State firms face probe over court cases likely to cost billions in lawyers’ fees

Parliament is moving in to investigate a rising number of mega court cases through which key State parastatals are losing millions of shillings in lawyers’ fees and damages.

The Parliamentary Investments Committee (PIC) has raised concerns that many parastatals are riddled with extended court battles that have created new avenues for some lawyers to pile up huge bills against the State agencies worth millions of shillings.

Costs arising from the extended court cases in fees and damages would end up putting pressure on the taxpayer, said PIC chairman Adan Keynan.

“We are going to take this matter to Parliament and ensure that it is deliberated carefully on how to bring all these cases to completion and ensure prudent management of the entities to avoid such expensive court battles,” Mr Keynan said.

Mr Keynan, also Wajir West MP, spoke when they met some of the heads of the parastatals during the months of June and July at diverse dates in committee sittings.

Mr Keynan further noted that most of the cases arose from unprocedurally cancelled contracts that attracted firms to ask lawyers to pursue damages or compensation for them since the contracts had been awarded and then cancelled midstream.

“This has become the new area of concern, given the huge sums involved. The taxpayer should not be made to suffer as a result of possible loopholes in tendering,” he said.

Some of the State agencies saddled with court battles include the National Social Security Fund, National Hospital Insurance Fund, Kenya Airports Authority, Kenya Revenue Authority, National Cereals and Produce Board, Kenya Pipeline Company Limited, Kenya Planters Cooperative Union, among others.

KENYA REVENUE AUTHORITY (KRA)

The revenue collection agency is also grappling with a Sh1.3 billion case with Bidco Oil.

A judge has turned down an application by the Kenya Revenue Authority (KRA) to refer the Sh1.3 billion tax dispute against Bidco to the Chief Justice.

The taxman pleaded for the case to be taken to the Chief Justice Willy Mutunga to empanel a bench of three judges to hear and determine the matter on grounds that the petition raised fundamental constitutional and legal issues that could not be handled by a single judge, which was rejected.

The edible oil manufacturer moved to court last year after the taxman slapped the firm with a Sh1.3 billion demand for taxes, interest, and penalties and backed the move with the issuance of agency notices to the company’s bankers to collect the tax arrears.

KRA is also laying claim to Sh156 million as unpaid taxes from Erad Suppliers. On March 27, the High Court ordered Kenya Commercial Bank (KCB) to release Sh297 million to Erad Supplies. KRA subsequently issued agency notices demanding tax arrears of Sh156 million from the firm.

The company moved to court and obtained temporary orders restraining KRA from attaching the money deposited at KCB.

The money being pursued by Kenya Revenue Authority is part of Sh515 million Erad Supplies is demanding from National Cereals and Produce Board (NCPB).

KRA in the documents filed in court says that it sent agency notices demanding payment of tax through postal addresses because the physical address of the company and directors could not be located.

NATIONAL CEREALS AND PRODUCE BOARD

NCPB is locked in a legal tussle with Erad over a contract to supply 40,000 metric tonnes of maize to the board which was cancelled in August 2004.

The firm, which did not supply grain, has since attached Sh297 million and is further seeking to auction NCPB property to recover a balance of Sh267 million.

An arbitrator, Mr Evans Gatheru awarded Erad Sh564 million for breach of contract for the supply of maize, an award which the board has appealed against.

NCPB, according to the current managing director Gideon Misoi has lost Sh313 million to Erad Suppliers and Contractors Limited, paid lawyers Sh32 million and is to settle auctioneers dues amounting to Sh24 million.

The board is also contending with another court case in the Court of Appeal where it ignored the advice of The Treasury and issued letters of credit to five companies that bid to supply 180,000 metric tons of maize.

However, the board went ahead and issued the letters of credit to four of the five companies that bid to supply maize in 2004.

The Treasury had advised the NCPB management that the letters of credit amounted to advance payments, presenting the risk of losing money if the maize was not delivered.
As a result Sh667 million will be lost if the board loses a court case currently pending in the Court of Appeal.

