Pattni firm claims Sh2bn from CBK over Grand Regency

A company associated with Goldenberg architect Kamlesh Pattni has won a court battle reinstating a Sh2 billion compensation claim it has made against the Central Bank of Kenya (CBK).

Malaysia-based Lynwood Development Limited says the claim is for the $3.7 million (Sh318 million at the current exchange rate of Sh86) it paid the CBK in April 1997, being a 10 per cent deposit for the purchase of Grand Regency Hotel and interest accrued.

The hotel was ultimately sold to Libya Arab Investment Company (Laico) and renamed Laico Regency. Lynwood, through its local agent, Westmont Holdings Limited moved to court in 1998 with a petition seeking refund of the money but the case was dismissed in 2002 for lack of prosecution.

The Malaysian firm then moved to the appeals court four years later, leading to the latest reinstatement of the case.

Court of Appeal judges Erastus Githinji, John Mwera and William Ouko argued that since the Central bank had admitted receiving the money, there was need to hear and determine the case on merit.

“This is not an insubstantial sum by all accounts. It is large. On that basis seen alone or seen in the context of other factors, the learned (High Court) judge should have discerned that losing it or not being granted opportunity to litigate the claim would constitute prejudice to the appellant,” said the three-judge Bench.

The judges further argued that for investors to have confidence and commit to business transactions, there was need to ensure disputes are heard on merit and determined fairly and expeditiously.

The Court of Appeal’s decision effectively gives Lynwood a firm legal ground to pursue a 16-year-old claim that the High Court has twice dismissed.

Finance experts estimate that the government could pay up to Sh2.2 billion — being the deposit and compounded interest of 12 per cent per annum for 17 years (12 per cent is the current court rate) if a decision is made in favour of Lynwood.

The CBK has vigorously challenged Lynwood’s claim, arguing that Mr Pattni paid in the money to offset a loan he owed the regulator, setting the stage for a legal battle that may once again leave taxpayers with a heavy bill to settle.

Lynwood had told the court that it heard of the CBK’s intention to sell the hotel from Mr Pattni and paid $3.7 million, being 10 per cent of the hotel’s purchase price.

Lynwood had in October 1998 filed a suit demanding a refund of the money but did not pursue the matter, leading to its dismissal by Justice Luka Kimaru in 2008 for lack of prosecution.

Four years later, the company moved back to the High Court seeking reinstatement of the case.

The Malaysian firm argued that the delay was caused by the prolonged investigations into the Goldenberg scandal and later a road accident that made its representative to be hospitalised in Malaysia.

But Justice Jacqueline Kamau dismissed the case in March last year on grounds that the company had failed to offer plausible reasons for delay nor the prejudice it would suffer if the case was not reinstated.

The petitioner moved to the Court of Appeal, which in March this year directed that the High Court hear and determine the case.

The CBK, through its lawyer Philip Murgor, had urged the appeals court to dismiss the case, arguing that Mr Pattni had paid in the money to reduce his liability as per the agreement he signed with the government in May 1997.

READ: Pattni gets the last laugh in Grand Regency saga

Mr Murgor had told the court that the government did not enter into any sale agreement with the Malaysian company and money received was not kept in any suspense account as is always the case and therefore no liability was due.

The CBK therefore asked Lynwood to pursue its claim against Mr Pattni, if it wishes, since the agreement it entered with the businessman did not involve the CBK. Mr Pattni has, through his lawyer, distanced himself from the case, arguing that the suit is between the CBK and the Malaysian firm.

The businessman urged the court to uphold the High Court decision that dismissed the application.

Court records, however, show that he was one of the petitioners when the case was initially filed in 1998.

Lynwood, through its lawyer Paul Muite, argued that the CBK should not be allowed to keep the money based on a technicality, when it knows that it was paid for the purchase of a hotel that did not materialise.

But even as it seeks to pursue the case, Lynwood faces another hurdle of substituting Westmont Holdings Limited, with itself, as the petitioner.

Lynwood argues that Westmont Holdings Limited, the company through which it paid for the purchase of the hotel, was wound up in 2002 and that there is need for court documents to reflect the change.

The CBK and Mr Pattni are opposed to the application arguing that there is no case to be heard because the petitioner has been wound up and that Lynwood is stranger to the suit.

Lynwood argues that it transferred the money to the CBK through Standard Chartered Bank and it has evidence to that effect.

The Malaysian firm argues that it is not in the interest of justice to deny it a chance to seek its money just because its agent closed shop.

On Wednesday, Justice Francis Gikonyo disqualified himself from the case on grounds that he handled the matter when he was head of civil litigation and asset recovery department at the Kenya Anti-Corruption Commission prior to his appointment as a judge.

“For these reasons and after perusing the file, I hereby recuse myself from this matter and direct the file be taken to the presiding judge or acting presiding judge,” he said.

Grand Regency Hotel, which Mr Pattni surrendered to the Kibaki administration, was sold to the Libyans in 2008, a deal which evoked public outrage and ended in the appointment of a commission of inquiry, which concluded that the CBK did not realise the best value for the hotel.

The Justice Majid Cockar commission of inquiry into the sale of the hotel at the centre of the multi-billion-shilling Goldenberg scandal concluded that the CBK could have realised better value for the sale based on prices that were quoted in an earlier auction advertised in 1994.

The Cockar report says one bidder, identified as Hames Watts, was willing to pay $60 million (about Sh4.5 billion at current rates) for the hotel.

The hotel has 230 suites and rooms, conference and banqueting facilities, lounges and recreational facilities as well as shopping arcades.