Part two of our extensive coverage of Government’s mishandling of the Anglo Leasing cases …

The Attorneys roulette

Githu and Wako strutted into the multi-billion shillings Anglo Leasing fiasco with full feather

By IAN RAMAS

Attorney General Githu Muigai promised to fight grand corruption. “There are many things my predecessor did that I would have done differently”, he said of Amos Wako, whose 20-year tenure couldn’t stem grand scandals.

 

Barely four years in his job, Prof Githu’s legal counsel on Anglo Leasing payout has stirred up a hornet’s nest of disapproval and censure. The Law Society of Kenya (LSK), an assembly of the country’s 12,000 lawyers, says it has isolated possible sleaze in the Sh1.4 billion payment to First Mercantile Securities Corporation (FMSC) and the Universal Satspace (North America) LLC, and now seeks anti-corruption authorities to probe him.

(First Mercantile Securities Corporation was the financier, Universal Satspace/Spacenet the supplier in the Postal Corporation of Kenya’s Sh1.03 billion-project to equip the country’s 980 post offices with internet. It was cancelled two years later in 2004 amid claims of corruption)

In defence, the AG has described himself as the “mortician” who performed the last rites. The patient long died on the surgical table, he says. But Wako claims he passed the baton to a person he considered a fellow surgeon. Nevertheless, political analysts are convinced the two legal minds have travelled the same scruffy road – a case of business as usual at State Law Office.

While AG Wako in 2007 ineptly fought off Anglo Leasing compensation claims, Prof Muigai was then the Kenya Anti-Corruption Commission (KACC) lead counsel in a case in which it sought Switzerland’s hand in investigating FMSC. Through a Letter for Mutual Legal Assistance (LMA), KACC’s chairperson Aaron Ringera had requested Swiss authorities to provide the Commission with key documents and information that would help it prosecute FMSC for fraud.

But FMSC filed a counter-appeal against KACC’s involvement in the matter. Prof Githu argued that FMSC couldn’t stop the anti-fraud body from digging out dirt about it, as it was within the law to receive Swiss assistance – to enable it execute its mandate as a statutory body.

Now, seven years later, Prof Githu is at the forefront in advising the government to pay FMSC and Spacenet, if it has to avoid possible attachment of its property abroad – and jeopardize the quest for a sovereign bond. In fact, his correspondence with various State offices depicts a man in haste to place a lid on the matter.

He advises “on the need to enter into a settlement deed in the most favourable terms so as to avoid jeopardizing the issuance of the Sovereign Bond”, according to minutes of meeting held on March 28, 2014. The AG, Treasury Cabinet Secretary Henry Henry Rotich, Solicitor General Njee Muturi, Postal Corporation of Kenya company secretary Jane Otieno, an official in AG’s Chamber Muthoni Kimani, and the claimant’s advocates Muin Malik and Henry Ongicho, attended.

“The Attorney General informed counsel for the claimants that the Republic was desirous of resolving these matters through an agreement and requested (Mr Malik) to be flexible and agree to a favourable settlement without recourse to the judgment award,” the minutes state.

Incidentally, the AG’s office had given in to the claims as early as last February – two months before the payout.

“We … advice that your ministry makes every effort to urgently resolve this matter to avoid further loss which is accruing through interest on the court award and further legal cost which will be incurred if the Republic has to appoint Counsel to represent it in the execution proceedings in which there is no plausible defense,” Solicitor General Njee Muturi wrote to Treasury Principal Secretary Kamau Thugge on Feb 19, 2014.

Yet, based on a statement by the then Secretary to the Cabinet Francis Kimemia, the AG’s decision may have been unilateral. In fact, the National Security Council (NSC) meeting took place a week later, on February 25, 2014, where the AG was directed “to compile and present to NSC the complete judicial proceedings and negotiation/mediation processes during the next meeting”.