NATIONAL SOCIAL SECURITY FUND (NSSF)

The NSSF is embroiled in a court case in which a Sh93 million piece of land — price as at June 2012 — measuring 10 hectares in Karen is in dispute and the matter is pending in the courts. The fund had acquired the land to build a resource centre.

The authority is also in court over three different cases in which it is being challenged on the ownership of land in Karura and Ngong forests.
The commissioner for lands issued titles to the NSSF yet the pieces of land are termed as Forest Land.

In another instance, Mugoya construction firm was singled out for using unlawful connections to receive an advance payment of Sh324 million for the construction of houses worth Sh1 billion on behalf of the firm in Nairobi’s Nyayo estate for work which was never completed.

Mugoya sued for breach of contract when the NSSF cancelled the deal which saw the constructor sue for Sh7 billion but the NSSF has since launched a Sh9.7 billion counter claim against the firm.

The two parties reached an out of court settlement last year, but the details are yet to be publicised.

Furthermore, a decision by the government in July to cancel all pending tenders by the NSSF and subject those that have already been awarded to audit has cast a shadow of doubt on several mega projects earmarked by the Sh126 billion retirement scheme and exposed it to court battles.

Some of the projects affected by Labour secretary Kazungu Kambi’s directive two months ago include the Sh6.7 billion extension of Hazina Towers to 39 floors, construction of 100 apartments on State House Road (Milimani) and the Sh80 billion Mavoko City.

Such cancellations have attracted court battles in the past.

NSSF paid out Sh810 million last year to two contractors who had sued it for breach of contract, in out of court settlements.

NATIONAL HOSPITAL INSURANCE FUND

The National Hospital Insurance Fund (NHIF) has also been in the headlines over corrupt dealings within the health insurance provider.
NHIF is wading through the mud of a Sh5 billion scandal over a mysterious decade-old plan to put up a public hospital.

The information came to light after consultants, who say they have been working on the plan since 2001, wrote to Parliament seeking the intervention of the Parliamentary Committee on Health in processing the payment for works done to date running over Sh5 billion.

The agency is also on the spot for inflating the price of a car-park it built over two years ago by over three times the original amount. The storeyed car park cost Sh4 billion against the Sh910 million agreed with a local contractor in May 2002, with an August 2003 completion target.

However, the car park was completed two years ago for more than three times the projected cost and is yet to be given a completion certificate by City Hall to show the building plans were followed to the letter during construction.

“The escalation of costs of the car park by 337 per cent over and above the original cost has not been justified..,” Auditor General Edward Ouko said in a qualified opinion dated June 3, 2013 and tabled in Parliament by Leader of Majority Party Adan Duale.

Mr Ouko said more money was paid for the car park from 2009 despite records showing it was completed in July 2008 at Sh3.3 billion.

In its records, NHIF includes Sh11.8 billion property, plant and equipment. As at June 2012, the land was valued at Sh298 million that includes Sh93 million worth of land in Karen, now in dispute.

TEACHERS SERVICE COMMISSION (TSC)

Though not a parastatal in form, the substance of the operations of the Teachers Service Commission mirror those of a state agency, and the teachers’ employer is grappling with a Sh40 billion case which it has said has adverse effects on the economy.

This follows a dispute in which 52,000 retired teachers are seeking to be paid Sh42.3 billion in a pensions award by the Court of Appeal.

However, the government has since challenged the ruling and is seeking resort at the Supreme Court.

The Teachers Service Commission has filed an application before the Court of Appeal in Nakuru, seeking leave to challenge the award in the Supreme Court.

The Teachers Service Commission, through deputy solicitor general Muthoni Kimani, told Justice Anyara Amukule that implementing the judgement would destabilise the economy.

Ms Kimani said allowances, salaries and pension arrears for the retired teachers had increased to Sh111.4 billion as of July 1, 2013 because of accrued interest. Implementing the award, she said, would increase the average national monthly pension to Sh40 billion.

The case heads to the highest court on October 15.