Kenya: Why Bank Moved to Court Against Tuju's Company

12 January 2020

From the onset, the case against Jubilee Party Secretary General Raphael Tuju and his company Dari Limited appeared straight forward -- "You eat, you pay".

STRAIGHTFORWARD

Mr Tuju's firm had borrowed money from a bank and it was expected that he would pay, period.

But he started repaying and then in 2016, stopped.

East African Development Bank, which had lent him the money in 2015, wanted him to continue servicing the loan, but he didn't. The bank then moved to London for arbitration as per the contract terms between them. The arbiter heard the application and ruled in favour of the bank.

Mr Tuju appealed. But a Court of Appeal judge in London, Britain, was blunt: "This is a straightforward claim to recover money owing under a loan facility agreement to which, for the reasons given in the judgment, there is no arguable defense."

Having lost the appeal, all of Mr Tuju's legal options in the UK had been exhausted. So the bank expected him to pay up. He didn't.

MAJOR SETBACK

Fast forward to Thursday of last week, the Cabinet Secretary without portfolio suffered a major setback after the High Court of Kenya affirmed a decision by the London Arbitrator that he should repay the Sh1.5 billion he owes the regional bank.

But Mr Tuju has not given up. On Thursday he applied to High Court to have the adopted judgment set aside on grounds that the Judge in London ignored rules of natural justice.

Through Lawyer Paul Nyamondi, Mr Tuju says that the Judgment which was adopted by the High Court of Kenya denied him his rights to a fair hearing.

He says that his pleas through his lawyer that the advocate for the bank Michael Sullivan had worked with the judge Daniel Toledano and, therefore, there arose a likelihood of conflict of interest, went unheard. That application is yet to be heard.

TWO BUNGALOWS

Back in London, the arbitration was presided over by Queens Counsel Daniel Toledano who had sat as Deputy High Court Judge in line with British law.

Court documents showed that Mr Tuju's Dari Limited entered into an agreement with the bank on April 10, 2015, under which it agreed to give Dari a $9.3 million (Sh943.9 million) loan.

The loan was for the construction of Sh100 million two-storey bungalows sitting on a 20-acre forested land dubbed Entim Sidai and purchase of a 94-year-old bungalow built by a Scottish missionary, Dr Albert Patterson, which currently operates as a high-end restaurant.

In his affirmed ruling, Mr Toledano stated that East Africa Development Bank from whom Mr Tuju had taken the loan had all the rights to get back its money.

Through his company Dari Limited, Mr Tuju, who has listed his family members as other directors, were able to access the loan and gave property at Upper Hill as security.

NO DOCUMENTS

In 2016, according to the ruling by Judge Toledano, Mr Tuju started having difficulties servicing the loan.

In November 27, 2017, the bank made demands to Mr Tuju and other directors in the company and despite these notices and demands the amounts owing to the bank were not paid.

It is at this point that the bank moved for arbitration. The Arbitration was provided for in the agreement between the parties.

In their defense, Tuju's lawyers argued that in fact the bank was to give loans in two phases.

They added that the second tranche of money which was not given by the bank was to cater for developing the property and it's from then he would have money to repay the loan.

But the arbitrator was not convinced: "I note first of all that the facility agreement does not say anything about a two phase project; nor does the offer letter that has been shown to the court dated 12th September 2014. Indeed there are no documents relied on by the defendants in which the alleged representations are to be found," noted Judge Toledano.

FIRST PHASE

The amount the defense said was to be part of the second phase amounted to Sh294 million.

"The short answer to the specific allegation concerning a failure to provide Sh294 million, in my judgment, is that the bank was not under any obligation to lend this amount. No facility agreement was concluded and no other contractual obligation to lend this amount was agreed according to the material before the court. It is true that a further facility was proposed and discussed, but it never reached the stage of being agreed and implemented," stated Judge Toledo.

The Tujus also lost on the point that an outstanding amount of Sh10 million was not disbursed as part of the first phase.

"There is no evidence before the court of any further drawdown request being made by Dari Company. Clause 3.1 of the facility agreement requires a drawdown request to be delivered by the company in a prescribed form in order to start the process of a drawdown. In the absence of any such request, the bank cannot be liable for not providing balance of the funds," noted Judge Toledo.

MAKE ENFORCEABLE

The judge, therefore, entered a summary judgment against Mr Tuju. Upon appeal the case was also lost.

"This is a straightforward claim to recover money owing under a loan facility agreement to which, for the reasons given in the judgment, there is no arguable defense. By the same token, none of the grounds of appeal has any reasonable basis; the judge gave not merely adequate but compelling reasons for his decision," Appeal Judge Lord Justice Leggatt ruled.

The bank then moved to have the Judgement from London adopted by the Kenyan court to make it enforceable.

Last week Justice Wilfrida Okwany at Milimani Courts said the bank had satisfied the conditions for the judgment to be enforced in Kenya. The judge said EADB had proved that it obtained a summary judgment against Dari Ltd, Mr Tuju and four others in April last year and an appeal filed by Tuju's company subsequently dismissed.

FOREGOING FACTS

"I have carefully considered the application and the supporting affidavit together with the submissions ... From the above foregoing facts, I am satisfied that the applicant has proved that is has a foreign judgment in its favour and that the said judgement is capable of enforcement in the United Kingdom, and by operation of the Act, also capable of enforcement in Kenya. Consequently, I allow the Originating Summons dated 31st December 2019 as prayed. I also award costs of the application the judgment creditor and direct that the notice of registration of the judgment be served on the judgment debtors as provided for under Section 5(3) of the Act," Justice Okwany ruled.

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