By Andante Okanya & Hillary Nsambu
The Supreme Court has saved $16m (over sh40b) workers’ savings in accumulated interest after it delivered a landmark ruling cancelling compensation awarded to Alcon International Limited, a Kenyan firm, over termination of a contract for building Workers House in Kampala in 1998.
In a landmark ruling delivered yesterday at the Supreme Court in Kampala, the panel of five justices headed by the Chief Justice, Benjamin Odoki, ruled unanimously that the transaction to award the compensation was tainted with fraud and dishonesty.
“The issue of fraud revolves around the identity of Alcon. The Alcon that signed the contract is not the Alcon that performed the contract,” the justices ruled, and ordered that the case returns to the High Court for re-trial.
The other members were justices John Wilson Tsekooko, Bart Katureebe, Christine Kitumba and Esther Kisaakye. Judgement was delivered by the court’s assistant registrar, Godfrey Opifeni.
The justices agreed with the Attorney General’s representative principal state attorney Patricia Mutesi, and Barnabas Tumusingize and David Nambale who represented NSSF in this appeal.
Additionally, the judges noted that Alcon deliberately misled National Social Security Fund (NSSF) by substituting one company for another.
The main judgment was written by Odoki, which was backed by the other justices, who also made statements rebuking the fraudulent contract.
Background to the dispute
The dispute has been running for 14 years, with NSSF battling to overturn a $16 million suit brought against it by Alcon International for what the latter claims was a wrongful termination of its contract to build the Workers House.
Earlier Alcon was awarded an arbitral award of $8.8million with 6 percent interest, which had over the years accumulated to $16m.
The case arose from a 21st July 1994 contract between NSSF and Alcon International of Kenya, for the erection and completion of Workers House, which was then a partially constructed structure.
Later on, disputes arose between the two parties, which led to the termination of the building contract by the NSSF Board in 1998.
In May 1998, Alcon International Uganda Ltd, through their lawyers Tumusiime, Kabega & Co Advocates sued NSSF for breach of the building contract in the High Court of Uganda vide case HCCS No.1255 of 1998.
The case went for arbitration in 1999. On 29th March, 2001, retired Justice E. Torgbor from Kenya, awarded Alcon damages of US $8,858,469 with interest at 6% per annum. The award was filed in the High Court on 7th November, 2001.
NSSF appealed the award in the High Court Commercial Division, but Justice Arach Amoko on 30th September 2003 struck down NSSF’s award with costs. NSSF proceeded to appeal in the Court of Appeal- under Civil Appeal No.2 of 2004.
Hon Mr Justice Amos Twinomujuni and Hon Mr Justice Steven Kavuma and Hon Lady Justice A.E.N Mpagi Bahigeine, in their August 25, 2009 ruling struck down NSSF’s appeal.
NSSF then appealed to the Supreme Court seeking to overturn the ruling of the Court of Appeal.
NSSF managing director Richard Byarugaba mingles with NSSF head of commerce Steven Mwanje on Friday. PHOTO/Peter Busomoke
In 2011, new information emerged that the Alcon Kenya which NSSF signed a contract with, is very different from the one that carried out the construction work and therefore the one seeking damages in the breach of contract.
Having learnt of these new facts, NSSF re-lodged a fresh application to the Supreme Court, which despite protests from Alcon’s lawyers was granted on March 19, handing the fund a last lease of life, in a case that has hung over the fund like a dark cloud.
NSSF Lawyers, together with a team from the Attorney General’s led by Principal State Attorney Patricia Mutesi, tabled evidence that that showed that the directors of Alcon Kenya knowingly manipulated the names of their companies so as to be able to win the Workers’ House Deal.
As a result, Alcon International (Kenya) that in 1993 that tendered and won the contract to construct Workers House, is not the same Alcon that eventually signed a contract with NSSF on 21st July 1994.
Upon signing the contract, Alcon Kenya, then went on to assign the Workers’ House Contract to Alcon Uganda- a third party, without the written consent of NSSF, as stipulated in section 17 of the construction contract.
NSSF lawyers also argued that it is instead Alcon Kenya, which breached the contract by assigning it to a third party (Alcon Uganda) without the express consent of NSSF as stipulated in section 17 of the contract.
The lawyers also argued that Alcon Kenya, further reneged on their contractual obligations to co-finance the project, forcing NSSF to step in directly.
They further accused Alcon of abusing this process by inflating prices of items and going ahead to illegally tamper with letters of credits opened in favour of suppliers to scheme off the extra money.
In one such scheme the Inspector General of Government (IGG) in their 1997 report, discovered that US$1,055,000 was fraudulently removed from the letters of credit that had been opened in favour Pre-Plan a South African manufacturer of wall cladding. To-date Alcon has never refunded this money.
Despite failure to co-finance the project, Alcon has been holding the Workers House title which was supposed to serve as security for Alcon’s co-finance.
Mutesi said that under the law of contract, Misrepresentation, fraud and obtaining money/property by false pretence are admissible grounds for overturning a contract and therefore prayed that court overturn the award allowed to Alcon.
“Court records show that the respondent (Alcon) in winning the award, conducted themselves in an improper manner that amounted to fraud and an illegality. The respondent was manifestly fraudulent in obtaining the contract itself. Any judgment based on fraud must be set aside.
“No court will allow a person to keep a benefit obtained fraudulently- fraud unravels everything and a court of law can't sanction that which is illegal. It's our prayer that this court sets aside the arbitral award having been obtained through fraud/misrepresentation,” she argued.
David Nambale, the NSSF Corporation Secretary further submitted that the fraudulent acts of Alcon directors should not be legitimized by a court of law.
This has been probably the costliest business suit in Uganda’s history. A win for Alcon would also have translated into billions in professional fees for the team of lawyers defending Alcon.