Arbitration between Panafrica Builders A Political Kenya in 2012

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Arbitration between Panafrica Builders A Political Kenya in 2012

NSSF Board of Trustees CLARIFICATION BY NSSF ON MEDIA STORIES HCCC NO.701 O F 2005 (O.S) MILIMANI

ARBITRATION BETWEEN PANAFRICA BUILDERS & CONTRACTORS LTD (PABCO) AND BOAR FUND BACKGROUND Pan Africa Builders & Contactors Ltd her ein referred to as PABCO entered D OF TRUSTEES NATIONAL SOCIAL SECURITY

into a building contract with the Fund to const ruct houses, apartments and shopping Centre on the Funds property Block No. 101 Kitisuru Estate at the value of Kshs.1,949,729,740/=. The contractual complet 2000. The Fund hired Project Architects and Quanti consultants of the project. Around 1999, the project was to the value of Kshs.822,469,991 difficulties on the part of the F practical completion was issued the site was done around February 2 ion date scheduled as 11 May, ty Surveyors to act as

restructured and the scope of works scaled down /=. As a result of El nino rains and financial und as well as other factors, the certificate of on 23 August 2003 and official hand over of 007. s

After practical completion, PABCO rendered their final accounts to the Fund Consultants, but the accounts were never settled. PABCO sued the Fund for a total of Kshs.1,333,545,013/=.

After the hearing by the Joint Arbitrators the award was made on 22 July 2010 and summarized as follows:

Unpaid certificate o Kshs.317,079.00.

f Kshs.6,676,035.00 and interest thereon of

Loss and expenses f or extension of time Head office overheads of Kshs.6,947,139.00 Plant and Equipm ent of Kshs.34,559,605.00 Inflation of cost of building materials of Kshs.3,454,018.00 Loss of restructuring of the project Unrecovered head office overheads of Kshs.1,474,479.00 Unrecovered site overheads of Kshs.1,752,255.00 Under-utilization of plant and equipment Kshs.7,319,596.00 Additional cost of remaining works Loss of profit of Kshs.120,891,968.00 Failure to honour p Kshs.969,697.00 Handling charges for un Interest on the aggregate amount o 2003 initial payment in full. of Kshs.39,316,900.00

ayment certificate in time in the sum of fixed materials in the sum of Kshs.304,350.00 f 14% per annum from 17th January

On August, 2010 Hon Lady Justice Koome confirmed the award and issued decree for Kshs.667,99 Kshs.667,993,.96 was to payment in full. Sometimes on movable property of the Fu Garam Investments Auctioneers p way of inventory. The Fund obtained have the award set aside by the High Cou 3,986.96 plus costs and interest. The said amount of continue accruing interest at 14% per annum until

3 October 20 PABCO obtained Court Warrant to attach nd in execution of the award . On 5 October 2010 roclaimed property belonging to the Fund by a stay of execution and also applied to rt.

On 27 January, 2011, Hon Justice Muga Apondi rejected the Funds applicati on and confirmed the award given by the arbitrators. Further to the award and th Garnishee Order absolute issued by September 2010 ordering the Fund to pay Mercantile Co. Ltd, a subcontractor of Pan Africa e amount indicated above, the Fund received a Hon. Lady Justice Martha Koome dated 6 Kshs.170,000.00 Speedwings Builders and Contractors

Limited . The said amount was to be paid on behalf of was to be deducted from the award. At the time, the Fund h

the contractor and it

ad also received decree nisi orders in favour of Liteline

Enterprises Limited, a lso a subcontractor of Pan Africa Builders. The High Court later confirmed the decree and ordered the Fund to pay the subcontractor. The Board evaluated the cha interest rate that was accumulating and decided to negotiate with Pan Afri nces of success in the Court of Appeal, the at approximately Kshs.7 million per month ca Builders & Contractors Ltd. As at

March 2011, the sum had accumulated to approximately Kshs. 771209,686/=. After negotiations, the contractor accepted to be paid Kshs.590 million in full and final settlement of the claim. The Garnishee Court Order to pa initially confirmed at Kshs.170,000,000/ pay Kshs.121,000,000/= as negotiated between y Speedwings Mercantile Company Ltd was = but PABCO instructed the Fund to them.

The Fund therefore, settled the claim pursuant to Court Orders which Pan A frica Builders confirmed. In settling the claim, the Fund paid Kshs.590 million down from the claimed sum Kshs.1.3 billion as claimed before the arbitrators. Th reduced the long term and a e Board, in negotiating the matters out of court, have substantially contingent liabilities which are a burden to the members in the lso obtained cost savings. are still on course. ever, on both revamped in ctures in

We reiterate that the reforms embarked on since 2004 The Transformation Bill was published in 2005 and 2007. How occasions, Parliament was dissolved and the Bill lapsed. It is now line with the New Constitution and seeks to enhance governance stru the management of workers funds. The process is ongoing and the Boa the Bill on 8 March, 2012 and it wi Committee on Social Security and Welfar

rd held the Stakeholders Forum to discuss ll now be presented to the Parliamentary e.

