Dr Evans Kidero, MD, Mumias Sugar (left) and Mr Ahmednassir Abdullahi : Arbitrator (right). Mumias is questioning Mr Abdullahi’s neutrality in an arbitration case.
Sugar miller Mumias returns to the courts on Wednesday where it will be seeking the removal of an arbitrator in a multi-billion- shilling dispute with its principal cane supplier, the Mumias Outgrowers Company (MOC).
The miller, which is listed at the Nairobi Securities Exchange, wants Ahmednasir Abdullahi out of the dispute resolution process for showing bias in a case where MOC, a cane farmers’ organisation, is seeking Sh3.7 billion it claims to have accrued over a period of 36 years.
Mumias is questioning Mr Abdullahi’s neutrality, citing a statement he made in an earlier ruling on the matter.
Arbitration of the dispute ran into trouble as soon as it began after Mr Abdullahi ruled out Mumias Sugar’s demand that MOC deposits Sh60 million as a guarantee for the legal expenses it is expected to pay should it lose the out-of-court settlement.
MOC said it could not raise the money and the sector regulator, the Kenya Sugar Board (KSB), offered to underwrite the legal costs whichever way the arbitrator ruled.
Mumias insists that MOC should foot the bill by itself, arguing that the sugar board, which gets its income solely from the Sugar Development Levy – a consumer tax used to fund investments in the sugar sector — cannot be used to offset the cost of arbitration.
The miller further demanded that MOC’s claim be struck out if it failed to deposit the Sh60 million – effectively pegging the outgrowers’ claim on their ability to raise the legal guarantee.
Mr Abdullahi disagreed with Mumias’ position, noting that he had already refunded the Sh500,000 that KSB deposited on behalf of the outgrowers.
Mumias has responded to that ruling with an emergency petition filed before court on March 28 that succeeded in suspending the arbitration process pending the determination of the application seeking the appointment of another arbitrator.
“That upon perusal of the said ruling the applicant herein found extremely disturbing words in paragraph 56,” Mumias says in its petition.
The said paragraph had asked whether Mumias effectively dropped its claim for legal costs after its bid to stop KSB from guaranteeing the legal fees was quashed.
“So having stopped a third party from paying the costs of the eventual winner of the arbitral proceedings, is the applicant stopped by its previous conduct from seeking an order for costs at this point in time?”
Mumias claims that the singular, ordinary and natural meaning of the words is that the arbitrator had already made up his mind that MOC had won the arbitral proceedings.
In an e-mail response to Mumias and its lawyers, Mr Abdullahi defended his ruling, arguing that the miller was free to interpret the words in any way it wants.
“I don’t need to justify and explain my decision on the issue of cost to either of the parties to the arbitration. Judges and arbitrators don’t do that! The ruling speaks for itself.
Whatever interpretation or spin a party puts on the same is for the party who elects to do so,” said the arbitrator in response to Mumias’ query.
Mr Abdullahi, who was appointed the sole arbitrator on March 25, 2010, argues that because the sugar board had offered to pay the legal costs of the party that lost the statement “eventual winner” cannot be specific to any of the two parties.
He had observed in his ruling that Mumias’ demand that MOC deposits the legal fee surety before commencement of the arbitration was an impediment to the process.
“I think it is the epitome of judicial unfairness to tie the right of a party to access justice and ventilate its claim with the credit or debit balance in its bank account,” he had said in his ruling.
“It will herald an era where the rich will use their financial might to put roadblocks on the path to justice of the less affluent members of society.”
MOC, whose membership stands at 70,000 farmers, says the weak structures it had when it was founded in 1975 had forced it to cede its finance and accounting functions to Mumias Sugar.
MOC’s multi-billion shilling claim against the sugar miller is hinged on Mumias Sugar’s handling of the outgrowers’ finances since its founding.
The farmers accuse Mumias Sugar of refusing to pay money that accrued from their borrowings, contributions and interest on their cash held by the sugar miller.
Mumias has in turn made a counterclaim of Sh4.1 billion against MOC that it says was accumulated in unpaid subsidies to farmers.
Mumias allegedly received and managed the growers’ loans, proceeds from cane deliveries and cane development funds that are charged at Sh1 per tonne of cane.
MOC’s pile of loans includes Sh6.5 million from the British investment firm CDC, the government (Sh4.8 million), KCB (Sh9 million) and the British government (Sh35.6 million).
The outgrowers say an additional Sh187 million was borrowed from KCB and paid to Mumias as its accountants. From 1991, the two parties decided to shelve borrowing in favour of an arrangement where the miller would retain for a year 15 per cent of farmers’ dues. The money would be lent out to farmers with interest to help them develop cane production.
Between 1993 and 1994, Mumias expanded its production capacity – increasing the demand for cane.
To help farmers expand their cane fields to meet the new demand, the miller lent the outgrowers’ Sh190 million.
MOC says its disagreement with Mumias started in 1998 when the miller claimed that the farmers owed it Sh622.5 million.
MOC rejected the debt claim and hired a consultant to investigate certain business transactions between the two parties for the period January 1, 1998 to December 31, 2004.
