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Commission of Inquiry
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Into
The Sale of the Grand Regency Hotel
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Chainnan:The Hon. Mr. Justice (Rtd.) Majid Cockar
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Commissioners:Mr. Charles Arap-Kirui, Mr. Kathurima M'!noti
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LETTER OF TRANSMITTAL
His Excellency the President
Hon Mwai Kibaki, CGH, MP
State House
NAIROBI..,.:
Your Excellency,
By Gazette Notice Nos. 6216 and 6217 of 10th July 2008 you appointed us as members of the.Commission to enquire into the circumstances leading to the sale of the Grand Regency Hotel with
specific tenns of reference which we have reproduced in the introduction to this report. You also
asked us to make various recommendations relevant to the tenns of reference.
We have carried out the assignment in tenns of Section 7 of the Commissions of Inquiry Act, Cap
102, Laws of Kenya, and now have the honour, Your Excellency, to submit our report to you. We
thank you most sincerely for the trust bestowed on us.
We are,
Your Excellency's most obedient servants,
The Hon Justice (Rtd) Abdul Majid Cockar
Chainnan
Mr Charles Arap-Kirui
Commissioner
Mr Kathurima M'lnoti
Commissioner
24th November 2008
,-- ,
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REPORT OF THE COMMISSION OF INQUIRY INTO THE SALE OF THEGRAND REGENCY HOTEL
CONTENTS
Chapter
ACKNOWLEDGEMENTS
1. INTRODUCTION .. .".
1.1 Appointment of Commission1.2 The origins of the Grand Regency Hotel Saga
2. HEARING OF EVIDENCE
2.1 Ministry of Lands Officials2.2 Kenya Anti-Corruption Commission (KACe)2.3 Public Procurement Oversight Authority
..
2.4 Valuers and Valuation Reports2.5 Receiver/Managers2.6. Kamlesh Mansukhlal Pattni2.7 Kennedy Kaunda Abuga2.8 Professor Njuguna Ndung'u
3. DISPOSAL OF HOTEL
3.1 The Three Consent Orders3.2 Differences Between KACC and Central Bank of Kenya (CBK)3.3 Libyan Arab African Investment Company Kenya Ltd (LAICO)3.4 Handover of Hotel to LAICO
4. ISSUES CONSIDERED
4.1 Was Hotel Sale a Government to Government Transaction?4.2 Was Transaction Transparent?4.3 Was Hotel Sold at Under-Valued Price?
5. ROLE PLAYED BY PERSONS NAMED IN THE GAZETTE NOTICE
5.1 Hon Amos Kimunya. MP5.2 Professor Njuguna Ndung'u, Governor of CBK5.3 Mr Kennedy Kaunda Abuga, Board Secr~tary of CBK
6. ROLE PLAYED BY OTHER PERSONS
6.1 The Prime Minister6.2 The Attorney General6.3 Hon James Orengo, MP, Minister for Lands
Page
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15
811141521222424
26414345
475055
586571
757677
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7. SUMMARY OF FINDINGS AND RECOMMENDATIONS
7.1 Summary of Findings
Hon Amos KimunyaProfessor Njuguna Ndung'uMr Kennedy Kaunda AbugaThe Grand Regency Hotel
7.2 Recommendations
79798080
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The Public Procurement and Dispo(al ActThe Central Bank of Kenya Act
APPENDICES
l
8081
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11
.
ACKNOWLEDGEMENTS
In discharging our mandate, we benefited immensely from the support and assistance of various
offices and individuals, who we wish to thank.
We thank the Cabinet Office for administrative support to t¥ Commissi~n, and the State Law
Office, the Judiciary, the Kenya Police, Administration Police mid other Government Ministries and.Departments for releasing their officers to serve the Commissi~n.
:={'
We express our appreciation to Counsel Assisting the CommiSsion, Mr Wilfred Nyamu Mati and Mr:..
Francis Etole, as well as the Secretary to the Commission Mr'Antony Oteng'o Ombwayo for their
hard work towards unravelling the circumstances leading to the sale of the Grand Regency Hotel.
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We appreciate the contribution of the many advocates who appeared before the Commission.
Their industry and excellent advocacy made the work of the Commission much easier.
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Nairobi Projector Services Ltd and Ark Point Printing Solutions Ltd deserve mention for
respectively recording of the entire proceedings of the Commission and binding the same into
volumes running to approximately 9,000 pages.
We wish to thank all the staff of the Commission for their dedication and commitment.
III
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II..-
SPECIAL ISSUEAPPENDIX "A"
),i~.
T.HE KENYA GAZETTEPubliShed by Authority of the Repeblic of Keuya
. . ..(Registered as aNe~spaper at the G.P.O.)'
Vol. eX-No. 54 NAIROBI, 11th July, 2008 P.rice SJL ~O
GAZETTE NanCE NO. 6216
TIlE COMMISSIONS OF INQUIRY ACT
(Cap: 102)
COMMISSIONS OF INQUIRY INTO TIlE SALE OF THE GRANDREGENCY HOTEL
.APPOINNENT
IN EXEROSE of .1211:powm eoDfemd by section 3 of !heCommissions or Inquiry Mt, I, Mwai Kibald, President IIIIdCOlllJ!Wldcr-in-Cbier of the Anned Forces or the. Republic of Kenya,being or the opinion that it is in the public intl:~st to do 10. appoint IIwnuniuion of inquiry to inqui~ into 'the BIlle.of the Grand RegencyHotel to be bead by-
Jumce (Rid.) Majid Caekat'.
as the OiaiJpcnon. and
Charles Kirui,
kathurima M'Inod.
III the Commissionm, md
Anthony Otmg!o Ombwayo.
as the Scc~wy tD !he Commission. ud. Wilfred NYanlu)fad.
tD be Counsel to ibe COIfll!lissiOIL
Dated the 10th July, 2008.MW AI KlBAKI,
Pnsidenr.
GA2'.E'IiENanCENo.62.17
TIlE COMMISSIONS OF INQUIRY ACT
(Cap. 1(2)
COMMISSIONS Of INQUIRY
CITATION
A COMMISSION 10inquirc into the sale of Grand Rellency Hotel.
IN EXERCISE of the powers conferrcd by section 3 of liteCommissions of Ii:Iquiry Act, I. Mwai Kibalci, President and
Comrnander-in-clJler of the Armed Forces of the Republic of Kenya,do direct me commissionen to bold: an hlquiry with immediate-effect.
I. The tenus of rd'erencc sball be 10-
(a) inquire into the circumstances lcading to the sale of the Gl1I.nd
Regency Hoyel;
(b) hiquire into the !tile played by the Minister for Finance, lite '
Governor of the C;ennl Bank Df K~nya, the CompanySecreta!')' ID the Central Bank of Kenya and any oth~r person(s)involved in th,e sale of the Grand Regc1u:y Hotel;
(c) perform any other task that the Commission may deem
~c:cssary in fulfilling the foregoinr tenn. of rcfcrencc;
(d) ~commend suc:h legal or administrative measUres as the
Commission may d~em necessary, and to report. its findingsand recommcndatiOll5 within one (1) month.
2. In the discharge of il3 DwUfate, ihe Commission may:'"
(D) JUCive view from members of the public and ~eive written
anellor on! sbl.temcnb f!tlm any person with n:levantinformation, an~ may-
(i) use any previous "=pdrb hi the matter, .
(Ii) receive e)[pert opinion in any relc:vant 1LlU$;
(b) detennine its nlles of pl'OCedu~ and develop its own won:phUl;
(c) publi.b its nile. of procedure in th~ Kenya Gar.ette;
(d) .unllnon any person or persons concerned to testify on oath
and to produce any b:ooks, vBlulllions or any other documentsthat the coounissionen may requi~;
(e) hold the inquiry In Nairobi;
(f) hold the inquiry in public lIut may hold private heBJings
whenever it becomes n~c:essuy.
3. The Commission shall have all the pow~n necessary ore)[pcdicnt ID effectively discharge its mandate, including the power torequire cD-OpCration from public officers from relevanr Jnsti tutions.
Dated the 1Oth.July, 20OS.
MWAf KIBAKf,President.
PRINTED A~ID PUB!.ISHED BY THE GOVE1L"IMEm PPJNTER. NA!II.OBI
[1 731
SPECIAL ISSUEAPPENDIX "B"
4 ..
THE KENYA GAZETTE. .
Published by Authority of the Reppblic of Kenya
(Registered as a Newspaper at the G.P.O.)
. Vol. eX-No. S8 Price Sb. SO 'NAIROBI, 22nd July, 2008
GAZEnE NanCE No. 6543
11fE COMMISSIONS OF INQUIRY ACT(Cap. (02)
THE COMMISSION OF INQUIRY INTO THE SALE OFGRAND REGENCY HOTEL
RULES AND PROCEDURES
WHEREAS in exercise of Ifte powers confem:d by Seedon 3 of IfteCommissions of Inquiry Act, IfIS Excellency Ifte President, by Orderdated 10th July, 2008, IUId published in Gazette Noticc No. 6216 of1008, ~inted a Commission to !nquin: inlO-
(0) the eircumsDulccs leading to the sale of the Grand Reseney
Hotc:!;
(b) the ro1e played by !be various, persons mentioned then:in and
any other personls In relation to the said sale,
AND WHEREAS the Commission was empowered 10 take 1111procedural step' that it may deem nccc:ss8!)', ineludinll any olfter 1aSb,
'n fulfilling the foregoing IJ:I1IlSoC n:fen:nce and to recommend such
- cgal or .dminillJatiye DlCUUres as may be nc:cessary,
AND WHEREAS'!be said Gazette Notice QlllIldaId !beCommission to n:'gulatc il! own procedure.
NOW TH.ERER)RE the Cornmiss~on mates !he Collowing Rulesof Procedure::
J. Nolhing in Ihese Rules shall be deemed to limit or otherwiseaffect all die pow en of the Commission nc:c:c:ssary for die properexeCution of its mandate as set out in die aforementioned GlW:tteNotice.
1. The Commis!lion shall sit on sueb days, and times and lit suchvenues as shall be determined by the Commission.
3. Subject to Rule 4 the hc:arlngs of the Commission shall be beldin.public.
4. The Commission may exclude any pc~n or elass of personsfrom .11 or any part of CheInquiry if satisfied Chalit is desirable so todo for the following rellSOlIS-
.
(0) al the request of any witness. jf the requesl is deemedreasonable; or
(b) the preservation of order; or
(c) die due conduct of tbe Inquiry; or
(d) Che prolcction of ILDY wllJlC&!lin the inquiry or any pencm. J:Cfern:d to in die course of the inquiry or the property eM'
repullltion of such witnCSII or person,
and may, if satisfied that it is desirable for' any of Che purposesafore:>aid so to 40, order that no person shall publish the name, addn:aor photograph of any silch witness or person or any evidence orinformation whereby he would or may be identified flVJl1.
S. Pt:rsons mentioned in the Gazette. Noti~ and any personadversely mentioned durina die inquiry IhaII have die right to beprc:scnt durin, all the pIO"c:dinJS that n:1att to Chern and all beenlided to lella! repn:scntation.
6. The Counsel assisting the Commission shall pruenl evidencerel.tina 10 IIUmatlc:n under inquiry.
7. The Commission shall serve on c:ach person mentioned in rul~.!5 hereinabove B hearing notice accompanied where possible by asummary of Che relevant evidenee and n:latcd documents. ir any,peninent to the Wucs under inquiry at lcut seyen (7) days hefon: Chedate of bc:arlng.
8. The. Commission may, at itll sole diJClCtion, summon any
.person or PCrsolU to testify bdo~ it on oath or to produce sucbdocumenlfs-. as the Commission may require:, and the person 10summoned .,.hall be obliged to attend and to testify on oath and orproduce the requin:d documenlfs and die provisions applying 10witnesses S!lmmnned by ordinuy courts of law JbaJI apply to IIIchperson.
9. The Commission shall not be: bound by Ihc proYisiolUl of theEvidence Aet but shall he guided by the ordinary rules of evidence andprocedure, including !be rules of natuBi jlUlice.
10. Persons mentioned in rule S hereinabove shall have the right to
cross-examine any Dr all witncUcs in the inquiry.
11. Pt:I3OM mentioned in Nle S bereinabove ahaIl be entidcd tocall evidence to rebut allesatioRS tnlde againBl. diem.
11. Where: any person l!ICIItioned in rule S hen:inabove is dulyserved with a hcaring.nolice and rails to attend in person or by counsel
or at all, the Commission shall be: entided 10 consider the eyiclcnceavailable and make a n:port and approprillte n:commencL:tions.
13. The Commission and Counsel assisting die. Commission shall
have power 10 cross-examine any witness called to give evid'ence.
f1829
SPECIAL ISSUE
THE' KENYA GAZETTEPubljshed by Authority of the Republic of Kenya.
(Rcgist='cd as a Ne:W3pllper al the:.G.P,O.)
Vol. CX-No..67Price Sb.. SONAIROBI, 12th August; 2008'
,
!
GAZEn1! Nonq; No. 7288
THE Q)MMISSIONS Of INQUIRY Acr
(Ozp. 102).
COMMISSION OF INQUIRY INTO THE POST-ELE-.'I10NVIOLEN~E EXPERiENCED IN KENYA AFTER: 1HE GENERAL;.
.""',: ~ONS HElD ON 27TH DECEMBER. 2007
'EXJ1!NSIONOFTERM
. 'IN' EXERCISE of .the powen; conf'e:~d by $Cction .4 of the
Cornmissioos of Inquiry Act, I, Mww' IObaki. Pn:sidenl and
Commander-in-Chie:f .of the Annc:d Rm:cs.of the: Republic of Kenya.havjng collSiderm Ihe progress of Ibe Commission appoinlt:d \licit!:Gai~tU: 'NoU;c No. 4414 of 2008. 10 inquire info lIIe post-e[ecDonviolence e:tpc:rienced in Kenya after the; Genel1! Eections held on21t1d)~ccmbcr. 2007. e;tICnd !be period within which the: Commissionshould report on hs findings 8IId r=ommc:nda1ions. so lIS ID require ittD report on or before 22nd September. 2008.
[)aJed the I2.Ih August. ZOO8.MW AI KIBAKI.
Prultknl.
GAZEI"I1! NonCE No. 7289
THE COMMISSIONS OF INQUIRY ACT
(CaP.. 102)
COMMISSION OF INQUIRY INTO THE SALEOFTIIE GRAND REGENCY HOTEL'
FJcTENsJON OFTERM
IN EXFRCISS of the: powe:T'IIconfe:rred by scclion .4 of theCommissions of. .Inquiry Act, I, Mwai Kibaki. Pm:idenl' and
.
Commandc:r-in-Chid of the:Annc:d Forcesor the Republic or KeIlYa,
having con$ide:red Ibe p'rogress of' the Commission. appointed !/ltkGauttc:'Nolicc No. 6217 of 200~. ID inqnin: into the sale of die GnndRegency .Holel. exicnd die periQ!l widlin whicb the Commissionshould ~port on its findings IUId reeonuncndalions. so as fo RqIIin: itto rcport on or boron: 1orb Septel'(lber, 2008.
.
, Dalt:d die 11Ib.Aupst. 2008.
MW,(j KIBAKI.
,P'flrihrll,
G.unnNGnCE No. 7290
THECO~SSIONS OF INQUIRYACT
(Cop. 102)
COMMISSION OF INQtITRY INTO' TIlE SALEOFTItE GRAND REGEN'CY HOTEL
.
AJdENDMENT
RJRTHER to Ib.e Commission or Inquiry appointed by fI1CthrouahGazelle Nolice: Nos. 6216 and 6217 of 2008. I. Mwai Kibaki, Presiden!and Commande:r-in-Chie:f of die Anned Farces 0( die Repubiic
o(
Kenya appoiDt-.
FRANCIS Blt?L£
u addilionol Counsel to .assist lIIe Commission.
.Daled the I lib. ~Ulust, 10OS.
MW AI KlBAKI.Prultkrll.
PRINTED l,ND PUBUSHED BY THE GOVERNME.o.rr PP.!NTS!!. N !ROI!I
[2083
i-
SPECIAL ISSUE'APPENDIX "D"
,~
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".,". I'.
.0110
TH£ KENYA GAZETTE..... Published by Authority. of the Republic of Kenya. .. ~ ~
. ,~gistcred lISa Newspapera~th~(j ,P..!i>. -.
d. eX-No. .74'. Price Sh. 50
'NAIROBI, 12thSeptenib~i:',,2008
GAZETi1? NOT1CE No. 8661
THE COMMISSIONS pF DiQUlRY ACT
(CaP;IO~) ,
THE cOMMISSION OF INQuIRy INTI), tHE POST-ELECTION,.
,' VIOLENCE:'
,
- ExTENSION OFTIME...
IN EXERCISE of the powers conferred by scctio~' 4 of theColDIfiillSioDs of Inquiry"Act, 'I, t4Wai KibUi, President andCommander-in-Chief of the Annc4 Fo=:i of. the Republic of Kenya.
extend the period within wbicJl the Co!11lnissiDn Df In,quiry ;tppointed~y me thro\Jih Gazeue NDtices NO's. 4473 and 4474 Df 2008, ahouldRport on 1111findings IIIld ~commendatioDS. 10' u require ,it to sorepOrt not later-than the 16th Oetobcr.1008.
Dated the 11 th September, 2008.
. MWAI KlBAKl.Pruident.
~..
GAZEmNonCENo. 8662
THE COMMISSIONSOF DiQUlRY ACT
'(Cap. 102),
THE COMMISSIONOF INQUIRYINTO THE SALEOF,GRANDREGENCY HOTEL
ExTENSION OF TIME
'IN EXERCISEof the powerseonferredby stcriDn4 of theCommissionsof Inquiry Act, I, Mwai Kibaki, President andCommander-in-Chief of the Anned Forees of the Republic of Kenya,
havinl considc~d the progress of ~e Commission appointed videGazette Notice No. 6217 oC 2008, to inquire into !he sale oC.the GrandRegency HOIeI. further extend the period within which llieCommission should report on its findings and ru.ommendillions, so lIS
to require it to report on or before 30!h September, 2008.
Dated the 11 th September, 2008.
,
MWAI KlBAKl,Pruldlnt.
GAiEmNdn~ENO. ~ . .. ~~
,. .:. .~ ;'."':. ~': '.
THE eGERTON U~FR~fIY ACT(Cap.ll4)
.
", . , ."'.'.", Tl;lBj:JIDKA,tmIV~~~:QlU)ER. 2007
,;(LN..161'of:2007)
"",."
API'OINTMENT ." '..
IN EXERCISE of the powe~ 'conferred by,section II (I) (a) of the.Chub University College, Order, 2007..1. ~wai Kibaki. PrcsidenlllndCommander-in-Chief of die Amied Forces.of the Republic oC KenYII,
ap~int-"
"
WUfred Murunai (Eng.)-(ChDinnan),JOM S..,~~ya.-:-(Vlci-C~)..
!D be meml:ii~ .of the O1uka Uoivemity Collese Council. for a periodof three (3) yean. .
Dated !he 8th September, 2008.MWA[ KJBAKI.
Prt!sidt!nt.
GAZE11'ENoncsNo.8664
THE JOMO KENYA ITA UNIVERSTTY OF AGRICULTURE ANDTECHNOLOGY ACT, 1994
(No.8 0/1994)
THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGEORDER, 2007
ApPOINTMENT
IN EXERCISEof the powers confemd by section I] (I) of-theMombasa PolytechnIc University College, Order, 1007,
[, MWlli
Kibaki, President and Commander-in-Chief of the Armed Forces ofthe Republic uf Kenya, appoint-
Abdul H. S. 8Usaidy (Prof.)-(ChDirmon)Mugo Kibati-(Vict!-C/ulirmon}
to be memberi"' of the Mombasa Polytechnic University ConeseCouneil, for II period of three (3) years.
Dated thei 8th September, 1008.MWAI KIBAKI,
Presldtml.
[2399
!1
! SPECIAL ISSUE
APPENDIX ~~E"
. .
THE KE_NYA GAZETTE:published by Authority o~the ~epublic or Ke"nya
(Registcn:d as a NeW5pB~r at the G.P.o.)
=?
:.vol. eX-No; 80.. NAJ;ROBI, 3rd October, 20()~ Price Sh. SO
I .
,GAZ.E""fTENanCENO: 9417
tHE COMMISSIONS OF INQUIRY ACT
(Cap. 102)
COMMISSIQN OF INQUIRY INTO THE SAL.E 9F G:RANDRffiENCY HOTEL
I
E:crENSIO~ OFTIME
IN EXERCISE of the powers confe:JmI by secli~n 4 of the:.
