Not again! Pattni’s new Sh4bn scandal

Kamlesh Patni at a Milimani Law Court during a mention of a case he is charged with conspiracy to defraud the state over Goldenberg saga on March 29, 2012. Justice Mutava of the High Court, blocked the Director of Public Prosecution from Pattni for crimes arising from his dealings with the Central Bank over the Grand Regency hotel, sold off to Libyans and now trading as Laico Regency. PHOTO/FILE

What you need to know:

  • Justice Torgbor ruled in favour of WDF on December 5, 2012 and gave KAA two months to pay Mr Pattni Sh4.2 billion in full. He also allowed the controversial businessman to charge interest at court rates from the date of the first default on the outstanding amount.
  • In his ruling, the arbitrator concluded that the acts by KAA against Mr Pattni’s company were unwarranted and amounted to aggravated conduct “for which KAA is answerable in aggravated damages”.
  • Absolving Mr Pattni from further prosecution, Justice Mutava said the businessman’s fundamental rights and freedoms had been violated by the State.

Controversial businessman Kamlesh Pattni is set to pocket Sh4.2 billion worth of taxpayers’ money if the High Court upholds a hefty award issued in his favour by an arbitrator.

Retired Ghanaian judge Edward Torgbor ordered the Kenya Airports Authority (KAA) to pay the Kenya Duty Free (KDF) Complex associated with Mr Pattni the amount as part of a long running battle with the airports authority.

If the court upholds the award, it will mean more billions of shillings will be paid to the same man who was at the heart of the multi-billion shilling Goldenberg scandal and who the Bosire commission of inquiry described as a notorious “perjurer, forger, fraudster and a thief”.   

At the heart of the case is a claim by the World Duty Free (WDF) Ltd – trading as Kenya Duty Free Complex – that it was awarded the sole exclusive rights to run and manage the duty-free shops at Jomo Kenyatta International Airport in Nairobi and Mombasa’s Moi International Airport.

An international tribunal later ruled that the award was obtained through corruption and bribery and should not be respected.

But Mr Pattni and WDF have aggressively pursued their right to hold those exclusive rights.

Justice Torgbor ruled in favour of WDF on December 5, 2012 and gave KAA two months to pay Mr Pattni Sh4.2 billion in full. He also allowed the controversial businessman to charge interest at court rates from the date of the first default on the outstanding amount.

“For the acts of brutality and wanton destruction committed by KAA and its servants by the invasion of the claimant’s (WDF) contractual rights, forcibly breaking into the shops and needlessly pilfering, looting and destroying the goods and stocks in trade from which profits were paid to the authority, I order an award of Sh4.2 billion,” ruled Mr Torgbor.

However, the KAA through lawyer Fred Ngatia, has challenged the award and the arbitrator’s entire findings before Justice Jonathan Havelock and has since obtained interim orders stopping the payments until the dispute is heard and determined.

“I have noted with sadness and disbelief that the arbitrator proceeded to hear a very significant part of the proceedings in the absence of KAA’s advocates or representatives and without informing the management of KAA,” said Justice Havelock.

In his ruling, the arbitrator concluded that the acts by KAA against Mr Pattni’s company were unwarranted and amounted to aggravated conduct “for which KAA is answerable in aggravated damages”.

But in an application seeking to set aside the award in its entirety, the KAA argues that the agreement between it and WDF which formed the basis of the arbitral proceedings was procured through bribery and corruption and “is thus not valid or enforceable under the laws of Kenya”.

Further, the authority through an affidavit sworn by its managing director Stephen Gichuki, claims the arbitration was conducted in a manner that deprived the airports operator of fair and reasonable opportunity to ventilate its case.

Mr Gichuki said the award sought to interfere with the development of air transport facilities in Kenya on the basis of a contract procured through bribery and corruption. He insists the award is contrary to public policy, justice and morality.

