The Dr Chris Kirubi majority-owned Longhorn Publishers has been ordered to pay two authors Sh35 million for books the government bought in bulk from the company, which then refused to remit royalties to two authors.
The writers, Dr Stephen Mburu and Dr Geoffrey Chemwa, had sued Longhorn, where Dr Kirubi was a shareholder.
And arbitrators, Mr Kyalo Mbobu and Dr Muthomi Thiankolu, have found that Centum unfairly excluded royalties totalling Sh35 million from the teachers' guide books written by the two authors.
Centum Investments became the first company to gain a controlling stake in another Nairobi Securities Exchange-listed firm, when it took a 60 per cent stake of Longhorn Publishers in 2016.
Dr Kirubi, who passed on last month, was the majority shareholder in Centum, which made him the biggest financial beneficiary of Longhorn's success.
The royalties in dispute arose from copies of the guide books worth Sh350 million that Longhorn sold to the government, through the Education ministry, in 2018 and 2019.
The ministry first ordered copies of books worth Sh195.2 million on September 12, 2018 before making another order worth Sh185.4 million on April 30, 2019.
Dr Mburu and Dr Chemwa authored four books in line with contracts they had with Longhorn.
Under the contracts, the two authors were each to receive five per cent of the price of the books. If Longhorn sold the books at a discount of 40 per cent or more, then the authors would instead each receive five per cent of the sales made.
Lawyer John Njomo, representing the two authors, argued that the government bought the books at a 27 per cent discount, which meant that his clients were entitled to 10 per cent of the publishing price and not the money received by Longhorn for copies sold.
Mr Njomo added that his clients were entitled to Sh35 million in royalties from the books sold to government in 2018 and 2019.
The royalties were required to be paid no later than May 15, every year. And for 16 years, Longhorn submitted a statement of accounts to the two authors without fail, and honoured all royalty payments on time.
Statement of accounts
Longhorn sent a statement of accounts to the authors on February 4, 2020 detailing sales of the books made between January 1, 2019 and December 31, 2019.
The document excluded sales made to government between 2018 and 2019, and the authors confronted Longhorn over the discrepancies.
Longhorn had also completely left out sale of one of the books authored by the duo.
The publishing company also deducted Sh2.8 million from Dr Mburu's dues, and Sh4.6 million from Dr Chemwa's without giving any explanation.
Dr Chemwa said that Longhorn was only entitled to deduct Sh1.5 million that he had received from the publisher as an advance payment.
But when the two authors received a statement of accounts detailing copies of their books sold in 2019, money made from the government purchases in the previous year had been excluded.
The document also failed to disclose how many copies of the books authored by the two writers had been sold.
Dr Mburu and Dr Chemwa investigated the government sales, and found out from third parties that the government had been given a 27 per cent discount.
This meant that they should have been paid 10 per cent of the publishing price of the books sold by Longhorn in line with their contracts.
Dr Mburu claimed Sh18.2 million, while Dr Chemwa wanted Sh16.7 million.
Longhorn's CEO Maxwell Ndung'u Wahome argued that the Ministry of Education was yet to pay for the books it ordered in 2018 and 2019, hence there was no legal claim from Dr Mburu and Dr Chemwa.
Mr Wahome added that Longhorn deducted distribution expenses from the authors' dues.
On June 5, Longhorn offered to pay Dr Mburu Sh14.3 million, while Dr Chemwa was offered Sh12.5 million following a fresh evaluation done by the publisher.
Both authors rejected Longhorn's offer. Dr Mburu insisted that he is owed Sh18.2 million.
Dr Chemwa argued that he is owed Sh16.7 million.
While Longhorn said it had not been fully paid by government, the company did not provide any document to the arbitrators indicating how much the Ministry of Education had paid so far.
Longhorn's lawyer Daniel Kabata insisted that the books were Longhorn's brainchild, and that the company should be declared copyright owners.
But the arbitrators held that all evidence presented in court and testimony from Longhorn's CEO indicated that the two authors own the copyrights.
"Longhorn Publishers' witness, Ndung'u Maxwell Wahome, was evasive on the actual amount that Longhorn Publishers received from the government and the outstanding amount, if any... In conclusion, the tribunal unanimously finds and holds that the claimants have proven their case against the respondent," the arbitrators ruled.
"Longhorn Publishers shall pay Dr Mburu Sh18,299,166 being accrued royalties for the years 2018 and 2019. Longhorn Publishers shall pay Dr Chemwa Sh16,799,166 being accrued royalties for the years 2018 and 2019," Mr Mbobu and Dr Thiankolu ordered.
Mr Mbobu and Dr Thiankolu also held that Longhorn was not entitled to deduct distribution costs, as the contract signed with the author gave the company permission to publish the books "at its own risk and expense".
The arbitrators held that the distribution costs are part of the risk and expense cited in the contracts.
The two authors have now filed a case seeking to have the arbitration award adopted as a court order.
Adoption as a court order would open the door for Dr Mburu and Dr Chemwa to auction Longhorn's assets in the event of non-payment.