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Commission of Inquiry Into

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I: I

The Sale of the Grand Regency Hotel Chainnan: The Hon. Mr. Justice (Rtd.) Majid Cockar
Commissioners: Mr. Charles Arap-Kirui, Mr. Kathurima M'!noti
.f

, :1 r I
J ~ L r ~.
ij lij I

~. I I

..

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 to this report. You also

specific tenns of reference which we have reproduced in the introduction 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

.j

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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 THE GRAND REGENCY HOTEL CONTENTS Chapter ACKNOWLEDGEMENTS 1. INTRODUCTION
Page

iii

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1.1 Appointment of Commission 1.2 The origins of the Grand Regency Hotel Saga

1 5

2. HEARING OF EVIDENCE 2.1 Ministry of Lands Officials 2.2 Kenya Anti-Corruption Commission (KACe) .. 2.3 Public Procurement Oversight Authority 2.4 Valuers and Valuation Reports 2.5 Receiver/Managers 2.6. Kamlesh Mansukhlal Pattni 2.7 Kennedy Kaunda Abuga 2.8 Professor Njuguna Ndung'u 3. DISPOSAL OF HOTEL 3.1 3.2 3.3 3.4 The Three Consent Orders Differences Between KACC and Central Bank of Kenya (CBK) Libyan Arab African Investment Company Kenya Ltd (LAICO) Handover of Hotel to LAICO 26 41 43 45 8 11 14 15 21 22 24 24

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. MP 5.2 Professor Njuguna Ndung'u, Governor of CBK 5.3 Mr Kennedy Kaunda Abuga, Board Secr~tary of CBK 6. ROLE PLAYED BY OTHER PERSONS 6.1 The Prime Minister 6.2 The Attorney General 6.3 Hon James Orengo, MP, Minister for Lands 75 76 77 58 65 71 47 50 55

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7. SUMMARY OF FINDINGS AND RECOMMENDATIONS 7.1 Summary of Findings Hon Amos Kimunya Professor Njuguna Ndung'u Mr Kennedy Kaunda Abuga The Grand Regency Hotel
7.2 Recommendations

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79 79 80 80
"-

The Public Procurement and Dispo(al Act The Central Bank of Kenya Act

80 81
A-J

:..
APPENDICES

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 :..
I!

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.

!' f I

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. 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.

I I
j

We wish to thank all the staff of the Commission for their dedication and commitment.

III

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SPECIAL ISSUE

APPENDIX "A"

i
~

T.HE KENYA GAZETTE

PubliShed by Authority of the Repeblic of Keuya
(Registered

as aNe~spaper

at the G.P.O.)'

..

Vol. eX-No.
GAZETTE NanCE

54

NAIROBI, 11th July, 2008

P.rice SJL ~O

NO. 6216 OF INQUIRY ACT

Comrnander-in-clJler of the Armed Forces of the Republic of Kenya, do direct me commissionen to bold: an hlquiry with immediate-effect. (Cap: 102) I. The tenus of rd'erencc sball be 10lcading to the sale of the Gl1I.nd for Finance, lite '

TIlE COMMISSIONS

COMMISSIONS

OF INQUIRY INTO TIlE SALE OF THE GRAND REGENCY HOTEL .APPOINNENT

(a) inquire into the circumstances Regency Hoyel; (b) hiquire

into the !tile played by the Minister

IN EXEROSE of .1211: powm eoDfemd by section 3 of !he Commissions or Inquiry Mt, I, Mwai Kibald, President IIIId
COlllJ!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 II wnuniuion of inquiry to inqui~ into 'the BIlle.of the Grand Regency Hotel to be bead byJumce (Rid.) Majid Caekat'. and 2.

Governor of the C;ennl Bank Df K~nya, the Company Secreta!')' 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 ~c:cssary in fulfilling the foregoinr tenn. of rcfcrencc; (d) ~commend suc:h legal or administrative measUres deem as the

Commission may d~em necessary, and to report. its findings and recommcndatiOll5 within one (1) month. In the discharge of il3 DwUfate, ihe Commission may:'" written n:levant

as the OiaiJpcnon. Charles Kirui, kathurima

M'Inod. md Ombwayo. ud

III the Commissionm, Anthony as the Scc~wy Otmg!o

(D) JUCive view from members of the public and ~eive anellor on! sbl.temcnb f!tlm any person with information, an~ may(i) use any previous "=pdrb hi the matter, .

tD !he Commission.

(Ii) receive e)[pert opinion in any relc:vant 1LlU$; (b) detennine phUl; its nlles of pl'OCedu~ and develop its own won:

Wilfred NYanlu)fad.
to ibe COIfll!lissiOIL MW AI KlBAKI, Dated the 10th July, 2008.

tD be Counsel

(c) publi.b its nile. of procedure

in th~ Kenya Gar.ette;

Pnsidenr.

(d) .unllnon any person or persons concerned to testify on oath and to produce any b:ooks, vBlulllions or any other documents that the coounissionen may requi~; (e) hold the inquiry In Nairobi;

GA2'.E'IiENanCENo.62.17 TIlE COMMISSIONS OF INQUIRY ACT (f) hold the inquiry in public lIut may whenever it becomes n~c:essuy. hold private heBJings

(Cap. 1(2)
COMMISSIONS Of INQUIRY

3. The Commission shall have all the pow~n necessary or e)[pcdicnt ID effectively discharge its mandate, including the power to require cD-OpCration from public officers from relevanr Jnsti tutions.
Dated the 1Oth.July, 20OS.

CITATION A COMMISSION 10inquirc into the sale of Grand Rellency Hotel. IN EXERCISE of the powers conferrcd by section 3 of lite Commissions of Ii:Iquiry Act, I. Mwai Kibalci, President and

MWAf KIBAKf,

President.
[1 731

PRINTED

A~ID PUB!.ISHED

BY THE GOVE1L"IMEm

PPJNTER.

NA!II.OBI

SPECIAL ISSUE

APPENDIX "B"

..

THE KENYA GAZETTE

. Published by Authority of the Reppblic of Kenya
.

(Registered

as a Newspaper

at the G.P.O.)

. Vol. eX-No.

S8

NAIROBI, 22nd July, 2008

Price Sb. SO

'

GAZEnE NanCE No. 6543 11fE COMMISSIONS OF INQUIRY ACT (Cap. (02) THE COMMISSION OF INQUIRY INTO THE SALE OF GRAND REGENCY HOTEL
RULES AND PROCEDURES WHEREAS in exercise of Ifte powers confem:d by Seedon 3 of Ifte Commissions of Inquiry Act, IfIS Excellency Ifte President, by Order dated 10th July, 2008, IUId published in Gazette Noticc No. 6216 of 1008, ~inted a Commission to !nquin: inlO(0) the eircumsDulccs Hotc:!; leading to the sale of the Grand Reseney

(c) die due conduct of tbe Inquiry;

or or the property

(d) Che prolcction of ILDY wllJlC&!ln the inquiry or any pencm i

J:Cfern:d to in die course of the inquiry repullltion of such witnCSII or person,

eM'

and may, if satisfied that it is desirable for' any of Che purposes

afore:>aid so to 40, order that no person shall publish the name, addn:a

or photograph of any silch witness or person or any evidence or

information whereby he would or may be identified flVJl1.