Com.missions or Inquiry Act, I, Mwai Kibaki, President andCommlmder-in-Chief of Ihe Anned Forces of Ihe Republic or Kenya,having conside~d the progress of the CQ""miSliion
appointed vide
Guette Notice No. 6217 of 2.008. 10 inquire in~ thc sale of GrandRegency Hotel. funher eXlend the' period' within 'which 'the:Commission should n:port on its findings and ~cOmincndalions. so lIS10 requiit ino icport on or before 31 sl OClopc:r, 2008.
Daled Ihe 30th Sc:ptembcr.20OS.MWAI KJBAIG.
PresidefJl...-,....
"I
..."
[2565
PRINTED AND PUIJUSHED BY THE GOVERNMENT PRImER. NAIROBI
1SP'~CIAL ISSUE
~I
APPENDIX "F"
~
~-
;
THE KENYA GAZETTE
v'ol. ex - No~ 87 .
~.
,
.,
Published by Authority of the Republi~ of Kenya"
.(Regislered as a Newspllper at the G.P.O.}
NAIROBI, 31st O~tober, 2008...:. :::
;.
4 j,- . .
GAZEITE NanCE No. 10321
THECOMMTSSIONS Of..lNQUIRY ACT
(Cap. 102)
THE COMMISSION OF INQUIRY INTO THE SALEOFTHEGRAND REGENCY HOTEL
ExTENSION
IN EXERCISE of the powers eonfern:d by sectiCl/14 of IhClCommiSsions of Inquiry Act, I. Mwai Kibaki. President ~ndCommander-in-Chief of the Armed Forces of the Republi c of Kef\.ya.Mving mnsiden:d the: progress of the" CommissiOn appointed I'[deGautle Noli" No. 6217 of 1008, tQ jnquh~ into the: sale of the GrapdRegcncy Holel. further cl{wnd thl! p:riad within which I~e
"
Commission should report on ib findings and ",commcndatioM, ~p !\Ii10requi~ it to report on or before 14th November. 2008,
"
Dated !he 31 It October. 2008.MWAI KIBAKJ.
Pre:r(denl;
PlUNTED AND PUBUSHED BY THE GOvERNMENT PRINTER, fHIROHI'
",,'(!;.'I.!.
Price Sh. 50,}
[2823
'.~~'i~;:;'--"" I~ !i-"'~;(o
NO. NAME TITLE ..
CW 1 Zablon Agwata Mabea Commissioner of Lands
CW2. Jasmin C. See Legal representative - WestmontHoldings Co.
CW3 Anthony Mateng'e Itui Government Valuer
CW4 Simon Gichuru Gikonyo Acting Assistant Commissioner ofLands
CW5 Mr. Fredrick Ondoko Registrar of LandsLubulellah
CW6 Mr. Fredrick M. Wanyonyi Registry Superintendent
CW7 MIS Rosina Ndila Mule Senior Registrar of Titles
CW8 David Wambua Masika Valuer
CW9 Didacos Nyaga Nkoge Valuer
CW 10 MIS Fatuma Sichale Assistant Director KACC
CW 11 Mr. Wilson Muiruri Deputy Deputy Registrar High CourtRegistrar High Court
CW 12 Polyn Wanja State Counsel
CW 13 Robert R. Hunja Interim Director Public ProcurementOversight Authority
CW 14 Patrick Maina Kamau Receiver Manager Ernst & Young
.-- '
APPENDIX "G" r
COMMISSION OF INQUIRY INTO THE SALE OF GRAND
REGENCY HOTEL
LIST OF WITNESSES .~..
. .
1
!~i~ .-
,-'.",'.'.-~:I' ~ 'LJ"I'"_""''''!,,~~.h[~':'''-:'';';'~.~~~~I!';'~..:~''I>-~'::':,..s:J';':~.
NO. NAME TITLE
CW 15 Peter Ndaa Joint Receiver
CW 16 Kamlesh M. Pattni Businessman
CW 17 Joseph Kimutai Kittony Receiver Manager.
CW18 Mr. Kennedy Kaunda Abuga Legal Secretary Central Bank ofKenya !.
.CW 19 Hon. James Aggrey Orengo Minister-for Lands
..CW20 Prof. Njuguna Ndung'u Govern~r CBK
. .
CW21 Mr. Timothy Njehia Crystal Valuers Ltd
'"<
l'1~I
II
2
III
III""..
I APPENDIX "H"
;,I
~COMMISSION OF INQUIRY INTO THE SALE OF GRAND!~t
REGENCY HOTEL
LIST OF EXHIBITS
...- .,
.NO. CONTENTS .. VOL.' PAGE.
!4
1. Title Deed 1-"2F 60-64
..
2, Memo from Minister to Commissioner 2F 22-23
3. Memo from Commissioner to PS Lands 2F 24-26
4, Memo to Minister from Commissioner of Lands 2F 27-29Thro' PS Lands
5. Memo from Minister of lands to PS Lands 2F 30-31
6. Statement of Commissioner of Lands Vol. 1 1-3
7. Statement of Jasmine C, 2e 1-4
8. Sale Advertisement of Grand Regency Hotel 2e 46
9. Valuation by Harold H, Webb & Partners 2e 49-51
10. Letter from Murgor & Murgor Advocates to Mr, K. 2e 9
Pattni on out of Court settlement of H.C.C.C No.29 of 1995
11. Sale Agreement between Pansal & Westmont 2e 13-30Holdings
12, Payment Voucher 2e 34-39
13. Letter dated 12.5.97 from Kapila Advocates 2e 33
III
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,:1-.
NO. CONTENTS VOL. PAGE
14. Letter by Mr. Kamlesh Pattni 2e 12
15. Letter dated 20.5.97 from Murgor Advocate 2e 43
16. Letter dated 21.5.97 Kapila Advocate 2e 45
17. Letter from Westmont Holdings SON BuUding 2e 47-48dated 18.7.1997 to Central Bank of Kenya.~.
18. Power of Attorney.
2e 5-8.
19. Letter from Kamlesh Pattni to Westmont Land 2e 53-87Berhad dated 12/12/1996 to
20. Statement of Mr. Anthony M. Itui 1 8-9
21. Statement of Mr. Simon Gichuru Gikonyo 1 32
22. Letter from CBK dated 18.6.2008 2e 9
23. Land Rent) Invoice, pay-in-slip, receipt and 2f 5)6,7& 8clearance certificate
24. Valuation form for Requisition of Stamp duty 2f 13
25. Statement of Mr. Fredrick Ondoko Lubulellah 1 6-7
26. Stamps Identified by Mr. Fredrick Ondoko 2f 27-57Lubulellah
27. Statement of Mr. Fredrick Wanyonyi 1 22-23
28. Valuation Report on Grand Regency Hotel 2f 68-75produced by CW No.3
29. Letter dated 21.1.08 from CBK to Llyod Masika 2(g) 88
30. Llyod Masika Valuation Report 2(a)
31. Letter to value Zone dated21/1/08 2(g) 90
,--- - -..--
2
NO. CONTENTS yOlo PAGE
32. Letter to Value Zone dated 20.1.08 2(g) 89
33. Valuation Report from value Zone 2(b)
34. Coat Hanger
35. Video Clip. . .
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~36. Documents from KACC .2H.'".
37. Letter dated 29.10.04 from KACC to Murgor & ..Murgor Advocate :2g 64a-64b
38 Consent file HCCC NO.589 of 1999
39. HCCC 589/99 (8 volumes)
40. Certified copies of proceedings in HCCC 589/99
41. HCCC (os) 1111/03 2H 11-15
42. Letter to Chief Justice from Harit Sheth dated 2M 85-8925thApril. 2008
43. Letter from Harit Sheth Advocate to Mr. Amos 2M 90-91Wako - the A.G. dated 25.4.08
44 Daily Nation cutting dated 19.4.08-
45. Nation Newspaper cutting dated 19.4.08
46. Business Daily cutting dated 23.4.08
47. Standard Newspaper cutting dated 23.4.08
48. Letter from Hon. Justice Aron Ringera to GovernorCBK dated 2/5/08
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49. ReceJpt No. 1912269 of 7/4/08 RlNo. 13935810f07/4/08 HCCC 1111/03
50. HCCC Misc.lApp NO.1111of 2003 file 2k (J)
51. Libyan Arab African Investments Co. (K) Ltd file 2c".,
52. Letter from P. K. Muite Adv. dated 13.5.08 ."'..
53. Printout on UHDL company ., 2f 7;
II.
54. Company details for UHDL. 2f
55. Letter dated 16.7.08 to Registrar of Companies
56. Letter dated 28.7.08 to Registrar of companJes
57. Status Report of grand Regency Hotel by Ernst & 2 (d)Young.
58. Statement of CWXIII- Mr. K.K. Abuga 1 10-14
59. Statement of Mr. Robert Hunja
60. Appointment letter of Ernst & Young as Receiverdated 9/4/08 by the CBK.
61. Certificate of Registration of particulars for LaicoRegency Hotel Nairobi.
62. Handing over letter dated 18.7.2008
63 Certificate of Registration of a charge of particularsLAICO RGENCY HOTEL.
64A Report & Accounts for the year 2003
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NO. CONTENTS VOL. PAGE:
8 u u for the Year 2004
C u u for th e Year 2005
D It It for the Year 2006
65. Signed Audrted report for the year 2002.' "!.
66. Statement of Peter Ndaa:- CW XV ....67, Correspondence and audited report brougtrt by
Peter Ndaa CWXII .,-.
~68. Schedule of Grand Regency Hotel by the JUbileeInsurance Company of Kenya (Ltd)
69. Documents from KamJesh Pattni -
2J (i)70. 3 Cheques dated 4/3/1994,31.3.94 and 15/4/1994
- 15.4.94 - Ksh.2.5 billion
71. Statement of Kamlesh M. Pattni I 33-37
72 Plaint in HCCC No.1253/1997
73. Decree in HCCC No. 1253/1997
74. Report by former Assistant Commissroner of PoliceJ Kimundi
75. Newspaper cutting of East African dated 25~ June,2007 - 1sl July! 2007
io
76. Documents from Kamlesh M. Pattni CWXVI 2J (ii)
77. Documents from Kamlesh M, Pattni CWXVI 2J (Hi)
78. Report by Mr. Joseph Kittony (CWXVII) 2M
79. Mr. Kennedy K. Abuga statement 1 10-14
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NO. CONTENTS VOL. PAGE
80. Further statement for Mr. Kennedy K.Abuga
81 Documents from Central Bank of Kenya 2G
82. Documents from Hon. Minister James A. Orengo 2N
(MP) ..['..
83. Nation Newspaper cutting dated 8.7 .08
84 Press release by African Investment Portfoliodated 7.7 .2008
85. Nation Newspaper cutting dated 30.7 .08 '.
86. Daily Nation Newspaper cutting on Bank Ratesdated 6.5.2008
87. HCCC No. 29 of 1995
88. Kenya Gazette No. 1238 of 2003
89. Letter dated 22nd October, 2004 from Murgor &Murgor Advocates
90. Letter dated 2.10.2006 from Grand Regency Hotelto KACC, CBK and UHDL
9"" \ Letter dated 19.3.07 from KACC to Murgo & MurgoAdvocate.
91.8 Note forwarding letter dated 19.3.2007
92. Statement by Professor Njuguna Ndung'u . 1 15-21
93. Letter dated September 13,2007 by K. Pattni
94. Letter of instructions to Crystal Valuers Ltd.
95. Statement of Mr. Timothy Njehia
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NO. CONTENTS . VOL. PAGE
96, Report by Crystal Valuers Ltd. 2P
97. KSh.lUS & Exchange rate by CBK
98. Swift output statement 9.9.08 (30497)
99. Swift Output statement -10.07,08 (30627).I .. ..'.rf
100. Swift Output statement - 11.07.08 (30801""J
I101. Company Profile of Crystal Valuers
102. Copies of Logbooks of Vehicles valued by-Crystalf:.i ValuerI
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APPENDIX "I"
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"PROPOSED INYESTMENT PROJECTS BY LIBYA
AFRICA INVESTENT PORTFOLIO (LAP) IN KENYA
UNDER ACTIVE CONSIDERATION
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1. OIL't
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T~e meeting agreed that two experts from Tamoi1 ofLibya will t~avel to Nairobi in the \veek starting June18, 2007, for a meeting with National Oil CorporationofKenya (NOCK), and the Ministry of Energy to 'workout modalities for oil supply to Kenya at agreed prices.The proposed meeting will among other things, agreeon the quantities of refined petroleum fuels and crudeoil to be supplied by Tarnai! and the applicable terms.Anticipated volume of oil supply to Kenya will be
between 30% 811.d 40% of Kenya' s demand.. ..
2. LIQUIFIEDHANDLINGMOMBASA
PETROLEUM GAS IMPORT
AND STORAGE FACILITY IN
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The meetiI;1g observed thatconsumption of LPG in
Kenya, which stood at more than 64,000 tones in 2006,was constrained by lack of adequate handling facilitiesin Mombasa. The meeting further noted that8nangements for construction of 6,000 tone. modularLPG facility through 0. public private partnership wereprogressing well. The proposed Joint Venture company(JVC) is. currently being spear headed by Kenya
Petroleum Refineries LilTlited (KPRL), a 50% .KenyaGovernment owned company and the. Kenya Oil
pipeline Company (KPC), a 100% KenyaGovernment
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.owned company. Tamoil, which is turrently holdingdiscussions' with KPRL on its participation, expressedits desire to hold 51°icJ of equity in- the JVC. Themeeting agreed that the level of.~ Tamoil's equityparticipation will be revisited. .
UPGRADE OF THE OIL REFINERIES (KPRL)
Tamoi! was informed of the Kenya government'sdecision to upgrade the oil refineries with its currentshareholding remaining" at 500/0. Tarnai! was' furtherinformed that a consultant has been hired to updatethe cost of' the upgrade which had been estimated atU8$270.0 million three years ago. The consulta.ntsreport is expected to be submitted by September 200'(.Tamoil was also informed of the decision by the currentshareholders to. sell their. entire equity to newshareholders.
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_.n response, Tarnai! expressed its interest to participatein the upgrade but will indicate its lev~l of commitmentafter submission of consultants rep9rt. Tarnoi! alsostated that there ;was need to provide .protection to theoil refineries for a period of ten (10) ye~rs to ensure fullamortization of the investment. This position wasagreed on.
4. CONSTRUCTION OF NEW MOMBASA - NAIROBI..'
OIL PIPELINE
A petroleum demand study will commence in July 2007to determine oil requirements by Kenya and other land
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,locked countries for the next thirty {30), y.ears. The
study is meant to provide critical information: on a newpipeline to be constructed betw~en 'Nairobi andMombasa. This is based on the as~umption that thecurrent upgrade on Mombasa-Nairobi Pipleline willmeet the demand for the next seven y:ears.
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Tarnai! expressed its interest to participate as a majorequity partner in this project jointly with KPC on termssimilar to those of the JVC project, for the Elqore-Kampala Pipeline on which its equity is at ieast 51 %. Itwas agreed that Tamoil's request will be consideredonce the study is completed and its findings accepted.
5. ICT PROJECTS
a) TELKOM.I{ENY A
LAP, has expressed interest to the Kenyanauthorities. in participating as a strategic .partnerthrough the 'on-going bid process.
b) THE EAST AFRICAN MARINES SYSTEM
A fiber' optic cable will be constructed betweenMombasa and Fujaira in the Middle East at anestimated cost of US$lOO million. The currentpartners are Ke1J:ya government and Elisalat ofUAE. However, it is envisaged that the futureownership of the company will be as follows:
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. Government of Kenya will. consider limitings~areholding to maximum of 200/0 perpartner. .
. LAP Green Com has expressed interest totake up to a Ma...~imum of 20% shares.
. Other partners are being sought by theGovernment qf Kenya through transactionadvisory services provided. by StandardChartered Bank.
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6. GRAND REGENCY HOTEL
LAP expressed an interest to the Kenyan authorities topurchase the hotel. The Kenyap authorities agreed to'consider this request.
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. Ho i uMinIster for leRepublic of Kenya
Dr.- Bitange Ndemo
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Permanent Secretary -Ministry of Information & A \.:\."\..
Communication of the Republic of Kenya'-
all the parties on 5t~ June, 2007 at Sirte in"'
rHalia
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CONFIDEN1-iALAPPENDIX "J"
STRICTLY PRIVATE AND CONFIDENTIALBRIEF ON THE
GRAND REGENCY HOTEL
A. B rid Dac1(ground:
a) In 1993 the Central Bank created a legal Charge [or 1(shs. 2.5BiHion over the Grand Regency Hotel in an attempt to secure
funds that had been illegallysiphonect,.thr(:H1gh Exchange Bank
during the in famous Goldenberg saga. .'
b) The validity of the charge and the ownership of the Hotel has beenthe subject of protracted litigation in the High Court find the Courlof Appeal involving amongst others Kenya Anti - CorruptionCommission, Kamlesh Pattni, UhUl:U' Highway
Development
Limited and the Central Bank ofJ(enya;
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Since 1999 when the Bank's appointedReceiver Manager 1\11'. .
Joseph Kittony was removed by the High Court and rep\a.ced withReceivers appointed by the High Court and who were syn1patheticto Kamlesh pattni, the Bank has not received a single penny fromIh,,-Ji!'1lel. During Mr. Kittony's lerm as Receiver
Man"ager-the
Central Bank recovered a sum in the region of Kshs. 460 Ivlil1ion[rain the operations of the Holel;
. c)
d) 1ndeed, through the abuse of the Court process, the Bank has overlbe years been lotally locked oul of the management of the Hotelthrough Court orders and injunctions. The Bank has also paid outmillions of shillings in legal fees to the lawyers acting on behalf ofthe Bank in the many court matters ,surrounding the Hotel.
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e) In 2004 Kenya Anti CorruptionCommission and Uhul"lI
Development Company Limited, -by a Consent Court Order
appointed Mr. Peter Ndaa and Mr. I-I. \V. Gichohi as the JointReceiver lvtanagers [or the HoleL The Central Bank a f Kenyabeing the Chargee was not consulted/involved in the appointments;
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Since appointment, the two Joint Receiver Managers have spent alltheir time fighting one another and overseeing looting at the Hotel.lL is an undisputable fact that the once five - star Hotel has beenrun down completely;
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g) In view of the problemsbedeviling the Hotd and the
important
fact that the Bank asChargee has not been
involved in the
management of the Holel...nd has not received a singlepenny from
the operations a f the Hotel since 1999, it became
necessary - in the
Bank's own interest and in the generalpublic's interest that the
Bank'takes'urgent and decisive steps in the matter.
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B.! Valuation ofHote\: ~
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a) The Hotel was last valued in 1997 wh~n it was fom1d to ha\'e an. .
open market va lue 0f Ks hs. 2.1 13ill ion, as a go; ng concern.:
b) In February 2008 the Bankinstructed J:.loyd Masika and Company
Limited and Valuezone Limited, two 'fllms in the Bank's pre -
qualif,ed panel of valuation flIl»S, to value the Hotel and advise theBank on the Hotel's cmTent open market value. It was necessary toappoint two independent valuation firms to unde11ake the exercise
in order to provide the Bank with reliable and
independent
comparative fIgures.
Lloyd Masika and Company Limite.d returned a value of Kshs.
1,754,300,000.00 of the Hotel as a going concemwhile Valuezone
Limited retumed a value oflCshs.1,620,000,000.00.
Still keen to ensure that a realistic open market value of the Hotelwas asce,1ained, the Bank sought the assistance of the NationalI-lousing C0111orationwho suggested the name of another value to
look at the two valuationrep0l1S received by the Bank and give a
fm1her independent opinion. Consequently, the Bank consulted the
recommended valuer, Mr. T. P. Saruni of ArkConsultants Limited
who inspected the property andappraised both reports before
. returning an open market value of the Hotel as a going concern of1(5hs. 2,17,5 Billion.
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Detai Is a f the three Reports and Valuation 0 f the Hotel are as fa \\0ws:
Lloyd Masika Limited
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) i) Leasehold Land Kshs. 500,000,000.00
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ii) . Buildings and Site,works .K8hs. 850,000,000.00
iii) Plant and Machinery . Kshs. 344,800,000.00
iv) Furniture, Filting and Equip Kshs. 59,500,000.00!
To tnI Kshs. 1,754,300,000.00
Vnluezone Limited
i) Leasehold Land Kshs. . 500,000;000.00
ii) Buildings and Site works Ks11s: }l ;000,000,000.00
iii) Plant and Machinery Kshs. 75,000,000.00
iv) FU111iture,Fitting and Equip ~1S. !45.000.000.00
l_.'Totn I Kshs. ',] .620,000,000.00
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Ark Consultants Limited
f" i) Leasehold Land Kshs. 600,000,000.00
ii) Buildings and Site works Kshs. 1,150,000,000.00
iii) Plant and Iv1achinery Kshs. 350,000,000.00
iv) Fumiture, Fitting and Equip K5h5. 75,000,000.00
Total Kshs. 2) 75,000,000.00
C. Central Bank's Security:
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It should be noted that lhe Bank does not have a Debenture over the assetsof the Hotel. It only has a Charge over the land and buildings. Strictlyspeaking therefore, the value of the Bank's security over the Hotel is theaverage of Kshs. 1.350 Billion (Lloyd Masika Limited's valuation for Land,Buildings and Site works) and Kshs. 1.050 Billion (Valuezone Limited'svaluation for Land, Buildings and 'Site \'\/o1'ks) and Kshs. 1,750 Billion (ArkConsultants Limited valuation for Land, Building and Site Works).
