Court halts Sh372m dealers’ claim against Safaricom in contract row

Safaricom's headquarters in Nairobi. FILE PHOTO | NMG

The Court of Appeal has suspended a decision compelling Safaricom to pay five dealers Sh372.5 million after terminating a distributorship deal more than a decade ago on claims of fraud.

A bench of three judges agreed with the giant telco that the amount involved is huge and recovering the money from the five dealers, in case Safaricom’s appeal is successful, might be difficult.

The five dealers — Laiser Communications Ltd, Wirsoft Agencies Ltd, Ayoon Communications Ltd, Emerald Ltd and Shashamoney Ltd won the case last November after High Court judge Alfred Mabeya ruled that Safaricom wrongly terminated the agreements in 2011.

Safaricom rushed to the appellate court arguing that the High Court judge was wrong in ruling in favour of the dealers. Justice Mabeya faulted the telco for “destroying” the dealers’ businesses.

The dealers had signed M-Pesa agency agreements to distribute Safaricom’s products and services including airtime and M-Pesa. The dealership was terminated in July 2011 on claims they had allowed an alleged fraudster to obtain Safaricom cash desk receipts for “ghost” payments.

Justices Hannah Okwengu, Sankale ole Kantai and Francis Tuiyott noted that it is not known how the dealers would repay the money in case Safaricom wins, especially after the High Court judge found that their businesses had been destroyed.

“The finding sheds light on the precarious position of the respondents (the dealers), and it has not been demonstrated to us that this position has since changed. The applicant’s apprehension that it may not be able to recover the decretal sum should it succeed on appeal, is therefore not unfounded,” said the judges.

The dealership agreements were terminated after Safaricom allegedly discovered that the distributors were dealing with a man identified as Abdifatah Ali Wario.

Safaricom said it discovered that payments purportedly made directly to the telco to Mr Abdifatah were reflected in the dealers’ portals same as goods delivered to Abdifatah by the dealers.

It turned out that Mr Abdifatah was a fraudster who colluded with Safaricom employees as no payments were made to the applicant. When Safaricom allegedly discovered the fraud, it reversed all the transactions, froze the dealers’ accounts and terminated the agreements, holding them responsible for the fraud.

The dealers sued Safaricom and the matter delayed over the years as the parties disagreed as to whether the dispute should be handled by an arbitrator.

Last year, Justice Mabeya ordered Safaricom to pay Laiser Communications Ltd Sh40.6 million, Wirsoft Agencies ltd, Sh31.2, Ayoon Communications Ltd Sh30.8, Emerald Ltd Sh14.1 million and Shashamoney ltd 47.9 million, for destroying their businesses.

Mr Shukri Sala, the director of Shashamoney ltd opposed the suspension of the judgment saying Safaricom has kept them away from transacting business for the last 10 years, and it was time they enjoyed the fruits of the decision.

He said the amount is not too large for Safaricom, as it is one of the large telecommunications companies in Kenya and the amount can be recovered from them in case the telco wins the case.

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