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Kenya’s defence in Sh300b London railway suit starts

Monday, March 4th, 2024 00:50 | By
Kenya’s defence in Sh300b London railway suit starts
Attorney General Justin Muturi. PHOTO/Print

Kenya is today set to commence its defence of a Sh300 billion ($2 billion) compensation suit over breach of contract signed with Uganda pertaining the construction and management of a railway line scheduled to run between both countries.

Attorney General Justin Muturi is leading a legal team comprising State and external counsel led by Kings Counsel Michael Sullivan, Prof Githu Muigai and Prof Albert Mumma to defend the case scheduled to take place from March 4 to 15 in London, UK.

The case started after Sheltam Rail Company (PTY) Ltd (currently known as KU Railway Holdings Ltd (“KURH”), and Rift Valley Railways (RVR) Investments (PTY) Ltd instituted arbitral proceedings at the London Court of Arbitration against Kenyan government and the Government of the Republic of Uganda (GoU).

 The government was served with an initial Notice of Arbitration on April 2, 2020 and an Amended Notice of Arbitration on April 9, 2020, notifying the GoK and GoU of the arbitral proceedings.

 Kenya Railways Corporation (KRC) in 2017 terminated Rift Valley Railways’ (RVR) 25-year contract citing RVR’s failure to meet set operating targets, including payment of concession fees.

 RVR failed to secure financing from its lenders which resulted in various breaches of the obligations under the Concession Agreements.

The Concession was to come into effect immediately and remain in force for 25 years for the freight services and 5 years for the passenger services.

RVR assets

 As per the Concession Agreement, Uganda Railways Corporation (URC) and Kenya Railways Corporation (KRC) were to concede all their railway assets to Rift Valley Railways (RVR) whose ownership is controlled by Egyptian private equity firm Qalaa Holding, in return for a concession fee of 11.1 percent of the gross revenue during the concession period

 The claimants, in their argument, said they invested $300 million in revitalisation of the Meter Gauge Railway (MGR).

They also claimed as per the Amended Interface Agreement, GoU and GoK had committed to harmonise their operations and laws to enable a seamless operation of the MGR between the two counties.

 Reads the document filed in court: “They claim that GoK and GoU prevented them from realising the full potential of their investments. Particularly, they claim; GoK and GoU failed to harmonize custom clearance at the Mombasa Port and Malaba Border which led to delays; GoK and GoU failed to protect the conceded assets from encroachers and vandalism; Imposition of Fuel Levy and Road Maintenance Levy on RVR to subsidise its competitors; and. GoK and GoU failed to agree on how to allocate concession fees.”

Witnesses called

 But in its response, the government of Kenya filed 20 witness statements from various individuals including Nduva Muli, the former Managing Director of the KRC, David Kombe, commercial manager at Tullow Oil Eng Ndung’u Waititu, consulting engineer and Ms Stanlus Mutuku to oppose the hearing of the matter on grounds that the Tribunal should not exercise jurisdiction, over the claim due to the corrupt practices in which the claimant engaged in the performance of the foundational agreements;

 In its arguments, the government also opposed the claim for breach of the contract made by the claimant on grounds that it was time barred by operation of Section 4(1)(a) of the Limitation of Actions Act, CAP 22 because as per the Request for Arbitration (and as further Amended by the Claimant), all alleged contractual breaches occurred no later than December 2, 2014, more than the six years’ time period provided by law.

Reads the government response: “Similarly, the claimants’ claim in tort was time barred by virtue of operation of Section 4(2) of the Limitation of Actions Act, CAP 22 Laws of Kenya. As pleaded by the Claimants, the alleged tortious acts of misrepresentation occurred on a date before August 2012, and as such are barred by Section 4(2) of the Limitation of Actions Act for having occurred more than three years from the date the Claimant instituted the Arbitral proceedings.

Further, it also opposed the matter to be heard by the tribunal on grounds that the inclusion of issues regarding the legality of various Kenyan statutes are not issues capable of being arbitrated and hence fell beyond the scope of the Tribunal’s jurisdiction.

 The claimant’s argument on the legality of the Road Maintenance Levy Fund Act, CAP 425D Laws of Kenya, the government said is beyond the scope of Section F of the Interface Agreement and Section N.1.1 of the Concession Agreement which provides for the ambit of the Tribunal.

 Adds the government response: “From the word go, the Claimants acted corruptly and engaged in unlawful practices that breached the law of the Republic of Kenya in the performance of the Concession and Amended Interface Agreement. Hence, given that the manner in which the Claimant sought to perform the Agreements was tainted by corruption and contrary to international legal principle of good faith and flouted public policy, the Tribunal ought to dismiss the claimant’s at the outset.”

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