The NSSF Headquarters in Nairobi. An out-of-court settlement in which the National Social Security Fund (NSSF) will pay Sh590 million for a disputed contract has thrown into disarray the fund’s investment plans and further depleted the public pension’s kitty.
An out-of-court settlement in which the National Social Security Fund (NSSF) will pay Sh590 million for a disputed contract has thrown into disarray the fund’s investment plans and further depleted the public pension’s kitty.
NSSF will now require liquidation of a significant fraction of its capital to pay the lump sum, effectively subjecting retirees to the delays that have characterised payments of benefits.
The hefty arbitration award which had gone up to nearly Sh800 million has been the subject of a long-standing and painful litigation over breach of contract with Pan Africa Builders and Contractors Ltd. The deal involved construction in the upmarket Kitisuru suburb in Nairobi.
Intrigues and deception pock-marked the conclusion of the long-standing legal battle between NSSF, the contractor and the later entry of Pan Africa Builders lawyer Donald Kipkorir.
Even as NSSF wired Sh250 million part payment to the South African-based Pan Africa Builders managing director Harbinder Singh Sethi through Ecobank Mombasa branch, the firm’s lawyer was left fighting a legal battle seeking to stop further payments to his client until his legal fees of Sh144 million was settled.
Mr Kipkorir told Mr Justice Muga Apondi that the advocate-client relationship with the contractor was irretrievably broken down and “I am deeply apprehensive that unless the orders are granted, NSSF may again pay the balance of Sh340 million to Mr Sethi, who in turn will repatriate the funds out of the country.”
On June 29, the judge ordered NSSF to immediately pay Mr Kipkorir Sh144 million and further restrained the fund manager from paying the contractor the Sh340 million final payment until the latest tug-of-war between him and lawyer is heard and concluded.
“Since Mr Sethi has repatriated Sh250 million out of the court’s jurisdiction, NSSF should remit Sh144 million to the firm of Kipkorir, Titoo and Kiara Advocates Trust Account pending the determination of the advocate’s Bill of Costs,” ruled Mr Justice Apondi. “It must be appreciated that Mr Kipkorir has acted for Pan Africa Builders and Contractors for a period of six years. Under those circumstances it would only be fair and just for Mr Sethi to pay for the legal fees that he has incurred,” observed Justice Apondi.
Further, the judge took issue with firm’s chief executive saying his conduct “cannot give anybody confidence that he would comply with the obligations imposed on him.”
In a strange game of ping-pong reminiscent of a hunter becoming hunted, Mr Sethi, according to the court ruling, negotiated with NSSF and agreed to reduce the debt from Sh744 million to Sh590 million and a consent recorded in court on May 30.
Negotiations to settle the dispute out of court were initiated by NSSF after the contractor sent auctioneers to the fund’s offices to attach the moveable assets for sale in a public auction.
NSSF was also under pressure to settle the lumpsum after the court case and subsequent appeal in the High Court to stop the arbitration award collapsed. Auctioneers were also giving the fund’s manager nightmare besides the publicity the case had attracted.
Pan Africa Builders moved to court in 2003 claiming that NSSF had breached a 1999 contract to develop the high-end estate through a downgrading process that saw its value drop from Sh1.9 billion to Sh888.4 million.
Upon completion of the project nearly 10 years later, the contractor rendered its final accounts, but NSSF declined to settle, forcing him to move to court with a claim of Sh528 million.
The dispute was in court until July 2008 when the parties agreed to have it solved through arbitration.
It was during the arbitration that NSSF was found to have breached its obligations to the contractor and the builder was awarded Sh500 million in damages and interest accrued.
But the NSSF contested the claim on grounds that there was no contractual relationship between it and Pan Africa Builders. Arbitration documents indicate that the two parties had disagreed on the partnership, sparking the legal tussle that has lasted nearly 10 years.
“Despite the fact that there was no executed agreement between the parties, numerous correspondence exchanged between them indicate that they considered themselves bound by the contract,” said John Ohaga and Robert Mwanga, the joint arbiters.
Findings of the arbitration revealed that the contractor was awarded payment on loss and expenses for extension of time (Sh53.5 million), loss from restructuring of the project (Sh159.5 million) as well as interest on the unpaid fees at 14 per cent per year since January 2003 until payment in full.
Other items in the award are unpaid certificate, failure to honour payment and handling charges for materials all totalling Sh8.1 million.
NSSF’s two Kitisuru housing estates are valued at Sh1.1 billion, according the fund’s 2009 annual report.
Civil litigation against NSSF, some of which span over decades, has left the fund exposed at a time it is smarting from a credibility crisis over alleged misappropriation of funds in 2008.
Apart from Pan Africa Builders, the fund manager is also fighting a number of court cases against Mr James Mugoya, a Ugandan billionaire contractor, with whom it has differed over the Embakasi Housing Project that started in the early 1990s.
Past NSSF financial reports indicated that Mugoya was claiming Sh7.1 billion against the fund’s counter claim of Sh9.8 billion. NSSF has since indicated that it was negotiating to have the matters settled out of court.
Disputes relating to dealings with Mugoya are before arbitrators for determination.
However, NSSF has indicated that a full provision of Sh324 million had been made in the financial statement.
Sololo Outlets Limited – associated with Lugari MP Cyrus Jirongo — has also filed a contingent liability claim of Sh4.95 billion against NSSF for alleged breach of contract in the development of Hazina Estate in Nairobi’s South B. NSSF has filed a counter claim of Sh3.1 billion. The fund also stands to lose nearly Sh2 billion it invested in the stock market through the Discount Securities, now under statutory management.
According to a November 2008 audit conducted by Kenya Anti-Corruption Commission (Kacc) and the Inspectorate of State Corporations, the fund is estimated to have lost Sh3 billion through bad investment decisions and doubtful transactions.
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