“None of the impugned findings and declarations in the award is severable from the other as the entire substratum of the subject matter is founded on a corrupt bargain to extract an illegal and improper benefit from public funds,” argues Mr Gichuki.

At the centre of the dispute is an advertising concession and permission to operate duty-free shops granted by the KAA to third parties, without consultation.

Mr Pattni accused the KAA of unlawfully contravening and grossly breaching his company’s sole and exclusive rights to construct, maintain, furnish and commercially operate duty-free shops by granting the concessions to third parties at JKIA other than Diplomatic Duty Free Ltd, also associated with Mr Pattni.

The businessman named the third-party companies given the concessions as Goldrock, KWAL, Glamour House, Hand Carvers, Maya Duty Free Ltd, Beth International Ltd, Reno Perfumes, Safari Liquor and Siamanda.

He also faulted the airports operator for giving advertising concessions to Ogilvy (East Africa) and Media Initiatives (East Africa) at JKIA and Moi International Airport. He said this contravened WDF’s purported exclusive rights to advertise or arrange for advertisements for other persons in the facilities.

But it is the hefty award against the government authority that is likely to attract public attention given that it is wananchi and taxpayers who will foot the Sh4.2 billion bill.

Shortly before he delivered his findings, Mr Torgbor asked: “Is the WDF entitled to damages and the reliefs sought in the statement of claim for the breach of contract by KAA?”

“It follows from the findings and conclusions made and drawn on the preceding issues that the claimant is entitled to the declarations, orders, damages and reliefs as played,” said the arbiter.

Quoting section 33 of the KAA Act, Mr Torgbor said the authority’s statutes allowed the injured party to be compensated, adding that restitution embraced the payment of damages and other acts the wrongdoer may be ordered to perform.

On June 29 last year, KAA through lawyer Eric Mutua lodged an application in the High Court commercial division seeking the removal of Mr Torgbor as the sole arbitrator. KAA also pleaded that the arbitral proceedings be stayed pending the determination of the case.

The authority complained to Justice Joseph Mutava that Mr Torgbor was not impartial and had failed to treat the parties to the arbitration on an equal footing. The arbitrator was accused of bias and issuing orders on matters where he lacked jurisdiction.

Mr Pattni, through his advocate Bernard Kalove, submitted that the court had no powers to stop the arbitration proceedings, saying the KAA application had no merit and called for its dismissal. He argued that KAA ought to have made its application before the arbitral tribunal.

On November 15 last year, Justice Mutava — who was investigated and subsequently cleared by the Judicial Service Commission for his conduct in handling matters relating to Mr Pattni — threw the KAA suit out saying the court lacked jurisdiction to challenge an arbitral tribunal. He added that the court could only come in at an appellate capacity and not as the court of first instance.

After the ruling, KAA boycotted the proceedings, but Mr Torgbor went ahead to hear the WDF pleadings and awarded the company Sh4.2 billion.

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

Mr Gichuki says in court papers that he was shocked to learn that the arbitrator proceeded to hear a significant part of the proceedings in the absence of KAA’s advocates or any of its representatives. The hearing, he argued, was conducted without the knowledge of the management.

The arbitrator found the concessions granted to third parties were in breach of a 1989 agreement and another dated January 29, 2003 which gave WDF exclusive rights to the duty-free shops. The retired judge dismissed KAA’s argument that the contract entered in 1989 was secured through bribery and therefore should not be subject of arbitration under the laws of Kenya.

KAA cited the findings of the International Centre for Settlement of Investment Disputes (ICSID) in 2006, which the WDF lost on the basis that the contract had been obtained through corruption.

Kenya’s main defence against the Sh40 billion payout sought by the Dubai-based businessman Nassir Ibrahim Ali, who accused the government of breach of contract since he previously owned the duty-free shops through the House of Perfumes company, was that a contract procured by bribery was unenforceable.

In the arbitration at The Hague, ICSID dismissed the claims saying the company through its agents in 1998 paid retired President Daniel arap Moi $500,000 (Sh 41.5 million), which was found to have been a bribe to secure the contract.