D. Extcnsive Consultations:
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a) In view or the limiting nature of the Bank's security and consideringthat the Bank has been engaged in fruitless, protracted and costlylitigation "'lith Kamlesh Pattni for the past 15 years, in Seplember2007 the Bank opened consultations with Vletangula, Adan andCompany, Advocates for UHDL and Kamlesh Pattni with a viev,1 toexploring ways 0 r removing the joint Receiver l\1anagers and disposal
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of the Hotel. Welangula, Adan and Company Advocates wereintroduced to the Bank by Kamlesh pattni vide a letter dated
13111
September, 2007. The letter of introduction "."asalso copied to the
Attorney General.
.b) As a major stakeholder, KACC has also been involved in the;.consultations. Also [1.111yinvolved in the consultations have been theMinister for Finance, the PS Treasury and),theDirector) KACC..'"
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Following the consultations, onglh April, 2008.~,KACC and Kam\esh Pattni
. recorded a Consent Order in Comi for the rer.novalof the Joint Receivet'
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I\1anagers over the Hotel and the handing ove~: of the Hotel to the CentralBank. As a consequence thereof, the Central Bank appointed the reputableand professional fiml of Ernst and Young as iReceivers Managers for theHotel-. They have been running the Hotel for the-past two weeks.
E. Central Bank Board Resolutions:
During a Board meeting held on7'11April, 2008, the Central Bank o[ Kenya
Board was fully briefed on the progress in the matter. On the way forward,The Board revolved that Management should, inter alia:
1. Continue liaising with a11other Government agencies involved inthe Grand Regency Hotel matter, including Kenya Anli -Corruption Commission, the Attorney General and Treasury with aview to coming up with a quick and fmal resolution of this longoutstanding matter.
2. In view of the various pending Court cases challenging the Bank'scharge over the Hotel, Iv1anagement is authorized to consult withthe lav.ryers of UHDL, on a strictly'without prejudice basis, \1,/ithaview to obtaining the co-operalion of UHDL in the recording ofsuitable orders in Court to facilitate removal of the joint ReceiverManagers, appointment of a Receiver by the Bank and subsequentsale of the Hotel and recording of Consent Settlements in Court asappropriate in any other pending matters between the partiesinvolving the Grand Regency HoLeL
..,,J. Source for buyers [or the Hotel at ~ price which should not be less
than the average. cUITcnL open market value of the Hotel, as
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determined by the valuations of the three valualion firmsaforementioned and to proceed to enter into agreements for the sale'of the Hole] with UHDL ~mclany em-marked buyers.
F. Tal(c Ovcr of Hotcl by Ccntral Bank:
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It should be clarified that the registered legal owner of the Hotel is UhunlHighw"y Development Limited. The interest of the Bank in the Hotel is the
IegaI charge registered in 1993. Notwithstand ing the comments by Kam leshPattni during the handing over occasion, what actually was handed over tothe Hotel on 9'h April, 2008 is management of the Hotel which the Bank lostin 1999 v,Ihen the Bank's Receiver Manager v,'as removed by the HighCourt. Uhuru Highway Development Limited still remains the regist~red'owner of the Hotel. Most of the people who have commented on the matterappear to be ignorant of this critical legal fact.
As the property is not registered in the name of the Central Bank, issues of
.
the Bank breaching the Public Procurement AND Disposal Rules Rules ashas also been alleged by some commentators do not arise at all. In any 'ev~nt,even if the Bank as Chargee were to sell the Hotel pursuant to the Bank'sstatutory power of sale, issues of Public Procurement and DisposalRegulations would still not corne into playas the Public Procurement'Regulations do not apply in such circumstances.
G. Future of the Hotel:
The Central BankJs mandate does not extend to the running of anycommercial business tlnd hence the CBK wishes to dispose off the Hotel at
.
the earliest opportunity.
Ncmelheless, the Cenlral Bank does not wish to se.lI the J;1.o.t<;I".ai.re,s.~:......pursuant to Its statutory power of sale due to the followmg reasons:.
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a) As pointed out earlier, the BankJs security covers land and.buildings only. The Central Bank does not have a Debenture ovel:the assets of the Hotel, if the Bank is therefore to sell the Hotelpursuant to its statutory right of sale, the Hotel wi II not be sold as a .going concell1 and hence will attract a very low price;
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b) The Hotel employs more than 400 Kenyans. The livelihood ofthese Kenyans will be in jeopardy as they will all loose their jobs ifthe I-1olel is not sold as a going concern and the Central Bsnk sellsthe property pursuant to its statutory power of sale;
c) The Hotel has various pending labour and other disputes betweenits current and previous v.,�orkers.The Central Bank does not wishto be involved in such disputes as they may end up to be costly;
d) Notwithstanding the handing over of the management of the Hotel)
legal ownership of the Hotel is still with Uhuru Highway'Development COl1lprmy Limited, Any attempts therefore to sell theHotel without the involvement or the registered owner willlc:\l}u the
Central Bank in Court where it has been in the past IS years.
Due to the above reasons, CBK considers that it \vill be strategic and ofnational interest that the legal owner of the Hotel i.e. ill-IDL sells the Hotelto an interested investor on the strict understanding that the entire purchaseprice, to be determined by CBK, will be paid directly to the Central Bank. I~so doing:-
a) The Holel will fetch a much higher price as it will be sold as agOing concern;
b) The jobs for the more than 400 Kenyans working at the Hotel willbe safeguarded;
c) The Bank wi!] not entangle itself with the labour and other disputes.at the Hotel;
d) There will be no possibility at all of the legal owners of the Hotel'
.
eha llenging in Court the sale 0 [the Hotel... ..\..:: "'. .:: ,- .~J~".'.
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H. Prospecti\'.c Investors:- ~
In the recent past, the Libyan GovelTunent has been keen to invest in. thecountry. Indeed) Libyan companies have already invested in the oil industi"y<and are very eager to have a foothold in the hotel industry. In this regard,
.
consultations have been on going, at the highest levels of the two
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governments, where it has been agreed that Libyan investors be encouragedto purchase the Grand Regency Hotel when the opportunity arises.
Consequently, [oil owing a visil by I-IE the President to Tripoli last year,Libyan investors made contact and expressed a desire to purchase the Hotel.Although the Libyan investors would have liked to buy the Hotel as a going.conCell1 and at its cunent market, CBK has pushed for a net price ofUS]j 45.Jv1illion. The Libyan investors have agreed to this net price which wasnegoliated at the exchange rate of Kshs. 70,00 to the US dollar. It istherefore lhe wish and desire of the CBK to move swiftly and ,conclude the
deal.
~ ~-,-.I 1. Reaction to negative mcdi~\ commcnts:
The consultations and negotiations surrounding the issue have beenhandled in a very discreet and strategic manner in order 10 keep outwheeler dealers and busybodies. Having been caught fiat footed,
'
they are 110\'>/fighting back by alleging a scandal where there is
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absolutely none.
b) Allegations that the hotel has been sold for Kshs. 1.6 Bi1.lion ar'e' .
misplaced and speculative.
a)
c) As confirmed by the Valuers commissioned by the Bank, the,''.
highest value of the Hotel as a going concern is Kshs. 2.1 Billion-.
as indicated above and therefore nowhere near the ridiculous figure'of 7.5 Bill ion bundled by the Nation Newspaper.
d) The Hotel as been a milking cow for many over the years. No.wonder that the Central Bank has not received a penny sin~e 1'999. :For instance, hundreds of millions of shillings have been paid tolawyers as legal fees in the many suits surrounding the Ho'te!',pending in court. As expected, the
beneficia'rie§...~~.!'tJ\ne-ri':'m:rti::;:.,'.: .
viciously fighling back. It is not public interest at play but,' ra\~:'~':
personal greed.
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e) Comments made regarding ownership of the Hotel and alleged,breach of Procurement Rules are made either deliberately to distortthe truth or are made clearly out of ignorance of the correct facts.
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f) The Central Ban1,'s concem in the matter is solely its security, theGrand Regency Holel. The Bank therefore cannot give immunityto Karnlesh PnHni as alleged ~\I1c\ has no control
whatsoever over
other pending criminalmatters [acing Kamlesh
pattni. ThaI is Ihe
province of the AU01iley General andKACC.
The CBK should be lauded for the eff0l1s made in this protractedmatter and [or the huge recovery that will be made once the sale isconcluded.
g)
h) The price and mode of sale adopted by CBK is strategic and in theintereSl or the Nation.
The CBK has consistentlyconsulLed at each and every slage. and
v'lillcontinue to do so until the matter is concluded.
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,.. REPORT OF tHE COMMISSION OF INQUIRY INTO THE
SALE OF THE GRAND REGENCY HOTEL
CHAPTER 1
INTRODUCTIoN.
1.1 Appointment of Commission
1. By Gazette Notice No.6216 of 10111JulYJ ~008. His Excellency the President
(hereinafter the President) in exercise of powers conferred on him by Section 3 of
the Commissions of Inquiry Act (Cap 102)J in the public interest, appointed a
Commission of Inquiry into the sale of the Grand Regency Hotel. The
Commissioners appointed under the said Gazette Notice were: -
Chief Justice (Rtd) Abdul Majid Cockar as the Chairman
Mr. Charles Arap-Kirui, Commissioner
Mr. Kathurima M'lnotiJ Commissioner
Under the same Gazette Notice Mr. Antony Oteng'o Ombwayo and Mr. Wilfred
Nyamu Mati were appointed the Secretary and the Counsel, respectively, of the
Commission.
2. The mandate of the Commission was detailed in Gazette Notice No.6217 of
the above mentioned date. The terms of reference were to: -
1. (a) inquire into the circumstances leading to the sale of the
Grand Regency Hotel;
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(b) inquire into the role played by the Minister for Finance, the
Governor of the Central Bank of Kenya, the Company Secretary to
the Central Bank of Kenya and any other person(s) involved in the
sale of the Grand Regency Hotel;
(c) perform any other task th~' the Commission may deem~.
necessary in fulfilling the foregoigg terms of reference;
(d) recommend such legal or adl1)inistrative measures as the.Commission may deem necessary) and to report its findings and
recommendations within one (1) month,
2. In the discharge of its mandate, the Commission may-
(a) receive views from members of the public and receive
written and/or oral statements from any person with relevant
information, and may-
(i) receive any previous reports in the matter;
(ii) receive expert opinion in any relevant areas;
(b) determine its rules of procedure and develop its own work plan;""'
(c) publish its rules of procedure in the Kenya Gazette;
(e) summon any person or persons concerned to testify on oath
and to produce any books, valuations or any other documents that
the Commission may require;
(1) hold the inquiry in Nairobi
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(g) hold the inquiry in public but may hold private hearings
whenever it becomes necessary.
3. The Commission shall have all the powers necessary or expedient to
effectively discharge its mandate, including the power to require co-
operation from the public officers from releVant"inStitutions.
~.3. Subsequently by Gazette Notice No.. 728~ dated 11th August, 2008 the
President having considered the progress of the Commission extended the period
within which it was required to report. to on or before 10th September, 2008.
On the same date by Gazette Notice No. 7290 the President appointed Mr.
Francis Etole as additional Counsel to assist the Commission.
The period within which the Commission was required to submit its report was
further extended on three other occasions, that is on 11th September, 2008, on
30111September, 2008 and on 31st October 2008 to expire on 14th November,
2008.
4. The Commission was empowered to make its own Rules of Procedure under
terms 2 (b) and (c) of its mandate, and proceeded to do this and had them
published in Gazette Notice No.6543 of 21st July, 2008. At the same time the
Commission oversaw the drafting of witness summons and hearing notices, and
the recording of statements from the persons mentioned in Gazette Notice No.
6217 and other available potential witnesses. Members of the public were
required through notices published in the newspapers for any person with
information helpful to the Commission to come up and give his statement to the
Commission's investigators. Having thus completed the preparatory stage the
3
'1Commission commenced hearing of evidence: from witnesses on 4th August
2008. In all. 21 witnesses gave evidence. Rules of evidence were observed; save
as provided for in the Rules of Procedures. Rules of natural justice were also
strictly followed.
5. The procedure that the Commission adopt~d ensured that no inadmissible
evidence such as hears'ay evidence was ~ccepted. The p~bcedure in recording. . "', ~.the evidence was exactly the same as that followed in the courts in Kenya. Either
of the two Assisting Counsel led witnesse!:? to ~~ve evidence on oath by way of
examination in chief. Thereafter the witnesses were subjected to cross-
examination by the advocate of each interested"party before being re-examined.
Apart from the two Assisting Counsel ten advocates, some of whom were among
the most senior in the country, appeared every day on behalf of their clients.
Their cross-examination facilitated the Commissioners in their assessment of the
evidence given by each witness. At the close of the hearing of evidence, each
advocate made exhaustive submissions on behalf his client. The Commission
gave full consideration to the submissions and found them to be of great
assistance.
6. One of the persons named in Gazette Notice No.6217, former Minister for
Finance, Hon. Amos Kimunya, chose at the last moment not to appear before the
Commission to give evidence. When the Commission was informed on 20th
September, 2008, that he would not be appearing, it opted to summon the
Permanent Secretary to the Treasury to give evjdence on the Treasuryls role in
this matter. Unfortunately the Commission was informed that the Permanent
Secretary, who was a member of Board of Directors of the Central Bank of Kenya
(hereafter CBK), Mr. Joseph Kinyua. was at that time out of the country and was
not expected to return before the 17thOctober, 2008, or thereabouts.
4
.....
--, ~
1"'"
1.2 The Origins of the Grand Regency Hotel Saga
7. To better appreciate this report it is important to go into the origins of the
Grand Regency Hotel (hereafter the Hotel) which, in the words of Mr. Joseph
Kimutai Kittony, a Receiver of the Hotel from 1994 to 1999, was during his tenure
o~e of 103 top ranked hotels ~~rldwide, brari~ed Preferred Hotels of the World.
The Hotel had been planned on a lavish scale" and built by the late Mr. Mohamed
Aslam who was the Chairman of the Pan African Bank and the Aslam Group of
Companies. ,..~
8. The Hotel is erected on plot No.209/9514 and its title registered under the
Registration of Titles Act, Cap 281, Laws of Kenya, and had, at that time, been
named the Meridian Hotel. On the death of Mr. Aslam the Pan African Bank went
into problems while the Hotel was still under construction. At the suggestion of
Mr. Eric Kotut, then Governor of CBK, Mr. Kamlesh Mansukhlal Damji Pattni's
group purchased the incomplete Hotel and other assets from the family of the late
Mr. Aslam for US $14 million under an agreement dated 251hJanuary, 1993.
9. In June, 1993, CBK revoked the license of Mr. Pattni's Exchange Bank
Ltd., which was in debt to the tune of KShs 9.9 billion to CBK, which debt was
passed on to Mr. Pattni. Apart from that Mr. Pattni claimed that he was forced to
secure an alleged short fall of KShs 1.9 billion by procuring a legal charge over
the Hotel for KShs 2.5 billion, made up of the shortfall of KShs 1.9 billion and a
lump sum charge of Kshs.600 million by way of total fixed interest. The Hotel
was then registered in the name of Uhuru Highway Development Ltd., (hereafter
UHDL) which, for all practical purposes, belonged to Mr. Pattni. It was not
disputed that Mr. Pattni had given three cheques to CBK amounting to KShs 2.5
billion by way of installments towards full payment of the said sum. The first
5
.--
'I
~ cheque for KShs 100 million was honoured, but the remaining two cheques were
not at which point aBK appointed a receiver. Mr. Kittony, on 15th April 1994.
Later CBK attempted to exercise its statutory power of sale under the charge.
That prompted the filing of HCCC No. 589 of 1999 by Mr. Pattni and UHDL
against CBK, and this resulted in the issuance of injunctive orders restraining the
Bank from exercising its statutory power of sale.. .\0
"~
1O. The relevant injunctive orders which ~e' n~ve reproduced below were
confirmed .by the Court of Appeal in Civil App~al No. 91 of 1999.
(a) "The Central Bank of Kenya be and is hereby restrained whether by
itself. its servants, agent or otherwise howsoever from entering,
remaining in, save as customers, managing or in any other manner
whatsoever whether by Joseph Kittony or any other purported
receiver, from interfering with the management of the Grand
Regency Hotel by the said Court Appointed Receiver, until the
determination of this suie;
(b) "The Central Bank of Kenya by itself, its officers, servantsJ
auctioneers or otherwise howsoever. be and is hereby restrained
from selling, auctioning or otherwise howsoever dealing with or
alienating L.R 209/9514 whether by public auction or private treaty
or otherwise howsoever until the issue of movables and the
Receiver's (Kittony) accounts from the 15thof April. 1994 to date is
fully determined at the hearing of the s,uit."
11. In 2003, the Kenya Anti-Corruption Commission. (hereafter KACC) filed
Originating Summons. HCCC No.1111 of 2003J against Mr. Pattni and 16 others.
The intention was to repossess the Hotel which it was believed had been
6
obtained using illegally acquired public funds: Eventually in consequence of three
consent agreements entered into in April 2008 the proceedings in the two cases.
HCCC NO 589/1999 and HCCC No 1111/2003) were terminated and the Hotel
was handed over to CBK by Mr Pattni and UHDL. Thereafter the Hotel was sold
by CBK to the Libyan Arab African Investment Company Kenya Ltd (hereafter
LAICO), It is as a result of the controv~rsy regarding that sale that this.. .,;
Commission was appointed. .8.;.."".
~
7
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CHAPTER 2.
HEARING OF EVIDENCE
2.1 Ministry of Lands Officials
....
12. The hearing commenced with evidence :~from the elT!ployees of Lands
Department, Nairobi. Six witnesses, inclutiing Mr Zablon MabeaJ the
Commissioner of Lands, gave evidence relating to the part played by each in
conformity with hislher normal duties. The evidence traced the process involved
from the time a transfer document is received at the reception counter, and
passes through the hands of each of these officials, to its intended final
destination where the title is ultimately registered.
13. We do not propose to analyse the evidence of each of the said employees of
the Lands Department. HoweverJ what emerged strongly from the evidence was
that Mr. Kennedy Kaunda Abuga, a Director in the Governor's Office and a Board
Secretary at CBK, and Mr, Ahmed Adan of Wetangula, Adan, Makokha & Co,
Advocates for the purchasers LAICO, particularly Mr. Abuga, were present at the
Lands offices most, if not allJ of the time the processing of the documents
progressed from one stage to another. Mr. Anthony Matenge Itui (C.W,3), the
Chief Valuer in the Ministry of Lands, said that on 20th June 2008 when he
received the file and the documents form the CommissionerJ both Mr. Abuga and
Mr. Adan came with him to his office. They wanted the valuation of the property to
commence at once, It was a Friday afternoon and it was with reluctance that they
agreed to wait until Monday 23rd for the valuers to go to the Hotel to undertake
the valuation.
8
14. The purchase price as shown in. the Deed of Transfer was
KShs.1,850,OOO,000/= but the valuer raised the value in his report to KShs. 2
billion for stamp duty purposes. On account of pressure exerted on all these
officials of the Lands Department the transfer, after being duly stamped, was
registered by noon on 25th June, 2008 and the documents were delivered to Mr.
Adan. ."~.. "'. ~',
-or.. .
15. In his evidence Mr. Abuga explained that ~is visit to the Lands Department
with Mr.. Adan was merely to take tbe original feceipt of payment of Land Rent
and the valuation reports to the Lands OffICer to facilitate the process of
registration. He claimed also to have arranged .for the access of the Government
Valuer to the Hotel.
16. From the evidence of the witnesses from the Ministry of Lands, we highlight
the following:-
a. The transfer documents were not presented at the counter
reserved to receive documents for stamping and registration but
were handed over to the Commissioner of Lands himself.
b. On 191hJune, 2008 the Commissioner found a letter in his office
from CBK applying for consent to transfer and charge plot No.
209/9514 together with the buildings thereon which formed the
Hotel. The letter was from Mr. AbugaJ with a message from him to
ring Mr. AbugaJ or the Governor, Prof Njuguna Ndung'u.
c. The Governor on being contacted by the Commissioner told him
that he had documents relating to the transfer of the Hotel. He
9
I ~
"".-.-.-.-
asked that the transfer be registered expeditiously because the
transaction involved a Government to Government transaction.
d. On the same day Mr. Abuga went to see the Commissioner with
Mr. Adan who was representing the advocates for the purchaser,
LAICO. The Commissioner was informed that CBK had exercised
its'statutory power of sale arising.~ro~ihe cha~ge to which the plot.1 .
and the hotel were subject..~
e. In consequence of the above described visit by Mr. Abuga and Mr.
