Taxpayers risk Sh32bn in Kwale Sugar land row


An official at the Kwale International Sugar Company plant. File Photo | NMG

Attorney-General Kihara Kariuki has asked a court in Mombasa to set aside a preliminary judgment compelling the government to pay Kwale International Sugar Company Ltd (Kiscol) $277.1 million (Sh32 billion) in special damages.

Kiscol which sued the Cabinet Secretary National Treasury and the AG, is seeking special damages for breach of statutory and contractual duties over its lease of 15,000 acres of land for sugarcane farming. But the AG failed to respond in time forcing the court to award Kiscol its prayers against the government in an interlocutory judgement.

An interlocutory judgement is entered when a party which has been sued fails to file a defence to the case within the stipulated time and upon application by the plaintiff (a party which has sued).

In his application seeking to set aside the judgement, the AG also wants to have his memorandum of appearance and statement of defence be deemed as duly filed and served hence properly on record.

Through deputy chief litigation counsel Janet Langat, the AG further argues that they are bound to suffer irreparable prejudice, loss and damage which could lead to economic constrain in the country as the claim is worth billions of shillings of taxpayers’ money.

“The delay in filing the defence was not intentional but is drawn on the fact that this is a high public interest matter with a huge financial claim which requires consultation with various stakeholders who participated in the drawing of the lease agreement which then caused the slight delay,” says the AG.

According to the AG, Kiscol did not seek leave (permission) before entering judgement as required in the Civil Procedure Rules hence it (judgement) was unprocedural.

The AG says that he wrote a letter to the CS National Treasury seeking instructions regarding the allegations by Kiscol in its case and also prepared a memorandum of appearance which was mistakenly filed in Kwale court instead of Mombasa.

The AG said that upon realising the error, he prepared another memorandum of appearance dated May 31 filed on the same day and that during filing it was discovered that Kiscol had requested for the interlocutory judgment.

“Surprisingly, on the same day interlocutory judgement was entered against both defendants,” argues the AG in his application.

The AG further says that if the judgement is not set aside, his application will be rendered nugatory.

In its case, Kiscol says that it has set up its greenfield sugar manufacturing plant on the parcel of land within Kwale county and holds a sublease dated August 20 2007 between itself and the government.

It accuses the government of failing to provide it with “full, unhindered and peaceful possession” of the leased area.

The company says that when it attempted to access the land to implement its project, it found squatters who asserted equitable rights to occupy portions of the leased area.

According to Kiscol, the squatters occupied the leased land of approximately 5,816 acres in a scattered manner in seven areas.

“The plaintiff’s efforts to access portions of the leased land occupied by the squatters were frustrated by a court order,” says Kiscol adding that it managed to have the order set aside on March 13, 2018, before a petition by the squatters was dismissed in January this year.

The sugar miller argues that it was an express and implied term of the sublease between the plaintiff and the CS National Treasury that it would have full, unhindered and peaceful possession of the land.

Kiscol says that at the inception of the project and granting of the sublease, it had been made known to the government that the greenfield project was modelled and designed around the availability of land and unhindered access to it.

It also argues that in breach of the legitimate expectation created by the defendants, it has not been able to access the entire leased area and has accessed approximately 50 percent of the leased land.

“The plaintiff has so far invested USD 300 million in the project but the investment cannot yield the projected results because the project is not operating optimally, in fact, the plaintiff is now forced to go into a second restructuring exercise with syndicated lenders,” argues Kiscol.

Kiscol says that the reason for sub-optimal operation is the inaccessible land which has led to incomplete irrigation and power generation infrastructure, underutilized cane crushing equipment, reduced production, increased cost of operations and reduced income.

The case will be mentioned on September 20.

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