Kenyan corruption case a step forward for odious debts campaign

(December 12, 2006) An International Centre for the Settlement of Investment Disputes tribunal has struck out a lawsuit against the Kenyan government over a contract dispute after it discovered the contract had been secured illegally through a US$2 million bribe paid to former President Daniel arap Moi.

Although the complainant, Nasir Ibrahim Ali, a Dubai-based Canadian businessman, alleges that the payment was a “personal donation” made to Mr. Moi for public purposes, the ICSID tribunal found that the “donation” was indeed a bribe and that bribery constituted a breach of international public policy, as well as of English and Kenyan public policy. Mr Ali could not turn to a legal body as a means to enforce his rights secured through a breach of international public policy or, in the tribunal’s words, he could not “found a cause of action on an immoral or illegal act.” The tribunal thus ruled that, “claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal.”

Legal experts, Ashfaq Khalfan and Jeff King, of the Canadian based Centre for International Sustainable Development Law (CISDL), and co-authors of the 2003 landmark analysis [PDF] of the legal doctrine of odious debts, say the tribunal’s ruling is an important one for the global campaign.

“This case,” says Mr. King [PDF] , “adds to precedent such as the Tinoco Arbitration (1924) and numerous international conventions in clarifying that contracts for personal enrichment, or those procured by bribery, are against international public policy and are thus unenforceable.”

In addition, says Mr. Khalfan [PDF] , by distinguishing between the acts of the Kenyan President and those of the Republic of Kenya, the ruling contributes an important precedent to the odious debts jurisprudence. The decision by the World Bank-established tribunal upheld the principle that the president of Kenya was acting as an agent of the State of Kenya and as such, it was not assumed that his acts were automatically to be deemed the acts of Kenya. “This decision dissolves the fiction,” says Jeff King, “that a head of state is capable of binding the state to any sort of contract.”

The case

In his witness statement, Mr. Ali claimed that in 1989 he approached Mombasa tycoon Rashid Sajjad to express interest in investing in Kenya. Mr. Ali wanted to win government approval to establish duty free shops at Kenya’s international airports in Nairobi and Mombasa.

Mr. Ali said he was advised by Mr. Sajjad that protocol in Kenya required him to make a donation to the President, Daniel arap Moi.

Mr. Ali agreed to pay US$2 million to Mr. Moi on the understanding that the money was considered a personal donation made to the president within the framework of the Kenyan system of Harambee (voluntary contributions).

“I was given to believe that this was payment for doing business with the Government of Kenya,” said Mr. Ali. “I was advised that the donation should be in cash.”

According to Mr. Ali, he transferred the $2 million to Mr. Sajjad’s account before his meeting with Mr. Moi. A large portion of the money was then changed into Kenyan shillings, placed in a briefcase and carried by Mr. Sajjad to the meeting.

After the meeting, Mr. Ali said that when he went to collect the briefcase he found the money replaced with fresh corn: a sign, Mr. Sajjad assured him, that “the president likes your proposal.”

In response, the tribunal said it was “aware of the fact that, on the occasion of visits to heads of State, gifts are often exchanged as a matter of protocol,” and then quoted a 2003 report by the Task Force on Public Collections (or Harambees), which had found that “over the years, the spirit of Harambee [had] undergone a metamorphosis which [had] resulted in gross absues . . . linked to the emergence of oppressive and extortionist practices and entrenchment of corruption and abuse of office.”

The tribunal rejected Mr. Ali’s argument that Mr. Moi had been “one of the remaining Big Men of Africa who, under the one party state Constitution, was entitled to say, like Louis XIV, that he was the State,” as unfounded since under Kenyan and English law, which Mr. Ali was relying on, the president was regarded as being bound by the law and the constitution.

In dismissing Mr. Ali’s claim for restitution, the tribunal said it declined to recognise “any local custom in Kenya purporting to validate bribery committed by [Mr. Ali] in violation of international public policy” and ruled that the bribe could not be considered a separate agreement and was “an intrinsic part of the overall transaction, without which no contract would have been concluded between the parties.” According to Jeff King, this means “that where some obligation undertaken by the debtor can be shown to have been procured by a bribe, the entire obligation will become voidable at the behest of the debtor.”

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