Mr Ali had claimed he was conned out of the money after an introductory meeting allegedly arranged by former powerful nominated MP Rashid Sajjad at Mr Moi’s Kabarak home in Nakuru.
That bribe formed the basis of the tribunal’s ruling that the whole duty free deal was null and void.

But in Kenya, that decision has had little impact.

On March 20, Justice Mutava caused uproar after he cleared Mr Pattni of all criminal and civil suits related to the monumental Goldenberg scandal and said he was ready to face public “lynching” elicited by his judgment.

Absolving Mr Pattni from further prosecution, Justice Mutava said the businessman’s fundamental rights and freedoms had been violated by the State.

He ruled that the prosecution’s conduct failed to meet the threshold of fair trial and consequently rendered Mr Pattni’s further prosecution unconstitutional.

The Judicial Service Commission (JSC) has given Justice Mutava a clean bill of health after it declared that it would not investigate the judge for arbitrarily ruling in favour of Mr Pattni and companies linked to him.

The commission’s sub-committee headed by Supreme Court judge Smokin Wanjala ruled that there was insufficient evidence to warrant disciplinary proceedings against the judge.

At least five complaints by the Law Society of Kenya (LSK), KAA, individual lawyers, a judge and a civil society group were filed against the judge. All the complainants alleged the judge was assisting Mr Pattni to compromise justice. Mr Mutava was also accused of leaking a judgment by Mr Justice Leonard Njagi.

The three-member sub-committee of Justice Smokin Wanjala, Chief Registrar of the Judiciary Gladys Shollei and the Rev Samuel Kobia had recalled all files relating to Mr Pattni’s cases handled by Justice Mutava to allow it to conduct independent investigations into the petition lodged by the LSK, KAA and the International Center for Policy and Conflict.

The team resolved there were insufficient grounds to form a tribunal to investigate the conduct of the judge who was drafted in the Judiciary in 2011 from the Central Bank. KAA had also petitioned the JSC to investigate the judge over the raging dispute on WDF.

The authority alleged the judge acted in a biased and unprofessional manner when he issued orders that effectively gave Mr Pattni control of duty-free shops at all airports in the country.
The KAA also complained about a decision by Justice Mutava to cite the company’s top officials for contempt for disobeying court orders.

The judge had ruled that KAA managing director and company secretary were in contempt of court and were liable to six months imprisonment. However, the authority disputed the ruling saying the case was not listed for hearing on the date they were alleged to have been in contempt.

Another complaint against Justice Mutava was that he interfered with the judgment of Justice Njagi, who has since been found by the Judges and Magistrates Vetting Board to be unfit to continue serving in the Judiciary.

Justice Njagi swore an affidavit to support the allegations but the JSC sub-committee ruled it lacked sufficient evidence.

The LSK questioned the circumstances under which he was allowed to continue hearing the case and deliver the judgment at a time when he was being investigated over his handling of Mr Pattni’s cases.

“All the files relating to Mr Pattni cases were recalled by the JSC when these complaints were lodged. We are wondering when they were released to the judge again for him to write the judgment,” asked the LSK secretary Apollo Mboya in their complaint.

In a recent series of articles in the Sunday Nation, lawyer Wachira Maina said the conduct of the Judiciary in handling cases involving Mr Pattni showed an institution that had been infiltrated and compromised by the wily businessman.

“There is enough evidence from Pattni’s 20-year romp through the Judiciary to warrant a fresh investigation and prosecution for abuse of the judicial process. It is a story of egregious and audacious fraud, manipulation, forgery and appalling impunity,’ Mr Maina wrote. “The Attorney-General, Prof Githu Muigai, can bring it to an end by asking the High Court to declare Pattni a vexatious litigant under the Vexatious Proceedings Act. If declared that, Mr Pattni would never file another case without the permission of the court.”


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