once terminated any settlement would be carefully negotiated and determined by Arbitrator.The Defendant terminated the 2nd Contract and awaited the conclusion of investigation s by Government agencies.Secondly, despite the allegation that there were ghost clinics not licensed registered or operational, the Kenya Medical Practitioners & Dentists Board (KMPDB) Report detailed various physical inspection operations they conducted countrywide that confirmed existence of clinics manned by staff and equipped. There were clinics in place and not as alleged to be ghost clinics.Although most were licensed and registered, others were registered after the 2nd Contract was signed. The Defendant had not undertaken or completed the accreditation process and the registration/licensing was ongoing it was not timebound. These factors deal with the quality of medical care services rendered by the Plaintiff.The various reports referred to hereinabove arising out from investigations found issues with regard to mismanagement of the countrywide medical care and treatment program but not fraud/misrepresentation culminating with the acquittal of the suspects in ACC 18 of 2013. However, with regard to the contract between the parties, from the above the evidence including reports from investigative agencies on record confirms that the Plaintiffhad clinics that were operational but also in the process of licensing registration and accreditation.However, the medical care and treatment services rendered were not confirmed either by production of returns of 1st Quarter, receipts of the 1st Quarter returns, accounts taken or negotiations with a view to a settlement by parties.In the circumstances this Court cannot grant the payment of Ksh 202,161,187,50 in absence of proof of medical care services rendered in 1st Quarter by rendering of returns as required by Clause 5. 4 & 5. 5 and proof of the same to Court.The Plaintiff breached these terms of the contract.The Letter of termination of the 2nd Contract of 14th June 2012 reads;In this regard, kindly let us have the returns in accordance with the terms of the contract.Was the 2nd Contract lawfully terminated?See Principles of Commercial Law by K.I.Laibuta Pg 93If a party completely performs his part in the contract his duties are at end. He therefore honors his obligations and is himself discharged from liability to perform or do any act in furtherance of the contract….His perfect performance must be reciprocated by corresponding action on the part of the other party whose failure to discharge his contracted duties without lawful excuse amounts to breach.Each party is held accountable in performance of its obligations under the contract in default of which then there is breach of contract that allows a party to repudiate or terminate the contract.Where a contract contains specific terms and condition both parties are required to be in strict conformity. But where it is unlawfully determined or otherwise breached, in principle the plaintiff is entitled to such damages as wound as nearly as possible put him in the same position as if the contract had been completed. Breach of contract results from failure without any legal excuse on the part of a party to perform his promise in accordance with its terms. Failure of performance, whether total or partial constitutes a breach if it goes to the root of the contract. Refusal, failure or neglect to honour an obligation to fulfil a condition imposed on a party under an agreement has far reaching consequences of discharging the other from his corresponding responsibility to perform.The Defendant terminated the contract with Clinix for breach of contract, the terms of contract as follows;Clause 5. 4 payments to the Healthcare provider shall be made quarterly upfront upon signing of the contract and subsequently upon submissions of returns.Clause 5. 5 the healthcare provider shall submit returns to NHIF in the manner prescribed under the returns requirements as Annex 111. Clause 13. 1 delivery of services shall be made by the Healthcare Provider in accordance with terms specified by NHIF Schedule of Accreditation & Claims requirements and Special Conditions of Contract.Clause 16. 0 The Healthcare Provider shall not assign, in whole or in part, its obligations to perform under this contract.From the above outlined non-compliance of express contract terms the Defendant was legally entitled to terminate the contract.The Defendant’ s right is covered by Clause 17. 0 of the Contract….NHIF may terminate this contract forthwith upon anyone or more of the following grounds;The healthcare Provider commits a breach of…….It was argued that the 2nd contract was unlawfully terminated by the Board of NHIF as it was not properly constituted and the Management was to responsible for the contract.The Contract was signed by The National Hospital Insurance Fund Board of Management and Clinix Healthcare. The party to the contract terminated as to its constitution, the issue was an internal statutory matter which was ratified by the Successor Board, but it rightfully terminated the contract on behalf of the Defendant.For these reasons the Court finds that the termination of the 2nd contract was legally founded due to breach of contract by the Plaintiff.Having found termination of contract was legitimate the Court shall not consider prayers on damages.Disposition1. The Court declares the Defendant breached 1st Contract it was confirmed returns for 1, 2, 3, 4, Quarters were availed by the Plaintiff to the Defendant but the 5th Quarter returns were not availed. The Plaintiff proved returns rendered through EMU report and demand letter.

2. Judgment is entered for the Plaintiff against the Defendant for Ksh 16,522,666/- with interest and costs.

3. The Court declares that the claim for Ksh 202,161,187. 50/- was not proved by the Plaintiff for 2nd Quarter, returns were not availed as demanded by letter of termination and Board Meeting Minutes.

4. Ksh 2,021,611,875 being loss of profit for the unexpired period of contract was not proved and is not granted.

5. Ksh 72,031,191 being compensation for expenses incurred by the Plaintiff in establishing, refurbishing and equipping medical facilities countrywide was not proved as special damages and not granted

6. Ksh 111,500,000 being losses incurred on account of loans borrowed by the Plaintiff from Commercial banks was not proved as directly emanating from Defendant’s alleged breach of contract and not proved as special damages.

7. Ksh 25,000,000/- for Miscellaneous losses was not substantiated and proved as special damages and is not granted.

8. The Plaintiff’s claim partly succeeds with regard to 1st contract and fails with regard to 2nd contract. The Counterclaim partly succeeds with regard to 2nd Contract and not 1st contract.

9. Interest at the rate of 20. 38% is not granted as it was not contracted for by the parties. The 2nd Contract terms supersede requirements of the Public Procurement & Disposal Act on interest.DELIVERED, DATED AND SIGNED AT NAIROBI THIS 11THDAY OF MARCH, 2022. M.W. MUIGAIJUDGE