Why the Supreme Court overturned the Sh103.4M award against NSSF

The National Social Security Fund (NSSF) has secured a decisive legal victory after the Supreme Court overturned a massive Sh103.4 million compensation award previously granted to a private company.

The ruling brings closure to a protracted legal battle stemming from a cancelled security surveillance contract dating back more than a decade.

In a judgment delivered on Friday, October 30, a five-judge bench led by Chief Justice Martha Koome ruled that the firm at the centre of the dispute failed to provide reliable, verifiable evidence to justify the substantial sum it claimed as anticipated profits from the aborted project.

The legal tussle originated from a contract awarded in March 2011. NSSF engaged the private contractor to install sophisticated CCTV cameras and access control systems at the Social Security House in Nairobi.

The tender was valued at Sh244.8 million, with an additional provision for an annual maintenance fee of Sh15 million following the expiration of a two-year warranty period.

Formal agreements were signed in April 2011, raising expectations of a lucrative commercial partnership. However, the physical project never commenced. According to court records, NSSF failed to hand over the site to the contractor, leaving the firm unable to begin execution.

Just over a year later, in May 2012, NSSF formally notified the company that the project could no longer proceed due to prevailing budgetary constraints. Frustrated by the sudden cancellation after significant preparation, the firm filed a lawsuit against the State corporation, citing a fundamental breach of contract and demanding heavy damages for lost business opportunities.

The litigation wound its way through successive tiers of Kenya's judicial system, producing contrasting outcomes:

The High Court (April 2020): Initially, the High Court ruled partly in favour of the company, awarding it Ksh16.06 million. However, the trial judge rejected the firm's grand claim for Ksh103.4 million in anticipated profits, noting that the financial projections presented were speculative and lacked robust evidentiary backing.

The Court of Appeal (April 2024): Dissatisfied with the High Court's partial rejection, the company appealed the decision. The Court of Appeal overturned the lower court's finding on profits, significantly boosting the payout to the firm.

It awarded a total of Sh112.5 million in special damages, which included the contested Sh103.4 million in anticipated profits alongside Sh9.06 million in other associated costs.

Unwilling to accept the appellate ruling, NSSF elevated the matter to the Supreme Court, seeking to set aside the multimillion-shilling liability.

In overturning the Court of Appeal's decision, the Supreme Court bench focused heavily on the credibility and reliability of the financial evidence tabled by the contractor. The judges pointed out glaring inconsistencies in how the projected profits were calculated and presented.

Specifically, the court noted that the firm's managing director had initially estimated expected profits at approximately Sh26 million. In stark contrast, an independent accountant's report later inflated that figure to Sh103.4 million without providing a clear or satisfactory explanation for the massive discrepancy.

Furthermore, the Supreme Court observed that the accountant’s report relied on unverified financial information. It projected five full years of maintenance income without demonstrating that the company had a binding guarantee or entitlement to secure work for that duration.

The bench also highlighted terms within the original contract that granted NSSF the flexibility to terminate the agreement by issuing one month's written notice, further undermining claims to long-term guaranteed revenue.

Emphasizing the evidentiary threshold required for commercial damages, the judges ruled:

"The material before the Court did not provide a sufficiently reliable factual foundation for the specific award of Kshs.103,447,136."

The court added that NSSF’s failure to present a competing expert report did not automatically cure or validate the severe deficiencies inherent in the plaintiff's financial documentation.

By setting aside the Ksh103.4 million payout, the Supreme Court provided crucial legal clarity regarding claims for lost business opportunities and anticipated profits.

The bench formally established that businesses seeking substantial compensation for anticipated profits following a contractual breach must furnish objective, reliable, and verifiable evidence.