Huge reprieve for Kenya Pipeline as Sh3.6b Triton scam award set aside

The diesel imported by Trition was stored at the KPC Kipevu Oil Storage Facility - a bonded warehouse. It was agreed by KPC that the only person that could authorise it to release oil to Triton was Glencore. [PHOTO: FILE]

The Court of Appeal has saved Kenya Pipeline Company from Sh3.6 billion legal debt after it overturned an award to a UK firm Glencore Energy Limited.

A three judge bench yesterday set aside the ruling by the High Court that would have seen the State corporation pay $40,330,379.75 to the energy firm over the Triton Petroleum Company oil scandal.

Glencore, one of Triton’s financiers, had accused KPC of unlawfully releasing 31,752 metric tonnes of petroleum products to oil marketers without their consent under the Collateral Financing Agreement (CFA) and a judgement was passed against KPC.

KPC was to pay Glencore the amount including a three percent annual penalty if they defaulted from covering the court award. This was from 2012.

However, Appellate Court Judges Gatembu Kairu, Kathurima M’Inoti and Patrick Kiage yesterday gave a relief to the oil company by setting aside the award by the lower court. The trio ruled that the UK firm was to blame for its own misfortunes with Triton saying it ought not to have pursued KPC.

“At any rate, it would not serve the interests of justice in the face of indisputable illegality, to saddle the appellant (KPC), virtuous though it be not, with the losses incurred as a result of the dalliance between the respondent (Glencore) and triton. That loss must lie where it fell,” said the judges.

KPC in its case denied responsibility in the entire oil scandal. The corporation placed the burden to Triton saying that the company at the centre of the scandal was the sole owner of the oil products. The court heard that Glencore had failed to mitigate its losses by continuing to finance Triton despite non-payment of debts that were accruing from June 2008 to November of the same year.

The national corporation brought to the attention of the court four letters allegedly drafted by Glencore to Triton and its lawyers argued that the letters were used by the financier to evade the operation of the Energy Act to regulate the oil sector in Kenya.

Failed to honour

Lawyers Pheroze Noworjee, Fred Ngatia and lawyer John Ohaga in their submission before the three judges said that the High Court had erred in awarding the financial institution. They argued that issues raised by the judge ‘could not aid those whose hands were murky’.

The three lawyers argued that there was patent illegality facilitated by Glencore by setting up a structure supported by a document to use Triton as a proxy in order to claim rights in the oil products that had been stored in KPC’s facilities. The financier allegedly wanted to directly sell the oil to Total Kenya.

KPC opposed that oil products which were imported into Kenya by Triton became KPC product by virtue of section 4.2 and 4.3 of the Transportation and Storage Act, which had been signed between Triton and KPC in 2001. “Once the diesel was imported into Kenya, it belonged to Triton and the undertakings by KPC did not create a bailment to Glencore as it was not the owner of the diesel,” the court heard.

On the other hand, the court heard that KPC had failed to honour its end of bargain in which KPC’s schedulers irregularly released some 126,000 metric tonnes which had been financed by Glencore, KCB, Fortis Bank and the Emirates National Oil Company.

At the core of the case was if Justice Ogola was right to order that KPC should pay for the oil products it released to Triton or was Glencore liable to its own losses as a financier of the collapsed company.

KPC in its submissions argued that the undertaking not to release the diesel without the sole authorisation of Glencore was not important as there was an illegal transaction by the UK company in contravention of Section 80 of the Energy Act because UK firm had allegedly imported the diesel and sold it to Total Kenya. In 2008, Glencore financed Triton’s purchase of vast quantities of diesel in that same year. The UK Company as an unpaid seller had retained its title to the goods through a retention of titles clause - a recognised form of an unpaid seller - by securing its interests.

“We are amply satisfied that by an elaborate scheme hatched and executed by itself while using Triton as a front, cover and cloak, the respondent (Glencore) entered and traded in Kenya oil market without a license, a fragrant illegality,” the Appeal Court judges ruled.

However, Glencore has vowed to move to the Supreme Court next week to challenge this decision.