Taxpayers to pay Sh2 billion for botched Kebs fuel deal

Taxpayers are set to foot a Sh2 billion compensation claim by a Dubai-based firm for breach of a fuel inspection tender by the Kenya Bureau of Standards (Kebs) 11 years ago. 

This follows a decision of the Supreme Court to reject a request to review a judgement it passed in December last year that found Kebs liable for breach of the contract awarded to Geo-Chem Middle East in 2009.

The apex court led by acting Chief Justice Philomena Mwilu said the application for stay of the court's judgement dated December 18, 2020, was an appeal in disguise. 

In urging the court to suspend the execution of the judgement, Kebs argued that its submission was in the public interest because payment involved expenditure of public funds, occasioning excessive burden on the taxpayer.

It added that the company is not registered as a taxpayer in Kenya and that there were exceptional circumstances to allow the court to stay execution of its own judgement. 

But the Supreme Court judges, comprising of justices Mwilu, Mohamed Ibrahim, Smokin Wanjala, Njoki Ndung'u and Isaac Lenaola, said the application was a disguised appeal which sought to reopen matters already determined with finality by the court.

They added that the review application did not meet the threshold of exceptional circumstances.

The case landed at the Supreme Court after Geo-Chem filed an appeal against a Court of Appeal ruling which had set aside the compensation by an arbitral tribunal. 

The apex court upheld a High Court ruling that had recognised the arbitrators’ Sh1.6 billion compensation, stating that the appellant court had overstepped its mandate when it overturned the arbitral award.

“We have no option but to hold that the judgement of the Court of Appeal, to the extent to which it purported to interrogate the merits of an arbitral award, in the absence of the High Court’s pronouncement on the same, was rendered in excess of jurisdiction,” said the Supreme Court judges. 

Kebs had contracted Geo-Chem in June 2009 to inspect the quality of imported petroleum products but suspended the contract in March 2010 after oil marketers raised fuel prices to cover for the inspection fee that fell on them.

At the time of suspension, the contract had only run for seven months.

Geo-Chem had set up an oil-testing laboratory at the port of Mombasa, officially launched on August 27, 2009, by then Industrialisation minister Henry Kosgei and his Permanent Secretary John Lonyangapuo. Also present at the ceremony were former Kebs managing director Kioki Mang’eli and representatives from the Kenya Pipeline Company and the Kenya Petroleum Refineries Ltd.

The contract was terminated in July 2013, a decision that saw the Dubai-based company seek arbitration, which it won an award of $15,401,504.70 (Sh1,675,683,711 at current exchange rates).

The arbitration tribunal, comprising Collins Namachanja, Njeri Kariuki and John Ohaga, in a ruling dated July 29, 2016, held that by suspending the deal, Kebs was in breach of the contract.

The money was to be paid within 45 days, failure to which it would attract interest at a rate of five percent per annum compounded.

The liability has since grown to Sh2 billion, including interest of more than Sh350 million.

Geo-Chem moved to the High Court to have the arbitration award adopted as a judgement. Kebs also filed a counterclaim urging the court to set aside the award arguing that it was erroneous and that it lacked merit. 

But Justice Fred Ochieng’, in determining the two applications dismissed the one by Kebs and entered judgement in favour of Geo-Chem and directed the award be adopted as a judgement of the court.

In his ruling dated May 30, 2017, the judge said it was not the function nor the mandate of the High Court to re-evaluate decisions of an arbitral tribunal.

He said if the court was to delve into the task of ascertaining the correctness of the decision of an arbitrator, the court would be sitting on an appeal over the decision in issue.

“The court cannot set aside an arbitral award on the grounds that it was unfair, unreasonable or non-feasible,” he stated adding that a court does not have authority to make an assessment on the merits of the arbitral award. 

Kebs moved to the Court of Appeal which set aside the High Court judgement.