Indeed, as part of compliance with the RBA Investments guidelines and in a bi d to invest prudently, the Fund commenced the process of recruiting Fund Manager s and Custodians in 2. The Manager/Custodians are now in place. The Fund is c continue improving members. TOM ODONGO AG. 3 April, 2012 MANAGING TRUSTEE urrently paying a return of 7.5% on member accounts and will the rate of return on its investments for the benefit of

Original post: Arbitration between Panafrica Buil in 2012

ders A Political Kenya

NSSF to pay Sh590m for controversial housing deal

The NSSF Headquarters in Nairobi. An out-of-court settlement in which the National Social Security Fund (NSSF) will pay Sh590 million for a disputed contract has thrown into disarray the funds investment plans and further depleted the public pensions kitty. An out-of-court settlement in which the National Social Security Fund (NSSF) will pay Sh590 million for a disputed contract has thrown into disarray the funds investment plans and further depleted the public pensions kitty. NSSF will now require liquidation of a significant fraction of its capital to pay the lump sum, effectively subjecting retirees to the delays that have characterised payments of benefits. The hefty arbitration award which had gone up to nearly Sh800 million has been the subject of a long-standing and painful litigation over breach of contract with Pan Africa Builders and Contractors Ltd. The deal involved construction in the upmarket Kitisuru suburb in Nairobi. Intrigues and deception pock-marked the conclusion of the long-standing legal battle between NSSF, the contractor and the later entry of Pan Africa Builders lawyer Donald Kipkorir.

Even as NSSF wired Sh250 million part payment to the South African-based Pan Africa Builders managing director Harbinder Singh Sethi through Ecobank Mombasa branch, the firms lawyer was left fighting a legal battle seeking to stop further payments to his client until his legal fees of Sh144 million was settled.

Mr Kipkorir told Mr Justice Muga Apondi that the advocate-client relationship with the contractor was irretrievably broken down and I am deeply apprehensive that unless the orders are granted, NSSF may again pay the balance of Sh340 million to Mr Sethi, who in turn will repatriate the funds out of the country. On June 29, the judge ordered NSSF to immediately pay Mr Kipkorir Sh144 million and further restrained the fund manager from paying the contractor the Sh340 million final payment until the latest tug-of-war between him and lawyer is heard and concluded. Since Mr Sethi has repatriated Sh250 million out of the courts jurisdiction, NSSF should remit Sh144 million to the firm of Kipkorir, Titoo and Kiara Advocates Trust Account pending the determination of the advocates Bill of Costs, ruled Mr Justice Apondi. It must be appreciated that Mr Kipkorir has acted for Pan Africa Builders and Contractors for a period of six years. Under those circumstances it would only be fair and just for Mr Sethi to pay for the legal fees that he has incurred, observed Justice Apondi. Further, the judge took issue with firms chief executive saying his conduct cannot give anybody confidence that he would comply with the obligations imposed on him. In a strange game of ping-pong reminiscent of a hunter becoming hunted, Mr Sethi, according to the court ruling, negotiated with NSSF and agreed to reduce the debt from Sh744 million to Sh590 million and a consent recorded in court on May 30. Negotiations to settle the dispute out of court were initiated by NSSF after the contractor sent auctioneers to the funds offices to attach the moveable assets for sale in a public auction. NSSF was also under pressure to settle the lumpsum after the court case and subsequent appeal in the High Court to stop the arbitration award collapsed. Auctioneers were also giving the funds manager nightmare besides the publicity the case had attracted. Pan Africa Builders moved to court in 2003 claiming that NSSF had breached a 1999 contract to develop the high-end estate through a downgrading process that saw its value drop from Sh1.9 billion to Sh888.4 million. Upon completion of the project nearly 10 years later, the contractor rendered its final accounts, but NSSF declined to settle, forcing him to move to court with a claim of Sh528 million. The dispute was in court until July 2008 when the parties agreed to have it solved through arbitration. It was during the arbitration that NSSF was found to have breached its obligations to the contractor and the builder was awarded Sh500 million in damages and interest accrued. But the NSSF contested the claim on grounds that there was no contractual relationship between it and Pan Africa Builders. Arbitration documents indicate that the two parties had disagreed on the partnership, sparking the legal tussle that has lasted nearly 10 years.

