How Tuju is testing international law with Sh3.1bn civil suit against EADB

Tuju is fighting to save a multi-billion shilling project that was to be financed by the East African Development Bank in Karen before it pulled out — and which threatens to bankrupt him. But besides demanding Sh3.1 billion as damages for the alleged violation of contract, the legal ramifications of this suit are much deeper.

When the East African Development Bank (EADB) was founded by the member states of the East African Community, Article 44 of the charter granted the bank, and its officials, immunity from prosecution — an issue that has always concerned lawyers and scholars of such multilateral entities.

EABD had taken cue from institutions such as the World Bank and the International Monetary Fund (IMF).

Over the years, two schools of thought have emerged, and that is why the Tuju case is certainly going to get attention — whichever way the East African Court rules.

The history of this institutional and diplomatic immunity is rather long and has its origins in the setting up of the League of Nations. It has been abused ever since — and during the Cold War, the antagonists would hide their spies either within these institutions or at their embassies.

The first such abuse, which was a private affair, came in 1935 in the case known as Avenol versus Avenol when the second secretary-general of the League of Nations, Joseph Avenol, was ordered to pay 12,500 francs a month to his ex-wife as maintenance.

Mr Avenol appealed that ruling, arguing that he enjoyed diplomatic privileges and immunity under Article 7 of the League of Nations and thus no court of law should touch him. But the court of appeal in France held that allowing Avenol to have his way would place him above the law and “it would follow that the agents and officials of the League of Nations from the humblest to the highest could, by their private acts, infringe the rights of their neighbours by entering into contracts which they are free to violate.”

While this was a private matter, it was felt after the Second World War that the emerging international organisations should be protected, as entities, besides the diplomatic privileges and immunity granted to their employees while carrying out their functions. The reasoning was that institutions such as the United Nations were ‘good-doers’ and as such, neither they, nor their employees, could do any harm, a theoretical assumption that is now dismissed by scholars as awkward and wrong.

EADB’s immunity challenged

“If national courts cannot exercise jurisdiction over international organisations, who can?” asks Prof Blokker, a leading authority in the field of institutional immunity.

When the EAC member states formed EADB, they followed a tradition where the World Bank and its private lending arm, the International Finance Corporation (IFC), had been shielded from prosecution, even as they engaged in commercial activities.

The shielding of EADB is underscored in Article 44 which, inter alia, says the institution is immune to judicial proceedings “from every legal process where is has not expressly waived its immunity in writing.” In simpler terms, it means that the bank can only be sued if it expresses the same in writing, and in advance.

Tuju’s case is not the first time that EADB’s immunity has been challenged. In 2014, the Creative Print House Ltd went to court to stop the bank from auctioning its printing machines though it claimed it had paid $512,953 (Sh56 million) out of the total amount payable of $631,743 (Sh69 million) at current exchange rates. When the case was filed, the bank made an application arguing that the court lacked jurisdiction to hear the suit since it enjoys immunity and cannot be sued.

The court recalled that when EADB was first established in 1967, and after its charter was re-enacted in June 1980, it was given immunity and the local courts were prevented from altering the sovereign will of the member states.

The immunity was first tested in the Tanzanian Court of Appeal in the case known as EADB versus Blueline Enterprises Ltd. The Tanzanian court held that EADB enjoyed “absolute immunity” from every form of legal process when exercising its lending powers and “qualified immunity” when exercising its borrowing powers in Tanzania. It thus declared proceedings against the EADB a nullity and upheld EADB's plea of immunity.

The judges did not leave room for legal manoeuvre and told the applicant: “The member states have full sovereignty to grant such privileges and immunities to the organisation as they deem it proper for the purpose of achieving its objectives. The courts should always be loath to interfere with the states' transparent exercise of their sovereign powers or impose constrained interpretations on such treaties on the basis of fanciful reasons.” 

Pleadings by Creative Print House that the tussle was over “an ordinary commercial transaction, between a banker and its customer” were dismissed and the judge held that that argument had “no legal logic” in light of the immunity enjoyed by the bank.