Adan to the Commissioner, each of the witnesses from the Ministry
of Lands was summoned to the Commissioner's office. They were
separately in charge of specific duties relating to the procedural
steps that were to be complied with before the valuation, stamping
and registration of the transfer document was completed. The
Commissioner asked them to expedite their part in the registration
process.
1. Though Lands officers are supposed to use the Ministry's vehicles
in the course of their work. on 23rd June, 2008 Mr. Abuga drove
them in his private car from the Lands Office to the Hotel. At the
end of the valuation inspection of the Hotel that afternoon, Mr.
Abuga was waiting outside the Hotel to return the officers to the
Lands Office in a CBK vehicle.
We have highlighted the above to stress the urgency, secrecy and confidentiality
with which CBK desired the registration to be processed.
10
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1'""
2.2 Kenya Anti-Corruption Commission (KACC)
17. Mrs Fatuma Sichale, (CW 10) an Advocate of the High Court and the Deputy
Director) KACC gave evidence on the role of KACC in this transaction. Her
evidence was that on 30th October .20Q3, KACC, through K~mau Kuria & Kiraitu. . Ii.. .
Advocates filed HCCC No 1111 of 2003 (OS) against Karnlesh Pattni and 16.others I seeking among other reliefs declarations that Uhuru Highway
Development Ltd (UHDL) held LR No. 209/95'4 on trust to KACC, and an order.for the transfer of the property to KACC. ~CC also sought orders for the.appointment of an interim Receiver/Manager.to manage and administer among
other properties, the Grand Regency Hotel.
18. There was a lot of argument regarding whether the suit was filed on behalf of
CBK or whether CBK was consulted before the suit was filed. What is not in
dispute is that under the Anti-Corruption and Economic Crimes Act, KACC is
empowered to investigate the extent of liability for the loss or damage to any
public property and to institute civil proceedings for recovery or compensation
and to apply to the High Court for orders to preserve property suspected to have
been acquired as a result of corrupt conduct.
19. On 31s1May 2004 a consent order was recorded in HCCC No. 1111/2003
between the KACC on the one hand and UHDL and Mr Gitari Njeu on the other
whose effect was to remove Mr Njeu as R.eceiver/Manager of the Hotel and
replace him with two joint Receivers/Managersl Mr Hezekiah Gichohi and Mr
Peter Ndaa. There is evidence that CBK severally complained to KACC and other
public institutions about KACC's suit and how the case was or was not
11
~
proceeding. CBKJs concern was that after the joint Receiver/Managers took over
the Hotel. they did not remit any money to CBK as the chargee.
20. Much as the CBK was affected by this suit. it never applied to be made a
party to the suit in order to put forward its position or influence the outcome. It
was happy to continue raising issues with other public institutions and officials
through meetings and correspondence: CB~~.~aw .the suit essentially as a
problem of KACC.~
21. Some time in January 2008 the CBK Governor advised KACC that Mr Pattni4
was amenable to relinquishing the Hotel to CBK. The director, KACC requested
Mrs Sichale to attend a meeting to discuss the issue. This meeting took place in
January 2008 and was chaired by the GovernorJ and attended by Mr Abuga, Mrs
Sichale and Mr Adan.
22. Subsequent meetings between Mr Sichale, Mr Abuga and Mr Adan took
place on the issue of settlement of the suit. Initially Mr Adan. for Mr Pattni had
proposed that his client gets amnesty from all criminal cases as part of the
settlement of the suit, but Mrs Sichale took the view that issues of amnesty from
criminal cases were outside the powers of KACC and the negotiations continued
limited to the settlement of the suit in HCCC No 1111/2003. These negotiations
finally resulted in a Registration of Settlement which was filed in Court on 9thApril
2008. On the same date there was a much publicised handing over of the Grand
Regency Hotel) featuring among other people the Governor of CBK, the Director
of KACC and Mr Kamlesh Pattni.
23. It is common ground that CBK was part and parcel of the negotiations
leading to this settlement. Mr Abuga participated in these negotiations and kept
the Governor briefed. On 8lh April 2008, KACC wrote to CBK seeking
12
..~--
confirmation that the suit could be settled aloog the terms set out in the
Registration of Settlement. CBK responded in writing vide a letter dated 21s1April
2008 and confirmed the terms of settlement.
24. As of 9lh April 2008, on the registration of the Settlement and the public
handover, CBK represented to KACC and to Ke~yans that the Hotel had been
relinquished to it. It did liot disclose to KACC that if tfad an earmarked purchaser;, .
to whom it was determined to sell the Hotel un~r.lts power as chargee. CBK8-
associated itself with a court process to ry1ak~it appear that the Hotel was first to
be transferred to CBK before it was disposed of..
25. After the Registration of Settlement, differences emerged between KACC
and CBK on the mode of disposal of the Hotel. KACC took the position that
having filed the Registration of Settlement in Court which provided for the transfer
of the Hotel to CBK, the power of CBK to sell the Hotel under the charge no
longer existed. Initially KACC told CBK that the Public Procurement and Disposal
Act would apply to the sale of the Hotel, but on further consultations it changed its
view and told CBK that the Privatisation Act would apply. Although initially the
Governor agreed with KACC, he later changed his mind and declared KACC's
position to be untenable, and insisted that the Bank would sell the Hotel under its
statutory power of sale.
26. Subsequently KACC did not take any active role in the transaction. On why
KACC did not follow up the issue of the registration of the transfer of the Hotel to
CBK once the Registration of Settlement was filed in Court, Mrs Sichale told the
Commission that at that point they expected CBK to follow through on the
understanding between them at the point of Settlement.
13
~ -~~~
2.3 Public Procurement Oversight Authority
27. The evidence of Mr Robert Hunja, the interim Director General of the Public
Procurement Oversight Authority (CW 13) was that on 27th April, the Governor
telephoned and told him that CBK held a charge on th'e Hotel as security for. . 1.4. -. -.
debts owed to CBK. The Governor want~d to know whether the Public.Procurement and Disposal Act would apply to 1he disposal of the Hotel. Mr Hunja
advised him that in the circumstances presented to him, the Act would not apply,
though he suggested that the Governor wrote 10 him officially on his enquiry.
28. On 28thApril 2008 the Governor wrote to Mr Hunja and informed him that the
Hotel was charged to the CBK and it did not wish to transfer the Hotel to itself. He
asked for confirmation that the Public Procurement and Disposals Act did not
apply to assets charged to public entities as security. That confirmation was duly
given in writing on 30th April 2008. It was Mr Hunja's contention in his evidence,
however, that the Act applied to the disposal of public property, though this was
not obvious from a casual reading of the Act
29. As of 27th April 2007 when the Governor spoke to Mr Hunja, all indications
from the Registration of Settlement of 9th April 2008 in HCCC No 1111 of 2003
and the Consent Order of 14thApril 2008 in HCCC 589 of 1999 was that the Hotel
was being transferred to the Bank. Indeed in a Confidential Brief prepared before
22ndApril 2008, CBK had categorically stated that it did not wish to sell the Hotel
under its statutory power of sale. Yet on 27th and 28th April 2008, in seeking the
opinion of the Public Procurement Oversight Authority the Governor presented a
totally different state of facts to Mr Hunja. Mr Hunja's opinion therefore was
14
1" I-, InJf nI,',
clearly based on incomplete, and probably.misleading, information supplied by
the Governor,
2.4 Valuers and Valuation Reports
30. The earliest valuation of the Grand. Regency Hotel presented to the. . .. .
Commission is dated 14th February, 1997, and was done jointly by Tysons Ltd
and Lloyd Masika Ltd. However, the instruc~ons given to the valuers before the
valuation were not availed to the Commi~sion. Hence the purpose of the
valuation is not known to us, although the \i~luation may have formed the basis. .
for an attempted out of court settlement between CBK and Mr. Pattni, with the
apparent participation of a Malaysian firm called Westmont, in early 1997 as
indicated in the testimony of the first receiver of the Hotel, Mr. Joseph Kittony.
The summary of the valuation which was stated to be "open market valueD was
given as follows:-
Land
Buildings and site works
Plant and machinery
Furniture, fittings and equipment
Motor Vehicle
KShs.
375,000,000
1,381,500,000
262,200,000
72,500,000
9,800,000
2.100.000,000Total
31. A lot was made by the Governor of the valuations made early this year before
the Hotel was sold. This was to the effect that the sale took place after the Hotel
had been valued and that the proceeds far exceeded the valuations. But the
valuations seem to suffer from several shortcomings. For a start the valuers were
not properly instructed. The instructions to the valuers are contained in letters
15
, ndated 21stJanuary. 2008, addressed to Lloyd M&sika Ltd and Value Zone Ltd (Ex
32 Vol 2 (2) P 89, 90). What is unusual about the letters is that they do not
mention that the valuations were for the purpose of a sale. In fact they stated that
the valuations were "for accounting purposesn. This was confirmed by Mr. David
Masika, a director of Lloyd Masika Ltd, who told the Commission that it was not
indicated to the valuers that the valuation was,.for the purpose of a sale. This
contradicts the C'BK Governor's statement to th'b Commission that CBK "clarified" . .~ ..'
to the valuers that the Hotel was to be valuect. as a going concemn. The only.mention of "a going concernn by CBK. was in a,letter to Lloyd Masika Ltd dated
301hJanuary. 2008, which was apparently a re~ly to one from Lloyd Masika (Ex. .. .
81 Vol 2 (g) P 91). The letter mentions in pass1ng that "with regard to the loose
items, our position is that we would like to have the hotel valued as a going
concernn. This ambiguous statement went unnoticed by Lloyd Masika Ltd.
32. Lloyd Masika Ltd and Value Zone Ltd went on to value the Hotel as follows: -
Land
Buildings and site works
Plant, machinery and M/vehicles
Plant and machinery
Llovd Masika
KShs.
500,000,000
850,000,000
344,000,000
Furniture, fittings and
equipment 59,500,000
Total 1.754.300.000
Value Zone
KShs.
500,000,000
1,000,000,000
75,000,000
45,000,000
1,620,000,000
33, A third valuer, Ark Consultants Ltd, was subsequently asked to review
16
the valuations by the two valuers, though the instructions given to this third valuer
were not availed to the Commission. The circumstances under which the valuer
was asked to undertake a review are also unclear. In the letter from Ark
Consultants Ltd to the Governor dated 10th March, 2008 (Ex 81 Vol 2 (g) P 92)
Mr. Sarunij the Managing Director, stated that his firm had carried out a "brief
inspection of the Hotel together with the two Valuation reports from Lloyd Masika
Ltd and Value Zone Ltd", He further state~.that theY'ha~ had to look at the. .
property afresh, and that they found a "big di~repancy in the values of the Plant
and machinery items". He also stated that the other valuers had understated the..:
building replacement cost, in their view, by 8S much as 30%. Thus the third-I
valuation ended up being higher than the ot~er two, by KShs. 420 million and"KShs.550 million, and was as follows:-
KShs.
Land 600j 000,000
1,150jOOO,OOOBuildings and site works
Plant and machinery
Furniture, fittings and equipment
350,000,000
75,000,000
Total 2.175.000,000
34. In terms of the duration of the valuation Mr. Masika explained that his firm
took approximate four weeks to complete, ~th one week for inspection, two
weeks for calculations and one week to write the report. In his estimation theIII
shortest time a valuer could complete an as~ignment of the size of the Grand
Regency Hotel valuation was two weeks.
35. Mr. Masika told the Commission that the client's instructions are very
important in a valuation, and the purpose of the valuation must be given. All they
1-7
I.
were aware of in this particular case was that the valuation was for accounting
purposes. He further stated that his firm had not valued the Hotel as a going
concern, and, if they had done so. they would have taken goodwill into account.
He stated that any goodwill would have been additional to the value they had
given for the hotel. He expressed no surprise at the sale of the hotel for KShs.2.9
billion. As he stated, the purchaser would have taken other matters, such as. "..
goodwill, into account..." "
'.
36. Mr. Didacus Nyaga Nkonge of Value Zone Ltd stated that his firm was also
not informed that the Hotel was for sale as they wo~uldotherwise have considered. -.
the issue of goodwill, and the valuation ~ould have differed from that given in
their report, He further stated that it would have been "unfair" to use the valuation
for a sale as it had been intended for accounting purposes.
37. Other issues also came to light that affected the reliability of the valuations.
Mr. Masika in his evidence gave the number of rooms in the Hotel as 227, while
the other valuers reported 196 rooms. Also according to Mr. Masika. valuation is
not an exact science but an opinion of the vlauer which depends on various
circumstances, including conditions prevailing at the time of valuation. The
valuations by Lloyd Masika Ltd and Value Zone Ltd were done early this year, at
a period of unprecedented strife and insecurity in the country, yet the valuers, in
their evidence before the Commission, were of the view that they would arrive at
exactly the same values in August, 2008, a time of relative peace and positive
economic indicators, subsequent to the political reconciliation accord. This was
of course well before the instability in the international financial markets.
38. The time taken by the different valuers to value the Hotel also varied
considerably, from the four weeks taken by Lloyd Masika Ltd to the one day taken
by Mr. Anthony M. Itu;, the Chief Valuer in the Ministry of Lands. Mr. Itui, in his18
--..
brief inspection and valuation for stamp duty assessment purposes, gave a
valuation of KShs.2 billion for the Hotel land and buildings alone, Issues also
arose regarding the valuation of works of art. Although the valuers agreed that
they enhanced the value and the Iflavour of the hotel, none of the valuers
consulted an art expert to assist them in their assessment. Value zone Ltd did
not value the motor vehicles, neither did th~y value any items on the 13thfloor on
which the Summit Club and the Penthouse .are located.
39. The issue of goodwill was not seriously addressed by any of the valuers. Mr.
Nkonge of Value Zone Ltd stated that ~e would have consulted a relevant
professional to assist him determine the. valuer of goodwill if he had been
informed the valuation was for the purpose of a sale. It is to be noted that the
Hotel had been in perpetual receivership since inception! first under Mr. Joseph
Kittony from April! 1994 to April, 1999. Thereafter Mr. Gitari Njeu was
Receiver/Manager until May 2004 when two Joint Receiver/Managers! Mr.
Gichohi and Nr. Ndaa! took over until they in turn were removed on 9thApril, 2008
when the Hotel was handed over to CBK. While receivership is not a condition
conducive to profitability, it is only in the period under Mr. Gitari Njeu that no profit
was reported in the Hotel's operations. During his period of receivership Mr.
Kittony reported a surplus of KShs.465 million which was remitted to CBK, in
addition to paying contractors, pre-opening expenses and capital expenditure, all
in the total sum of KShs.330 million. Even Mr. Gichohi and Mr. Ndaa, the Joint
Receiver/Managers who were perpetually squabblingJ left over KShs.342 million
to be taken over by CBK at the end of their tenure. Under these circumstances
the Hotel!s potential for exceptional profitability should have been obvious.
40. The firm of Crystal Valuers was appointed by the Commission's Secretariat
from a list of valuers supplied by the Kenya Institution of Surveyors! Valuation
19
-,.
1
Chapter, to undertake an independent valuation .of the Hotel in order to assist the
Commission in its work. In a letter dated 29th August 2008J the Commission
Secretary instructed the firm to value the Hotel property together with all the
assets, including goodwill.
41. In his evidenceJ Mr. Timothy NjehiaJ.a director of Crystal Valuers LtdJ. ...~. ~.
explained that. he inspected the Hotel on ~ and 4th SeptemberJ 2008, and
thereafter issued his report on 8th SeptemoerJ 2008, The valuation given by
Crystal Valuers Ltd was as follows:- .~
."
"KShs.
Building and site works
Plant and machinery
550,000,000
1,350 J000,000
Land
Furniture, fittings and equipment
Vehicles
82J340,OOO
30,067,000
Total
21,970.000
2.034.377.000
42. In his evidence, Mr. Njehia could not supply details of his valuation workings
for the land or buildings, yet he had detailed schedules of the plant and
machinery and other movable assets, which constituted approximately 90% of the
bulk of his valuation reportJ though in terms of value they constituted only about
5% of the valuation. The valuer was also hard-pressed to explain the apparent
discrepancies in his valuation of motor vehicles. It was apparent that he had not
ascertained the registration particulars of the vehicles, nor had he ascertained the
current purchase prices of similar new vehicles for computation.
20
. -.- .-.
..
43. The matter of inflation and the issue of. general property appreciation over
time does not, in our view, seem to have been adequately addressed by any of
the valuers, particularly as regards their impact on the value of the building. The
valuations reflect an increase in the value of the land from KShs.375 million in the
1997 valuation to, in 2008, KShs.500 mil1lori by Lloyd Masika and Value Zone,.'. ~.. .' .'1Ii -. .'
.
KShs.600 mUlion by Ark Consultants and KBhs.550 -mil'ion by Crystal Valuers..On the other hand the value of the buildin~~seems to have remained static or
gone down in the last 11 years. According t9 Mr. Masika, using the Depreciated
Replacement Cost method of valuation meant taking the current estimatedI. ,
replacement cost of the building and depre~iating that to 70%. In other words
KShs.850 million he has given as the value of the Hotel building is 70% of what it
would cost to construct and outfit the same building today. On the basis of these
figures, the cost of construction works out at KShs.1.21 bil1lon, which is lower
than the valuation of KShs.1.38 billion given in the joint valuation in 1997 that
included Lloyd Masika Ltd. To state that a building that was valued at KShs, 1.38
billion in 1997) would cost KShs.1.21 billion to build today is not believable.
44. Considering the above analysis of the available valuation reports it is evident
that the valuation reports cannot be relied on to give a true indication of the
hotel's market price at the time of its sale, The only way this could have been
achieved was at an open market sale; where all potential buyers had an
opportunity to submit their bids.
2.5 Receiver/Managers
45. Three witnesses) who had served as Receiver/Managers of the Hotel over
different periods of time gave evidence before the Commission. The first was Mr
21
. .....
Joseph Kimutai Kittony (CW 17) who was appointed a Receiver of the Hotel by
CBK on 15th April 1994 until 1st April 1999 when he was replaced by a Court
appointed Receiver, Mr Gitari Njeu. The second was Mr Peter Ndaa (CW 15) who
was one of the Joint Receiver/Managers appointed under the Consent Order of
31sl May 2004 ;n HCCC No 1111 of 2003. Mr Ndaa served as a Joint
Receiver/Manger with Mr Hezekiah GichQb; until 9th April 2008 when they were
removed under the Registration of Sett~ment of that date. The last was Mr. .
Patrick Maina Kamau (CW 14) who was appointed Receiver/Manager of the Hotel
on 9th April 2008 after the Registration;'.of Settlement and who was still the
Receiver/Manager as of the date of his evi~ence before the Commission..
.~:\
46. The evidence of these three witnesses ;s considered in detail elsewhere in
this report. Their evidence showed how the Hotel was performing under their
respective periods of management.
2.6 Kamlesh Mansukhlal Pattni
47. Mr Kamlesh M Pattni (CW 16) who described himself as a jeweller, goldsmith
and businessman, gave the background evidence about the Hotel, how it was
constructed and how it ended up charged to CBK in 1993. He told the
Commission of the attempts made towards an out of court settlement and the
various legal tussles he and the companies associated with him had had with
CBK and KACC over the Hotel. He testified on how the Court cases were
ultimately negotiated and settled, his expectation of a global settlement of all
cases, including criminal cases involving l1im and his desire to have peace in his
life. He concluded with how he ended up relinquishing the Hotel to CBK before it
was sold to LAICO.
22
r
48. The Commission is not satisfied that both CBK and Mr Pattni spoke the truth.about how they started dealing with LAICO on the sale' of the Hotel. CBK's
position was that it all started when they received a call from the Protocol Office
and were informed about an impending visit by the Libyan Ambassador. The
initial visit by the Libyan Ambassador. according to the Governor took place on
11th September 2007 when the AmbassadQr informed the Governor that there. . ~
were Libyan investors interested'in purchasin#' the Hotel.
49. . On his part; Mr Pattni alleged that he fir~t heard of the proposed sale of the
Hotel to the Libyans from reports in the medi~ in July 2007 in connection with the. <President's visit to Libya. Asked about the letter of 13th September 2007 that he
wrote to his Advocates, Wetangula, Adan, Makokha & Company Advocates. and
copied to CBK instructing them to open negotiations so that he and CBK could
sell the Hotel to LAICa, he purported not to recall such a letter. In his evidence in
chief. he even stated that it was his Advocate. Mr Adan who told him that there
were purchasers from Libya interested in the Hotel. as Mr Adan sought his
consent to act for those purchasers.
