WERE WE WRONG ON GRAND REGENCY?

July 28, 2008
By Dominic Odipo
The Standard

The public has never owned the Grand Regency Hotel. Those making such claims do not know what they are talking about."

This statement, made by a well-known Nairobi lawyer, brought our Saturday evening dinner conversation to a hushed stop. What was this man saying?

If the public has never owned the hotel, then what did that mean, particularly with regard to the role the Central Bank of Kenya or the Ministry of Finance, played in the controversial sale of the hotel to a Libyan state firm?

As our attention focused on this lawyer, the man continued: "Have you noticed that the Governor of the Central Bank, Prof Njuguna Ndung’u, is hardly making any serious efforts to defend himself like (former governor) Andrew Mullei used to? He knows that when all the facts are out, there will be no problem for him or the bank itself."

According to this lawyer, who seemed to know what he was talking about, if the Grand Regency Hotel was never at any time owned by the public, then the provisions of the Public Procurement and Disposal Act, the Government Land Act or the Privatisation Act do not apply.

And if it can be established that the Central Bank, the only direct connection between the hotel and the public, never owned the hotel, then this whole scenario changes completely.

The lawyer continued: "To understand this issue, one needs to be very clear on what the effect of putting a charge on a property really is with regard to the ownership of that property."

Charge

In a few words, this lawyer’s argument can be summarised as follows: Even though the Grand Regency Hotel was built by funds loaned by CBK, it was never actually owned by the bank.

The hotel was first owned by the late Mohamed Aslam who later passed it over to Uhuru Highway Development Ltd, whose principal shareholder was businessman Kamlesh Pattni, fingered as "the architect" of the Goldenberg scandal.

Sometime during 1993, the hotel fell into the custody of the Central Bank as a charged property, when its owner put it up as security for some three cheques drawn in favour of the bank as payment for the loan the bank had earlier advanced for its development.

When two of these cheques were later dishonoured, the CBK took custody of the hotel, under the stipulations relating to charged properties. These stipulations provided for the chargee, in this case the Central Bank, to place the hotel under receivership or alternatively sell it by private treaty or public auction.

Which then led us to the next two questions: When the Central Bank sold off the hotel to the Libyans, was it acting merely as a custodian of the hotel or as the owner? And if it was not the owner, how could it purport to sell what it did not own?

To these two questions, the lawyer had a ready reply: "At this point, you need to understand the difference between a trustee of a public asset and a chargee of a private property.

"In this case, the Central Bank was merely acting as a chargee of a private property belonging to Uhuru Highway Development Ltd, which had been acquired as security for monies already advanced. The bank was not acting as a trustee of a public asset since the hotel had never been a public asset in the first place."

Auction option

As a chargee, and not as a trustee, the bank could then legally dispose of the hotel either through private treaty or public auction. And because the hotel was not, and had never been a public asset, the relevant legal provisions governing the disposal of public property could not apply to this particular sale.

When the Cockar Commission on the sale of the Grand Regency Hotel finally gets down to business, this is obviously one of the most important issues it will have to address and resolve.

If it should establish that this is, indeed, the correct legal position, the Central Bank, and its governor, could both come through all this as clean as pure cotton.

But there is another, more subtle dimension to this controversy which Ndung’u, an academic, probable understands very well.

Even if it were to be established that the legal position advanced by this lawyer is not the correct one, the bank could argue that it made an honest intellectual effort to interpret the law as it understood it (and as the Public Procurement Oversight Board advised). That is a very different proposition from interpreting the law negligently, recklessly or corruptly. If you thought you knew what public property is, don’t be so sure. We might all be groping in the dark.

The writer is a lecturer and consultant in Nairobi.

dominicOdipo@yahoo.com