Pipeline appeals Sh5bn award to British commodities trader

The Kenya Pipeline Corporation (KPC) has launched a high-stakes appeal to overturn the Sh5.2 billion awarded by a British commodities trader that was among the financiers of Triton Petroleum’s purchase of oil in 2008.

The corporation is seeking to overturn the 2012 award to Glencore Energy (UK) Ltd after KPC was found to have breached an irrevocable undertaking and released 31,752.39 metric tonnes of diesel to Triton Petroleum without Glencore’s authorisation.

The outcome of the appeal, expected on March 7 will be watched closely not just by oil industry players but also by investors in the extractive industry in Kenya.

A successful appeal by KPC could impact the country’s oil market and the economy by extension as it would make financiers and sellers feel they are not protected by the laws in Kenya and insist on cash purchases. This could exert great pressure on the Kenyan shilling and the economy as a whole.

“This case is extremely important as it governs the manner of the importation of diesel and petrol into Kenya by oil marketing companies.

This is especially so as most if not all Kenyan oil marketing companies do not have the resources to pay in cash for the petroleum products that they import into the country,” Glencore’s lawyers told the Court of Appeal on January 27.

“If financiers feel that they are not protected by the laws in Kenya then from here on Kenya will have to purchase all its imports on a cash basis,” the British company argued.

The British company financed Triton’s purchase of large quantities of diesel in 2008, and according to its lawyers, it retained its title to the goods through a Retention of Titles Clause “which is a well-known and recognised form of an unpaid seller securing its interests.”

Triton Petroleum, which was owned by Yagnesh Devani, subsequently went under with more than Sh7.6 billion worth of fuel it had purchased with financing from, among others, Glencore, Kenya Commercial Bank, Fortis Bank and the Emirates National Oil Company (ENOC).

Mr Devani went into hiding abroad. But in September 2014 the Kenya government got a respite when District Judge John Zani of Westminster Magistrates Court in London granted its extradition request against the fugitive.

“I find that Mr Devani’s extradition to Kenya to face criminal prosecution is compliant with his convention rights within the meaning of the Human Rights Act 1998,” Judge Zani ruled on September 3, 2013.

One of the witnesses Mr Devani had enlisted to testify on his behalf against the extradition request was Prof Kithure Kindiki, now Senate Majority Leader and Tharaka Nithi senator.

Prof Kindiki had testified that Mr Devani should not be extradited to Kenya because prison conditions in the country are very bad, the prosecution was politically motivated, and there is corruption in the Kenyan judiciary.

GRANTED PLEA

Justice Eric Ogola of the Commercial and Admiralty Division of the High Court had granted Glencore’s plea for damages and also directed KPC to pay the costs of the suit and any interests at court rates even as he acknowledged that the plaintiff (Glencore) had no ownership of the consignment, which “remained in Triton.”

But KPC argues in the court papers filed at Court of Appeal that the judge erred in awarding Glencore the said sum of money in damages. According to KPC, Glencore did not have the requisite licence as per the Energy Act, 2006 for possession of petroleum in Kenya.

As such, KPC argues, no claim can be made against an illegality.

“The result is that Glencore obtained neither the ownership nor any right of possession of the stored petroleum by the documents it has produced.

Thus, Glencore had no enforceable right in Kenya in 2008 as a bailor by attornment,” KPC says in its submissions of January 27.

In any case, KPC argues, it had an agreement with Triton on storage and transportation of oil which the latter had imported into the country for its oil marketing business.

The consignment in question was stored at KPC’s Kipevu oil storage facility (KOSF) which was a bonded warehouse where Triton paid the import duty thereby effectively importing the diesel into Kenya.

“There is no cause of action established by Glencore as against KPC,” the corporation lawyers added in the appeal papers.