S. Pt:rsons mentioned in the Gazette. Noti~ and any person adversely mentioned durina die inquiry IhaII have die right to be prc:scnt durin, all the pIO"c:dinJS that n:1att to Chern and all be enlided to lella! repn:scntation.
6. The Counsel assisting the Commission rel.tina 10 IIUmatlc:n under inquiry. shall pruenl evidence

(b) the ro1e played by !be various, persons mentioned any other personls In relation to the said sale,

then:in and 7. The Commission shall serve on c:ach person mentioned in rul~ .!5 hereinabove B hearing notice accompanied where possible by a summary of Che relevant evidenee and n:latcd documents. ir any, peninent to the Wucs under inquiry at lcut seyen (7) days hefon: Che date of bc:arlng. 8. The. Commission may, at itll sole diJClCtion, summon any

AND WHEREAS the Commission was empowered 10 take 1111 procedural 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 Commission to n:'gulatc il! own procedure. NOW TH.ERER)RE of Procedure:: the Cornmiss~on

Notice

QlllIldaId

!be

mates

!he Collowing Rules

J. Nolhing in Ihese Rules shall be deemed to limit or otherwise affect all die pow en of the Commission nc:c:c:ssary for die proper exeCution of its mandate as set out in die aforementioned GlW:tte Notice. 1. The Commis!lion shall sit on sueb days, and times and lit such venues as shall be determined by the Commission.

. person or PCrsolU to testify bdo~ it on oath or to produce sucb documenlfs-. as the Commission may require:, and the person 10 summoned .,.hall be obliged to attend and to testify on oath and or produce the requin:d documenlfs and die provisions applying 10 witnesses S!lmmnned by ordinuy courts of law JbaJI apply to IIIch person. 9. The Commission shall not be: bound by Ihc proYisiolUl of the Evidence Aet but shall he guided by the ordinary rules of evidence and
procedure, including !be rules of natuBi jlUlice. shall have the right to

10. Persons

mentioned

in rule S hereinabove

3. Subject to Rule 4 the hc:arlngs of the Commission shall be beld in.public. 4. The Commission may exclude any pc~n or elass of persons from .11 or any part of CheInquiry if satisfied Chalit is desirable so to . do for the following rellSOlIS(0) al the request of any witness. jf the req uesl is deemed reasonable; or
(b) the preservation of order; or

cross-examine

any Dr all witncUcs

in the inquiry.

11. Pt:I3OM mentioned in Nle S bereinabove ahaIl be entidcd to

call evidence to rebut allesatioRS tnlde againBl. diem. is duly 11. Where: any person l!ICIItioned in rule S hen:inabove
served with a hcaring.nolice and rails to attend in person

or by counsel

or at all, the Commission shall be: entided 10 consider the eyiclcnce available 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 GAZETTE

Publjshed by Authority of the Republic of Kenya
(Rcgist='cd as a Ne:W3pllper al the:. G.P,O.)

Vol. CX-No..67

NAIROBI, 12th August; 2008'

Price Sb.. SO

,
!

GAZEn1! Nonq; No. 7288 THE Q)MMISSIONS Of INQUIRY Acr (Ozp. 102).
COMMISSION OF INQUIRY INTO THE POST-ELE-.'I10N VIOLEN~E EXPERiENCED IN KENYA AFTER: 1HE GENERAL

having con$ide:red Ibe p'rogress of' the Commission. appointed !/ltk Gauttc:'Nolicc No. 6217 of 200~. ID inqnin: into the sale of die Gnnd Regency .Holel. exicnd die periQ!l widlin whicb the Commission . should ~port on its findings IUId reeonuncndalions. so as fo RqIIin: it to rcport on or boron: 1orb Septel'(lber, 2008. , Dalt:d die 11 Ib.Aupst. 2008. MW,(j KIBAKI. ,P'flrihrll,

;..""',

~ONS

HElD ON 27TH DECEMBER. 2007

'EXJ1!NSIONOFTERM

. 'IN' EXERCISE of .the powen; conf'e:~d by $Cction .4 of the and Cornmissioos of Inquiry Act, I, Mww' IObaki. Pn:sidenl 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[ecDon violence e:tpc:rienced in Kenya after the; Genel1! Eections held on 21t1d)~ccmbcr. 2007. e;tICnd !be period within which the: Commission should report on hs findings 8IId r=ommc:nda1ions. so lIS ID require it tD report on or before 22nd September. 2008.
[)aJed the I2.Ih August. ZOO8.

G.unnNGnCE

No. 7290

THECO~SSIONS OF INQUIRYACT (Cop. 102)

COMMISSION OF INQtITRY INTO' TIlE SALE .
OFTItE GRAND REGEN'CY AJdENDMENT RJRTHER to Ib.e Commission or Inquiry appointed by fI1Cthrouah Gazelle Nolice: Nos. 6216 and 6217 of 2008. I. Mwai Kibaki, Presiden! o( and Commande:r-in-Chie:f of die Anned Farces 0( die Repubiic . Kenya appoiDtFRANCIS Blt?L u addilionol Counsel to .assist lIIe Commission. 10OS. MW AI KlBAKI. Prultkrll. HOTEL

MW AI KIBAKI.

Prultknl.
GAZEI"I1! NonCE No. 7289 OF INQUIRY ACT

THE COMMISSIONS

(CaP.. 102) COMMISSION OF INQUIRY INTO THE SALE OFTIIE GRAND REGENCY HOTEL'
FJcTENsJON OFTERM

Daled the I lib. ~Ulust,

IN EXFRCISS of the: powe:T'IIconfe:rred by scclion .4 of the . Commissions of. .Inquiry Act, I, Mwai Kibaki. Pm:idenl' and Commandc:r-in-Chid of the:Annc:d Forcesor the Republic or KeIlYa,

[2083
PRINTED l,ND PUBUSHED BY THE GOVERNME.o.rr PP.!NTS!!. N !ROI!I

i-

SPECIAL ISSUE'

APPENDIX "D" ,
~

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'. . . . .
".," . I'.

TH . KENYA GAZETTE. .. .
Published by Authority. of the Republic of Kenya . ..
~

(j . . ,~gistcred lISa Newspapera~th~ ,P..!i>

-.

d. eX-No.
GAZETi1? NOT1CE No.

.74'
8661

NAIROBI, 12thSeptenib~i:',,2008
GAiEmNdn~ENO.
,

. Price Sh. 50

'

~
,;

.
,. .:.

..

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.~ ;'."':.

~': '.

THE COMMISSIONS pF DiQUlRY ACT

(CaP;IO~)

,.

THE eGERTON U~FR~fIY ACT . (Cap.ll4) . , ."'.'. ", ", Tl;lBj:JIDKA,tmIV~~~:QlU)ER. 2007
(LN..161'of:2007) ",." "

, THE cOMMISSION OF INQuIRy INTI), tHE POST-ELECTION , ' VIOLENCE:'

- ExTENSION ... OFTIME

API'OINTMENT

."