50. The Commission finds that it was an unusual coincidence that the Libyan
Ambassador would call on the Governor on 11th September 2007 to discuss the
sale of the Hotel and exactly two days later on 13th September 2007, Mr Pattni,
completely unaware of the contact between CBK and the Libyans would write a
letter to his advocates instructing them to commence negotiations to enable CBK
and Mr Pattni to sell the Hotel to the LAICO.
23
2.7 Mr Kennedy Kaunda Abuga
51. Mr Kennedy Kaunda Abuga (CW 18) was one of the persons mentioned in
Gazette Notice Number 6217 and whose role in the sale of the Hotel the
Commission was required to investigate. He is ~ Director in the Governor's Office.. .
and Board Secretary,' CBK. He joined' CBK~Jn;}'ebruary 2005 as a Senior. Jt .
Manager, Legal Services. On 17th December; 2007 he was appointed Board
Secretary before becoming a Director in the. q,6vemors office on 71hApril 2008
(two days before the public handing over of the ~rand Regency Hotel),. ./~
52. Mr Abuga played various central roles in the sale of the Hotel in his capacity
as the Board Secretary and head of Legal Services at CBK. He was one of the
advocates involved in the negotiations leading to the settlements of the cases in
Court on the Hotel. He represented the Bank in the recording of the consent
orders in HCCC No 589 of 1999 on 14th and 29th April 2008. He "facilitatedD the
registration of the transfer of the Hotel to LAICO. Mr Abuga's evidence is
considered in detail elsewhere in this report.
2.8 Prof Njuguna Ndung'u
53. Prof Njuguna Ndung'u (CW 20) was also mentioned in Gazette Notice
Number 6217 and his role in the sale of the Hotel was subject to investigation by
the Commission. An Associate Professor of Economics at the University of
Nairobi, he was appointed the Governor of CBK on 4th March 2007.
54, Like Mr AbugaJ Prof Ndung'u played a central role in the sale of the Hotel
both as Governor and Chairman of the Board of Directors of CBK. He personally
negotiated the sale of the Hotel and set the purchase price. He oversaw the
24
conclusion of the transaction and the transfer of the Hotel to LAICO. He made
decisions on the Hotel with limited information to the Board which he chairs. His
evidence is considered in detail elsewhere in this report.
. p.
..-'8.
25
.,II
CHAPTER 3
DISPOSAL OF THE HOTEL
3.1 The Three Consent Orders In HCCC".No. 589/99 And HCCC
No.1111/2003..
55. Mrs. Fatuma Sichale (C.W.10) inherited HCCC No.1111/2003 when she,joined KACC. As already pointed out the case had been filed by KACC to
repossess the Grand Regency Hotel from Mr. Kamlesh Pattni and his company
UHDL and 15 others. While the CBK contended that KACC had not consulted it
before filing the suit, KACC maintained that under the Anti-Corruption and
Economic Crimes Act, it was not obliged to consult the CBK before filing the suit.
56. What had happened was that, as earlier reported, when CBK attempted to
recover its debt of KSh.2,5 billion from UHDL and Mr. Pattni by enforcing its
statutory power of sale, it found itself stalemated by two injunctive orders
obtained by the latter through an application in HCCC No.589/99 which they had
filed against CBK. An appeal to the Court of Appeal failed to dislodge the
injunctive orders. In consequence of other orders granted by the Court of Appeal,
further proceedings had virtually come to a standstill and the injunctive orders.
much to the frustration of CBK, continued to remain in force.
57. That was one of the reasons for filing of the HCCC No.1111/2003, in which
inter alia the two main reliefs concerning the Hotel that were sought were for the
replacement of the existing Receiver/Manager and for an order for UHDL to
forthwith transfer the Hotel to KACC. Mrs. Sichale explained that on 3151May,
26
~
2004 a consent order was recorded which resulted in the removal of the existing
Receiver/Manager, Mr. Gitari T. Njeu, and his replacement by two joint
Receiver/Managers. Mr. H.W, Gichohi and Mr. Peter Ndaa (C.W.15). Following
negotiations between Mr Pattni, CBK and KACC, which started in January 2008
as earlier reportedJ a settlement was reached for Mr Pattni to relinquish the Hotel
to CBK.. .
#
58. Registration of Settlement .. .
As this settlement is a vital document we reproduce it in full below.
.REPUBLIC OF KENYA.41
IN THE HIGH COURT OF KENYA AT NAIROBI
CIVIL SUIT NO 1111 OF 2003 OS
IN THE MATIER OF THE ANTI-CORRUPTION
AND ECONOMIC CRIMES ACT. 2003
BETWEEN
THE KENYA ANTI-CORRUPTION COMMISSION PLAINTIFF
VERSUS
KAMLESH M.D. PATIN I " : 1ST DEFENDANT
UHURU HIGHWAY DEVELOPMENT LTD. ...n..: 2NDDEFENDANT
AND
15 OTHERS
27
.!01
r(Under Section 568 (2) & (4) of the Anti-Corruption ana Economic Crimes Act and
Section 3A of the Civil Procedure Act)
Whereas a settlement for the discontinuation and termination of this suit
has been reached between the Plaintiff and the 1sl ,2nd, 3rd , 4lh and 12th
Defendants in terms of the provisions of Section 5SB (2) and (4) of the Kenya. )
Anti-Corruption and Economic Crimes Act a-ndthe sa~ p'!3rtieswish to and hereby. ,
:
register the said settlement in court; -~",
.'
And whereas the Plaintiff and the 19t 'I2nd I 3!'d !
411\ and 1211\Defendantst/. ~
have agreed to settle this suit under Section 56B (2)'-'& (4) of the Anti-Corruption
and Economic Crimes Act;
IT IS HEREBY AGREED BY CONSENT THA T:-
1. The 1SlDefendant Kamlesh Pattni and the 2nd Defendant Uhuru Highway
Development Limited do hereby agree to:-
(i) relinquish, assign, reconvey or otherwise transfer ownership and all
their rights and interest in the property known as Land Reference
Number 209/9514 together with all the improvements thereon
including the Grand Regency Hotel, the fixtures thereto! moveable
and immoveable assets (hereinafter referred to as lithe assets") to
the Central Bank of Kenya.
(ii) To execute any and all necessary instruments of transfer to give
effect to (i) above and in default thereof the Deputy Registrar of the
High Court to execute such instrument(s).
28
~~ ......
2. The Joint Receiver Managers appointed pursuant to a Consent Order
dated 31st May, 2004 are hereby discharged forthwith and the ownership
and management of the Assets be and is hereby transferred to the Central
Bank of Kenya.
3. All bank accounts held by any bank in the name of the Joint
Receivers/Receiver together with all funds)eld .therein" be and are hereby. . .
transferred to the Central Bank of Kenya., .". ,
4. The plaintiff hereby discontinues the entire Civil Suit No. 1111 of 2003 and
all pending applications therein.
5. The Central Bank of Kenya hereby abandons all its other claims against
the defendants.
6. This consent constitutes the due registration of the Settlement Agreement
between the Plaintiff and the 1sl. 2nd.3rd)41hand 121hDefendants in terms
of the provisions of Section 56B (4) of the Anti-Corruption and Economic
Crimes Act.
7. That upon the filing of this settlement in court the same be and is hereby
marked as duly registered under the provisions of Section 56B (4).
Dated at Nairobi this 91hday of April 2008
(SigMQ)
FATUMA SICHALE (MRS.)
29
"- "1,1
ADVOCATE FOR THE PLAINTIFF
(Siane~)
FOR: WET ANGULA. ADAN. MAKHOKHA & CO.
ADVOCATES FOR THE 1ST.2ND,3RD.4THand 12 DEFENDANTS-
~
59. Mr. Abuga agreed in his evidence that h~ had fully participated in the
negotiations which had resulted in the above settlement between Mrs. Sichale for
KACC and Mr. Adan of WetangulaJ AdanJ Makokha & Co. Advocates for UHDL.~and Mr. Pattni and 3rd , 4th and 12thdefendants. He added that the Governor had
also approved in writing (letter dated 21s1April, 2008J Ex.36. on P.27 Vol. 2 h.)
and confirmed the Settlement as per the terms set out above. The Hotel was
formally handed over by Mr. Pattni to the Governorl who formally received it from
Mr. Pattni on 9th AprilJ 2008. Appropriate speeches from the two gentlemen
accompanied the handing over.
60. Mrs Sichale explained that she assumed that the Hotel had vested in CBK at
this point and for all purposes her role and that of KACC had come to an end with
the Registration of the Settlement. It was, therefore, with considerable surprise
and a feeling of indignation that during a break in her evidence when she
happened to peruse the Court file in HCCC No. 589/99 that she came across a
Consent Order recorded therein on 14th April, 2008. The Consent Order had
been recorded by Mr Adan and Mr Havi for the plaintiffs who were UHDL,
Kamlesh M. Pattni, Pansal Investments Ltd and Grand Hotels Management Ltd,
with Mr Abuga for the defendants who were CBK and two others. The terms of
the Consent Order according to Mrs. Sichale, save for some minor alterations,
appeared to have been lifted word for word from the terms of the Registration of
Settlement dated 9thAprilJ 2008 in HCCC No.1111/2003.
30
.....'t
61. We reproduce below the consent of 14th April, 2008 recorded in HCCC
No,589/99,
REPUBLIC OF KENYA
IN THE HIGH COURT OF KENY~ AT NAIROBI~ .
CIVIL SUIT NO 589 OF"'1999
UHURU HIGHWAY DEVELOPMENT UMITED : 1sTPLAINTIFF
KAMLESH MANSUKHLAL PATINI " : ".. .2ND PLAINTIFF.PANSALINVESTMENTLIMITED ; " ..3RD PLAINTIFF
GRAND HOTELS MANAGEMENT LIMITED .." ...4TH PLAINTIFF
VERSUS
CENTRAL BANK OF KENYA " " "." 1ST DEFENDANT
DEPOSIT PROTECTION FUND BOARD " " ..2ND DEFENDANT
JOSEPH KITIONY " 3RD DEFENDANT
PROCEEDINGS
14/4/08
Coram: Muya SPDR
CC: Kinyua
Adan with Havi for the Plaintiffs
Kennedy Abuga for the 1st and 2nd Defendants
Court: By Consent
1. The 1st Defendant Kamlesh Pattni and the 2nd Defendant Uhuru
Development Limited do hereby:-
31
, I
;.".
i) relinquish, assign, reconvey or otherwise transfer ownership and all
their rights and interests in the property known as land Reference
Number 209/9514 together with all the improvements thereon
including the Grand Regency Hotel, the fixtures thereto, movable
and immovable assets (herein after referred to as "the assets") to
the Central Bank of Kenya. "
To execute. any and all rieeess'ary i)"str\Jments of transfer to give. ...'effect to (i) above. :.
The Joint Receiver Managers .appointed p.ursuant to a Consent Order
dated 31s1May, 2004 are hereby dischargetl forthwith and the ownership. .and management of the Assets be and "is hereby transferred to the
Central Bank of Kenya.
All bank accounts held by any bank in the name of the Joint
Receivers/Receiver together with all funds held therein be and are hereby
transferred to the Central Bank of Kenya.
The Plaintiffs and the 1sl and 2ndDefendants hereby discontinue the entire
Civil Suit No.589 of 1999 and all pending applications therein.
The Plaintiffs and the 1sl and 2nd Defendants hereby settle all the other
claims against each other and no orders as to costs
" ii)
2.
3.
4.
5.
Dated at Nairobi this 91hday of April, 2008.
(Signed)
1. Mr Adan for the plaintiffs
2. K.A. Abuga for the 1sl and 2nd Defendants
(Signed)
Mr Muya
SPDR
32
8Ii.....- :....
.
\,
II. I. ~
62. Mr. Abuga, in his evidence, denied that the filing of the above Consent Order
was lifted in the manner suggested by Mrs. Sichale. He explained that although
he fully co-operated in KACC's suit, HCCC No.1111/2003, in helping and/or
observing the way the negotiations were finalized, he had done so at a much
.Iater stage. Initially CBK, as reported elsewhere, ~as surprised at the filing of the.' . . ,. .. '-". .
suit because that had been done. according'to hirn;without any consultation with.CBK, which was already involved in a vigorous liti(fation in HCCC No.589/99 with,
UHDL in which CBK's attempt to exercise its power of sale had been halted by
injunctive orders issued by the Court. CBK had' then refrained from taking any. f
further steps in HCCC No.589/99 in order to facilitate conclusion of the
Goldenberg Commission of Inquiry in which M(. Pattni was one of the main
subjects.
63. Mr. Abuga explained that the settlement in HCCC No.1111/2003 had not
provided for the manner in which the sale of the Hotel was to proceed. Moreover
the suit HCCC No.589/99 had also to be brought to an end. That, he explained,
was why the above described Consent Order was prepared and signed on 9th
April, 2008 and filed on 14th April, 2008. According to Mr. Abuga the fact that it
had not provided for the lifting of injunctive orders was nothing more than an
inadvertent omission. CBK according to him had always maintained the position
to exercise its statutory power of sale.
64. Mrs. Sichale had no further contact with Mr. Abuga or Mr. Adan on the issue
of the consents. It was the evidence of Mr. Abuga and the Governor himself that
now that there was no objection on the 'part of UHDL and Mr. Pattn; to CBK
selling the Hotel. it was imperative that the sale of the Hotel should be
expeditiously proceeded with. That intention could not be achieved because of
the injunctive orders that had been issued in HCCC No. 589/99. In the Consent
33
''f .1
Order of 9th April, 2008, and filed in HCCC No.589/99 on 14th April, 2008, there
was no mention made about these injunctive orders. Whether to rectify or to give
effect to the Governor's urgent desire to have the legal requirements ready to
enable CBK exercise its statutory power of sale under the charge, the two
advocates, that is Mr. Abuga and Mr. Adan, went back to the Senior Principal
Deputy Registrar, Mr. Muya, and on 29th April, 2008 recorded the following
consent agreement.
65. We reproduce below in full the proceedings. as recorded by the Senior
Principal Deputy Registrar.
29/04/08
Coram: Muya SPDR
CC: Erick
Adan for the Plaintiffs.
Kennedy Abuga for the 1stand 2ndDefendants
Adan: We have recorded a consent with serious typographical errors. It refers
the Defendants as Plaintiffs and the Plaintiffs as Defendants and we do hereby by
consent withdraw it.
Court: By consent the consent entered on 14th April, 2008 be and is hereby
withdrawn.
Signed -
Mr. Adan for the Plaintiffs
34
--lItI8
~
~
Mr. KK Abuga for the 1stand
2ndDefendants
Signed:
Mr. Muya
SPDR
..~
Adan: We have a new consent
Court: By consent
1. The injunctive orders granted on 21st April. 1999 by Justice Oguk (retired)
which, inter alia restrained the Central Bank of Kenya from sellingJ
auctioning or otherwise whatsoever dealing with or alienating Land
Reference Number 209/9514, whether by public auction or by private
treaty and were subsequently upheld by Court of Appeal in Civil Appeal
No. 91/99 on 24thAugustJ 2000 be and are hereby vacated.
2, As consequences of (1) above the 1stDefendant. Central Bank of Kenya is
now at liberty to exercise its statutory power of sale under its charge dated
21st OctoberJ 1993 over the property known as L.R. No.209/9514 together
with all improvements thereon.
3. The 1st Plaintiff Uhuru Highway Development Limited and the 2ndPlaintiff
Kamlesh Pattni do hereby undertake to execute any and all necessary
instruments of sale/transfer to give effect to No. (2) above.
4. The PlaintiffsJ the 1st and 2nd Defendants do hereby settle all the other
pending claims against each other.
35
I-
'"
.._,,."--'-.'--'
r
I
5. The suit herein is marked settled with no orders as to costs.
Signed-
A.S. Adan for the Plaintiffs
K,K. Abuga for the 1stand
.2n,Defendants
'. ~ <
~.. . Signed-
M~. Muya
SP.DR.29JhApril, 2008
66, These three consent orders, that is the one dated 9th April, 2008 in HCCC
No.1111/2003 and the other two both filed in HCCC No. 589/99, one dated 9th
April, 2008 and filed on 14th April, 2008 and the other dated 29th April. 2008 and
filed on the same day, have raised serious issues and in fact also grave doubts in
respect of the legality of the actions as well as the true intentions of CBK. We
enumerate below the issues raised by the three orders:
1. Did the Registration of Settlement dated 9th April, 2008 and filed in
Court on 9thApril, 2008 in HCCC No.1111/2003 transfer ownership of
the Hotel, that is of the plot of land being 209/9514, to CBK?
Did the consent agreement dated 9th April, 2008 and filed in Court on
14th April, 2008 in HCCC No.589/99 transfer ownership of the afore-
described Hotel and the business to CBK?
Did the above consent agreement result in a final settlement and
termination of the said suit HCCC No. 589/99?
Were the proceedings of 29thApril I 2008 in HCCC No, 589/99 null and
2.
3.
4.
void?
36
-
! I
f!I!!
6.
Did the advocates misrepresent facts daring. the said proceedings of
29th April, 2008 in HCCC No.589/99 and if so were the consequential
orders and actions that followed tainted with illegality to such an extent
as to render the sale of the Hotel a nullity?
Were the injunctive orders granted by the High Court in HCCC
No.589/99 affected in any way by any of-the above consent orders?
5.
.:."~.. -.
." .
.,
67. On the 1st issue enumerated above, the cruciaJparts of the settlement on the
question of the transfer of the Hotel is clause. 1 Wlth its two sub-sections. On a
careful perusal of clause 1 and its two subsections it is clear that what has been. .,
achieved is an agreement by both Mr. 'Pattni and UHDL to relinquish their
ownership and to transfer the ownership of LR 209/9514 including the Hotel and
everything that was a part of it or belonged to it to CBK and for the Deputy
Registrar of the High Court to execute all the necessary transfer documents in
default of Mr. Pattni and/or UHDL doing so. In other words it is an agreement
awaiting completion and signing of actual documents of transfer. Our view is that
the Hotel was not in actual fact transferred to the CBK by this settlement.
Although all that was needed was the processing and registration of documents
of transfer by CBK as had been expected by KACC.
68. The 2nd issue relates to the 1st consent agreement dated 9th April, 2008 which
was filed on 14th April, 2008 in HCCC No.589/99. There are four plaintiffs in this
suit including UHDL and Mr. Pattni as 1st and 2nd plaintiffs. The three defendants
are CBK, Deposit Protection Fund Board and Mr.. Joseph Kittony as 1st, 2nd and
3rd defendants respectively. In the commencing sentence of clause 1 of this.-
agreement Mr. Pattni, the 2ndplaintiff is described as the 1s1defendant and UHDL,
the 1S1plaintiff is described as the 2nd defendant. This misdescription of the
parties concerned is not, however, of much grave consequence in our view
because the names of the two defendants who actually are the first two plaintiffs
37
""~ .-
...
~
that is Mr. Pattni and UHDL have also been given in the commencing sentence
thereby clearly indicating that the two plaintiffs who are the real participants in the
consent agreement are UHDL and Mr. Pattni.
69. The commencing sentence of clause 1 clearly states that Mr. Pattni and
UHDL do hereby:-. .
(i) Relinqui~h, assign; reconvey .of otherWise transfer ownership and all their. .
rights and interest in the propertyb It is clear.from clause 1 that MIs Pattni
and UHDL, by the fact of signing the consent order, have actuallv relinauished,..assianed, reconveved or otherwise transferred the o~nership of the Hotel to CBK
under this consent agreement. The p,osition is not'that of "hereby agree to ...b8.
as contained in the Settlement filed in HCCC No.1111/2003 but now the position
is that MIs Pattni and UHDL in HCCC No. No.589/99 "do hereby relinquish,
assign b It is not the question of MIs Pattni and UHDL "hereby agreeing to
relinquish" but the position is that MIs Pattnf and UHDL have "hereby
relinquished" the ownership. In consequence of this consent order filed on 14th
April, 2008 CBK had become the de facto owner of plot 209/9514 and the Hotel
building standing thereon.
70. We shall consider the 3rdand 4th issues together. We note that in clause 4 of
the consent agreement in HCCC No.589/99 it is stated as follows:
"The plaintiffs and the 1s1and 2nddefendants hereby discontinue the entire
suit No.589 of 1999 and all pending applications thereinb.
The words used in this clause are simple and emphatic, and the question of there
being a possibility of different interpretations does not arise. The entire suit
No.589 of 1999 between MIs Pattni and UHDL as plaintiffs and CBK and the 2nd
defendants stood terminated as between them. In that case the proceedings of
29th April, 2008 before the Senior Principal Deputy Registrar in which the above
parties withdrew the consent agreement recorded on 14th April, 2008 and
38
.--- -
.~
-I
II-I
substituted it with another consent agreement of a substantially different nature
would appear to be not only irregular but of doubtful legal validity. The
Commission is not competent to make a legal finding and we are not doing so,
but cannot refrain from expressing our concern over the manner in which the
agreement dated 291hApril, 2008 came to be recorded.
