Kebs paralysed as accounts frozen over Sh2 billion debt

When Kenya Bureau of Standards (Kebs) entered into a contract with Dubai-based Geo-Chem Middle East in June 2009 to inspect petroleum products destined to Mombasa port, it had hoped that the local oil marketers would meet the cost estimated at 35 cents per litre.

Now, 11 years down the road, all Kebs bank accounts have been frozen over Sh2 billion demand that has rendered the standards body moribund – and as the institution seeks a judicial way out of an intriguing case that has been playing out rather quietly in the court corridors.

The legacy of former managing director, the late Sammy Kioko Mang’eli, is now haunting the body and insiders hope they will manage to convince the courts tomorrow to stay the garnishee order nisi – an attachment of all cash deposits of the corporation that was issued by Justice John Mativo on December 24, 2020.

It all started in 2009 when the oil inspection contract was signed and the inspection facilities launched by then Minister for Industrialisation, Mr Henry Kosgey. But after only seven months, it was cancelled.

The court was told that in the course of operations, Geo Chem met challenges when collecting fees from the oil marketers for the petroleum inspection services rendered and sought Kebs intervention.

Sometime in February 2010, Kebs, “In an act of good faith”, requested the Kenya Revenue Authority (KRA) to collect the amounts owed to the Dubai company from the oil marketers as it collected the taxes owed to it. The High Court heard that “in spite of this arrangement, collection of the fees did not go on as anticipated” .

Again, there was national uproar as marketers increased the pump prices by up to Sh4 forcing the government to revoke the legal notice. Finally, the government revoked Legal Notice 142 of 2009 on the inspection of imports.

Arbitration clause

Following the cancellation of the contract in March 2010, GeoChem invoked the arbitration clause seeking $2.5 million being unpaid invoices for work done; $468,629 being sums incurred in equipping the laboratory, $1.2 million being expenses incurred in setting-up operations in Mombasa and $17 million lost income as a result of suspension of the contract.

 In total, it was seeking close to Sh2.1 billion. Kebs argues that it had no contractual obligation to collect any money on behalf the Dubai company.

However, the arbitrators awarded Geo-Chem $15 million, failing which it would attract a compounded interest at 5 per cent per annum. Kebs then went to the High Court where Justice Fred Ochieng argued that the court “does not have authority to make an assessment on the merits of the arbitral award” and that its hands were tied by Section 10 of the Arbitration Act which limits the extent of the court’s intervention.

In his ruling, Justice Ochieng refused to set aside the award and recognised it as a judgment of the court.

Court of Appeal

Kebs then went to the Court of Appeal arguing that the tribunal that reached the initial verdict lacked jurisdiction and that the award “conflicted with public policy and violated principles of justice and morality” since when the contract was signed it did not contemplate a payment dispute.

The Court of Appeal ruled that the appointment of the tribunal was done outside the time limits prescribed in the contract – and thus lacked jurisdiction to hear the case. They also ruled that the contract did not impose any obligation on Kebs to make good any default in payment.

But the Supreme Court ruled that the Court of Appeal should not have granted Kebs right to file the appeal and which technically left the state corporation at the mercy of the Dubai firm.

The Supreme Court ruling is now facing legal scrutiny since the judges first argued that the court lacks jurisdiction to hear the appeal but also went ahead to grant the orders sought by the Dubai company.

Kebs is returning to the courts tomorrow to save itself from an order that may turn it captivehoping that the Court of Appeal decision would be upheld.

[email protected]