.. '

of the powers conferred by scctio~' 4 of the Inquiry"Act, 'I, t4Wai KibUi, President and Commander-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, ahould
IN EXERCISE ColDIfiillSioDs of Rport on 1111 findings IIIld ~commendatioDS. repOrt not later-than the 16th Oetobcr.1008. Dated the 11 th September, 2008. 10' u require ,it to so

IN of the by,section II (I) (a) of the . Chub EXERCISE College, powe~ 'conferred ~wai Kibaki. Prcsidenlllnd University Order, 2007..1.
Commander-in-Chief of die Amied Forces.of the Republic oC KenYII,
"

ap~intWUfred Murunai (Eng.)-(ChDinnan), JOM S.., ~ya.-:-(Vlci-C~).. ~

!D be meml:ii~ .of the O1uka Uoivemity
of three (3) yean.

"

Collese

Council.

for a period

.
2008. MWA[ KJBAKI. Prt!sidt!nt.

. MWAI KlBAKl. Pruident.

Dated !he 8th September,

GAZE11'ENoncsNo.8664

GAZEmNonCENo.

8662

THE COMMISSIONSOF DiQUlRY ACT

'(Cap. 102)
,

THE JOMO KENYA ITA UNIVERSTTY OF AGRICULTURE TECHNOLOGY ACT, 1994 (No.8 0/1994) THE MOMBASA POLYTECHNIC UNIVERSITY ORDER, 2007
ApPOINTMENT

AND

~..

THE COMMISSIONOF INQUIRYINTO THE SALEOF,GRAND

REGENCY
ExTENSION

COLLEGE

HOTEL
OF TIME

'IN EXERCISEof the powerseonferredby stcriDn4 of the Commissionsof Inquiry Act, I, Mwai Kibaki, President and
Commander-in-Chief of the Anned Forees of the Republic of Kenya, havinl considc~d the progress of ~e Commission appointed vide Gazette Notice No. 6217 oC 2008, to inquire into !he sale oC.the Grand

by section I] (I) of-the [, MWlli University College, Order, 1007, Kibaki, President and Commander-in-Chief of the Armed Forces of the Republic uf Kenya, appointMombasa PolytechnIc

IN EXERCISE of

the powers confemd

Regency

HOIeI. further

extend

the

period

within

which

llie
so lIS

Commission should report on its findings and ru.ommendillions, to require it to report on or before 30!h September, 2008. Dated the 11 th September, 2008.
,

Abdul H. S. 8Usaidy (Prof.)-(ChDirmon) Mugo Kibati-(Vict!-C/ulirmon} to be memberi"' of the Mombasa Polytechnic

Couneil, Dated for II period of three (3) years.

University Conese

MWAI KlBAKl, Pruldlnt.

thei 8th September,

1008. MWAI KIBAKI,

Presldtml.

[2399

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APPENDIX

~~E"

! SPECIAL

ISSUE

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()~

GAZ.E""fTENanCENO: tHE 9417 OF INQUIRY ACT

Price Sh. SO

COMMISSIONS

(Cap. 102)
.

COMMISSIQN

OF INQUIRY INTO THE SAL.E 9F G:RAND RffiENCY HOTEL 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 and Commlmder-in-Chief of Ihe Anned Forces of Ihe Republic or Kenya, appointed vide having conside~d the progress of the CQ""miSliion Guette Notice No. 6217 of 2.008. 10 inquire in~ thc sale of Grand Regency Hotel. funher eXlend the' period' within 'which 'the: Commission should n:port on its findings and ~cOmincndalions. so lIS 10 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.

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APPENDIX "F"
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SP'~CIAL ISSUE

",,'(!;.'I.!.

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.,

Published by Authority of the Republi~ of Kenya"

.(Regislered as a Newspllper at the G.P.O.}

v'ol.
~

ex -

No~ 87

NAIROBI, 31st O~tober, 2008

...:. :::

Price Sh. 50
;.

4 j,

,}

. .

GAZEITE NanCE No. 10321 THECOMMTSSIONS Of..lNQUIRY ACT

(Cap. 102) THE COMMISSION OF INQUIRY INTO THE SALE OFTHEGRAND REGENCY HOTEL
ExTENSION

IN EXERCISE of the powers eonfern:d by sectiCl/1 of IhCl 4 CommiSsions of Inquiry Act, I. Mwai Kibaki. President ~nd
Commander-in-Chief of the Armed Forces of the Republi c of Kef\.ya. Mving mnsiden:d the: progress of the" CommissiOn appointed I'[de Gautle Noli" No. 6217 of 1008, tQ jnquh~ into the: sale of the Grapd

Regcncy
Commission

Holel. further

cl{wnd thl! p:riad

within

which
"

I~e
~p !\Ii
"

should report on ib findings

and ",commcndatioM,

10requi~ it to report on or before 14th November. 2008,

Dated !he 31 It October. 2008.

MWAI KIBAKJ. Pre:r(denl;

[2823

PlUNTED AND PUBUSHED

BY THE GOvERNMENT

PRINTER, fHIROHI'

'.~~'i~;:;'--""

I~

!i-"'~;(o

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APPENDIX

"G"

COMMISSION OF INQUIRY INTO THE SALE OF GRAND REGENCY HOTEL

.~

LIST OF WITNESSES

..
. .

NO. CW 1 CW2.

NAME Zablon Agwata Mabea Jasmin C. See

TITLE

. .

Commissioner of Lands

Legal representative - Westmont

Holdings Co. Government Valuer Acting Assistant Commissioner of Lands Registrar of Lands Registry Superintendent Senior Registrar of Titles Valuer Valuer Assistant Director KACC Deputy Registrar High Court

CW3 CW4

Anthony Mateng'e Itui Simon Gichuru Gikonyo

CW5 CW6 CW7 CW8 CW9 CW 10 CW 11

Mr. Fredrick Ondoko Lubulellah Mr. Fredrick M. Wanyonyi MIS Rosina Ndila Mule David Wambua Masika Didacos Nyaga Nkoge MIS Fatuma Sichale Mr. Wilson Muiruri Deputy Registrar High Court Polyn Wanja Robert R. Hunja Patrick Maina Kamau

CW 12 CW 13 CW 14

State Counsel Interim Director Public Procurement Oversight Authority Receiver Manager Ernst & Young

1 !
~

,
.-'.",'.'.-~:I'
~

'LJ"I'"_""''''!,,~~.h[~':'''-:'';';'~.~~~~I!';'~..:~''I>-~'::':,..s:J';':~.

'"<

NO. CW 15 CW 16 CW 17

NAME Peter Ndaa Kamlesh M. Pattni Joseph Kimutai Kittony Mr. Kennedy Kaunda Abuga

TITLE Joint Receiver Businessman Receiver Manager

CW18
CW 19 CW20
l' 1 ~ I I I

Legal Secretary Central Bank of Kenya !.

Hon. James Aggrey Orengo Prof. Njuguna Ndung'u

Minister-for Lands .. Govern~r CBK

..

CW21

Mr. Timothy Njehia

Crystal Valuers Ltd

III

III"" ..

I
;,I

APPENDIX
~COMMISSION

II I
"H"

!~t

OF INQUIRY INTO THE SALE OF GRAND REGENCY HOTEL

LIST OF EXHIBITS ....

.,

NO.
!

