Paying the Piper: What the Logistics Industry Can Learn from Anglo Leasing

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May 19, 2014

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The Anglo Leasing scandal, a dark cloud over Kenya for an unfortunately long time, has reared its ugly head once again, this time in the form of notifications that Kenya is to pay out KES 1.4 billion to companies involved, a ruling that has most Kenyans up in arms. To summarize, the Anglo Leasing issue began with Kenya being in need of security services such as a forensics lab & upgrading of the Postal Corporation technology. Lacking the necessary funds, lease financing and credit contracts totaling 55 billion were signed to get said equipment, without having to use donor funds. Of these, some worth total 18.9 billion were cancelled, some worth 30.5 billion were partially delivered and others worth 6.8 billion were fully delivered.  Of the five remaining contracts, Kenya paid out 7.9billion in penalties for two, with one still being negotiated and the fate of two decided by courts in Geneva and London – having lost these cases, Kenya is now beholden to pay the aforementioned KES 1.4 billion.

As entrepreneurs and participants in Kenya’s business scene, we must ask ourselves what grave missteps led us to this point, with such a staggering amount due to be deducted from our national coffers in payment to dubious companies under questionable circumstances of delivery. In other words, what can we learn from this debacle?

First and foremost, is to know exactly what you’re getting into when signing a contract, whether with suppliers, sub contracted firms or even clients themselves. It is important to carry out a background check where possible, to find out the track record of the firms you choose to engage with, and also be very clear about the terms of your contract. The only guaranteed way to avoid a legal quagmire is to ensure both parties clearly understand and agree to terms of the contract, what is required of them and what the consequences of a breach would be.

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A clear example of this can be taken from the Anglo Leasing contract discussed in Geneva. One of the key arguments provided by the Kenyan legal team against paying the sum was that the contract was issued under irregular conditions, here being that then director of the Communication Commission of Kenya entered into an agreement with one of the disputed companies under provision that his daughters’ school fees would be paid by an owner of the company. This should have been an immediate way out of the contractual obligation for the country, but closer inspection of the contract revealed an express clause designed to prevent Kenya from defaulting on its obligations due to an irregularity in procedures.

Related to this, it is important for players in the logistics industry to arm themselves with competent lawyers who can be relied upon to provide adequate legal counsel to the supply chain management company. Following Kenya’s obligation to pay out the Anglo leasing sum, some have pointed out that this will likely open the door for other companies to bring up their own cases against Kenya based on this precedent.  Facing this inquiry, President Kenyatta has made it clear that it is the duty of the Attorney general to work against such a situation becoming a reality, coming soon after chiding the Attorney General to “up their game” in terms of representing the legal interests of the country abroad.

When entering into legal agreements of any nature in the logistics industry, it is important for us to keep in mind that we will be held accountable for our contractual obligations, as seen in Kenya being dragged into court and legally compelled to honor Anglo Leasing agreements that have since been found to be fraudulent, against the will of the public. Furthermore, it is important to recognize when the battle has been lost and surrender so as to win the eventual war. In the Anglo Leasing saga, Kenya has been ordered to pay out the mind boggling sum, and as President Kenyatta has wisely pointed out, we have no choice but to do so in our own best interests for the future. Should Kenya have stood defiant against the ruling of the court, we would have been in contravention of our legal obligations in the eyes of the international community. This would mean we would be ineligible for approval to issue a Eurobond, hoped to raise KES132 billion to finance the budget for the next financial year.  In accepting this defeat, and begrudgingly honoring our obligation, Kenya secures its reputation and financial future.

There we have it. We in the supply chain industry choose to look upon the Anglo Leasing debacle and see only the silver lining: we as a nation have learned an important lesson in graft, contractual obligations, and set the tone for a more vigilant and legally savvy corporate community within the country. Do have a lovely week, and remember: get all important documents to your lawyer before you sign anything, lest you too be forced to pay the piper.


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