Favourable rul­ings in cases against gov­ern­ment save tax­pay­ers bil­lions

Ar­bi­tra­tor in Oc­to­ber dis­missed a Sh250 bil­lion de­mand against the gov­ern­ment by a Ja­cob Juma-linked com­pany

Daily Nation (Kenya) - - BUSINESS - GALGALLO FAYO [email protected]­tion­media.com

Three dif­fer­ent rul­ings by in­ter­na­tional ar­bi­tra­tion cen­tres and a Kenyan court saved Kenyan tax­pay­ers from fork­ing out Sh290 bil­lion in com­pen­sa­tion to sev­eral en­ti­ties.

The claims filed against the Kenyan gov­ern­ment by Cortec Min­ing Kenya, busi­ness­man Kam­lesh Pat­tni and Ki­nan­gop Wind Park were de­cided in Nairobi’s favour.

The peak of these ma­jor vic­to­ries was in Oc­to­ber, when the In­ter­na­tional Cen­tre for Set­tle­ment of In­vest­ment Dis­putes (ICSID) dis­missed a Sh250 bil­lion claim against the Kenyan gov­ern­ment by Cortec, a firm as­so­ci­ated with the late busi­ness­man Ja­cob Juma.

Gov­ern­ment lawyers at­trib­uted the vic­tory to the qual­ity of the State’s de­fence and the im­par­tial­ity of the ar­bi­tra­tion cen­tres and the court that ruled on the is­sues placed be­fore them ob­jec­tively.

“The de­ci­sion vin­di­cates the qual­ity of the de­fence put for­ward by the State law of­fice and shows the re­spect our do­mes­tic laws have gained [in] the in­ter­na­tional tri­bunal,” said lawyer Ka­mau Karori, a part­ner at Iseme Maema and Ka­mau Ad­vo­cates, which rep­re­sented the State in the case.

Mr Karori ob­served that since the tri­bunal had agreed that the li­cence was is­sued in con­tra­ven­tion of Kenyan law, it be­comes a les­son for any in­vestor who will seek to break do­mes­tic laws due to any kind of per­ceived con­nec­tions.

“The ef­fect of the out­come demon­strates that Kenya, and by ex­ten­sion Africa, has come of age in terms of the abil­ity to reg­u­late their af­fairs. It is also a strong mes­sage to in­vestors that the pre­vi­ous strat­egy of us­ing the big men to ob­tain con­ces­sions are gone. All an in­vestor needs to do is to know the law and not the lead­ers,” Mr Karori added.

The ICSID, in its de­ci­sion in Oc­to­ber, found that Cortec Min­ing used its po­lit­i­cal con­nec­tions to pro­cure the li­cences con­trary to the law, re­ject­ing what is billed to be the largest sin­gle claim against the Kenyan gov­ern­ment.

The firm, along­side Uk-reg­is­tered Cortec Lim­ited and Stir­ling Cap­i­tal, had filed the claim against the Kenyan gov­ern­ment at the ICSID in Novem­ber 2017 seek­ing com­pen­sa­tion for loss of li­cences.

Cortec, be­fore go­ing for ar­bi­tra­tion at the ICSID, had un­suc­cess­fully fought the battle for the li­cences in Kenyan courts.

The dis­pute be­gan af­ter the then Min­ing Cab­i­net Sec­re­tary Na­jib Balala re­voked the li­cences that were is­sued to the Cana­dian firm in 2013 to ex­plore for min­er­als in Mrima Hills, Kwale County, on the grounds that the per­mits had been is­sued ir­reg­u­larly.

Cortec had es­ti­mated that de­posits of nio­bium, used to make metal al­loys for jet en­gines and to strengthen steel, were worth $600 bil­lion (Sh60 tril­lion). The tri­bunal ob­served that “the freshly elected Ju­bilee gov­ern­ment was not bound ei­ther un­der do­mes­tic law or in­ter­na­tional law by a pur­ported min­ing li­cence is­sued un­der po­lit­i­cal di­rec­tion” in dis­re­gard of Kenyan law.

The ar­bi­tra­tors di­rected the firms to pay the Kenyan gov­ern­ment Sh358.4 mil­lion ($3,548,990), the le­gal costs in­curred in de­fend­ing the case, a big re­prieve for Kenyan tax­pay­ers.