JI~
... ~
71. Coming now to the 51hissue what the advocates told the Senior Principal
Deputy Registrar was that they had recorded a consent with serious
typographical errors; the consent had referred to the defendants as plaintiffs and
the plaintiffs as the defendants and they were. therefore by consent withdrawing. ~
it. The Court thereby made a "by consene order withdrawing the consent
entered on 14111April) 2008. The consent order recorded by the Court was signed
by Mr. Adan on behalf of the plaintiffs and by Mr. Abuga on behalf of the 1st and
2nddefendants. Mr. Adan then told the Court that they had a new consent. The
Court then proceeded to record the consent which from the handwritten record
made by the Senior Principal Deputy Registrar appears to have been dictated to
him.
72. Under clause 1 of the substituted consent the injunctive orders granted on
2151 April, 1999 by Oguk J restraining CBK from selling or alienating L.R.
No.209/9514 by public auction or by private treaty were vacated. In clause 3 is
contained an undertaking by UHDL and Mr. Pattn; to execute the necessary
transfer instruments. Clause 4 has briefly recorded a settlement of all other
pending claims between the plaintiffs and the 151and 2nddefendants. The suit is
marked settled with no order to costs in clause 5.
73. What the Senior Principal Deputy Registrar was told about the typographical
errors was the misdescription of the 151and 2ndplaintiffs as 2ndand 151defendants
respectively which we have already stated was not a very fundamental error.
39
. -.-.-.--.--
11 i
I 'However, these cannot be described as typographical errors, particularly by
advocates who are trained to be precise in choice of their words. In our view the
errors are as a result of careless drafting and checking of the typed product by
the advocates concerned. However, the more serious aspect of this
misrepresentation is that instead of being confined to a correction of these so
called ~pographical errorsn, the new consent ended into its substitution by a
completely' new agreement between the two' ~Clintitfs and the 1s1 and 2nd
defendants which purported to result in a status G!'uoas far as the ownership of
LR 209/9514 was concerned. That, is it restored .-the ownership back to UHDL
and Mr. Pattni. It also purported to lift the injunctive orders and grant to CBK the
liberty to exercise its statutory power of sale.
74. The issue of greater concern here is not even whether there was
misrepresentation before the Senior Principal Deputy Registrar. What is striking in
the entire transaction is the consistency with which the key actors from CBK were
prepared to mislead whoever they came into contact with about their true
intentions. It could not have done any harm for Mr Abuga and Mr Adan to
truthfully tell the Senior Principal Deputy Registrar that the consent they had
recorded on 14thApril 2008 did not address all the issues and that they wished to
withdraw it and record a different consent. Consistent with the untruths and half-
truths that had been told to the Lands Department, the Valuers, KACC, the Public
Procurement Oversight Authority and the Prime Minister, the Senior Principal
Deputy Registrar was not spared.
75. It is clear that CBK did not want to transfer to itself the ownership of the Hotel.
According to the Governor, Section 52 of the Central Bank of Kenya Act
specifically prohibited CBK from engaging in commercial undertakings. His stand
was that in this matter CBK was acting in its capacity as chargee and not as a
trustee of public assets which would fall under the Public Procurement and
40
( .
~t~
Disposal Regulations or the Privatization Act. We'have already made it clear that
the Commission is not legally competent to decide whether the substitution of
consent agreement filed on 14th April, 2008 by consent agreement filed on 29th
April, 2008 was validly done or not. But we are competent to find that if CBK had
become the registered owner of the Hotel. in accordance with the wish of the
Director of KACC. Justice(Rtd) Aaron Ring~ra, then the charge would
automatically have been extinguished and 'CB~. W~Old no longer have been+ . . . .
entitled to exercise its statutory power of sale u'nder the extinguished charge..That would have rendered the sale conducted unqer the agreement of sale of 5th
May, 2008, to be illegal and the subsequent registration of transfer on 20th June,
2008, to be null and void,
3.2 Differences Between KACC and CBK
76. Following the handing over of the Hotel by Mr. Pattni to the Governor on 9th
April, 2008 a new receiver. Mr Patrick Maina Kamau, was appointed by CBK to
take over the management of the Hotel. As already noted differences had
developed between KACC and CBK on the disposal of the Hotel. KACC was of
the view that it should be sold under the Public Procurement and Disposal Act.
while CBK wanted to initially sell it through UHDL but later decided to sell it under
its charge. To resolve the divergent views, a meeting was held on 23rd April.
2008 at the Governor's office attended by the Governor, the Director of KACC,
Mrs. Sichale, Mr, Adan and Mr. Abuga. The view of the Director of KACC was
that on Registration of the Settlement the. ownership of the Hotel vested in the
CBK and so the sale had to follow the procedure set out in the Public
Procurement and Disposal Act. The Governor on the other hand had maintained
his understanding of the Settlement as being that, apart from removing the two
Receiver/Managers, Mr. Gichohi and Mr. Ndaa, it had merely handed over the
41
,~(;,
management of the Hotel to CBK and not the ownershipS of the Hotel. No
agreement was reached and the divergent views remained.
77. According to Mrs. Sichale, as the Director was leaving the Office of the
Governor he remarked to the Governor that if the property was disposed of
contrary to the law then he riske~ being investigated by KACC, in the way the. '... .
"KACC had been to 'CBK to investigate a former "Governor. r.he KACC Director..
was reported to have added that he hoped that he would not have to do the same..again. Mr. Abuga's version, however, was th~t the Director on leaving the
..
meeting of 23rd April, 2008 was happy that he w~s visiting the Bank under very
friendly circumstances. The Governor agreed ~ith the version given by Mr.
Abuga. adding that he had not been warned or threatened by the KACC Director,
and that such an expression was not consistent with the Ringera that he knew. It
was, however, agreed at the meeting that the lawyers in the team would have a
further meeting to look at the law relating to the disposal.
78. The meeting of 23rd April, 2008 was, therefore, followed by a meeting on 24th
April 2008 at the offices of KACC which was attended by Mr. Abuga, together
with Ms Muthoni Gichohi. Advocate. Mr. Adan and Mrs. Sichale. The issue of the
law applicable to the disposal of public assets, that is the Public Procurement and
Disposal Act, 2005 and the Privatization Act, 2005. were discussed. It was
agreed that the Public Procurement and Disposal Act was not applicable. Mrs.
Sichale in her evidence added that she had studied the Privatization Act after the
meeting of 23rd, and she told the meeting on 24th. that it was under the procedure
prescribed by this Act that the disposal of the Hotel could be accomplished
lawfully. She said further that on hearing her view both Mr. Abuga and Mr. Adan
looked uncomfortable. Mr. Abuga in his evidence did not agree that they had
looked uncomfortable on hearing Mrs. Sichale's views about the applicability of
the Privatization Act, but admitted that there was a mention about this Act and
42
~k
,
that Mrs. Sichale undertook to study it and write to them later. Mr Abuga claimed
that she did not thereafter write to CBK about this Act.
3.3 Libyan Arab African Investment Company Kenya Ltd. (LAICO)
79. The controversy surrounding LAICO is no les~. than that on the sale of the. .. . . . ~.:" -
Grand Reg~ncy Hotel itself. The docur:nerits pro~uced in evidence from the
Registrar of Companies (Ex 53 Vol 2- (c~) show: that the documents for the
incorporation of the Company were lodged at the Companies Registry on 10th
August 2007 by WetangulaJ Adan & Makokha. Advocates. The Certificate of. :
Incorporation No C 143168 was issued on that same day, namely 10th August
2007. Whilst this kind of "efficiency" is commendableJ the issue of concern is that
it is very rare. The speed at which the Company was incorporated is strikingly
similar to the speed at which the Hotel was transferred to the same Company.
80. The evidence of Ms. Polyn Wanja Mucuvi from the Registrar of Companies
was that the above Company was incorporated with a nominal capital of Kshs
100JOOOdivided into 1.000 shares of Kshs 100 each. Initially it had only two
shareholders/directors. namely Ahmed Mohammed Amaer of P.O. Box 10902.
00400 Nairobi and Mohamed Shtewi Maawal of the same address. Each was
allotted one share. Form No 203 (The Particulars of Directors and Secretaries)
which was among the documents presented to the Registrar of Companies, and
on the basis of which the Company was incorporated on 10th August 2007, gave
the nationality of the said Ahmed Mohammed Amaer and Mohamed Shtewi
Maawal as Kenyan. On 27th May 2008. the Company filed with the Registrar of
Companies Form No 203A (Notification of Change of Directors and Secretaries or
in their Particulars), Form No 213 (Return of Allotments) and Company Form No
1 (Form of Annual Return of A Company Having Share Capital), The notification
indicated that with effect from 23rd May 2008. Libyan African Investment
43
iCompany of P.O. Box 91370-81370J Tripoli, Libya, had been appointed a new
director of the Company. Form 213 indicated that the Libyan African Investment
Company had been allotted 998 shares in the Company.
81. One of the most notable things is that Company Form No 1 now indicated
the nationality of the initial two shareholders/directo~Ahmed Mohammed Amaer.-
and Mohamed'Shtewi Maawal as Libyan wh'ilst the Ieco"rds filed on 10th August. t,",
2007 showed they were Kenyan nationals. It is evide.~, therefore, that when CBK
entered into an agreement for the sale of the Hotel toJ.AICO on 5th May 2008, the
Company had only two directors whose nationality was stated in the official
records to be Kenyan." The only discernible connedtion between Libya and the
Company was the word "Libyan in the Company's name. What is even more
striking is that the alleged parent CompanYJ Libyan African Investment Company
of TripoliJ was not a shareholder in LAICO until after LAICO had virtually acquired
the Hotel. One cannot rule out the possibility that LAICO was itself bought by the
"parene at this point, so that the Hotel sale was in fact in two stages.
82, The evidence presented before the Commission to establish the relationship
between LAICO and the Government of Libya consists of press statements and
press reports (Ex 83, 84 and 85). Yet other Press reports also quote officials from
the Libyan Embassy denying knowledge of the transaction. For Example, Ex 82
Vol 2 (n) P. 104 is a report from the Daily Nation which reads as follows:-
"Libyan Investors
A Libyan embassy official, Mr Ahmed Mbarouk , said the mission was
not involved in the transaction, adding that the matter was purely
between investors from his country and the Central Bank of Kenya".
In the absence of more credible evidence of the relationship between LAICO and
the Government of Libya. the Commission is unable to find that LAICO is an
44
L-
r
investment arm of the Government of Libya as it was urged to find by some of the
parties.
3.4 Handover of Hotel to LAICO
83. Mr P~trick Maina Kamau was appointed. by CB..K.}heqReceiver/Managerof the
t.. '.
Hotel after the Registration of Settlement. He fo~lIy took over the Hotel on 17th
April 2008 and managed the same until 24th JulY 2008 when he withdrew his
personnel from the Hotel and handed it over to LAtto, the purchasers.
84. As of 30th June, 2008, the Hotel bank accqunts had approximately KShs
331m made up of Kshs 292,494,254 in Fixed Deposits and KShs 38,494,573 in
Current Accounts. Although the documents supplied by Mr Kamau to the
Commission indicate that CBK had agreed with LAICO that all bank balances as
at 30th June 2008 were to remain with the Vendor (CBK) awaiting the
determination of the status of other assets and liability accounts including
contingent liabilities, on 24th July 2008 CBK instructed Mr Kamau to transfer the
balances in the operating accounts to the purchaser awaiting determination of the
status of the Hotel's books.
..
85. As a result of these new instructions, Mr Kamau handed over KShs
36,510}36.20 to LAICa, being the operating account bank balances as at 30th
June 2008. This money was allegedly left with LAICO to keep the Hotel running.
Whilst CBK tried hard to justify the handing over of the operating accounts to
LAICa, the Commission found this quite odd because CBK and LAICO had
initially agreed that all the Bank Accounts would be held by CBK. Secondly, if this
handing over of the operating account was such an important issue. one would
have expected the Agreement for Sale between CBK and LAICa to provide for it,
4S
~
~~
which it did not. We strongly feel that the Commission was not told the real
reason for leaving behind this amount of money to LAICO.
.. .0:: ..'..~:'"...
.....
.it-
46
---- - -
CHAPTER 4
OTHER ISSUES CONSIDERED
'-.
+ ~. . .
4.1 Was The Sale of The Hotel a Government To Government~... .
Transaction?
86. It was vigorously maintained by the Governor that the sale of the Hotel was
in consequence of an agreement arrived at between the Governments of Kenya
and Libya. His reason for so maintaining was based on the following grounds:
1. The Memorandum of Understanding (MOU), which was the outcome of
the official visit by the President to Libya from 4th to 6th June, 2007 had
been sent to the Governor by the Embassy of Kenya in Tripoli, Libya. In
the MOU there was an expression of desire in both countries to intensify
co-operation in various fields of common interest including trade and
investment, education, scientific and technical co-operation, transport and
communication and energy. Recent interest shown by Libyan investors in
the opportunities available in Kenya was noted, especially in energy as
well as hotel and hospitality sectors. There was a reference in the MOU to
an expression of interest by Libya African Investment Portfolio (LAP) inter
alia to purchase the Grand Regency Hotel which the Kenya Government
had agreed to consider. In our view the MOU was not specifically a
directive for the sale of the Hotel.
2. However, what appeared to have enhanced the importance of this MOU,
according to the Governor, was the fact that subsequently he was
47
. ," r
~
contacted by a Protocol Officer from the Ministry of Foreign Affairs who
sent him a press release on the same visit of the President to Libya. The
Protocol Officer later informed him that the Libyan Ambassador wished to
call on him, which the latter did on 11th September, 2007. The
Ambassador during the discussion expressed an interest by Libyan
investors to invest in Kenya in general and also in the Hotel, and indicated. . .. I .+~..
that a delegation from LAICO would make a follow.u.p. meeting to discuss..
their interest in the Hotel. On accou~t ot-the circulation of the MOU,
contact by the Protocol Officer and the ,above visit, the Governor claimed
to have concluded that the Government. of Kenya had agreed to sell the
Hotel to the Libyan investors,
3. The Governor said that LAICO was a Government company in Libya
under LAP and was registered here as LAICO Kenya Ltd. Later, however,
he attempted to clarify that LAICO was a Libyan Government Company by
saying that LAICO was a subsidiary of LAP in Libya and LAICO was also
registered in Libya. As reported elsewhere in this report however, the
status of LAICO and the relationship with its Uparentb Company or the
Government of Libya are not clear.
;.4. The Governor reiterated CBK's position that this was a Government to
Government transaction because of the MOU and the fact that the Libyan
Ambassador had escorted the LAICO representatives. However, it is
important to note that no representative of the Government of Kenya was
present at any of these meetings, and only CBK officials were present.
The ambassador did not attend any of the subsequent meetings that were
held between CBK and the delegations from LAICO.
48
D'
f'~
,1
87. Despite such a strongly professed belief of this being a Government to
Government transaction) the Govemor refused to accept that the Registration of
Settlement of 9th April) 2008 in HCCC No.1111/2003 and the Consent Order of
14111April, 2008 in HCCC No.589/99 had made the Hotel the property of CBK.
KACC had verbally and in writing advised the Governor that the Registration of
Settlement of 9thApril. 2008 had transferred the oWllership of the Hotel to CBK). .but the Governor insisted that the Hotel still" belon~d to UHDL and, therefore.
was determined to sell the Hotel through UHpL or furough the exercise of CBK's
statutory power of sale. If he held the view that the Hotel was not the property of
CBK, but rather was private property belonging t~ UHDL) then how could he
entertain the belief that the Government of Kenya.had the capacity to sell this..
private property? The Government of Kenya clearly had no basis to get involved
in this transaction in any manner if the Hotel was private property.
88. On his own admission the Governor said that no Government Ministry had
been invited or involved during the meetings with the Libyan delegations. The
Minister for Lands) Hon. James Orengo. said he had no knowledge of what was
taking place. According to Hon. Orengo the proposed sale of the Hotel had never
been considered or discussed by the Cabinet. as would be the case in such
circumstances. He said that if the sale was a Government to Govemment
transaction the Attorney General or his office would have been involved. In our
view there was no convincing evidence or incident which could have given
reasonable ground to consider this a Government to Government transaction.
Spirited submissions by some of the advocates that the actions of CBK
constituted actions of the Government of Kenya did not change the position.
89. On the other hand the entire evidence of the Governor was brimming with the
assertion of this being a Government to Government transaction. That would
seem to suggest other motives. and to cover these he decided to use the non-
49
existent and unbelievable excuse that the sale was a Government to Government
transaction. This excuse enabled him to execute the sale and. with such alacrity
and secrecy. get the transfer registered within less than three working days.
4.2 Was The Transaction Transparent?. ..'..
90. The term Transparent is here used to connors decision-making and actions..
that are open and accountable as opposed to th~e that are mired in secrecy and
opaqueness. .,"..
91. We have already dealt with the manner in;'which the documents relating to
the transfer and registration were presented at the Lands Department. The
emphasis on speed and confidentiality was unusual and unprecedented to such
an extent that the need was felt for a person no less than the Director. Governors
office. Mr. Abuga to personally accompany Mr. Adan, advocate for the
purchasers. LAICQJ to the Lands Office when the documents were presented for
registration. As already noted Mr. Abuga. apart from his other managerial duties,
was the Board Secretary and in charge of Legal Services with several advocates
working under him. The reason for the apparently unusual behaviour on the part
of Mr. Abuga is given by him. that he was following the directions given by the
Governor himself. His presence at the Lands office during the valuation, payment
of the stamp duty and finally registration of the transfer was clearly to ensure that
secrecy, confidentiality and speed were strictly ensured.
92. We agree that the sale and registration of properties conducted by advocates
are normally undertaken and finalized with a certain amount of confidentiality, but
there is nothing abnormal in that type of secrecy or confidentiality. No one wants
his affairs to be made public and an advocate is expected to take care that the
affairs of his client are not revealed to strangers. But it is hardly likely that an
50
.
IF .~'I '~~r
advocate of Mr Abuga1s standing will personally take a transfer document to the
Lands Office for the purposes of registration and virtually spend two or three days
there with each of the officers concerned to ensure that the work involved in the
registration proceeds at speed, without interruption and in absolute confidentiality,
The level of secrecy in this transaction was such that even routine-II
correspondenCe like that applying fo'r C(j~sent to trans(er" and ch~rge the Hotel. . ~
were boldly marked uTOP SECRET AND CONFIDENTI~L" (Ex 82 Vol 2N, p 40),
Our view is that Mr. Abuga's actions do not appear to support transparency in this..
transaction..
..93. The Governor explained that on his appointment as the Governor, he found
the Bank bedeviled by problems arising from the protracted! costly and complex
litigation on the question of the Hotel1s ownership, and the fact that the CBK had
not been involved in its management and had not received a single cent from the
Hotel's operations since 1999. All these factors called for urgent and decisive
steps in the interest of both CBK and the general public.
94. He pointed out that since 1994. CBK had time and again attempted to
dispose of the Hotel but had been defeated by the injunctive orders issued by the
High Court. In 1997 there was a proposed sale at an agreed price of
approximately KShs. 2.1 billion which failed to go through after a deposit of
KShs. 210 million had been paid. The matter was in Court for a refund of the
KShs. 210 million that had been paid. He said the feaC'that similar interruptions
might cause the collapse of this transaction with LAICO had made him decide to
maintain secrecy from the media and the public and to proceed with expedition
after all the necessary details concerning the sale were finally agreed. r
95. The Governor said that he had kept the Treasury informed of the
developments at every stage! and in any case the Permanent Secretary to the
51
I...1:11;1).1 :..
I
--,._"-
Treasury was a member of the Bank's Board, The Governor stated that he had
also kept briefing the Finance Minister both verbally and in writing, though he
seemed uncertain how often he had done so. He was emphatic that he had
briefed the Minister on several occasions, but when pressed on the number of
written briefs he had given to the Minister he could only refer to the Confidential
Brief. As. for the statement made by the Minist~r in Parliament the Governor said
that statement was based on the same facts on~hich his press statement of 220d
April, 2008 was made. The Govemor further stated that he had briefed the Prime
Minister verbally on 23rd April) '2008 when he h~nded him the Confidential Brief.
A copy of this Confidential Brief was also received by the Director of KACe to
which the latter had responded in writing on 22m(April, 2008.
96. On the sale of the Hotel the Governor said that as chargee CBK was keen on
ensuring the following:
(a)
(b)
that sale is conducted within the relevant laws and concluded
expeditiously
that the Hotel is sold as a going concern in order to protect the jobs of
the more than 400 Kenyans working at the Hotel.
