How Kenya lost case against paying Sh1.4bn

Kenya, in arguing against paying the Sh1.4 billion in the Anglo Leasing case, based its argument on five grounds which were all dismissed by the High Court of Justice in Geneva, Switzerland.

The court said from the outset, Kenya alleged that one Sammy Kyungu signed the Anglo Leasing financing contract after promises that his daughters’ school fees would to be taken care of by one Annure Pereira, the owner of First Mercantile Securities.

From 1999 to 2003, Mr Kyungu was the director of the Communication Commission of Kenya, before becoming the permanent secretary in the Ministry of Information and Communication.

Earlier on, in July 11, 2002, Mr Sammy Kyungu entered the contract with Spacenet International Company for the supply and installation of satellite communication equipment in 980 Kenyan post offices at a cost of US dollars 11.7 million.

In its defence, Kenya said that “Annure Pereira’s assumption of responsibility for Kyungu’s daughters’ school fees constitutes an act of corruption.”

The court said that Annure agreed to pay the fees in May 2001 yet the negotiations for the financing of the Anglo leasing contract occurred in March 2002.

“Kenya took no measures to invalidate or terminate the purchase contract if it thought it inappropriate,” reads the court ruling.

“The financial support agreed by Annure Pereira to Kyungu’s daughters had no connection with the conclusion of the financing agreement and cannot therefore be equated to an act of corruption,” said the court.

Kenya further argued that its regulations were infringed in connection with the conclusion of the financing agreement, and that the contract was over valued.

Kenya argued that the Postal Corporation of Kenya — where satellite equipment were to be fixed across all its 980 branches countrywide — was not the entity that signed the contract.

The State said that PCK is a legal company that exists on its own and as such, the ministry in charge (Information and Communication), had no mandate to undertake the tender on behalf of the corporation.

However, the court shove aside the argument as “lacking pertinence” adding that the Treasury had only guaranteed the loan, which was incumbent upon it in line with the purchase contract.

Furthermore, the defence alleged that public procurement regulations of 2001 and the telecommunications and postal sector policy guidelines were allegedly contravened in award and financing of the contract.

However, the contract contained express provisions which were “designed to prevent the Republic of Kenya from invoking any irregularity in its procedures as grounds of defence against any attempt to obtain performance of the contract.”

The court thus overruled Kenya’s argument saying although it was aware of the irregularities committed in its procedures, the country proceeded to perform at least some of the obligations incumbent on it in the contract.

The court said that Kenya and First Mercantile Securities both acted on the basis of the mutually agreed stipulation that all the required procedures had been followed and the contract was valid.

On Kenya’s contention that the services that were to be offered were overvalued, the court ruled out the argument, saying that it was based on an audit by Price Water House Coopers, but Kenya failed to present the findings of the report on its submission in court.

“The fact that a party pays or receives too great a sum of money for a supply or service does not in itself affect the validity of the contract,” read the court ruling.

Lastly, Kenya pressed that a party had signed the contract on behalf of First Mercantile, but according to the English Law under which the contract was signed, “a contracting party can ratify the acts of its representatives and can even remedy any lack of such power.”

The court, therefore, its overall ruling, said that none of Kenya’s arguments were founded in law.

“Kenya shall therefore be ordered to pay First Mercantile the total late interest on each of the sums already paid and any other money ordered in here,” the court decided.