Inside Tuju’s battle with EADB, a bank that enjoys immunity

When Mr Raphael Tuju flew to London, the fate of his Sh1 billion project was hanging by a thread since the East African Development Bank lawyers had agreed to go for a summary judgment. 

To get a summary judgment, EADB was supposed to show that Mr Tuju and his company had no “real prospect” of defending the claim and this was a way of foregoing a full trial.

By evading a full trial, Mr Tuju, perhaps, knew that he could not argue his case in the London court.

Founded by the East African countries in June 1967 to help locals turn into entrepreneurship, EADB had been one of the institutions that survived the collapse of the East African Community and with its diplomatic immunity, it had an upper hand, since Mr Tuju could not sue the bank — even if there were governance issues.

That was a detail that he had perhaps overlooked when the bank reached out to him.

Enjoys immunity

EADB enjoys immunity from every form of legal process as per Article 44 (1) of the Charter of the East African Development Bank annexed to the Treaty for East African Co-operation of 1967 and as amended on July 23, 1980 and set out in the Schedule to the East African Development Bank Act, Cap 493.

Various attempts to sue the bank in East Africa always collapse unless the bank waives its immunity — and it hasn’t.

In November 2017, as Dari Ltd tried to search for new investors into the project, the EADB cited default and made demands for the payment of the entire loan.

The Dari lawyers had told the court that they could get equity from a bank and that a buyer was willing to inject $10 million (Sh1 billion) into the project — but only if EADB was willing to take the money and walk away. But EADB asked for $12 million (Sh1.2 billion).

The new investor from the United Arab Emirates would have single-handedly approved the Sh1 billion deal without consulting his co-investors. But for more than that amount, he required a board meeting.

EADB, represented by local law firm Sharpley, and after six months of negotiations, drafted a new agreement in which the bank was to receive Sh1 billion and the balance of Sh200 million would be guaranteed by another bank. But EADB, as court records show, refused to sign the agreement drafted by its lawyer and continued with its claim.

The investor walked away.

Summary judgment sought

In London, the bank asked for a summary judgment, arguing that Dari Ltd had no claim. But Dari countered it was the bank’s failure to release the Sh294 million for development that triggered the collapse of the project.

Dari told the court that the Sh294 million was critical to the project and that this was part of the deal.

Deputy High Court judge Daniel Tolidano had been told by Mr Tuju that the loan repayment was to be made from the cash flow arising from Phase 2 of the project. He was making a counterclaim and a rescission of the loan agreement.

But under clause 24.3 of the agreement, the bank told Justice Tolidano Mr Tuju had agreed that “any claim against the bank shall not provide a defence or a justification for non-payment of any amount due”.

EADB then sought a summary judgment.

According to the judge, a KPMG report dated July 24, 2015 postdated the loan agreement and he did not put weight into it since it did not emanate from the bank. Although the KPMG report had actually been commissioned by the bank, Justice Tolidano said, “the document does not take (Dari Ltd) very far.”

“It is consistent with EADB’s case that there had been discussions, but nothing more about the Mwitu Road proposal,” observed the judge.

The question that arose was whether payments for the loan would come from Phase 2 or from other sources: “It is not clear to me what is meant by the pleaded representations that the claimants understood the two-phase nature of the project. Even if they represented that they understood this, it is implausible that this type of representation would be relied on by the defendants.”

While Mr Tuju had told the London court that EADB was guilty of “misrepresentation”, the judge held that “even if I had concluded that there was an arguable claim for misrepresentation, I would have concluded that it is impossible to see how the claim for rescission could succeed in any event.” 

The judge reasoned that much time had passed and “it would be impossible … for the parties to be restored to their original positions.”

Restitution impossible

Finally, he ruled that “since the defendants do not appear to be in a position to return the monies borrowed to the claimant and for other reasons too, restitution in integrum (to the original position) would be impossible.”

But had Mr Tuju known that there were some “mistakes” and unforeseen anomalies in the contract? The court was of the opinion that “the parties were commercial parties negotiating at arm’s length with the benefit of legal advice. The defendants had the opportunity to consider the terms of the facility agreement. They did so and entered into the contract,” said the judge.

Mr Tuju had argued that the Upper Hill property should not have been charged since the value rations had been exceeded. That meant that the bank had properties worth more than the loan Dari had taken.

On September 23, 2015, Mr Tuju’s lawyer had requested a variation of the security package so as to remove the charge over the Upper Hill property. In essence, the EADB had the Upper Hill property worth Sh780 million as per last valuation of 2015.

Mr Tuju had told the court that failure to release the balance of Sh294 million, which was to help kick-start the building of villas for sale, was the source of the problem. But the judge was of the opinion that the bank was not under any obligation to lend this amount.

At one point in London, Mr Tuju’s lawyer had asked the judge to disqualify himself on account that he shared the same chambers as the EADB lawyer.

Defeated in London, Mr Tuju — and as the bank pushes to sell his properties over the loan — has now gone to the Kenyan High Court, where he is arguing that Judge Tolidano, the part-time judge who heard the case, was not impartial. His lawyers claim that there was an obvious conflict of interest, which the Kenyan court should address.

“The judge, barrister and the daughter of the chief officer lived in the same chamber and one would have expected justice to be entered in favour of Tuju,” say papers filed in Nairobi.

Granted stay

Another matter in court is whether Tuju got a fair trial and whether the ruling can be enforced. The court will determine whether the bank’s failure to release the Sh294 million is a triable issue. Already, the Court of Appeal has granted a stay on the London ruling.

But the matter has become much more complex since the bank has appointed receiver managers for Dari and also served insolvency notices against Mr Tuju and his children.

Mr Tuju’s papers in court show that the loan is secured with two titles of 27 acres. His lawyers aver in court that even if the bank sold the properties, Mr Tuju would get more money than the bank.

They also say that the courts have been placing stringent rules on Mr Tuju who was asked to deposit Sh50 million within 30 days, failure to which the bank would auction his Karen property. The bank had appointed George Weru and Muniu Thoithi as receiver managers to oversee the sale of Tuju’s property.

Whichever way, the case goes, Mr Tuju has found himself at the mercy of a bank that enjoys immunity — and which is not under the supervision of the Central Bank.