Kenya Breweries Limited (KBL) has moved to court to quash a Sh2.4 billion claim by a construction firm following a disagreement over the cost of building a modern brewery in Kisumu County.
The brewer says in the petition filed before the High Court that the “staggering figure” exceeds the original maximum contract value of Sh1.5 billion, of which KBL had already paid about Sh1.2 billion to Jilk Construction Company Ltd.
Other than quashing the demand, KBL is also seeking an order to stop the appointment of Mutinda Mutuku, the sole arbitrator of the dispute, over claims of bias and that his selection was shrouded in mystery.
“Throughout the arbitration proceedings, the petitioner encountered a series of biased rulings and unwarranted dismissals by the first respondent (Mr Mutuku), who consistently favoured the second respondent (Jilk), thereby undermining the fundamental fairness and integrity of the process,” KBL said.
The brewer has also dragged into the dispute the Directorate of Criminal Investigations (DCI) for failing to investigate its complaint about the alleged relationships and dealings between the construction firm and the arbitrator.
The brewer said in court documents that the contractor initially sought payment of Sh163 million but increased the amount following the appointment of the arbitrator.
“The grossly inflated sum was introduced immediately after the first respondent’s appointment, suggesting that the second respondent anticipated a favourable ruling on an issue that the arbitrator had no jurisdiction to adjudicate,” KBL said through the Iseme, Kamau & Maema Advocates.
In the deal dated June 27, 2017, the brewer sought to construct a modern brewery in Kisumu for Sh15 billion.
According to KBL, the construction of the Kisumu Brewery marked a major economic and social event, representing the single largest private investment into western Kenya by a private entity.
The project, said KBL, was anticipated to bring immense economic benefits, including the enhancement of local agricultural activities by incorporating more than 15,000 sorghum farmers into its supply chain boosting local farming economies and ensuring sustainable agricultural practices in the region.
The manufacturer said it was projected to create employment opportunities for more than 100,000 people directly and indirectly involved in its supply chain operations.
However, a dispute arose between the parties over the contracts and the purchase orders and on November 13, 2019, the construction firm’s chief executive formally notified KBL of the termination of the contracts and its intention to leave the project site.
According to KBL, the construction firm “unilaterally downed its tools and abandoned the project site without demobilisation” as required under the contracts.
“By the time the dispute erupted and the second respondent had abandoned the site, the total value of the works measured, certified and paid by the petitioner (KBL) to the second respondent was approximately Sh1.2 billion,” Nadida Rowlands, EABL’s group legal director, said in an affidavit.
Later, on November 25, 2019, the construction firm wrote to KBL claiming the recovery of costs due to non-certified work items, variations and costs not recovered under the contract amounting to Sh163 million.
In response, KBL wrote to the Architectural Association of Kenya (AAK) on February 19, 2020, and Mr Mutuku was appointed as the sole arbitrator to determine the dispute.
Mr Nadida said the process leading to the appointment of Mr Mutuku, the construction firm unjustifiably inflated its claim from Sh163 million to Sh2.4 billion, an extraordinary increase of over 1,372 percent.
“The abrupt and extraordinary escalation of the claim, combined with its lack of contractual or evidentiary basis, is clear evidence that the 2nd respondent acted with undue confidence in the 1st respondent’s predisposition to favor its interests,” said the brewer.
The brewer said despite spirited objections, the arbitrator allowed the new claim to proceed, despite the fact that he was appointed as an arbitrator in a much smaller dispute.
“In the result, the Petitioner was now faced with a non-contractual claim of a value that far exceeded the entire value of the Project,” Mr Nadida said.
KBL said to mitigate its mounting losses, it filed an application in January 2022, seeking an order compelling the construction firm to remove its equipment from the site, but it was dismissed by Mr Mutuku, stating that the issue would only be addressed at the substantive hearing.
“It is plain that the 2nd respondent’s refusal to remove its equipment was a deliberate tactic to inflate its claim for idle equipment,” KBL said.
The brewer then filed an application seeking the recusal of Mr Mutuku but it was dismissed and a subsequent appeal to the High Court suffered the same fate.