Kimemia, in a letter to a number of State departments (including Foreign Affairs, Treasury, AG, Defence), directed the Cabinet Secretary Rotich “to carry out a cost/benefit analysis of payments of these contracts and present to NSC”.

Interestingly, the President had not been briefed – by the time the Solicitor General wrote to Treasury. It was the February 25 meeting that asked Prof Githu, Rotich, and the cabinet secretaries for Defence and Foreign Affairs to brief the President.

Kenya eventually paid a total of Sh1.4 billion to FMSC and Universal Satspace in mid-April.

The cases

An analysis of Universal Satspace (North America) LLC vs Government of Kenya whose judgment was delivered on December 20, 2013 and the FMSC vs Republic of Kenya of May 14, 2009, reveals a series of bungling at the hands of Kenya’s top legal advisors, Muigai and Wako. Undeniably, if Muigai ruined the GoK-Universal Satspace (North America) LLC case, Wako equally messed the GoK-FMSC suit.

In a letter to Prof Githu dated May 19, 2014, LSK questions his devotion to Kenya’s interests. It says his office disregarded counsel by the KACC, Auditor General, Pricewaterhouse Coopers, and Parliament, all detailing the fraud in the award of the Anglo Leasing tenders. He “abandoned the defence of corruption and illegality of the contracts and entered into a consent judgment (after mediation) to pay Universal Satspace…”

He authorized solicitor General Njee Muturi to represent the Government before the London Court “without a licence to practice in England and Wales, effectively resulting into the Kenya Government having no legal representation in the suit”.

In fact, in the subsequent judgment, the Judge appears to raise questions about Kenya’s handling of the case.

“I do not consider that any of the matters raised by Muturi on behalf of Government of Kenya provide me with reasons not to strike out the defence and counterclaim … and it follows that there is no reason therefore that judgment should not be entered for the claimants against the (government of Kenya),” Judge Teare ruled last December.

The LSK doubts the Judge fidelity to the law (see related story in this section of the special report) but legal minds interviewed for this story point out parts of the judgment they say, give an insight into government’s bungling of the case.

The bungling

On August 11, 2008, Senior Deputy Solicitor General Muthoni Kimani, wrote to J.W Wambugu, one of Kenya’s counsels at the Satspace vs GoK case that was in process in Geneva, Switzerland. She was seeking amendments and deletions to the defence “to conform with the available evidence and the requirements of the Kenyan Law …”

“We do not understand on what basis the paragraphs alleging bribery and corruption were included when under our law the standard of proof of such allegation is beyond reasonable doubt. The persons alleged to have committed the same have never been charged in court and/or convicted with the offences.”

Then the official went personal. “As a Kenyan lawyer, your input, if any, in the defence should have guided the English counsel (Edwin Coe) on these aspects”. (The government had hired Coe to lead the defence)

With the benefit of hindsight, it is now evident that the Deputy Solicitor General’s statement defied mountains of evidence produced by the KACC, PriceWaterhouseCoopers, Public Accounts Committee (PAC) and the Controller and Auditor General – all at her disposal. The proof was emphatic that a cabal of foreigners had conspired with mandarins to swindle Kenyans.

In fact, the then Minister for Justice, National Cohesion and Constitutional Affairs, Martha Karua, was appalled by the turn-around of events.

“I have noted with concern the deputy solicitor-general’s letter to J.W Wambugu … all along my understanding was that the government’s defence is founded on the fact that the contract was fraudulent and induced by corruption and bribery. If indeed we have no basis for these claims, why are we contesting the claims thereby compounding the government’s liability?

“In the various committees we have sat in, I have consistently raised the issue that our pleadings should cite fraud and illegality.”

Karua cited the various reports published on the issue.

Indeed, why was Kenya contesting the claims if it didn’t have any form of defence? And that is the crux of the matter.

In hindsight, there was a concerted effort to create some confusion – to make it possible that Kenya loses the case so that it can be forced to pay the compensation.

