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Corporate tussles that made 2016 a busy year for courts

By Kamau Muthoni | Updated Tue, January 10th 2017 at 00:00 GMT +3

Last year, the courts witnessed their fair share of warring firms across the financial sector, retail market and beer industry.

The appetite for lucrative Government tenders also rendered courts busy, with firms dragging their rivals before judges as the fight for taxpayer funds got heated.

2016 was also the year financial lenders got a stern warning from the courts that they cannot withhold customers’ money or debit their accounts in instances of suspected fraud.

High Court Judge Patrick Otieno said banks cannot claim what is kept in customers’ accounts, unless there is a contract between them that states they can do so.

He made the ruling in a case where a customer had filed a suit against Kenya Commercial Bank, claiming the lender had frozen his accounts without proof of wrongdoing.

Ransack accounts

The judge said if banks were allowed to ransack their clients’ accounts, freeze them and debit the amount claimed to have been lost without being questioned, it would lead to anarchy.

“My understanding of the bank-customer relationship is that so long as there is a credit balance in the account, the customer has the right to access and withdraw it at will, unless there is a contract to the contrary,” Justice Otieno said.

“As it were, the bank merely keeps the money safe on behalf of the customer. It has no right or indeed any claim over the property in the money. The money simply doesn’t belong to it to deal with it as it pleases.”

On the other hand, Barclays Bank obtained temporary orders from the Court of Appeal suspending a Sh252 million award to 21 former employees.

The bank successfully convinced Court of Appeal judges Martha Koome, Festus Azangalala and Fatuma Sichale that it had an arguable case against the award given to its former employees by the Employment and Labour Relations Court.

The Labour Court had ruled that the ex-employees’ services had been unfairly terminated on redundancy grounds. Judge Monicah Mbaru said the lender had unlawfully issued redundancy notices to its employees in January, and ordered that they be paid 10 months’ gross salary, plus Sh500,000 each in damages for alleged discrimination.

The Imperial Bank saga also hit the headlines, as the Central Bank of Kenya (CBK) and the lender’s shareholders took on each other in the corridors of justice over the bank’s revival.

The parties were asked to consider resolving the crisis out of court.

“Consider going for mediation. I do not see any issues of law in the case and there is willingness to inject money to revive the bank. There is something that can resolve the issue,” High Court Judge Fred Ochieng recommended.

Troubled Dubai Bank Kenya, on the other hand, found a saviour in Sovereign Financial Holdings BV, a financial company incorporated in The Netherlands. The firm announced it was willing to inject more than Sh2 billion capital to revive the collapsed lender.

Strategic Investors

Ahmed Zubedi, the disgraced chairman of Dubai Bank, had revealed to High Court Judge Eric Ogola that he fronted for the new investor, who would inject the funds needed to save his bank from liquidation.

“If the proposed injection of Sh2,214,500,000 is allowed by the defendants [Kenya Deposit Insurance Corporation and CBK] and the large depositors permitted to convert their deposits into equity, the net effect would take away DBK from insolvency,” the papers filed by Richardson and David Ltd read in part.

“The new strategic investors will constitute a new board. They will also appoint a new management as their investment in Dubai Bank will constitute 95 per cent of the bank’s ownership.”

2016 was also the year cigarettes manufacturer British American Tobacco battled with the State over 2014 Tobacco regulations, citing unfairness and vagueness in the law.

BAT asked the Court of Appeal to allow its argument that the regulations should not see the light of day. On its part, the State told the court that there was nothing unconstitutional about the regulations, which among other things, required that gory images be displayed on cigarette packets.

BAT, through its lawyers Kiragu Kimani and Walter Amoko, argued that the tobacco control regulations had denied industry players the rights enjoyed by other companies in their daily businesses.

BAT further submitted that smokers should be allowed to puff on the streets and paths as their meaning does not conclude that they are public place.

The argument presented before Court of Appeal judges Fatuma Sichale, Hannah Okwengu and Festus Azangalala was that the 2014 Tobacco regulations were stretched beyond what had been mandated by the Constitution.

Legal duel

In the retail sector, the year ended on a high for the siblings at the centre of Naivas Supermarkets’ ownership tussle after they agreed to settle their debt row outside the courts.

It emerged that the eldest brother, Newton Nyoro Mukuha, agreed to pay his younger siblings who run the retail chain Sh8.1 million plus interest in instalments.

The ownership row over Naivas had split the family, with the younger siblings ganging up against Mr Mukuha over the debt. The dispute had threatened to have the only store he owns auctioned to settle the debt.

Uchumi Supermarkets also got into a legal duel with its former employees over its exit from Uganda.

According to court documents filed by 26 employees of the retail chain at the High Court in Kampala, Uganda, Uchumi management allegedly misinformed them that the branches were temporarily closed for renovation.

The employees are demanding their pay and damage costs owing to the indefinite closure of Uchumi’s branches.

Brewers also took to court to wrestle with distributors over contracts gone sour.

Three distribution firms were embroiled in a legal battle with Dutch brewer, Heineken, and asked the court to award them Sh5.3 billion in damages.

Kenya’s Maxam Ltd, Uganda’s Modern Lane Ltd and Tanzania’s Olepasu Ltd argued that the beer maker and its subsidiaries contravened the law. Heineken was sued alongside its affiliates Heineken East Africa Import Company and Heineken Brouwerjen BV.

East Africa Breweries Ltd also had its share of court time with its single-largest distributor, Bia Tosha, over distribution routes.

Kenya Revenue Authority was also rocked with suits, among them a Sh1.2 billion automation tender.

The taxman was battling three unsettled cases, with the main contention being the role of the lead financier of the project, TradeMark East Africa (TMEA), in the selection of the winning bidder. The deal, which was sealed in 2015, drew two cases before the High Court and another at the Court of Appeal.

KRA maintained the deal was above board and its implementation was ongoing, but the losing company from Switzerland, Webb Fountaine, claimed the tendering process was flawed.

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