97. To achieve the above purposes the Governor said that CBK had the
following two options;-
~.!01
(a) Sale by Public Auction: This, the Governor feared, would have
entailed the services of an auctioheer who would also have been
entitled to his commission based on the sale price. Further in a Public
Auction without any prior negotiations between the parties it would not
have been possible to sell the Hotel as a going concern.
52
", ~:I,
Sale by Private Treaty by CBK as the Chargee: CBK as the
chargee found this the more advantageous option of the two for
reasons which the Governor gave as follows:
(b)
(i)
(ii)
(iii)
(iv)
On the basis of the valuation reports of the three valuers
CBK. was in a position to ne:Qotiate a sale price which was'f". :".
considerably higher than t~ current open market value of.the Hotel. '.
The Hotel was to be sold as..a going concern and hence the
security of the jobs of its over 400 employees would have.~
been ensured.
CBK would not be obligated to make any warranties to the
purchasers in respect of the condition or suitability of the
property for any purposes whatsoever.
There was agreement on the terms and conditions of the
sale and therefore the transaction would be carried out in a
very amicable and expeditious manner,
For the above reasons the Governor said that CBK had opted to sell the Hotel by
private treaty.
98. We have carefully considered the method adopted by CBK to dispose of the
Hotel and the reasons given by the Governor for the adoption of "Sale by Private
Treaty" option. We are unable to subscribe to the Governors views on the
options available to CBK. On the basis of the evidence before the CommissionJ
we do not also accept that there were any credible threats to the sale of the Hotel
by CBK to warrant proceeding with reckless speed and secrecy in the
transaction. As already statedJ the major threat had been removed through the
Settlement with UHDL and Mr Pattni. It is common knowledge that the best price
tlij
53
is obtained through offering the subject property to the highest bidder after an
open and public invitation to all those interested. Mr Kittony's evidence
demonstrated that this had been done in past attempts to sell the Hotel. All that
LAICO would have needed to do to acquire the Hotel was to top the highest bid.
The invitation of public bids also obviates th~ need for auctioneers, and the
payment of their commissions would therefore rlQ\arise. . ;
...'
.99. As regards the need to preserve the jobs of over 400 employees of the Hotel
or freedom from any obligations or warrant(es towards the serviceability or.suitability for the purposes of the business -being carried on, we make the..
following observations:
(1) The jobs of the existing work force could have been ensured by
advertising the sale subject to preservation of the jobs.
(2) Likewise the sale could be made free of any obligation or
warranties.
100. We stress that none of the reasons the Governor gave could either singly or
collectively justify the deprivation of opportunity caused to any other party
interested in purchasing the Hotel. Neither does it justify the loss to CBK and the
public of the opportunity to earn maximum value from the sale of the Hotel. Fear
of obstructions to the sale has no legitimacy) because in the first place the
owners of the Hotel had already handed over the Hotel to CBK. Mr. Kittony who
was said to have a claim had not shown an)' serious interest either way in the
transaction. One of the Receiver/Managers, Mr. Gichohi) had filed a suit on 3rd
July, 2008 against UHDL, CBK and LAICO, but we are of the view that his claim
would not have thrown CBK into a panic, such that it would rush the sale of the
Hotel.
54
~..-~
101. We have considered this matter from different perspectives and find that
this transaction was not transparent and further that there was no legitimate
excuse for it to be executed in such secrecy. On the other hand all the evidence
has established that the Hotel had all the while been earmarked to be sold only to
LAICO and to no other party. At every crucial stage steps, some legal and some
not so legal, were taken to en.s,urethe achievement of the sale and transfer of the..Hotel secretly and hastily to LAICO..
4.3 Was the Hotel Sold at an Under-Valued Price?~.
102. The Governor said that at the start of the negotiations he had asked for a
price of US $53 million for the Hotel but he could not explain from where he had
obtained this figure. He was asked why not US $55 million or US $60 million. His
explanation of how he had arrived at his initial asking price of US $53 million was
not credible. He said he had added the highest figure to the lowest figure of the
three valuations and that came to US $53 million.
103. The highest valuation before him was from Ark Consultants Ltd which at
KShs. 70 to the US dollar was equivalent to US $31 million and the lowest
valuation was from Value Zone Ltd and was equivalent to US $23 million. But
added together the total of these valuations would come to US $54 million and
not US $53 million. In any case if the intention of the Governor was to use the
valuation figures to arrive at an average value then the correct arithmetic should
have been to divide the US $54 million by two, or to have added up the three
valuations and then divide the total by three. :rhat would appear to be the logical
way of utilizing the valuation reports to get a meaningful figure from them. Such
an absurd explanation from a person of his stature can only mean that the
Governor was not being truthful as to the source of his figure of US $53 million.
55
{,
1. Hames Watts US$ 60 Million Principal details
Less and Bank
Kshs.150,000,000 References
For moveables Awaited
. ', JI
~....
!JI
104. As we stated earlier we found the valuatio~ "reports by the three valuers
unreliable and of little help to the Commission, The Chief Valuer in the
Department of Lands, Mr. Anthony M. Itui, had visited the Hotel and valued it at
KShs.2 billion. He made it clear that his valuation was for the land and the
permanent improvements. As his was a valuation for purposes of calculating
s,tamp duty only it did not include the valuet of equipment or any other. . . ~I. "'...
immoveables. neither did it include goodwm,~profitability and other such...
I
considerations.-..1
105. We also have the evidence of Mr. Joseph Ki~ony who was appointed as the
Receiver of the Hotel from 15th April. 1994 to'1st April, 1999. He said that in
November, 1994. the Hotel was advertised for sale in both local and international
newspapers. This resulted in several bids which were short listed as follows:
PARTY AMOUNT COMMENTS
2. Hallbourgh Investments
Limited
US$ 45 Million Detailed proposal
submitted to
Central Bank
56
""
.-.
3. FHP International
Assets
Kshs.2.40 Billion Principals details
and Bank
references
awaited
4. Middle Africa
Investments Ltd.
US$ 45 Million'.Confirmation of
earlier bid not'\,. :..
... Received
5. Schilling Holding
Schauffuasen
Kshs.2.6 Bi"ion. Confirmation of
earlier bid not
Received
Switzerland
C/o Boslac Ltd.
Although a sale did not materialize, the bids indicate that the price obtained for
the Hotel in the recent sale was approximately what it would have fetched 13
years ago. When inflation and the general trend of property values over that time
is considered it should be clear that CBK did not realise the best value for the
Hotel. However the more important issue is the flawed process by which the Hotel
was sold.
57
CHAPTER 5
ROLE PLAYED BY PERSONS NAMED IN THE GAZETTE NOTICE
5.1 Hon Amos Kimunya, Former Minister-for Finance.. ..~
106. One of the terms of reference of the Commission was to inquire into the role
played by among other persons. the Minister for Finance in the sale of the Grand
Regency Hotel. At all material times up to the sale of the Hotel. Hon Amos
Kimunya was the Minister for Finance. He was appointed in February 2006 and
held office until 81hJuly 2008 when he stepped down. His stepping down from
office was precipitated by a vote of no confidence by Parliament on 2ndJuly 2008,
which vote was in turn prompted by the sale of the Hotel.
107. When the Commission commenced hearings on 41hAugust 2008, Hon
Kimunya attended in person and was represented before the Commission by
three Advocates, namely Prof Githu Muigai, Mr Kanyi Kimondo and Mr Kamunye
Gichigi. His Advocates informed the Commission that Hon Kimunya was very
anxious to give his evidence before the Commission. By that time. no evidence
had been received by the Commission and Hon Kimunya was offering to be the
first witness.
108. On 51hAugust 2008 Hon Kimunya was still present at the Commission and
his Advocates indicated that their client was ready to present his evidence and
sought to be given priority to do so. The Commission, however decided that it
would first take the evidence of all other witnesses before finally taking the
evidence of the persons specifically mentioned in the Gazette Notice No 6217 so
58
.it
that the persons named could respond to' whatever allegations the other
witnesses made against them.
109. After the Commission completed receiving evidence from all the other
witnesses on 29th September 2008, Hon Kimunya changed his mind about
testifying before the Commission. Hjs Advocates informed the Commission that,
having considered the evidence adducedI Ho~ Kimunya would not be testifying
because no witness had made any claims ~r any allegations regarding any
direction issued by the Minister in respect of th~ transaction.....
110. The Commission was mindful of the fact that Hon Kimunya, being one of
the persons specifically mentioned in the Gazette whose role in the transaction
was under investigation I could not be compelled to give evidence against himself.
In any event, Rule 12 of the Commission's Rules and Procedures allow the
Commission to consider all the evidence available and to make a report and
appropriate recommendations even where a person who ;s mentioned in the
Gazette, and has also been duly notified, fails to attend before the Commission.
111. The Governor testified that throughout the transaction, he briefed Hon
Kimunya on developments about the Hotel. The briefs were both oral and written.
However the only written brief from the Governor availed to the Commission was
the Confidential Brief. The Governor stated that this document was written some
time in April but before 22ndApril 2008. Hon Kimunya's advocatesJ in their cross
examination of the Governor did not challenge the fact that the Minister was kept
briefed on developments about the Hotel.
112. On 2310 April 2008J Hon Gitobu Imanyara, MP for Imenti Central, sought a
Ministerial Statement in Parliament from the Minister for Finance regarding the
Grand Regency Hotel. Specifically he wanted to know two things:-
59
, i
-~I",t?
(a) Whether UHDL and the CBK had sold or were in the process of
selling the Grand Regency Hotel to a company known as Meridian
Arab African Investment Company (MAAIC); and
(b) Whether the Government of Kenya had agreed to withdraw all civil
and criminal cases revolving around one Kamlesh Pattni and his
Companies, (Ex 81 Vol 2 (g) P 104). .'.
.~
113. On 29th April 2008, Hon Kimunya iss~ed a Ministerial Statement in
Parliament in response to Hon Imanyara's re"quest He gave the background
information on the Hotel and what he called the Ucurrent statusD, He stated,
among other things:-
(a) That he had directed CBK to move and dispose of the Hotel at the
earliest opportunity;
(b)That CBK would be selling the Hotel under its statutory power of
sale;
(c) That the public is assured that the sale value of the Hotel will not be
less than the highest open market value obtained during the
valuation of the Hotel;
(d) That the Government had a keen interest in the sale and that the
Minister would consult and guide CBK in the sale process in order
to ensure that the sale is conducted in the most expeditious and
cost efficient manner. (Ex 81 Vol 2 (g) P 103),
114. Responding specifically to the issues raised by Hon Imanyara, Hon
Kimunya stated:-
60
(a) It is not true that the Hotel has been sold to Meridian Arab African
Investment Company (MAAIC) as claimed by Hon, lmanyara in this
House last week.
(b) It is not true that the Governmenthasgivenamnesty to Kamlesh
Pattn; and his associated Companies,
115. The Evidenc~ before the Commission sh9~ that pri?r to the date when the
issue of the Hotel was raised in Parliament o.n 23rd April" 2008, a lot had taken
place towards the sale of the Hotel to kAICO, These are some of the
developments:- ..
(a) By a letter dated 131hSeptember 2007 addressed to Wetang1ula) Adan)
Makokha & Company Advocates and copied to the Governor CBK and the
Attorney General) Kamlesh Pattni instructed his said advocates "to negotiate
on my behalf and my associate companies on a without prejudice basis
with Central Bank of Kenya with the view of selling Grand Regency Hotel
jointly by Central Bank of Kenya and Uhuru Highway Development
Limited to Libyan Arab African Investment Company Limited as part of a
Global settlement between us and the concerned Government
institutions."
(b) On 30thOctober 2007 at its 342ndBoard of Directors Meeting, the Board of
CBK was informed about this letter from Mr Pattni. The Board noted the report
and asked the management to pursue the matter but with caution.
(c) The Minutes of 14th December 2007 and 121hFebruary 2008 show the
CBK Board being informed that consultations with Pattni's advocates on the
proposed sale of the Hotel were ongoing,
61
.~
,
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(d) The Minutes of the 345th Meeting of the CBK Board of Directors on 7th
April 2008 are important. This meeting took place barely two days before the
Registration of Settlement in HCCC 1111 of 2003 was filed in the High Court
and the Hotel handed over to CBK. In that meeting, the Board is recorded to
have ~noted that consultations have now reached a critical phase and the
Bank has also earmarked a purchaser for the Hotel who is prepared to buy. ,
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the Hotel as ta going concern' subject to lontract. The Board noted further.that UHDl and Kamlesh Pattni have also: indicated that they will have no
objection to the sale of the Hotel as a goin9 concern and all proceeds of the
sale paid to the Bank,n There is no record in the minutes of the impending. -.handover of the Hotel, or the price already agreed with the earmarked
purchaser, LAICO.
(e) In the same Minutes the Governor;s recorded informing the Board that the
Minister for FinanceJ PS Treasury and Director KACC had been briefed
informally on the matter and the progressJ and have confirmed that the Bank
is on the right track. It is to be noted that the Governor stated that KACC was
briefed about the proposed sale for the first time via the Confidential Brief
which reached KACC around 21stApril 2008.
(f) On 25th March 2008, the Governor had written to LAICO a letter marked
"STRICTL y PRIVATE AND CONFIDENTIAL" whose reference was ~Offer
for the sale of lR No. 209/9514, Grand Regency Hotel, Nairobi". The letter
referred to a request to purchase the Grand Regency HotelJ Nairobi and
confirmed that CBK as chargee of the Hotel was willing to sell the Hotel
subject to contractJ at the purchase price of USD 45 Million. CBK stated also
that the offer was conditional upon the co-operation of UHDl and obtaining of
the requisite approvals.
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(g) On 27th March 2008 CBK instructed' the firm of Muthoni Gichohi &
Company Advocates to act for it in the sale of the Hotel. On 28th March 2008
Muthoni Gichohi & Company Advocates confirmed receipt of the instructions
and informed CBK that they would liaise with the purchaser's advocates. (Ex
81 Vol 2(g) P 94). .(h) In the Confidential Brief the Govemor s~ted that CBK had pushed LAICO
r
to pay a net price of USD 45 Million for the Hotel and that the Libyan Investors...
had agreed to the net price negotiated at the rate of Kshs. 70.00 to the US...
dollar. He added that ~It is therefore the ~ish and desire of CBK to move
swiftly and conclude the deaJD.(Ex 36 Vol 2 (h) page 29).
.e..~ ".
(i) The Govemor testified that he had given this particular brief to the Minister
and the Minister's statement to Parliament was based on this Brief.
U) In his evidence the Governor stated that the Minister for Finance was kept
briefed, both orally and in writing, on all the developments and that the
Minister directed CBK to dispose of the Hotel at the earliest opportunity after
the recording of the Registration of Settlement on 9thApril 2008.
;J
116. We find that the situation as of 29thApril 2008 when Hon Kimunya made his
statement in Parliament was as follows:-
a. CBK had been negotiating the sale of the Hotel to LAICO since
September 2007, a period of close to seven months;
b. CBK had in writing agreed in March 2008 to sell the Hotel to LAICO
for USD 45 Million subject to contract and fulfilment of other
conditions;
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c. LAICO had accepted to buy the Hotel for USD 45 Million;
d. CBK had instructed a firm of advocates to act for it in the sale of the
Hotel and the advocates had confirmed receipt of the instructions;
e. CBK Board had authorised the mari8g~rn~ht ot the Bank to enter. ..
into agreements for the sale of the Hotel with UHDL and the:-earmarked buyers;
f. The Minister himself had after the Registration of Settlement on 9th
April 2008 directed CBK to dispose of the Hotel at the earliest
opportunity. Under the Registration of Settlementl howeverl the
mode of sale of the Hotel contemplated the transfer of the
ownership of the Hotel initially to CBK;
g. On that very day (29th April 2008) CBK and UHDL had recorded a
consent order in HCCC No 589 of 1999 which in CBK's
understanding removed the injunction which had prohibited the sale
and paved the way for the sale of the Hotel to LAICa, by way of
statutory power of sale;
h. The Hotel had not been sold to the Meridian Arab African
Investment CompanYJ but it was in the process of being sold to the
Libyan Arab African Investment Company (note the close
similarities of the names).
i. Although Hon Kimunya was technically correct in his answer to
Parliament he was nevertheless very economical with the truth,
64
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rgiven the great interest that the public had had in the Hotel for the
last fifteen years.
j. As of 29th April 2008, CBK was not only in the process of selling the
Hotel, but it was firmly in the course of selling the Hotel to no one
else but LAICO, with whom it signed a sale agreement a week..
later, on 5th May 2008; ;: .. ..
117. Although the Hon Kimunya was not directly' involved in the sale of the Hotel,
he did not disclose all the critical material fa~~ about the sale of the Hotel to
Parliament and to the people of Kenya on the 29~ April 2008.
--
5.2 Professor Njuguna Ndung'u, Governor of Central Bank of
Kenya.
118. Under the Gazette Notice the Commission was also mandated to inquire
into the role played by the Governor of CBK in the sale of the Hotel. Professor
Njuguna Ndung'u, the Governor of CBK, is the holder of a PhD in Economics
from the University of GothenburgJ Sweden, and Masters' and Bachelor's
degrees in Economics from the University of Nairobi. Prior to his appointment as
the Govemor of CBK he was the Director of Training at the African Economic
Research Consortium. He had also worked as the Regional Programme
Specialist for the Eastern and Southern Africa Regional office, Nairobi, of the
International Development Research Centre, Canada, and at the Kenya Institute
of Public Policy Research and Analysis as a Principal Analyst/Researcher, Head
of the Macro Economic Modeling Division.
119. From all the evidence before the Commission, including his own evidence,
Prof Ndung'u played a singularly central role in the sale of the Grand Regency65
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HotelJ both as Governor of CBK and as the Chairman of its Board of Directors.
Most of this report details the Governor's role in the transaction, but this is further
highlighted in the following chapters:
(a) Chapter 4.1 - Did the sale Constitute a Government to
Government Transaction?.'.."
(b)
(c)
Chapter 4.2 -
Chapter 4,3 -
valued Price?
Was the Transaction~Transparent?
Was the Grand Regency Hotel sold at an under-..,...
120, As stated elsewhere in this repprt events"towards the sale of the Hotel to
LAICO started some time in September 2007J When according to the Governor
he received a copy of the MOUJ was contacted by the Protocol Officer from the
Ministry of Foreign Affairs and met the Libyan Ambassador on 11th September
2007. Surprisingly these events were not reported to the CBK Board meeting of
30th October 2007 I when there was a related report on Mr Pattni's letter of 13th
September 2007 proposing negotiations towards the sale of the Hotel to ULibyan
Arab African Investment Company", The Governor told the Commission that he
subsequently had meetings with Libyan delegationsJ including one on 7lh
December 2007, which he claimed were attended by other CBK officials.
However, the only other CBK official who seemed to have had any involvement
with this issueJ Mr Abuga, told the Commission that he never attended any
meetings with the Libyans and that only the Governor met them.
121. It is in evidence that some time in January 2008, the Governor invited
KACC to a meeting ostensibly to explore a proposal for settlement regarding the
Hotel from Mr Pattni. The discussions eventually led to the Registration of
Settlement in April 2008 that resulted in the handover of the Hotel to CBK, In the
meantime the Governor had written to valuers on 21s1January 2008 to value the
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Hotel for accounting purposes. No doubt negotiations between the Governor
and LAICO had also been progressing, and some form of understanding must
have been reached, because the Governor wrote to LAICO on 25th March 2008
accepting their offer to buy the Hotel for US $45 million. On 27th March 2008 he
had also written to Muthoni Gichohi and Company, Advocates. instructing them.to act for CBK in the sale of the Hotel. None of these developments was brought
. ... . .to the attention of KACC, who were "at tha~~time engaged with CBK in...'.
negotiations with Mr Pattni over the Hotel. .
"122. None of the developments seem to have been shared with the CBK Board
.8
either. It was not until April 200B that there were"oblique references in briefings
to the Board on what was happening. In minute No. 4039 of the Board minutes
of the 345111meeting on 71hApril 2008, it was reported, QThe Board was further
informed that consultations with Wetangula, Adan. Makokha and Company.
Advocates. acting for Kamlesh Mansukhlal Pattni (KMP) with regard to the
proposed sale of the Grand Regency Hotel are still on goingn. Mention was also
made to the Board of the hiring of valuers and the fact that "the Bank has also
earmarked a purchaser for the Hotel who is prepared to buy the Hotel as a going
concemn. As this was a report to the Board one would be left wondering who "the
Bankn was who had taken an earlier decision to earmark a purchaser, except
from the evidence. Qthe Bankn in this instance could only mean the Governor.
Board resolutions at the same meeting as reported earlier in paragraph 115.d
are equally ambiguous.