Mediation

The bungling continued even out of court. In 2012, under the mediation of William Wood, a Queen’s Counsel, the parties in the dispute agreed to settle the issue out of court. Implicitly, they settled on compensation.

Interestingly, the arbitration agreement wasn’t signed because Kenya inexplicably asked for a 21-day delay. “The agreement to be executed within 21 days, and settlement thereupon to be binding,” the agreement was revised to take in Kenya’s request.

Malik, the Kenyan lawyer for the claimants, sent the mediation draft to the government. The amount was to be paid in two tranches. However, seven months later, the government had not yet signed it.

Consequently Universal Satspace went to London’s High Court of Justice, Queen’s Bench Division. The company argued, among other issues, that “there has been a failure to comply with the rule, practice direction or court order”. The claimants now refused to refer to the agreement reached at the mediation.

Judge Teare argued, thus “If the defendant does what it has promised to do, namely, sign the written settlement agreement, there will be absolutely no purpose in the defence and counterclaim being tried. This is because the issues between the parties will have been settled … the defendants have always said they will sign it but have not done so”.

When he faced the Judge, Muturi appeared to shift the blame to the political system. He argued that there were two levels to the mediation process: Technical and political. While the “technical level” was signed by deputy solicitor general, the “political” was meant to be endorsed by the Attorney general.

Explicitly, there was huge confusion in the Kenyan camp – either by design or oversight. One hand appeared to favour mediation, the other wanted Kenyan to go ahead in court and raise the issue of corruption. For the casual eye, Muturi sought the court to pursue corruption, deputy solicitor general, it appears, was for mediation.

The “mediation” team appeared to have run ahead of the “corruption” camp.

“(Muturi) reminded me that the allegation by his clients was that there had been corruption at the highest level in government involving a gentleman who was the Minister of Transport and Communications and also the Vice President of Kenya,” Judge Teare said.

FMSC case

Based on the judgment of May 14, 2009, by the Court of First Instance, in Geneva, Kenya openly bungled the FMSC vs Republic of Kenya (represented by Attorney General Amos Wako) before Judge Ivo Buetti. First Mercantile sued Kenya in a Geneva court on December 2005, claiming balance of the unpaid dues. Kenya’s plea of inadmissibility was rejected.

Kenya argued that the Transcom/Satspace contract was faulty, right from the start. The company transferred its rights and obligations to Gilat Satellite Networks (Holland) BV and its subsidiary, Gilat Alldean International, a totally different company whose capacity had not been ascertained.

(By December 2004, Gilat had received Sh1.15 billion (current exchange rate) from the financier, FMSC. On the other hand, GoK had, within that period, transferred Sh598 million to FMSC. Gilat claimed it delivered all the 980 VSat units. On June 3, 2005, FMSC sent “non-performance notice”, euphemism for claims for breach of contract, to government. The following January, it went to court –with a Sh517 million (excluding the interest) claim)

In pleading “inadmissibility”, Kenya argued that by the time of the contract, July 11, 2002, FMSC had not been registered at the address it claimed to operate.

Hardly all; PCK should have signed the contracts and not Ministry of Transport and Communication, even as the suppliers, Spacenet and Gilat, lacked the capacity to meet their side of the bargain. (Satspace transferred its rights and obligations to Gilat Satellite Networks (Holland) BV and its subsidiary, Gilat Alldean International)

The court on September 20, 2007 rejected the Kenyan plea.

 

 

At a personal hearing of the parties on May 27, 2008, Muthoni Kimani, emphasized the issue of corruption in the contract award. She hinted that FMSC didn’t exist at the time of signing of the contract. However, the financier’s representative admitted that the Geneva branch had no activity or employees but “the only purpose of the branch was to plead the present case on behalf of its parent”, according to the judgment.

(Kenya’s payment was made to FMSC, Geneva)

Muthoni Kimani talked about the findings of the PriceWaterhouseCooper that had found out that the contract price was considerably overvalued – to an extent it made no economic sense.