CONTENTS
Title Deed

.
4

..

VOL.' 2F 2F 2F

PAGE 60-64 22-23 24-26

1.

1-"

..

2,

Memo from Minister to Commissioner Memo from Commissioner to PS Lands

3.
4,

Memo to Minister from Commissioner of Lands Thro' PS Lands Memo from Minister of lands to PS Lands Statement of Commissioner of Lands Statement of Jasmine C, Sale Advertisement of Grand Regency Hotel Valuation by Harold H, Webb & Partners Letter from Murgor & Murgor Advocates to Mr, K. Pattni on out of Court settlement of H.C.C.C No. 29 of 1995 Sale Agreement between Pansal & Westmont Holdings Payment Voucher Letter dated 12.5.97 from Kapila Advocates

2F

27-29

5. 6. 7. 8. 9. 10.

2F Vol. 1 2e 2e 2e 2e

30-31 1-3 1-4 46 49-51 9

11. 12, 13.

2e

13-30

2e 2e

34-39 33

1 ,:1-.

,--NO. 14. 15. 16. 17.

-..-VOL. 2e 2e 2e PAGE 12 43 45 47-48

CONTENTS Letter by Mr. Kamlesh Pattni Letter dated 20.5.97 from Murgor Advocate Letter dated 21.5.97 Kapila Advocate Letter from Westmont Holdings SON BuUding dated 18.7.1997 to Central Bank of Kenya.

~.

2e

18. 19.

Power of Attorney

2e 2e

5-8 53-87

.
Letter from Kamlesh Pattni to Westmont Land Berhad dated 12/12/1996
to

20. 21. 22. 23.

Statement of Mr. Anthony M. Itui Statement of Mr. Simon Gichuru Gikonyo Letter from CBK dated 18.6.2008 Land Rent) Invoice, pay-in-slip, receipt and clearance certificate Valuation form for Requisition of Stamp duty Statement of Mr. Fredrick Ondoko Lubulellah Stamps Identified by Mr. Fredrick Ondoko Lubulellah Statement of Mr. Fredrick Wanyonyi Valuation Report on Grand Regency Hotel produced by CW No.3 Letter dated 21.1.08 from CBK to Llyod Masika Llyod Masika Valuation Report Letter to value Zone dated21/1/08

1 1 2e 2f

8-9 32 9 5)6,7& 8

24. 25. 26.

2f 1 2f

13 6-7 27-57

27. 28.

1 2f 2(g) 2(a) 2(g)

22-23 68-75

29. 30. 31.

88

90

.----..
~ ~_. -. -. . .. .- -. ", "'---1 I

II!

NO. 32. 33. 34. 35.

~36.

CONTENTS Letter to Value Zone dated 20.1.08 Valuation Report from value Zone Coat Hanger Video Clip
Documents from KACC
.

yOlo 2(g) 2(b)

PAGE 89

..
~.

1H
.2H
.'"

37.

Letter dated 29.10.04 from KACC to Murgor & Murgor Advocate Consent file HCCC NO.589 of 1999 HCCC 589/99 (8 volumes) Certified copies of proceedings in HCCC 589/99 HCCC (os) 1111/03 Letter to Chief Justice from Harit Sheth dated 25thApril. 2008 Letter from Harit Sheth Advocate to Mr. Amos Wako - the A.G. dated 25.4.08 Daily Nation cutting dated 19.4.08
-

.. :2g

64a-64b

38 39. 40. 41. 42.

2H 2M

11-15 85-89

43.

2M

90-91

44
45. 46. 47. 48.

Nation Newspaper cutting dated 19.4.08 Business Daily cutting dated 23.4.08 Standard Newspaper cutting dated 23.4.08 Letter from Hon. Justice Aron Ringera to Governor CBK dated 2/5/08
.

3
J r- ..

NO. 49.

CONTENTS ReceJpt No. 1912269 of 7/4/08 RlNo. 13935810f 07/4/08 HCCC 1111/03 HCCC Misc.lApp NO.1111of 2003 file Libyan Arab African Investments Co. (K) Ltd file
., "

VOL.

PAGE

50. 51.
52. 53.
54.

2k (J) 2c

Letter from P. K. Muite Adv. dated 13.5.08

Printout on UHDL company

.
"'

.. 2f 7

.,
;
II.

Company details for UHDL. Letter dated 16.7.08 to Registrar of Companies Letter dated 28.7.08 to Registrar of companJes Status Report of grand Regency Hotel by Ernst & Young. Statement of CWXIII- Mr. K.K. Abuga Statement of Mr. Robert Hunja Appointment letter of Ernst & Young as Receiver dated 9/4/08 by the CBK. Certificate of Registration of particulars for Laico Regency Hotel Nairobi. Handing over letter dated 18.7.2008 Certificate of Registration of a charge of particulars LAICO RGENCY HOTEL. Report & Accounts for the year 2003

2f

( ~ i

55. 56. 57.

2 (d)

58. 59. 60.

10-14

61.

62. 63

64A

...

NO.

CONTENTS
:
u u u u

VOL. for the Year 2004 for th e Year 2005 for the Year 2006

PAGE

8
C D 65.

It

It

Signed Audrted report for the year 2002

66. 67,
~68.

Statement of Peter Ndaa:- CW XV Peter Ndaa CWXII

Correspondence and audited report brougtrt by

..

. .

.'

"!.

.,

-. Schedule of Grand Regency Hotel by the JUbilee Insurance Company of Kenya (Ltd) Documents from KamJesh Pattni 2J (i) 3 Cheques dated 4/3/1994,31.3.94 - 15.4.94 - Ksh.2.5 billion Statement of Kamlesh M. Pattni Plaint in HCCC No.1253/1997 Decree in HCCC No. 1253/1997 Report by former Assistant Commissroner of Police J Kimundi Newspaper cutting of East African dated 25~ June, and 15/4/1994

69. 70.

71.
72 73. 74.

33-37

75.

2007 - 1sl July! 2007

76. 77. 78. 79. Documents from Kamlesh M. Pattni CWXVI Documents from Kamlesh M, Pattni CWXVI Report by Mr. Joseph Kittony (CWXVII) Mr. Kennedy K. Abuga statement

io

2J (ii) 2J (Hi) 2M 1 10-14

;-8

NO. 80. 81 82.

CONTENTS Further statement for Mr. Kennedy K.Abuga Documents from Central Bank of Kenya Documents from Hon. Minister James A. Orengo (MP)

VOL.

PAGE

2G 2N
.. ['.

83. 84

Nation Newspaper cutting dated 8.7 .08 Press release by African Investment Portfolio dated 7.7 .2008 Nation Newspaper cutting dated 30.7 .08
Daily Nation Newspaper cutting on Bank Rates dated 6.5.2008 HCCC No. 29 of 1995 Kenya Gazette No. 1238 of 2003 Letter dated 22nd October, 2004 from Murgor & Murgor Advocates Letter dated 2.10.2006 from Grand Regency Hotel to KACC, CBK and UHDL Letter dated 19.3.07 from KACC to Murgo & Murgo Advocate. Note forwarding letter dated 19.3.2007 Statement by Professor Njuguna Ndung'u Letter dated September 13,2007 by K. Pattni Letter of instructions to Crystal Valuers Ltd. Statement of Mr. Timothy Njehia I I .\ ! . 1 15-21
'.