Despite the fact that there was no executed agreement between the parties, numerous correspondence exchanged between them indicate that they considered themselves bound by the contract, said John Ohaga and Robert Mwanga, the joint arbiters. Findings of the arbitration revealed that the contractor was awarded payment on loss and expenses for extension of time (Sh53.5 million), loss from restructuring of the project (Sh159.5 million) as well as interest on the unpaid fees at 14 per cent per year since January 2003 until payment in full. Other items in the award are unpaid certificate, failure to honour payment and handling charges for materials all totalling Sh8.1 million. NSSFs two Kitisuru housing estates are valued at Sh1.1 billion, according the funds 2009 annual report. Civil litigation against NSSF, some of which span over decades, has left the fund exposed at a time it is smarting from a credibility crisis over alleged misappropriation of funds in 2008. Apart from Pan Africa Builders, the fund manager is also fighting a number of court cases against Mr James Mugoya, a Ugandan billionaire contractor, with whom it has differed over the Embakasi Housing Project that started in the early 1990s. Past NSSF financial reports indicated that Mugoya was claiming Sh7.1 billion against the funds counter claim of Sh9.8 billion. NSSF has since indicated that it was negotiating to have the matters settled out of court. Disputes relating to dealings with Mugoya are before arbitrators for determination. However, NSSF has indicated that a full provision of Sh324 million had been made in the financial statement. Sololo Outlets Limited associated with Lugari MP Cyrus Jirongo has also filed a contingent liability claim of Sh4.95 billion against NSSF for alleged breach of contract in the development of Hazina Estate in Nairobis South B. NSSF has filed a counter claim of Sh3.1 billion. The fund also stands to lose nearly Sh2 billion it invested in the stock market through the Discount Securities, now under statutory management. According to a November 2008 audit conducted by Kenya Anti-Corruption Commission (Kacc) and the Inspectorate of State Corporations, the fund is estimated to have lost Sh3 billion through bad investment decisions and doubtful transactions.

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Row over NSSF's billions hots up

Published on 20/04/2012

By Luke Anami Investigation of the National Social Security Fund by a parliamentary committee has taken fresh twist after two men featuring prominently in the probe broke their silence. Mr Alex Kazongo, the former NSSF managing trustee, claimed the Fundfs board ordered the payments now being investigated by the Public Investment Committee (PIC). At the same time Lugari MP Cyrus Jirongo, a former operative of the now defunct Youth for Kanu, alleged the former government, which lost to Narc in the 2002 elections, influenced NSSF to cancel a housing development contract with his company Sololo Outlets Ltd, for Hazina, Nairobi after he fell out with the party. "What the NSSF is deliberately failing to tell Kenyans is that the pressure they faced to cancel the contract was purely political, and was directly connected to Cyrus Jirongofs fallout with the powers that be after the 1992 General Elections," he said.

Lugari MP Cyrus Jirongo [Photo: File/Standard]

The claim by Jirongo was conveyed to newsrooms in a written statement in which he alleged the controversial payments of Sh1.4 billion made to Pan Africa Builders & Contractors (Sh590 million), Mugoya Contractors (Sh342 million) and Sololo Outlets (Sh490 million) were justified. "It is important for Kenyans to know that the root cause of the Sololo vs. NSSF case is the abuse of public offices by government officials for political reasons. Using government machinery to destroy private business, using political muscle to rob a Kenyan citizen just to cut him to size politically is reprehensible and morally unacceptable," Jirongo claimed in his statement to the media. Cancellation of contract While acknowledging circumstances under which he entered into agreement with NSSF of construction of Hazina Estate, he accused the Fund of hiding the reasons that led to cancellation of the contracts.

"Our major point of diversion is the statement that the cancellation on 26th May, 1993 was caused by Sololofs demand of Sh2.65 billion which was in excess of the agreed consideration. We would have appreciated more candour from the NSSF on the truth behind the cancellation," Jirongo said in the statement.

He was referring to an advert in The Standard on Thursday by NSSF acting managing trustee Tom Odongo in which he sought to explain the circumstances surrounding the housing development contracts that were cancelled. But Jirongo accused Odongo of twisting the facts behind the matter. "Itfs interesting that after Sololo was kicked off the project due to political pressure, and with 75 per cent of Hazina Estate done, they awarded Mugoya Construction the contract to complete the 25 per cent for Sh1.5 billion. This figure was in fact over the variation Sololo had requested," he said. ... ,

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Row over NSSF's billions hots up

Published on 20/04/2012

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On his part Kazongo said he only implemented what the NSSF board demanded, and denied pledging to pay Sololo Outlets terming the reports inaccurate and misleading. "My attention has been drawn to inaccurate and misleading reports attributed to the Acting Managing Trustees (MT) of NSSF that appeared in sections of the local press on Thursday. The Acting MT was quoted as saying that I made an unwritten pledge to review Sololo Outletfs claim after NSSF paid them Sh490 million as full and final settlement of their claim," Kazongo said in a written statement. "I wish to clarify that no unwritten agreement was made by me. I also find it irresponsible for the Ag MT to contend that such huge sums of money could simply be pledged verbally without committing any trace of writing." Board approval Kazongo said only the board can authorise payments of such sums. "After obtaining Board approval to pay Sololo Outlets and Mugoya Construction their claim in full and final settlement, my role as the Managing Trustee was to implement the Boardfs decision, that is, to effect payment. Moreover, in terms of the Fundfs existing policy the Managing Trustee can only approve legal payments up to Sh3 million. Any payments above that limit must be approved by the Board," he said. According to Kazongo, payments were made in two equal installments to ease strain on the Fundfs cash flow. "It is relevant to note that first installments were made before I proceeded on leave, while final installments were done after I had proceeded on leave with effect from 17th February, 2012." He said he wished "to urge both the Board Chairman and Acting MT of NSSF to uphold truth and integrity all the time and stop hiding in the shadow to issue misleading statements simply because I am on leave and therefore unavailable at their meetings". @