But when on July 23, 2008 the Court of First Instance asked the Kenyan side to table evidence, the defence collapsed.

“The party which requests payment of a debt does not have to prove anything other than the fact that it performed its obligation or that the event or condition occurred or was fulfilled,” Judge Ivo Buetti, stated.

(Kenya was represented by London lawyer Colin Nicholls, Micheal McLaren, another London barrister, acted for FMSC)

Kenya failed to prove that the 980 VSAT equipment covered in the contract were not delivered and that FMSC failed to pay the suppliers. If anything, FMSC demonstrated that it paid $12,716,750 to Gilat satellite Networks or its subsidiary. By the time it stopped honouring the deal, Kenya had already reimbursed FMSC $6,872,750.

So, why would Kenya argue that the contract was faulty yet it met part of its bargain? This question baffled the judge – and raised questions about the preparation of the Kenyan defence. “Firstly, the Republic of Kenya initially fulfilled its own contractual obligations by proceeding to pay part of the reimbursement installments … Secondly, at no time did the defendant first notify FMSC that it wanted to “rescind” the contract.”

The Kenyan defence could not demonstrate why the government met part of the contractual obligation, why it never raised it’s “corruption suspicion” earlier, and why it wanted to “rescind” the decision at a time when FMSC had met its obligation and when Gilat had already delivered on the contract.

Obviously, the argument of corruption concerned Kenya and the supplier, Gilat, and not the financier, FMSC.

Kenya’s defence argued that the Ministry of Transcom signed the contractual papers rather than the project beneficiary, Postal Corporation of Kenya (PCK). This, it said was illicit. Yet, interestingly, the contractual documents hardly mention PCK anywhere. “Consequently, the defendant’s … argument seems to lack pertinence,” Judge Buetti stated.

Kenya argued that no Ministry could borrow money on behalf of a state corporation. The government could only guarantee a loan taken by such corporation. Yet, it would appear, the Kenyan defence inexplicably failed to note that the contract referred to the “Republic of Kenya” and nowhere did it mention PCK.

Kenya argued that representatives of FMSC did not justify their powers in any way. The Judge was amused by this reasoning.

“If one of the people supposed to have acted on behalf of (FMSC) in negotiating or signing the contract did not really have the powers or authority to do so, (FMSC) (ratified/rectified) the said contract by fulfilling all the obligations resulting from it and hence ratified any possibly unauthorized acts have been ratified.”

Implicitly, FMSC delivered – it paid $12,716,750 to Gilat Satellite Networks or its subsidiary. So, why did the Wako team take this line of argument?

Hardly all; while Kenya quoted an audit by PriceWaterhouseCoopers (PWC) to emphasize claims that the contract price was inflated, the defence team hardly tabled this key document. “Thus, it has not demonstrated in any way that the services invoiced were overvalued,” the Judge argued. “The fact that a party pays (or receives) too great a sum of money for supply or a service does not in itself affect the validity of the contract.”

Again, Kenya’s line of defence was injudicious because the “overvaluation” matter hardly concerned the financier. Rather it should have been at the centre of the contract between the government and the supplier, Spacenet.

In fact, the Judge reasoned, “the argument does not concern the financing costs but those of the Purchase contract to which (FMSC) is not a party”. Judge Buetti would conclude, ‘it is clear … that none of the arguments raised by the Republic of Kenya against (FMSC) claims is well founded”.

CRUCIAL FIGURES:

Sh124,061 (amount the FMSC contract was attracting in penalty every day). Sh920M (the amount due for payment, including interest, as at March 24, 2014.

 

Sh146,187 (amount the Universal Satspace contract was attracting daily, after the court award of Sh677M).

Sh130B (Amount Kenya seeks through its first International Sovereign Bond)

 

Sh1.03B — the contract price of the PCK project