85.
86.

87. 88. 89.

90.

9"" \

91.8 92. 93. 94. 95.

6
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NO. 96, 97. 98. 99.

rf

CONTENTS Report by Crystal Valuers Ltd. KSh.lUS & Exchange rate by CBK Swift output statement 9.9.08 (30497) Swift Output statement -10.07,08
Swift Output statement

VOL.
2P

PAGE

(30627).

I '.

..

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100.

- 11.07.08 (30801""

101.

Company Profile of Crystal Valuers Copies of Logbooks of Vehicles valued by-Crystal Valuer

f: .i I

102.

7 J
"" ~ .., ~_.. "'" ,.,~ ..~... "'~.M~".r"" ...'"

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'

APPENDIX "I"

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"

I I
I

PROJECTS BY LIBYA INYESTMENT PROPOSED PORTFOLIO (LAP) IN KENYA AFRICA INVESTENT CONSIDERATION UNDER ACTIVE 1. .
,

11

"~I

:;

I:
~ .'~

OIL'
t

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~(

T~e meeting agreed that two experts from Tamoi1 of Libya will t~avel to Nairobi in the \veek starting June 18, 2007, for a meeting with National Oil Corporation of Kenya (NOCK), and the Ministry of Energy to 'work out modalities for oil supply to Kenya at agreed prices. The proposed meeting will among other things, agree on the quantities of refined petroleum fuels and crude oil to be supplied by Tarnai! and the applicable terms. volume of oil supply to Kenya will be Anticipated
between 30% 811.d 40% of .. Kenya' s demand. .

2.
i

LIQUIFIED HANDLING MOMBASA

PETROLEUM STORAGE AND

.

IMPORT GAS FACILITY IN

..

r-'/{ . ~

consumption of LPG in The meetiI;1g observed that Kenya, which stood at more than 64,000 tones in 2006, was constrained by lack of adequate handling facilities The meeting further noted that in Mombasa. 8nangements for construction of 6,000 tone. modular LPG facility through 0. public private partnership were progressing well. The proposed Joint Venture company being spear headed by Kenya (JVC) is. currently Petroleum Refineries LilTlited (KPRL), a 50% .Kenya owned company and the. Government Kenya Oil Government pipeline Company (KPC), a 100% Kenya

..

.'

I'

.
Tamoil, which is turrently holding KPRL on its participation, expressed its desire to hold 51icJ of equity in- the JVC. The meeting agreed that the level of.~ Tamoil's equity participation will be revisited. .
.

owned company. discussions' with

f
t
j"-"
~

3.

UPGRADE

OF THE OIL REFINERIES

(KPRL)

I"

Tamoi! was informed of the Kenya government's decision to upgrade the oil refineries with its current shareholding remaining" at 500/0. Tarnai! was' further informed that a consultant has been hired to update the cost of' the upgrade which had been estimated at U8$270.0 million three years ago. The consulta.nts report is expected to be submitted by September 200'(. Tamoil was also informed of the decision by the current shareholders to. sell their. entire equity to new shareholders.
\

_.n response,
'"

Tarnai! expressed

its interest

to participate

in the upgrade but will indicate its lev~l of commitment after submission of consultants rep9rt. Tarnoi! also stated that there ;was need to provide .protection to the oil refineries for a period of ten (10) ye~rs to ensure full amortization of the investment. This position was agreed on.

4.

CONSTRUCTION
OIL PIPELINE

OF NEW MOMBASA ..'- NAIROBI

A petroleum to determine

demand study will commence in July 2007 oil requirements by Kenya and other land
2

'

,locked

\,

The study is meant to provide critical information: on a new pipeline to be constructed betw~en 'Nairobi and Mombasa. This is based on the as~umption that the current upgrade on Mombasa-Nairobi Pipleline will meet the demand for the next seven y:ears.
countries for the next thirty
,

{30) y.ears.

" !'I....... '

Tarnai! expressed equity partner in similar to those Kampala Pipeline was agreed that once the study is

its interest to participate as a major this project jointly with KPC on terms of the JVC project, for the Elqoreon which its equity is at ieast 51 %. It Tamoil's request will be considered completed and its findings accepted.

5.
a)

ICT PROJECTS
TELKOM.I{ENY A
LAP, has expressed interest to the authorities. in participating as a strategic through the 'on-going bid process. b) THE EAST AFRICAN MARINES SYSTEM Kenyan .partner

,-

A fiber' optic cable will be constructed between Mombasa and Fujaira in the Middle East at an estimated cost of US$lOO million. The current partners are Ke1J:ya government and Elisalat of UAE. However, it is envisaged that the future ownership of the company will be as follows:

I I
~.' . ~

.
I

Government
s~areholding partner.

of Kenya will. consider limiting

to maximum . of 200/0 per

il \;
,I Ii

II Ii.
", I .

. LAP Green Com has expressed interest to take up to a Ma...~imum of 20% shares. . Other partners are being sought by the Government qf Kenya through transaction advisory services provided. by Standard Chartered Bank.
6.

GRAND REGENCY HOTEL

LAP expressed an interest to the Kenyan authorities to purchase the hotel. The Kenyap authorities agreed to 'consider this request. all the parties "'
: '\

on 5t~ June,

2007 at Sirte in

Ho
MinIster Republic

i u
for le of Kenya
/

Dr.- Bitange

Ndemo

Permanent

Secretary of the Republic

Ministry of Information &

Communication

4~
-

of Kenya

A \.:\."\..'-

rHalia

,I

CONFIDEN1-iAL
APPENDIX
"J"

-1 BRIEF ON THE

STRICTLY PRIVATE AND CONFIDENTIAL GRAND REGENCY HOTEL

A.
a)

B rid Dac1(ground:
In 1993 the Central Bank created a legal Charge [or 1(shs. 2.5 BiHion over the Grand Regency Hotel in an attempt to secure Bank siphonect,.thr(:H1gh Exchange funds that had been illegally

during the in famous Goldenberg

saga.

.'

b)

The validity of the charge and the ownership of the Hotel has been
the subject of protracted litigation in the High Court find the Courl of Appeal involving amongst others Kenya Anti Development - Corruption Kamlesh Pattni, UhUl:U' Highway Commission, Limited and the Central Bank ofJ(enya;

G
.
I

. c)

Receiver Manager 1\11'. . Since 1999 when the Bank's appointed Joseph Kittony was removed by the High Court and rep\a.ced with Receivers appointed by the High Court and who were syn1pathetic to Kamlesh pattni, the Bank has not received a single Man"ager-the penny from During Mr. Kittony's lerm as Receiver Ih,,-Ji!'1lel. Central Bank recovered a sum in the region of Kshs. 460 Ivlil1ion [rain the operations of the Holel; 1ndeed, through the abuse of the Court process, the Bank has over lbe years been lotally locked oul of the management of the Hotel through Court orders and injunctions. The Bank has also paid out millions of shillings in legal fees to the lawyers acting on behalf of the Bank in the many court matters ,surrounding the Hotel. Commission e) In 2004 Kenya Anti Corruption and Uhul"lI

d)
~

,,-.,

Development Company Limited, -by a Consent Court Order appointed Mr. Peter Ndaa and Mr. I-I. \V. Gichohi as the Joint Receiver lvtanagers [or the HoleL The Central Bank a f Kenya
being the Chargee was not consulted/involved in the appointments;

I J .1 ~'! ]

f)

Since appointment, the two Joint Receiver Managers have spent all
their time fighting one another and overseeing looting at the Hotel. lL is an undisputable fact that the once five - star Hotel has been run down completely;

-----....

