Airline busted over outrageous cash claims

By Nyamboga Nyakundi

In an agreement that was in force for two years, East African Safari Air Express provided Jetlink Express Ltd with aircraft maintenance, flight watch, ground supervision, handling, and flight dispatch services.

Court records show the same staff operated accounting functions of both companies.

The agreement was later terminated by mutual consent through a settlement agreement signed on January 20, 2007. The settlement agreement did stop any of the parties from enforcing any continuing liabilities.

And as it soon became evident, the airlines had something up their sleeves.

East African Safari Air Express fired the first salvo. It issued a notice of its intention to wind up Jetlink Express Ltd for failing to pay a disputed debt of $902,143.

Jetlink promptly filed the present suit seeking from East African Safari Air Express to be paid $4,068,091.86.

Not genuine

At the same time, it filed an application to restrain East African Safari Air Express from "instituting, filing, lodging, advertising or otherwise prosecuting any winding up petition" against it in relation to the disputed debt.

Justice Festus Azangalala heard the application and in his ruling delivered on July 10, 2007, granted the injunction.

He was of the view that the notice seeking to wind up Jetlink was not genuinely presented but was meant to serve a collateral purpose.

East Africa Safari Air Express has since filed a notice of intention to appeal the decision.

The company was later to file an application to have the suit filed by Jetlink struck out.

During hearing of that application before justice Luka Kimaru, East Africa Safari Air Express claimed Jetlink’s decision to sue was a red herring.

"The suit was filed for the sole purpose of defeating the winding up proceedings the defendant had brought before court with a view to securing the payment of $902,143 it was owed by the plaintiff," the court heard.

Tax implications

Through lawyer Kimani Kiragu, East African Safari Air Express claimed the amount demanded of it was fictitious and fabricated to enable the plaintiff mount the present suit.

To support his contention, he tabled Jetlink’s financial statement as at December 31, 2006, that did not reflect $4,068,091.86 it was now claiming from his client.

The financial statement drew Jetlink into a spin and the court was entertained with a blame game.

First, the company blamed its auditors for failing to include the amount in its financial statement.

Its auditor allegedly advised not to include the sum because of tax implications and because the debt remained doubtful pending litigation.

However, the auditor, Sanjah Shah of W Gouder and Co. Auditors, denied the claims and instead said he asked the company to "include in the financial statement any debt that was legitimately owed to it". He further said he declined a request by the company’s financial and operations director Kiran Patel to include the amount because the company failed to show him documents in support of the debt.

The court was treated to more theatrics when Mr Patel denied Mr Shah’s claims. He annexed a copy of minutes of the company meeting and signed by one Elkana Aluvale, Shah and himself, where it was agreed to exclude from the financial statement the $4,068,091.86.

The counterclaim

Patel "darkly suggested" that the auditor had taken the position with a view to assist the defendant in its case.

The company, through lawyer Anthony Lubullelah too, produced in court Deloitte and Touche’s opinion on failure by Jetlink to include $4,068,091.86 claim in their financial statement.

The reason the balance was not shown on the financial statements was because the company had written down the counter-claim to nil in accordance with International Accounting Standards, the audit firm said. However, Justice Kimaru was not persuaded by the opinion.

darkly suggested

He doubted the validity of the claim and said it was improbable the plaintiff could have excluded from its financial statement $4,068,091.86, which constituted more than a quarter of its annual turnover for year 2006.

The judge said on the basis of the sequentially numbered invoices, he was convinced Jetlink contrived the huge figure to defeat the winding up proceedings that had been commenced against it.

He proceeded to strike out the suit for being frivolous and vexatious.

However, he declined to set aside the injunction barring East African Safari Air Express from making good its bid to wind up Jetlink.

—The writer ([email protected]) is Standard Group Associate Editor — Legal