“The caution this court may give to any party who engages with personalities who enjoy these kinds of immunities is to ensure that they secure express waiver of immunity in writing before engaging further,” said Justice E K Ogola.

Tuju’s case will be the first time that the East African Court of Justice is being asked to look at the EADB charter and see whether it should be re-aligned with the new jurisprudence regarding immunity of such financial institutions.

Question of accountability

Last year, the United States Supreme Court made a historic 7-1 decision that overturned the International Finance Corporation (IFC)’s claim to absolute immunity from lawsuits.

In the case now known as Jam versus IFC, the US court ruled that international organisations such as the World Bank and its private lending arm, IFC, can be sued in the US courts in relation to their commercial activities. What that means is that commercial transactions by the two institutions are not covered under the immunity clause.

For many years, the World Bank had invoked the immunity clause every time communities harmed by its development projects threatened to sue.

When a fishing community in Gujarat, India, took IFC to court for loss of livelihood after its fishing grounds were destroyed by a bank-financed project, the lower courts in the US dismissed the case, citing the absolute immunity enjoyed by the bank.

While Tuju hopes to rescue his Tree Lane project in Karen, Nairobi, where he had hoped to build some luxury homes, the bigger picture is that this case will help clarify the question of immunity enjoyed by EADB.

Tuju is arguing in his court papers that even where the bank has breached a contract, an aggrieved party is barred from approaching any court for recourse.

“There is no operational justification for the immunity granted by the charter to the (Bank, which has) used its immunity to perpetrate institutional delinquency that arises from the transaction,” says Tuju in his papers.

In the emerging jurisprudence, the question of accountability has been used while testing the concept of immunity. If the papers filed by Tuju are anything to go by, the case will open a Pandora’s box at the EADB board, which is also being accused of non-disclosure of some transactions. Certainly, it will be murky.

But did the founders of EADB intend to operate a bank that entered into commercial deals and could not be questioned? That is the question that the East African Court is being asked in this matter — and the question that legal scholars on immunity always ask.

[email protected] @johnkamau1

Feedback on last weekend’s story: Forget Mumias Sugar and sell it as scrap metal, Sunday Nation September 26, 2021

I have read your piece on Mumias Sugar and I am teary as I write this. As a person who grew up in Mumias and benefited from sugarcane growing proceeds, I concur with every word. Mumias Sugar cannot be redeemed under the current model. Politicians need to tell farmers the truth and stop the lies. It is true that cane cannot be profitable in small plots. Zambia, Sudan and South Africa and Zimbabwe offer fine studies on success of cane growing. Cane will only succeed if we move towards large-scale irrigated farms. It is a bitter truth but which, sadly, will always be hid from gullible clueless farmers. As I occasionally traverse the once-lush sprawling Mumias sugar estate, I can't help but reminisce on the good old days, which sadly won't come back.  – Eric James Obara

Your article in the Sunday Nation is interesting. However, one thing you did not point out is that sugar is one of the top cash crops in the world. The fact that the government has lukewarm attitude and has been fuelling the mess, does not mean that sugarcane is not viable.

Take India for example, there are very many small mills, which even use oxen to ferry cane. In countries such as Brazil, sugar is not the main product but spirit used in making power alcohol. How come we have not factored in spinoff effects like power generation and spirit in our price structure? Do our farmers enjoy the proceeds from molasses sold to companies such as Agro Chemical? How come some private millers even the ones with small nuclear estates are making money?

Your comment about Mumias was good, melodious music to cartels. Instead of giving cartels hope on the unviability of Mumias, you should have requested CS Peter Munya to implement the Sugar Task Force Report. Otherwise, most of the issues you highlighted were valid. – David Okello

Nice article as usual. However, before making such recommendations it would be advisable if one visited the said property. Mumias factory is surrounded by nice staff houses and if sold at a throw away price, would be a land grabbers' dream acquisition. It would be more beneficial to regional farmers and its employees if the factory is up and running, and more beneficial to those with vested interests if it fails. – Helen Atieno