,---"

g)
,I

important and the bedeviling involved in the In view of the problems Chargee has not been penny from fact that the Bank Holel...nd has not received a single as necessary - in the management of the public's interest that the the operations a f the Hotel since 1999, it became general Bank's own interest and in thesteps in the matter. and decisive Bank'takes'urgent the Hotd Valuation ofHote\:
. .,:
~

B.!
,

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 13 ion, as a go; ng concern. ill

l-

Masika and Company instructed J:.loyd b) In February 2008 the Bank Limited, two 'fllms in the Bank's pre Limited and Valuezone qualif,ed panel of valuation flIlS, to value the Hotel and advise the Bank on the Hotel's cmTent open market value. It was necessary to valuation firms to unde11ake the exercise independent appoint two independent in order to provide the Bank with reliable and comparative fIgures. returned a value of Kshs. Company Limite.d while Valuezone c) Lloyd Masika and the Hotel as a going concem 1,754,300,000.00 of 1,620,000,000.00. Limited retumed a value oflCshs.
d).

D
['. ~

I-.
i

Still keen to ensure that a realistic open market value of the Hotel sought the name of of the value to was asce,1ained, the Bank suggestedthe assistance another National who I-lousing C0111oration rep0l1S received by the Bank and givethe consulted a look at the two valuation Consequently, the Bank opinion. Consultants Limited fm1her independent recommended valuer, Mr. T. P. Saruni of Ark both reports before appraised inspected the property and who . returning an open market value of the Hotel as a going concern of 1(5hs. 2,17,5 Billion.

Detai Is a f the three Reports and Valuation 0 f the Hotel are as fa \\0ws: Lloyd Masika Limited

\.-:

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-,

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Leasehold Land i) . Buildings and Site,works ii) iii) Plant and Machinery Furniture, Filting and Equip iv) To tnI Vnluezone Limited i) Leasehold Land

Kshs. .K8hs.
. Kshs.

Kshs. Kshs.

500,000,000.00 850,000,000.00 344,800,000.00 59,500,000.00 1,754,300,000.00

'1.1

Kshs.
Ks11s: Kshs. ~1S. Kshs.

l_.'

Buildings and Site works ii) Plant and Machinery iii) FU111iture,Fitting and Equip iv) Totn I Ark Consultants Limited Land and Site works Iv1achinery Fitting and Equip

500,000;000.00 }l ;000,000,000.00 75,000,000.00 45.000.000.00 !

',] .620,000,000.00

.
600,000,000.00 1,150,000,000.00 350,000,000.00 75,000,000.00 2) 75,000,000.00

f"

i) ii) iii) iv) Total C.

Leasehold Buildings Plant and Fumiture,

Kshs. Kshs. Kshs. K5h5. Kshs.

Central

Bank's

Security:

~"''''

It should be noted that lhe Bank does not have a Debenture over the assets of the Hotel. It only has a Charge over the land and buildings. Strictly speaking therefore, the value of the Bank's security over the Hotel is the average of Kshs. 1.350 Billion (Lloyd Masika Limited's valuation for Land, Buildings and Site works) and Kshs. 1.050 Billion (Valuezone Limited's valuation for Land, Buildings and 'Site \'\/o1'ks) and Kshs. 1,750 Billion (Ark Consultants Limited valuation for Land, Building and Site Works).

D. a)
r.

Extcnsive Consultations: In view or the limiting nature of the Bank's security and considering that the Bank has been engaged in fruitless, protracted and costly litigation "'lith Kamlesh Pattni for the past 15 years, in Seplember 2007 the Bank opened consultations with Vletangula, Adan and Company, Advocates for UHDL and Kamlesh Pattni with a viev,1 to
exploring ways 0 removing the joint Receiver l\1anagers and disposal

ij

]
....... ! l~ ~ F.I
(i . :! .. " '.

.+

of

the

Hotel.

Welangula,

Adan

and Company

Advocates

13111 were

introduced September,

to the Bank by Kamlesh pattni 2007. The letter of introduction Attorney General.

vide a letter dated to the also copied "."as

.b) As a major stakeholder, KACC has also been involved in the ;.consultations. Also [1.111ynvolved in the consultations have been the i . Minister for Finance, the PS Treasury and),the Director) KACC. .'"
till

Following

the consultations,

on

glh April, 2008.~,KACC and Kam\esh

Pattni

. recorded
(

a Consent Order in Comi for the rer.noval of the Joint Receivet'

"-'"

I\1anagers over the Hotel and the handing ove~: of the Hotel to the Central Bank. As a consequence thereof, the Central Bank appointed the reputable and professional fiml of Ernst and Young as iReceivers Managers for the Hotel-. They have been running the Hotel for the-past two weeks.

' r

E.

Central

Bank Board Resolutions: 7'11April, 2008, the Central Bank o[ Kenya should, inter alia:

During a Board meeting held on

Board was fully briefed on the progress in the matter. On the way forward,
The Board revolved that Management 1. Continue liaising with a11other Government agencies involved in the Grand Regency Hotel matter, including Kenya Anli Corruption Commission, the Attorney General and Treasury with a view to coming up with a quick and fmal resolution of this long outstanding matter. In view of the various pending Court cases challenging the Bank's charge over the Hotel, Iv1anagement is authorized to consult with the lav.ryers of UHDL, on a strictly'without prejudice basis, \1,/itha view to obtaining the co-operalion of UHDL in the recording of suitable orders in Court to facilitate removal of the joint Receiver Managers, appointment of a Receiver by the Bank and subsequent sale of the Hotel and recording of Consent Settlements in Court as appropriate in any other pending matters between the parties involving the Grand Regency HoLeL Source for buyers [or the Hotel at ~ price which should not be less than the average. cUITcnL open market value of the Hotel, as

J
.~

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.

2.

"-.-'. -

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determined by the valuations of the three valualion firms aforementioned 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:

I
I-'

-I
. t-

It should be clarified that the registered legal owner of the Hotel is Uhunl Highw"y Development Limited. The interest of the Bank in the Hotel is the IegaI charge registered in 1993. N otwithstand ing the comments by Kam lesh Pattni during the handing over occasion, what actually was handed over to the Hotel on 9'h April, 2008 is management of the Hotel which the Bank lost in 1999 v,Ihen the Bank's Receiver Manager v,'as removed by the High Court. Uhuru Highway Development Limited still remains the regist~red' owner of the Hotel. Most of the people who have commented on the matter appear 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 as has 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's statutory power of sale, issues of Public Procurement and Disposal Regulations would still not corne into playas the Public Procurement' Regulations do not apply in such circumstances.

G.

Future of the Hotel:

BankJs mandate does not extend to the running of any .