The colos­sal amount re­flects the mag­ni­tude of the case and the cal­i­bre of law firms the gov­ern­ment used to de­fend it­self. The charge will set­tle the pay­ment to the firms of Iseme Ka­mau and Maema (IKM) Ad­vo­cates and DLA Piper, which was re­tained by the gov­ern­ment.

The three firms — Cortec Min­ing, Cortec (pty) Lim­ited UK and Stir­ling Cap­i­tal Lim­ited, in­cor­po­rated in Eng­land and Wales — filed the huge claim against the gov­ern­ment. Cortec Min­ing is 70 per cent owned by Cortec UK and Stir­ling. In turn, Cortec UK and Stir­ling are wholly owned by Pa­cific Wild­cat, a Cana­dian com­pany listed on the Toronto Stock Ex­change.

And still in Oc­to­ber, the Kenya High Court de­clared il­le­gal the hefty ar­bi­tra­tion award that busi­ness­man Kam­lesh Pat­tni got for the ouster of his com­pany from two Kenyan air­ports, spar­ing tax­pay­ers the bur­den of pay­ing him Sh8.5 bil­lion. The court found that the award was based on an agree­ment be­tween the gov­ern­ment and Mr Pat­tni’s firm, World Duty Free Com­pany Lim­ited (WDF), that was pro­cured through bribery and cor­rup­tion.

The ar­bi­tra­tor, re­tired Ghana­ian judge Ed­ward Torg­bor, had in De­cem­ber 2012 or­dered the Kenya Air­ports Author­ity (KAA) to pay the Kenya Duty Free (KDF) Com­plex the amount in set­tle­ment of a long-run­ning battle with the air­ports author­ity.

Again, the ICSID de­ci­sion saved the day.

The ICSID had ruled that the agree­ment, dated April 27, 1989, be­tween KAA and WDF was ob­tained through cor­rup­tion and bribery and should not be re­spected. This formed part of the ground on which the court re­lied to re­ject the claim.

Jus­tice Tuiyot, in his rul­ing, noted that the ar­bi­tra­tor ig­nored the ICSID rul­ing while award­ing Mr Pat­tni the colos­sal amount.

Jus­tice Torg­bor, on De­cem­ber 5, 2012, ruled in favour of Mr Pat­tni and gave KAA two months to pay Mr Pat­tni Sh4.2 bil­lion in full. The amount had ac­cu­mu­lated to Sh8.5 bil­lion by the time the lat­est judg­ment was made.

The Sh8.5 bil­lion claim in­cluded Sh2.4 bil­lion in lost and un­earned rev­enue, Sh860 mil­lion gen­eral dam­ages, Sh430 mil­lion in ag­gra­vated dam­ages, Sh275 mil­lion in spe­cial dam­ages, Sh247 mil­lion as rev­enue col­lected by KAA be­tween 2005 and 2011 from ad­ver­tis­ing con­ces­sions granted to third par­ties, and Sh5 mil­lion in lost in­come from rent in 2011.

Jus­tice Torg­bor al­lowed Mr Pat­tni to charge in­ter­est at court rates from the date of the first de­fault on the out­stand­ing amount un­til paid in full.

Although Mr Pat­tni has since moved to the Court of Ap­peal to con­test the de­ci­sion, this is a ma­jor early vic­tory for the State.

At the time of the rul­ing, lawyer Eric Mu­tua, who rep­re­sented KAA in the Pat­tni case, de­scribed it as a big de­ci­sion that will put to rest the ghost of the fake claim that had threat­ened tax­pay­ers’ money.

And in July the In­ter­na­tional Court of Ar­bi­tra­tion dis­missed a claim by Ki­nan­gop Wind Park Ltd against the Gov­ern­ment of Kenya for over Sh311 bil­lion.

The ef­fect of the out­come demon­strates that Kenya, and by ex­ten­sion Africa, has come of age in terms of the abil­ity to reg­u­late their af­fairs,” Lawyer Ka­mau Karori


A ma­chine prospect­ing for nio­bium at Mrima Hills, Kwale County. The ICSID found that Cortec Min­ing used its po­lit­i­cal con­nec­tions to pro­cure its li­cences, con­trary to the law, re­ject­ing what is billed to be the largest sin­gle claim against the Kenyan gov­ern­ment.

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