Relief as company withdraws another Sh1bn foreign claim

A local contractor that had joined Anglo Leasing-related firms and their Sh1.4 billion demand in muddying the waters for Kenya’s Sh135 billion Eurobond has withdrawn its claim before a US court, easing the pressure on the National Treasury. 

Spencon Limited, a company registered in Kenya, had erected yet another hurdle to the Treasury’s ambition to float the $1.5 billion Eurobond with the revival of a Sh1 billion arbitration award against the Kenyan government in a New York court.

Attorney-general Githu Muigai Monday told the Business Daily that the Sh1 billion suit was one of the two (including the controversial Sh1.4 billion Anglo Leasing) claims that were pending before foreign courts -- blocking the path to issuance of the Eurobond.

“We were not aware of this outstanding claim until we carried out an audit in preparation for the bond issue. We instructed our lawyers to take up the matter and I am happy that following the outcome of the matter in New York, it is no longer an issue as far as issuance of the bond is concerned,” Prof Muigai said on phone.

Spencon had filed for enforcement of the award before a New York court, just months ahead of the planned $1.5 billion Eurobond. 

But Prof Muigai, through Iseme Kamau and Maema Advocates, successfully moved to the Kenyan court, seeking orders suspending enforcement of the petition before the New York Court.

The A-G had argued that the arbitration process that awarded Spencon Sh1 billion for the job it did for Mombasa Municipal Council was local and its enforcement could therefore only be sought through Kenyan courts.

Spencon was last week forced to withdraw the petition in New York following a Kenyan High Court order that the matter be dealt with locally.

“The petition filed in the subject matter is withdrawn without prejudice,” says an order issued by United States District Court on May 12.

The contractor, however, won a concession allowing it to file a fresh petition in New York if the Kenyan court allows it to do so. Transfer of the matter back to the Kenyan courts effectively turns it into a domestic debt without an impact on the country’s credit worthiness in international markets.

“This effectively means Spencon’s claim is not part of the disclosure of debt that the government must make ahead of the Eurobond since it is no longer a foreign liability,” said Kamau Karori, a lawyer representing the government in the case.

Justice Francis Gikonyo of the High Court had in January issued orders stopping Spencon from pursuing enforcement of the award through a New York court because the matter was subject to local arbitration.

Kenya is seeking to use the proceeds of the Eurobond to finance key infrastructure projects as well as to roll over old debt that is due for payment without deepening its presence in the domestic debt market.

The Spencon dispute started in 1997 when the Mombasa Municipal Council, under the supervision of the Ministry of Local Government, entered into a contract with the firm for the repair and maintenance of sewerage plants in the coastal city.

But the parties later disagreed over payment and took the matter before a Mr T. Thuo for arbitration. In November 2010, the arbitrator made two awards in favour of Spencon, including interest accumulated.

The firm did not file enforcement proceedings until December 2013, when the government received summons from the New York court.

Spencon, in papers filed in New York, asked the court to enter judgment in its favour arguing that the Kenya government had not sought to vacate, modify, or otherwise challenge the award in any way.

The company asked court to enter judgment for US$12,019,666 including accrued interest.

But the A-G subsequently moved to the Kenyan High Court, arguing that the matter was within the jurisdiction of local courts.

Prof Muigai argued that the Kenya government had failed to challenge the award within the 90 days due to the confusion caused by the 2010 transition to a new constitution. Following the closure of the appeal window, the government decided to wait for Spencon to file an application for enforcement.

Kenya argues that the purported award is not what is envisioned from the Arbitration Act since it merely consists of directions signed by the parties’ advocates, making the claim non-enforceable in a court of law.

“An award is a decision rendered by an arbitrator and signed only by him,” the Kenya government argues in documents filed in court.

The revelation comes even as the government made what President Uhuru Kenyatta called a ‘difficult decision’ to pay Sh1.4 billion to two Anglo-Leasing firms.

First Mercantile Securities Corporation and Universal Satspace had sued the Kenyan government in Switzerland and the United Kingdom for failure to meet its obligation in the Broad Band Network and the Bandwidth Network contracts awarded to them in 2004.

The Treasury said issuance of the sovereign bond cannot take place unless all obligations related to the awards are paid. Kenya’s debut Eurobond in 2007 was put off following post-election violence, which crippled the economy and dented investor confidence.

But the MPs, who cleared the way for the Eurobond after amending the public finance law to allow the Finance minister to borrow money from offshore markets, opposed the payment leading to withdrawal of a Motion seeking their approval.

Mr Kenyatta last week authorised the National Treasury to pay the Sh1.4 billion even as he ordered fresh investigations into the cases around the suspect security and information contracts.

Experts have warned that the Anglo Leasing payment would set a precedent and open floodgates of claims against Kenya, some dating back to the reign of Kenya’s first president Mzee Jomo Kenyatta.

A parliamentary watchdog committee has warned that taxpayers risk settling a Sh3 billion debt signed by the Jomo Kenyatta government in 1975 should the Treasury pay the two European firms linked to Anglo Leasing.

The Law Society of Kenya Monday petitioned Parliament to start proceedings for removal of Prof Muigai from office over the Anglo Leasing contracts.
In the petition dated May 19, LSK wants the A-G sacked for allegedly violating the Constitution and for gross misconduct.

On Monday, Prof Muigai put up a strong defense saying the attack against him is unwarranted because he came to office after all legal windows of appeal had been exhausted.

“The patient died on the operating table long time ago. The man before you is a mortician. If you think the patient should have lived ask the
surgeon,” he said refereeing to his predecessor, Amos Wako.