The Central
-

commercial 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.~:...... i ",.... pursuant to Its statutory power of sale due to the followmg reasons:.
.'

..

r:
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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 Hotel pursuant 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;

0
~:

:. ~. Q I'

-.

b)

The Hotel employs more than 400 Kenyans. The livelihood of these Kenyans will be in jeopardy as they will all loose their jobs if the I-1olel is not sold as a going concern and the Central Bsnk sells the property pursuant to its statutory power of sale;

c)

The Hotel has various pending labour and other disputes between its current and previous v.,orkers. The Central Bank does not wish to be involved in such disputes as they may end up to be costly;
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 the

d)

I
'

'

Hotel without the involvement or the registered owner willlc:\l}u the Central Bank in Court where it has been in the past IS years.

-t

Due to the above reasons, CBK considers that it \vill be strategic and of
national interest that the legal owner of the Hotel i.e. ill-IDL sells the Hotel to an interested investor on the strict understanding that the entire purchase price, 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 a gOing concern;

b)

,
J

The jobs for the more than 400 Kenyans working at the Hotel will be safeguarded; The Bank wi!] not entangle itself with the labour and other disputes.
at the Hotel;

: '~

c)

.':"'. . I

. d) There will be no possibility at all of the legal owners..\..:: the Hotel' of . .. "'. .:: ,- .~J~".' eha llenging in Court the sale 0 [the Hotel.
.

~
.

.
0

H.

Prospecti\'.c

Investors:

In the recent past, the Libyan GovelTunent has been keen to invest in. the
country.

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

n
f-

0
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governments, where it has been agreed that Libyan investors be encouraged to 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 was negoliated at the exchange rate of Kshs. 70,00 to the US dollar. It is

therefore lhe wish and desire of the CBK to move swiftly and ,conclude
deal.
~

the

-,-.I~

1. a)

Reaction

to negative mcdi~\ commcnts:

The consultations and negotiations surrounding the issue have been handled in a very discreet and strategic manner in order 10 keep out

wheeler dealers and busybodies. Having been caught fiat footed,

they are 110\'>/ ighting back by alleging a scandal where there is f absolutely none. b) Allegations that the hotel has been sold for Kshs. 1.6 Bi1.lion ar'e misplaced and speculative.

'

'.

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.

I:

....

d)
c

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 to lawyers as legal fees in the many suits surrounding the Ho'te!', beneficia'rie...~~.!'tJ\ne-ri':'m:rti::;:.,.: . ' pending in court. As expected, the ,'.' viciously fighling back. It is not public interest at play but,' .ra\~:'~':
personal greed.

[, e)

0 n
'-::

Comments made regarding ownership of the Hotel and alleged, breach of Procurement Rules are made either deliberately to distort the 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, the Grand Regency Holel. The Bank therefore cannotwhatsoever over give immunity to Karnlesh PnHni as alleged ~\I1c\ has no control pattni. ThaI is Ihe matters [acing Kamlesh other pending criminal province of the AU01iley General and KACC. The CBK should be lauded for the eff0l1s made in this protracted matter and [or the huge recovery that will be made once the sale is concluded. The price and mode of sale adopted by CBK is strategic and in the
intereSl or the Nation.

g)

h)
\~)

i)

consulLed at each and every slage. and The CBK has consistently v'lillcontinue to do so until the matter is concluded.

t
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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 10111ulYJ ~008. His Excellency the President J (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. Commissioners appointed under the said Gazette Notice were: The

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;

""

-------.-.---...

(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) (ii) receive any previous reports in the matter; 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 2

'_0.--'

-.

"-'

(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 cooperation 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 30111 eptember, 2008 and on 31st October 2008 to expire on 14th November, S 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

Commission commenced hearing of evidence: from witnesses on 4th August

'1

2008. In all. 21 witnesses gave evidence. Rules of evidence were observed; save as provided for in the Rules of Procedures. strictly followed. Rules of natural justice were also

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.

.....

--,
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.
;..
"". ~

. ---

---

CHAPTER 2.

HEARING OF EVIDENCE

2.1 Ministry of Lands Officials

...

.
Mr Zablon MabeaJ the

12.

The hearing commenced with evidence :~from the elT!ployees of Lands Nairobi. Six witnesses, inclutiing

Department,

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.

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

""

.-.-.-.-

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 .1 . and the hotel were subject.
.~

cha~ge to which the plot

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

-~..

,--.-..
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 other properties, the Grand Regency Hotel.

manage and administer among

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: problem of KACC.
~

CB~~.~aw .the suit essentially as a

21. Some time in January 2008 the CBK Governor advised KACC that Mr Pattni
4

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
12

CBK seeking

..~--

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. CBK
8-

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

Jf

-,
I,',

I In
1"

clearly based on incomplete, and probably.misleading, the Governor,

information supplied by

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:KShs. Land Buildings and site works Plant and machinery Furniture, fittings and equipment Motor Vehicle Total 375,000,000 1,381,500,000 262,200,000 72,500,000 9,800,000 2.100.000,000

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

n
dated 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: Llovd Masika KShs. Value Zone KShs. 500,000,000 1,000,000,000

Land
Buildings and site works Plant, machinery and M/vehicles Plant and machinery

500,000,000 850,000,000 344,000,000

75,000,000

Furniture, fittings and equipment 59,500,000 45,000,000

Total

1.754.300.000

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 Buildings and site works Plant and machinery Furniture, fittings and equipment Total 600j 000,000
1,150jOOO,OOO

350,000,000 75,000,000 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 the
III

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

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 his 18

--..

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. Receiver/Manager Thereafter Mr. Gitari Njeu was Mr.

until May 2004 when two Joint Receiver/Managers!

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 . ...~. ~. and 4th SeptemberJ 2008, and explained that. he inspected the Hotel on

~
.~ ."

thereafter

issued his report on 8th SeptemoerJ 2008,

The valuation given by

Crystal Valuers Ltd was as follows:-

"
KShs.
550,000,000
1,350 J000,000

Land Building and site works Plant and machinery

82J340,OOO 30,067,000 21,970.000 Total 2.034.377.000

Furniture, fittings and equipment Vehicles

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 estimated . , replacement cost of the building and depre~iating that to 70%. In other words
I

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 . .

Jt

2005 as a Senior

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

.,
I I

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

.

..
.
41

As this settlement is a vital document we reproduce it in full below. REPUBLIC OF KENYA . 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 VERSUS

KAMLESH M.D. PATIN I "

PLAINTIFF

:
AND

1ST DEFENDANT

UHURU HIGHWAY DEVELOPMENT LTD. ...n..: 15 OTHERS

2NDDEFENDANT

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 3rd , 4lh and 12th has been reached between the Plaintiff and the 1sl ,2nd, 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'I

2nd I 3!'d t/
~

411\ and 1211\Defendants

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 SIC HALE (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 No,589/99,

below the consent of 14th April, 2008 recorded

in HCCC

REPUBLIC OF KENYA IN THE HIGH COURT OF KENY~ AT NAIROBI

~

CIVIL SUIT NO 589 OF"'1999

UHURU HIGHWAY DEVELOPMENT UMITED

KAMLESH MANSUKHLAL PATINI
"

:
:. ".. "

1sTPLAINTIFF
.2ND PLAINTIFF ..3RD PLAINTIFF

PANSALINVESTMENTLIMITED
GRAND HOTELS MANAGEMENT LIMITED VERSUS

.."

