How multi-billion contracts came to haunt Kenya

The government lost a case against one of the Anglo Leasing firms because it failed to honour a court agreement to settle the matter.

A ruling in the case shows that after a protracted legal battle in which the government refused to pay Universal Satspace LLC of America, a London court in February 2003 ordered for mediation between the parties.

The court says the mediation was successful because the parties reached an agreement to settle the matter.

“Usually at mediation, the terms of the agreement are written down and signed by the parties, but in this case, and unusually, the agreement between the parties was not signed,” the court observed.

Instead, the court said, at the request of the Kenya Government, there was to be a 21-day delay in signing and the parties promised to sign the agreement within that period.

“However, although the claimants promptly drew up the agreement and signed it, the government did not to do so,” the court said.
It says it is under these circumstances that the application to strike out the government defence had been brought to court.

“The court may strike out a statement of case if it appears to the court that the statement of case is an abuse of the court process, or is otherwise likely to obstruct the just disposal of the proceedings or there has been a failure to comply with the rule, practice direction or court order,” the court observed.

Consequently, it dismissed the government defence and ordered it to pay Universal Satspace LLC $7.6 million being the principal sum being claimed plus $274,431 interest on that sum up to December 20, 2013.

The money was to be paid by January 17, 2014.

In the case involving First Mercantile Securities Corporation, the court ordered the government to pay the Swiss firm $2.5 million plus 8.75 per cent interest and the cost of the suit.

Before this, the government had refused to pay the firm, claiming that those who had signed the contract in dispute did not have authority to act on its behalf, that the contract was signed as a result of bribery to the signatories and there was alleged fraudulent misrepresentation.

The court also threw out a government application to appeal and ordered it to pay the claimant’s costs of its application assessed at £60,000.

 Following these developments, Treasury recently said it reached a negotiated settlement with one of the 18 Anglo Leasing companies, clearing the main hurdle that has delayed plans to raise money from international markets.

Treasury Cabinet Secretary Henry Rotich said that the government has negotiated a Sh1.4 billion ($16.4 million) settlement with First Mercantile, paving the way for issuance of the Sh174 billion ($2 billion) Euro Bond “in a matter of months”.

“We have more or less closed the chapter on this Anglo Leasing thing. The only pending issues are criminal investigations that are ongoing,” he said.

However, the development sparked a fresh national uproar, reviving the ghost of the Anglo Leasing scandal that dogged both the Moi and Kibaki administrations.

Anglo Leasing is a UK-based firm that provided financing for 18 security contracts signed towards the end of President Daniel arap Moi’s Kanu regime.

Documents show that Universal Satspace LLC, which also goes by the name Spacenet Inc, was contracted to provide satellite bandwidth to then Postal Corporation of Kenya to enable post offices to be connected to the Internet.

It was also to supply other VSAT, communication and electronic equipment.

First Mercantile was to provide financing for the purchase of satellite telecommunication equipment for the Postal Corporation of Kenya as part of the multi-billion-shilling deals that the government signed with European firms in 2004.

Attempts by the Jubilee coalition to rally MPs to endorse the payments ended in disarray with the legislators demanding that they be told the individuals behind the two firms.

The MPs rebelled against their leader in Parliament, Mr Aden Duale, and vowed they would not be used as rubber stamps to pay billions of shillings to “phantom” companies.

Subsequently, a motion seeking Parliament’s approval to pay the sum in one instalment was withdrawn.