Court ends Sh3.5b claim against CBK in Goldenberg hotel saga

Kamlesh Pattni was the suspected mastermind behind the Goldenberg scandal. [File]

The Court of Appeal has dismissed a long-running case involving the Central Bank of Kenya (CBK) and a company linked to Goldenberg suspected mastermind Kamlesh Pattni.

The ruling saves taxpayers from a potential payout of more than Sh3.5 billion, adding to the heavy losses already suffered in the Goldenberg scandal. The dispute arose from the sale of the Grand Regency Hotel that was auctioned to help recover money lost in the 1990s scandal.

Westmont, a Malaysian company had ceased operations years before the sale of the prime hotel, which changed its name to Laico Regency after its sale in 1997.

Despite this, Westmont resurfaced years later, transferred its legal rights to Lynwood Development Limited and sued CBK for Sh185 million, claiming the bank had blocked its attempt to buy the hotel.

The two alleged that they deposited Sh185 million as a purchase price. But CBK argued that this money was meant to settle a longstanding debt between CBK, Pattni and Uhuru Highway Development Limited.

In the judgement, Court of Appeal Judges Joel Ngugi, Nduma Nderi and Katwa Kigen found that Westmont, having folded, had no authority to sue the CBK, while Lynwood was improperly roped in the case without the court’s authority.

They ruled that there was no evidence to show that CBK had unjustly enriched itself after declining to refund the money. They noted that first, Pattni and Exchange Bank Limited owed Sh2.1 billion. In addition, the court found that it was Pattni who had deposited the banker’s cheque containing the contested amount. Pattni, the court noted, being a party to the debt, never indicated that the money belonged to Westmont or Lynwood.

“The respondent was justified in retaining the funds. It is lawfully viable for the respondent to retain, in good conscience and equity, the funds to reduce the debt owed to it,” the bench headed by Justice Ngugi said.

The case has had a long and meandering history before the corridors of justice. It had moved to the Supreme Court and back to the High Court, before Justice Richard Mwongo.

Along the way, Pattni, who later changed his name to brother Paul, after allegedly seeing the light just as the Biblical Paul, abandoned his claim, leaving Westmont to soldier on. However, the case was dismissed for want of prosecution, as no party had moved the court for six years, between 2002 and 2008.

It was later reinstated by the Court of Appeal, which directed that the 1998 dispute ought to be heard. CBK objected, arguing that Westmont had ceased operations on May 21, 2002.

Before its hearing, the three-judge bench ordered Westmont to deposit Sh20 million within 45 days as a guarantee, failure to which the appeal would be dismissed.

Westmont challenged this directive at the Supreme Court, arguing that it had been denied access to justice owing to the demand for the security of costs.

The company claimed that the CBK advertised for the hotel, demanding a 10 per cent deposit. It argued that upon receipt of the money on May 12, 1997, the regulator ought to have allowed Lynwood, who was Westmont’s agent, to conclude the purchase.

It further alleged that CBK gave assurances that the sale would proceed but later changed its mind, failed to permit due diligence and refused to provide undertakings required in the agreement.

Westmont asserted that Exchange Bank Limited, which is in liquidation, was not part of the sale; hence, the money should not have been applied to recoup the debt.

But Exchange Bank Limited argued that Westmont had no powers to sue in the case as it had been wound up. It also opposed Lynwood's presence, arguing that it was unknown and had not been identified as a party to the Sh185 million deposit.

Also, CBK argued that at the time, the money was meant to settle part of the debt that Pattni and Exchange Bank owed the government following the saga. Instead, it urged the court to compel Westmont and Lynwood to pay the remaining debt owed by Pattni and the bank and to settle Goldenberg-related liabilities.