...4TH PLAINTIFF

CENTRAL BANK OF KENYA DEPOSIT PROTECTION FUND BOARD JOSEPH KITIONY

"

"

"."

1ST DEFENDANT
" ..2ND DEFENDANT

"

"

3RD DEFENDANT

PROCEEDINGS

14/4/08 Coram: CC: Muya SPDR Kinyua

Adan with Havi for the Plaintiffs

Kennedy Abuga for the 1st and 2nd Defendants

Court: 1.

By Consent The 1st Defendant Kamlesh Pattni and the 2nd Defendant Uhuru

Development Limited do hereby:31

;.

".

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.

"

"

ii)

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.

2.

3.

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

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'f then refrained from taking any . 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 2nd Plaintiff 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 pending claims against each other.

do hereby settle all the other

35

I -

.._,

,."--'-.'--'

'"
r

I
5. The suit herein is marked settled with no orders as to costs. SignedA.S. Adan for the Plaintiffs K,K. Abuga for the 1stand
.

2n,Defendants
'.

. . SignedM~. 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?

2.

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 aforedescribed Hotel and the business to CBK?

3. 4.

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
void?

36

f!I

!!
5.
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?

6.

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? .:
~..
."

." . .,

-.

67.

On the 1st issue enumerated above, the cruciaJparts of the settlement on the
On a

question of the transfer of the Hotel is clause. 1 Wlth its two sub-sections.
.

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 The three defendants

suit including UHDL and Mr. Pattni as 1st and 2nd plaintiffs.

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) rights and interest in the property
b

Relinqui~h, assign; reconvey .of otherWise transfer ownership and all their . It is clear.from clause 1 that MIs Pattni

.
8.

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

...

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, b It is not the question of MIs Pattni and UHDL "hereby agreeing to assign 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
JI~

substituted it with another consent agreement of a substantially different nature would appear to be not only irregular but of doubtful legal validity. The

II I

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.
..

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 14111 April) 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 151 2ndplaintiffs as 2ndand 151 and defendants respectively which we have already stated was not a very fundamental error. 39

. -.-.-.--.--

11

'

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 halftruths 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. agreement was reached and the divergent views remained.

No

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

i
Company 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 Mohammed Amaer

the nationality of the initial two shareholders/directo~Ahmed .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

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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

of the

83. Mr P~trick Maina Kamau was appointed. by CB..K.}heqReceiver/Manager 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.

~: .. .'"
.. .. . .it-

..

.0:: ..'..

46

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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 47 was

. ,"

~
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 11

th

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

,
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 14111 pril, 2008 in HCCC No.589/99 had made the Hotel the property of CBK. A KACC had verbally and in writing advised the Governor that the Registration of
D' f'~

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 non49

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

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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... 1:1 1;1 ).1 :..

--,._"-

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)

that sale is conducted within the relevant laws and concluded expeditiously

(b)

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;-

(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

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(b) 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: 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".

(i)

considerably higher than t~ current open market value of

:".

the Hotel.
(ii)

'.

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.

(iii)

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.

(iv)

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 53

t lij

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

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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

{,

!J I

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 As his was a valuation for purposes of calculating

permanent improvements.
. , ' JI

s,tamp duty only it .did . not include the valuet~Iof "'... equipment or any other . . 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 '1st April, 1999. He said that in Receiver of the Hotel from 15th April. 1994 to 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 Hames Watts

AMOUNT

COMMENTS

1.

US$ 60 Million Less Kshs.150,000,000 For moveables

Principal details and Bank References Awaited

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 Confirmation of

'\,. :..

4.

Middle Africa Investments Ltd.

US$ 45 Million

'.

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

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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 transaction. direction issued by the Minister in respect of th~

...

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

~
,t?
I"

(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 Government as given amnesty to Kamlesh h 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 institutions." between us and the concerned Government

(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 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.

62

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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).

.e. ..
~ r ...

".

(h) In the Confidential Brief the Govemor s~ted that CBK had pushed LAICO 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 ... rate of Kshs. 70.00 to the US the 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).

(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.

116. We find that the situation as of 29thApril 2008 when Hon Kimunya made his
;J

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;
63

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1

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 ownership of the Hotel initially to CBK; the transfer of the

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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r given 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 Regency 65

. ~'I .r 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 Chapter 4.2 valued Price? -

Did

the

sale

Constitute
.'.."

Government

to

Government Transaction? (b) (c)

Was the Transaction~Transparent? Was the Grand Regency Hotel sold at an under.. ,. ..

Chapter 4,3 -

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 th September Ministry of Foreign Affairs and met the Libyan Ambassador on 11
2007. Surprisingly these events were not reported to the CBK Board meeting of 30th October 2007 when there was a related report on Mr Pattni's letter of 13th
I

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 66

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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 ... of the Hotel. None of these developments was brought sale . 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 345111 eeting on 71hApril 2008, it was reported, QThe Board was further m 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 67

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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 .::.. '> US $4"5 ""million. In the same earmarked a purchaser at an agreed price

~.
..

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 9111 Aprill 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

68

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F . 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. 69

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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 .
o~ similar

. . .' .. .

by this

Act,

engage in trade, or own or acquire any' direct interest in any cQmmercial, agricultural, industrial 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.

4.

Denial of opportunity to other parties. local or foreign. who might have been interested in bidding for the Hotel.

5.

Misleading public institutions and the general public regarding every facet of the sale of the Hotel

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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 71

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legal issues pertaining to the sale of the Hotel were handled by Mr Abuga I 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 & Company I 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 it

I 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
J

I~wyers of KACC, Kamlesh Pattni, and Mr. Abuga to discuss the mode of 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 was
J

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 the I 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, "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 of IChange of Advocates in that suit replacing Murgor & Murgor Advocates as the kdvocates for CSK and placing himself on record instead. He had not discussed I this change with the advocates he was replacing. When asked why he had to j take over the case himself, Mr. Abuga's answer was that he was instructed by the

Governor to go on record for the purposes of settling the case because Murgor & 72

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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) 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.

b)

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. 73

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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"

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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. opportunity.

Indeed, the Minister for Finance directed including the

the Central Bank of Kenya to dispose of the subject Hotel at the earliest A briefing was also made to higher authorities

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.

75

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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 76

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..,..

General who is declared by the Constitution of Kenya to be the principal legal

~ :1

adviser to the Government of Kenya.

~ j

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 Cou ntry.

77

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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.

.
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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 29th April 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.

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
I

1
1

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 QA public officer shall not S 18 of the Public Officer Ethics Act which provides: 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.

79

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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 contrary to S 18 of the Public Officer Ethics Act. His conduct was also
..

. opinion. . .

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. 80

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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.
..

,.. , .

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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 82

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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. day of
2008,

Dated at Nairobi this

Chief Justice (Rtd) Abdul Majid Cockar, Chairman.

Mr, Charles Arap-Kirui, Commissioner.

Mr Kathurima M'lnoti! Commissioner.

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