Court o decide if it can try case involving Tanzanian govt

By Nyakundi Nyamboga

Kundan Singh Construction Limited secured a contract to do a 36km road in Tanzania.

The contractor, incorporated in Kenya, was to upgrade to bituminous road Mbeya-Lwanjilo section of the Mbeya-Chunya-Makongolosi Road.

The contract sum for the road, which links the southern highlands of Tanzania and Lake Victoria region, was TSh27,483,875,000.

According to the contract, the road would be completed in 30 months.

The contractor’s bankers, Kenya Commercial Bank, guaranteed Tanzania National Road Agency that in the event of default on their client’s part, Sh534,581,100 would be available on call.

The contractor says the bank’s guarantees — bank performance guarantee for TShs2,746,387,500 (Sh183,092,500); advance payment guarantee for USD 3,478,145 (Sh278,251,600) and another advance payment guarantee for TShs1,098,555,000 (Sh73,237,000) — were issued in Nairobi in July, 2007, and paid the requisite premiums at the bank’s offices in Kenya.

bank guarantees

The Tanzania outfit does not buy this contention. It maintains that in respect of the bank guarantees, it is the bank’s branch in Dar es Salaam that was involved.

Be that as it may, the Tanzania outfit claims it has inspected the road and established that with only 10 months left for the completion, the applicant has not done even a kilometer to the required standard.

It denies claims by the contractor it will be committing civil fraud in calling in the bank performance guarantee and advance payment guarantee. It has not called them in yet. It instead alleges that it is the contractor who breached the contract by submitting a notice to terminate the contract without justifiable reasons. The notice is dated April 29.

The Tanzania outfit says the contractor has further issued an expiry notice dated May 12, stating that he will demobilise all the plant and equipment on site and asking the engineer to hand over houses and vehicles.

This is despite a court order of May 12 issued by Principal Judge Fakihi Jundu on May 12 in the High Court of Tanzania at Dar es Salaam.

The Tanzania outfit says it issued the contractor with a notice of expulsion on May 5 and is therefore entitled to demand payment under the guarantees.

The suit in the Kenyan court is aimed at preventing the Tanzania outfit from exercising its rights under the contract and this, it is alleged, amounts to re-writing the contract.

Through Kioko, Munyithya & Co Advocates, the Tanzania outfit claims the High Court of Kenya has no jurisdiction to determine the suit.

It says five disputes have arisen which have since been referred to Disputes Review Board in Tanzania and denies that all have been referred to arbitration.

The notice of intention to commence arbitration was only applicable to the first dispute where the plaintiff applied for extension of time to perform his obligations under the contract when he was already late and was avoiding liquidated damages for delay, says the Tanzania outfit.

Advance payment

However, it is the contractor’s contention that the Tanzania outfit wants to enforce a bank performance guarantee and advance payment guarantee issued by the bank before a jointly appointed arbitrator resolves the issues referred to it by the plaintiff and itself.

These were, for instance, issues on non-certification by the engineer, delay in payment of certified sums due to the plaintiff and engineer’s recommendation on alleged default issued against the plaintiff.

Disputes and difference between the plaintiff and the Tanzania outfit, according to the contract, are first to be referred to the Disputes Review Board, Tanzania for determination.

Through lawyer Rajinder Billing, the contractor says until the issues are resolved by arbitration, the Tanzania outfit cannot take advantage of the contractual provisions to enforce the bank performance and advance payment guarantees issued by KCB.

The lawyer says the disputes were referred to the board, which gave its recommendations on February 12. The recommendations in favour of the plaintiff did not go down well with the Tanzania outfit.

It has since given notice to commence arbitration.

The bank cannot suffer any irreparable loss as the court has protected its position (status quo), which existed before the filing of the suit.

The Tanzania outfit is estopped from bringing separate proceedings to demand payment from the bank until this suit, in which it has been enjoined, is determined.

The plaintiff provided additional security (including personal guarantees of its directors) of Sh2 billion to cover the bank’s liability in respect of guarantees. This is besides corresponding indemnity guarantees— totaling Sh534,581,100 — it issued on July 31, 2007.

The contractor roots for an injunction barring the bank from honoring the guarantees in favour of the Tanzania outfit. Reason? It will not only suffer monetary loss but also its reputation as an internationally reputed construction firm, a loss that cannot be compensated by any award of damages however substantial, if an injunction is not granted.

order in force

It is instructive to note that on March 12, the High Court of Kenya issued a temporarily injunction restraining Kenya Commercial Bank from paying Sh534,581,100 to the Tanzania outfit. The order is still in force.

The bank has since given notice to the court of its intention to seek the setting aside of the order on the grounds that the court lacks jurisdiction to entertain the claim against it in respect of the guarantees and that the contractor does not have locus standi (sufficient legal interest) to seek the reliefs.

Through lawyer Philip Nyachoti, the bank also indicates in the notice that it would want the court to find that the order of March ought not to have been issued since the suit, as filed, is allegedly defective and premature.

It is the bank’s contention that it is a stranger to the contractor’s dealings with the government of Tanzania.

The contract between the contractor and the Tanzania outfit is separate and independent from the bank performance and advance payment guarantees, which the bank says it is its obligation to honour, once demanded by the contractor.

editor’s comment

This case comes up for mention next week for purposes of ascertaining whether all the parties have filed the relevant court papers.

Commercial Courts Judge Justice Luka Kimaru, who is seized of the matter, would be expected to set hearing dates of what promises to be precedent setting.

Consumers of justice in member states of the East African Community, especially those in Kenya and Tanzania, would be keenly watching to see the jurisprudence the case would generate.

Of interest would be whether the High Court of Kenya would halt the hearing on claims that a similar suit is pending in the High Court of Tanzania at Dar es Salaam.

Note that both the High Court of Kenya and that of Tanzania have already given temporary orders in the matter, though in separate suits and at different times.

Whether the High Court of Kenya would be minded to halt its hearing in the light of revelations that disputes and differences are still pending in the Review Board in Tanzania, is something the judge has to be prepared for.

Also likely to be food for thought for Justice Kimaru is the claim that there are no ongoing arbitration proceedings that could have tempted him to halt the proceedings.

Of course, the judge would have to decide if the arbitration clause in the contract between the parties ousts the jurisdiction of the High Court in the matter.

point of law

Another interesting point of law that the judge would be expected to adjudicate is which, between the High Court of Kenya and that of Tanzania, is better placed to handle the trial, bearing in mind the conflicting claims as to the place whether the contract was made and where and how it was to be performed.

Over to you Judge. You are equal to the task.