A businessman pursuing more than Sh47 million invested in the commercial paper issued by collapsed retail chain Nakumatt says he will demonstrate why an insurance company and a broker should be forced to pay his money, which he had insured.
In a litigation likely to shine light on the Sh4 billion Nakumatt commercial papers, Rajesh Shah says he lent Sh47,753,386 to Nakumatt that he never got back.
Mr Shah sued Jubilee Insurance Company Ltd #ticker:JUB and Underwriting Africa Ltd (UAL), a broker, saying upon the maturity of the notes, Nakumatt only paid to him a sum of Sh12.5 million, leaving a balance of Sh38,806,803, which he is now seeking.
Further, the businessman claims nominal interest at 16.50 percent on the sum from the date he filed the case in 2017. His claim, however, is not against Nakumatt but against the insurer and broker.
Mr Shah alleged that the firm insured the risk of the short-term notes of Nakumatt and he had a policy with the insurer, which insured 80 percent of the money owed by Nakumatt. He said Jubilee later notified him that Nakumatt had entered into a contract in respect of the policies with UAL as the ultimate risk carriers.
In the case, Mr Shah faulted both Jubilee and UAL for breaching the policy and failing to honour demands and remainders for payment. He said UAL admitted that it was the insurance broker in the transaction and that Nakumatt was to pay the premiums.
However, after he filed the case, the broker distanced itself from the matter, saying it was merely a credit risk insurance broker and only acted as a liaison between the insured and Jubilee.
Further, UAL said its role was to place the insurance policy with an insurance company that was willing to accept the risk and terms and conditions of the placement as well as accept the reinsurance of the policy by Ocean Reinsurance Company.
The broker told Justice Francis Tuiyott that it discharged its duties professionally and that cancellation of the policy was occasioned by failure of Jubilee and Mr Shah to fulfil their obligations.
While seeking to absolve itself from the claim, UAL stated that it does not insure any risks under any contract of insurance and is not obligated to settle any claims made by any persons insured under any policy of insurance.
Before the case could be heard, UAL asked the court to compel the businessman to deposit Sh1 million in court as security. Jubilee on its part said it was approached by UAL with an offer to front a financial guarantee policy in favour of Mr Shah, to underwrite the short-term loans he granted to Nakumatt.
The policy was to insure a financial facility of $5,000,000. Jubilee further said the broker was well aware that they did not issue financial guarantee policies, but accepted only to front the policy as a zero risk carrier. The intention being that the policy was to be reinsured by Ocean Reinsurance Company who would bear a 100 percent risk.
Justice Tuiyott heard that from the arrangement, UAL was to ensure that personal guarantees of Nakumatt were provided to it and a cash collateral of 25 percent of the intended insurance limit be deposited in an escrow account within 30 days of the policy’s inception.
Jubilee argued that both UAL and Nakumatt failed in their obligation, despite indulging them on several occasions. As a result of the breach, Jubilee cancelled the policy on May 5, 2017, and notified Dry Associates Limited a month later. Dry Associates was the entity designated by Nakumatt to maintain the register of noteholders on its behalf.
According to Jubilee, the failure to secure the policy was fully attributable to the negligence of UAL, which was a direct cause of Mr Shah’s loss.
After hearing the application, Justice Tuiyott dismissed the application by UAL demanding security and to strike out the case. The judge said some issues raised would come out better during the trial.
"The position of Jubilee is that the UAL failed to meet its obligation of ensuring the conditions of security documentation were met within the stipulated timeline. UAL on the other hand maintains that the obligation on the security and documentation clause was on Nakumatt as the obligor. Looking at the provisions of clause 20, UAL may successfully argue that the obligation to provide the cash cover for up to 25 percent of the Insurance limit was on Nakumatt," the judge said.
He further said UAL was not a peripheral player in the transaction, and a matter that could come up at trial is whether, in the circumstances of the case, it was not aware of the responsibility placed by clause 20 on Nakumatt to make the deposit within 30 days of the policy inception.
"And if so whether on the failure by Nakumatt to meet its obligations, UAL as agent for the insured timeously informed the insured of this failure and the possible risk of cancellation," the judge said.