123. As earlier reported, fonowing agreement on the Registration of Settlement
to be filed in HCCC No. 1111/2003, KACC had written to the Governor on 8th
April 2008 for his concurrence to the terms agreed. Mr Abuga had assured Mrs
Sichale that the concurrence would be forthcoming and on that basis the
Registration of Settlement was filed in Court and the Hotel duly handed over to
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CBK. Indeed the Governors written concurrence was forwarded to KACC on 21s1
April 2008. In the meantime CBK had prepared the Confidential Brief which was
apparently forwarded to KACC at about the same timel as there is a response to
it from the KACC Director dated 22ndApril 2008. Among other matters the Brief
set out CBK's position that it would not sell the Hotel under the charge. It was
also from the Brief that KACC learnt for the first time that CBK had identified and. .::..'>
.
earmarked a purchaser at an agreed price ~ US $4"5 ""million. In the same.document CBK suggested that the Hotel be ~old through UHDL, stating that
~CBK considers that it will be strategic and of-hatlonal interest """that UHDL
sells the Hotel" ..
124. The position taken by CBK resulted in differences with KACC as already
reported. But thereafter there was an even more drastic change in the
Governor's approach. While the Confidential Brief argued strongly against selling
the Hotel on the basis of the statutory power of sale, the Governor thereafter
proceeded to do just that. He abandoned his proposal that the sale of the Hotel
be made through UHDL and instead he insisted that it had to be through the
CBK's charge over the Hotel. In his evidence to the Commission, the Governor
used exactly the same arguments that he had used against a sale through a
charge in the Confidential Brief, but now to support it.
125. The Director of KACC in his response dated 22nd April. 2008 to the
Confidential Brief informed the Governor that upon the Registration of Settlement
dated 9111Aprill 2008 the ownership of the Hot~1vested in CBK and so it could be
disposed of only under strict adherence to the provisions of the Public
Procurement and Disposal Act. 20051 adding that as the Hotel had been
recovered by CBK it was no longer open to CBK to exercise its statutory power
of sale. The Governor had also accepted the de facto transfer of the ownership
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of the Hotel to CBK through the consent order of 14th Aprill 2008 in HCCC
No.589 of 1999.
126. Despite all that, the Governor had on 29th April, 2008 in HCCC No. 589 of
1999 caused a consent to be recorded purporting to allow CBK to exercise its
statutory power of sale. He seemed to have ~~en well sati~fied by the letter
dated 30th April, 2008 from the' Public PrQcurement o.~ersight Authority
(hereafter PPOA) to the effect that as the Hotel was charged to CBK for
outstanding debts, its title was not held by CBK but by a private entity and so the.process of its disposal was not within the ambi~ of the Public Procurement and
Disposal Act. This advice by PPOA was based on incomplete information
relating to the charge and ownership of the Hotel supplied by the Governor in his
letter of 28th April, 2008. To us this apparent clearance from PPOA was nothing
more than an exercise in public relations by CBK.
127. The Governor had given his unequivocal acceptance of the terms of
settlement in HCCC No. 1111 of 2003, and CBK had likewise accepted
unconditionally the relinquishment of the ownership of the Hotel in its favour. So
on 28th April, 2008 when he wrote the letter to PPOA, although for all purposes
CBK was the de facto owner of the Hotel, the Governor chose not to mention
any of this to PPOA. This was to ensure that the Hotel was sold only to LAICOI
the ear-marked purchaser, and nobody else.
128. Although the Governor had, and perhaps deliberately, presumed that the
sale to LAICO was a Government to Government transaction, he had not
thought it fit to seek the advice from the Attorney General, particularly in view of
his disagreement with the views of the Director of KACC over the method to be
used in the disposal of the Hotel. The need to consult the Attorney General was
even more compelling in view of the undisputed public interest in the Hotel.
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129, A very flimsy excuse that the Governor put forward on many occasions for
CBK not fonnalizing the transfer and registration of the Hotel in its name was the
prohibition imposed by Section 52 of the Central Bank of Kenya Act (Cap 491).
The prohibition, however, is not absolute. We reproduce below the relevant part
of the section.
Sec. 52 UTheBank shall not -
.. .'. .....(a) save as expressly authorized by this Act,.
engage in trade, or own or acquire any' direct interest in any
cQmmercial, agricultural, industrial o~ similar undertaking,
except in the course of obtaining satisf~ction for any debt due
to the Bank, and any such interest shall be disposed of at the
earliest suitable opportunity;"
The section allows owning or acquiring a direct interest in an undertaking subject
only to its disposal at the earliest suitable opportunity. No time limit is set for the
disposal.
130. In our view the performance of the Governor, Professor Njuguna Ndung.u
in the sale of the Hotel revealed the following prominent faults:
~..
~
1.2,
3.
Lack of truthfulness. good faith and credibility.
Lack of transparency.
Absence of acceptable reason for his detennination to sell the Hotel to
LAICO only.
Denial of opportunity to other parties. local or foreign. who might have
been interested in bidding for the Hotel.
Misleading public institutions and the general public regarding every
facet of the sale of the Hotel
4.
5.
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~ 6. Hiding behind the provisions of Section 52 (a) of the Central Bank of
Kenya Act.
5.3 Mr. Kennedy Kaunda Abuga
.;
131. Mr. Kennedy Kaunda Abuga as Board Secre}ary was in fact the Company
Secretary of the Central Bank of Kenya, and was ~'ne.of the persons mentioned
in the Kenya Gazzette for an investigation of his rol~ in the sale of the Hotel.
'f
132, Mr. Abuga, holds a Bachelor of Laws degree~Trom the University of Nairobi
and a Bachelor of Science degree in financial services from the University of
Manchester. He also holds a Diploma in Law, Banking and Mortgage Lending,
and is an associate of the Chartered Institute of Bankers, London. He rose from
the position of Senior Manager, Legal Services when he joined CBK in February
2005, to Assistant Director of Legal Services. On 20th December, 2007 he was
appointed the Board Secretary and eventually on 7th April, 2008 he was
appointed Director, Governor's office.
133. We have already described the part played by Mr Abuga in the negotiations
leading to the settlement of the court cases touching on the Hotel, appearances
in Court in connection with those cases, valuation of the Hotel and registration of
the transfer at the Ministry of Lands. We only wish to add the following
observations on Mr Abuga's role as an Advocate.
134. From his evidence, the sale of the Hotel, at the management level of CBK,
was handled exclusively by the Governor and himself. He also stated that from
time to time the Board was informed of the progress of the transaction. Although
CBK has five lawyers, three of whom are Advocates of the High Court of Kenya
working under Mr. Abuga, none of them was involved in this transaction. Allthe
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legal issues pertaining to the sale of the Hotel were handled by Mr AbugaI
personally.
135.CSK also has a panel of about 25 extemallaw firms that are instructed from
ti~e to time to do its legal work. A law firm, Muthoni Gichohi & CompanyI
Advocates, was instructed by CSK to handle the sale of the Hotel to LAICOI but
th~ role of that law firm ended up being so nomin~1 th~ta lot of.the work that itI
. .
was supposed to do was taken over by Mr Abuga.: '.,.
136. From the evidence before the Commission, Ms Muthoni Gichohi featured in!
.
this transaction only in three instances: She attended a meeting between the
I~wyers of KACC, Kamlesh Pattni, and Mr. Abuga to discuss the mode ofI
disposal of the Hotel, she attended the handing over of the Hotel on 91hApril,J
2008 and she drew the agreement for the sale of the Hotel. Although she wasJ
CSK's advocate for the purposes of the sale, it was Mr. Abuga who corresponded
Jith the Commissioner of Lands seeking consent to transfer and charge the
Jroperty; it was Mr. Abuga who followed the documents for registration at the
Jands Office; and it was Mr. Abuga who transported the valuers to value theI
Hotel, in his private car and later in his official CSK vehicle. When asked where
~s Gichohi was when he was clearly doing her work, Mr Abuga's response was,I
"She could have been in her officen.
137. In HCCC No.589 of 1999, Messrs Murgor & MurgorJ Advocates, were on
)ecord for CSK before 9th AprilJ 2008. On that date, Mr. Abuga filed a Notice ofI-Change of Advocates in that suit replacing Murgor & Murgor Advocates as the
kdvocates for CSK and placing himself on record instead. He had not discussedIthis change with the advocates he was replacing. When asked why he had tojtake over the case himself, Mr. Abuga's answer was that he was instructed by theIGovernor to go on record for the purposes of settling the case because Murgor &
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Murgor, Advocates, were not involved in the negotiations and because it was
necessary '0 move expeditiously and in a confidential manner". Mr. Abuga did
accept that he was not aware of any other instance where an internal CBK lawyer
had placed himself on record as the advocate for CBK in a court case involving
the Bank.
. .
138. The Commission makes th~ following finding,s on the rola -6f Mr Abuga in
this transaction.
a)
b)
Mr. Abuga's presence in the Lands Offi~ for lengthy periods until the.registration of transfer in favour LAICQ: was highly inconsistent with
that of an ordinary advocate discharging a professional duty of this
nature.
His presence at Lands Office was meant to impose undue pressure
and influence for a speedy and secretive registration, given his rank
and position at CBK.
c) The extent of Mr Abuga's personal involvement in the transaction,
extending to personally conveying the valuers of the Lands
Department in his own private car to the Hotel and then back to the
Lands Office in an official CBK car went far beyond mere facilitation of
the transaction.
d) Mr Abuga was extremely untruthful in his dealings with the KACC. He
was happy to mislead KACC that CBK was transferring the Hotel to
itself and approved and supported the filing in Court of a Registration
of Settlement whose terms he knew CBK did not intend to honour
because while all this was going on CBK was busy arranging to sell the
Hotel through UHDL or under its chargee's power to LAICO.
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e) In the entire transaction, Mr Abuga as an Advocate took fairly
contradictory positions which raise serious questions about his true
motives. Although he contended that CBK was affected by HCCC No
1111/2003 which in his view was filed without consulting CBKJ he
never took any steps to enjoin the CBK in:!he suit. While he was happy
to be part of the negotiations for the sett~ent of that suit and in fact
approved the final settlement which cleariy sought to confer benefits
and obligations to CBK, he still maintained that CBK not being a party
to the suit, could not be bound by the Settlement. Nevertheless he
was happy to use the same order, which"in his view did not bind C8K
to have funds held by the Joint Receiver/Managers released to C8K.
f) The preparation and recording in court of the Consent Orders in HCCC
No. 589/1999 to which Mr Abuga was an active participant was done
very causally and recklessly resulting in orders with gaps and basic
contradictions thus necessitating the telling of untruths to a judicial
officer in an attempt to correct the mistakes.
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CHAPTER 6
ROLE PLAYED BY OTHER PERSONS
6.1 The Prime Minister. :~. .,: .."
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139. The only witness who stated that the Prime Minister was briefed about the. ..sale of the Hotel was the Governor. In paragraph :28 of his statement, he stated
that "The Minister for Finance togethe~ will ~II. relevant authorities were
informed of all the developments. Indeed, the Minister for Finance directed
the Central Bank of Kenya to dispose of the subject Hotel at the earliest
opportunity. A briefing was also made to higher authorities including the
Prime Minister"
140. The Governor told the Commission that he personally briefed the Prime
Minister on 23rd April 2008. The briefing according to him entailed updating the
Prime Minister on the history of the matter and on all that had taken place up to
the time of the brief. The briefing was based on the Confidential Brief the
Governor had prepared. If the Governor briefed the Prime Minister on 23rd April,
2008 on the basis of the Confidential Briet then the information given to the
Prime Minister would have suffered from the same inconsistencies which we have
noted earlier about the position of CBK on the sale of the Hotel. As of 23rd April,
2008 CBK had two documents filed in the High Court all seeking to transfer the
Hotel to itself. In the Confidential Brief, CBK had stated categorically that it was
not going to sell the Hotel under the statutory power of sale; it preferred the
registered owner, UHDL itself to sell the Hotel.
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141, With such inconsistent positions on the part of CBK. it is difficult to find that
the Prime Minister was property briefed about the true status of the Hotel. If the
Confidential Brief formed the basis of the brief to the Prime Minister, as the
Governor stated, then it is reasonable to surmise that the Prime Minister was told
that the Hotel would not be sold under the statutory power of sale, because that is
what the Confidential Brief states. .+
.. ..
142. The view that the Prime MInister was not properly briefed is fortified further.by the fact that on 25thApril, 2008, barely two days;~fter the purported brief by the
Governor, the office of the Prime Minister wrote to .fhe Director KACC to Uenquire. ;
from the Commission the true status of the Grand Regency Hotel. in particular,
the current position and beneficial ownership of the title to the hotel". (Ex 36 Vol
2(h) page 46).
143. We find that the Prime Minister was not property briefed by CBK on 23m
April. 2008 or at any other date thereafter.
6.2 The Attorney General
144. The totality of the evidence before the Commission is that the Attorney
General did not play any role in the sale of the Hote1. The evidence of CBK is that
it saw no reason at all to involve the Attorney General in the transaction because
this was a civil matter and CBK has its own team of lawyers who handle its civil
matters.
145. The position taken by CBK about the Attorney General is a further
illustration of the convoluted thinking of CBK. On the one breath CBK was very
assertive that this was a Government to Government transaction, but on the
other, it was determined to completely keep out of the picture the Attorney
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General who is declared by the Constitution of Kenya to be the principal legal
adviser to the Government of Kenya.
6.3 Hon James Orengo, MP, Minister for lands
!t
146. The evidence of Hon James Orengo,. Minist~ for Lands is significant. if for
nothing else, for confirming the great secrecy with Which the sale of the Hotel was
intended to be accomplished. His evidence was thatJ being aware of the great
public interest in the Hotel, he had directed the Commissioner of Lands to ensure
that no steps were taken touching on the Hotel. Hi was surprised to learn on 25th
June 2008 that an instrument had been registered transferring the Hotel. His
Permanent Secretary was also not aware of the transfer of the Hotel. He
thereafter called several press conferences and disclosed to the public that the
Hotel had been sold. On 30th June 2008, he directed that a caveat be entered on
LR No 209/9514J which was duly done. Hon Orengo was put to task about
obvious inaccuracies in his press conferences, the basis of his opinion on the
value of the Hotel and the legality of the powers he had asserted to instruct that a
caveat be placed on the Hotel's title.
147. Before the Commission, Hon Orengo was painted in two distinct and
contrasting images. One was a very flattering image of a champion for
transparency, accountability and scrupulous adherence to procedure. the person
who blew the whistle on the Grand Regency Hotel scandal and was bold enough
to take a public stand on the disposal of the Hotel. The other was an unflattering
image of an impulsiveJ publicity-seeking person, who readily usurped the powers
of his Registrars, did not care to establish the facts or consult his Cabinet
colleagues and did not think twice about scaring foreign investors from the
Country.
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148. The truth possibly lies somewhere in between. However, granted the great
secrecy and the many unanswered questions surrounding this transaction, the
course of action taken by Hon James Orengo is easily understandable. There is
no doubt that but for his press conferences) the public would not have known the
details of this sale at all or at the time it did..~:'. .+~..'fI...
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CHAPTER 7
SUMMARY OF FINDINGS AND RECOMMENDATIONS
7.1 Summary Qf Findings.... .
..~
...!
The Hon Amos Kimunya
149. The Hon Amos Kimunya was not directly involved in the sale of the Hotel.
However, he was briefed about what CBK was doing towards the disposal of the
Hotel to LAICO. On 29thApril 2008. he did not give Parliament and the people of
Kenya the true picture on the impending sale of the Hotel to LAICO. As the
Minister responsible for the affairs of the CBK) he must take responsibility for the
questionable disposal of the Hotel.
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Prof Njuguna Ndungu
150. Prof Njuguna Ndungu was not truthful to other public institutions, namely
the Kenya Anti-Corruption Commission. the Commissioner for Lands, the Public
Procurement Oversight Authority and the Prime Minister about the sale of the
Hotel. Even the valuers who were instructed to value the hotel were not told the
purpose for which the valuation was being undertaken. At CBK he and Mr Abuga
were solely responsible for the disposal of the Hotel. His conduct was contrary to
S 18 of the Public Officer Ethics Act which provides:QApublic officer shall not
knowingly give false or misleading information to members of the public or to any
other pubic officer". The Governor must take responsibility for the disposal of the
hotel in a secretive and questionable manner.
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Mr Kennedy Kaunda Abuga
151. Mr Kennedy Kaunda Abuga acted in concert with the Govemor to rush the
sale of the Hotel while at the same time keeping it a close secret. He was only too
willing to carry out all the wishes of the Governor relating to the disposal of the.Hotel without offering independent professional opinion. His conduct was also.contrary to S 18 of the Public Officer Ethics Act. . ..
The Grand Regency Hotel
The registration of the transfer ofthe Hotel to LAI~ appears to have been done
within the provisions of the law. However, the' Commission finds the entire
transaction tainted with misrepresentation and deception to such an extent as to
warrant specialised investigation by the Attorney General and other relevant
institutions into the bona fides of the purchaser and other aspects of the
transaction. The Commission so recommends.
7.2 Recommendations
The Public Procurement and Disposal Act
152. The Public Procurement and Disposal Act. 2005 prescribes procedures and
sets standards for public entities to ensure that procurements and disposals
maxi mise economy and efficiency, promote integrity, competition, fairness and
inspire public confidence.
153. The Act however has obvious lacunae and various provisions which are
mutually inconsistent. These gaps and contradictions undermine certainty and
ultimately the good objectives of the Act.
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154. While the Preamble to the Act provides that the Act applies among other
things to disposal of "assets~ of a public entity, the substantive provisions of the
Act limit applicability of the Act only to disposal of "unserviceable, obsolete or
surplus stores and equipment~ (8 2,8 4(d), and 8 126).
I~. ~ .
155. The Act defines "procurementn by a public.entity~o mclude acquisition of. ..
real property. However by limiting "disposal~ under the Act to disposal of
unserviceable! obsolete or surplus stores, there is a s~rious lacuna about how
real property procured by a public entity is to be disposed-of under the Act.
156. These provisions lead to an undesirable pos~ion where a public entity is
obliged to follow the Act in procuring real property, but it is free to ignore the Act
when disposing of that real property, since real property is clearly not
"unserviceable! obsolete or surplus stores and equipmene.
157. Even if the Grand Regency Hotel was ultimately transferred and registered
in the name of the Central Bank of Kenya, the Bank could have easily
circumvented the Public Procurement and Disposal Act in the disposal of the
Hotel on ground that the Hotel is not unserviceable! obsolete or surplus stores
and equipment.
158, The Public Procurement and Disposal Act should urgently be amended to
remove these gaps and uncertainties.
The Central Bank of Kenya Act
159. In line with accepted international best practice, the Central Bank of Kenya
Act, Cap 491 seeks among other things to guarantee the autonomy of CBK
particularly in the formulation of monetary policy.
81
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~.
160. While this objective of the Act is readily understandable and must be
safeguarded, nevertheless the relationship between the Governor and the Board
of CBK in practice leaves a lot to be desired.
,.. ,.. . 'L.
161, S. 13 of the Act constitutes the Governor the chief ~x~cutive officer of the, . .
Bank, its principal representative and the person responsib~ for its management.,I'
8 11 and 8 12 constitute 'the Governor a member and the chairman of the Board
of Directors and vest in him the responsibility for convening the meetings of the
Board "not less than once in every two months, or whenever the business of the
Bank so requires, or whenever he is so requested in writing by at least three
directorsn.
162. The functions of the Board include "keeping under constant review the
performance of the Governor in discharging the responsibility of that office (8.10
(d)) and "keeping under constant review the performance of the Governor in
ensuring that the Bank achieves its objectivesn (8.10 (e)).
163. From the evidence, the Board of CBK was given very sketchy information
about the disposal of the Hotel. We have noted that at the level of management
~- the sale of the hotel was handled exclusively by the Governor and Mr Abuga. The
role of the Board was reduced to that of ratifying decisions of these two officers.
164. With the current set up and practice, it is very doubtful whether the Board
can effectively discharge its statutory responsibilities to review and check any
excesses of the Governor, who happens to be its Chairman.
165. The Judicial Commission of Inquiry into the Goldenberg Affair (The Bosire
Commission) expressed similar concerns about the relationship between the
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I Governor and the Board (Para 833) and we regret to note that its
recommendations in this respect! which we share. have not been acted upon.
166. The Commission has noted that the Draft Constitution, 2005 had made
elaborate provisions on the Central Bank, which would go a long way to address
the shortcomings noted about the management of the Bank. The Constitution
created the CBK and spelt out its functions. Tha qualifications fot appointment as
Governor were spelt out (unlike under the current position) and. the Governor and'..the members of the Board were to be appointed b~ the President subject to the
approval of Parliament.. .
167. The Commission recommends adoption of the arrangement proposed in the
Draft Constitution.
Dated at Nairobi this day of 2008,
Chief Justice (Rtd) Abdul Majid Cockar,
Chairman.
Mr, Charles Arap-Kirui,
Commissioner.
Mr Kathurima M'lnoti!
Commissioner.
tI
IIjj
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