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Kenya: Furniture Row Could Cost Kenya Pipeline Company Sh1 Billion

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4 years ago

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The Kenya Pipeline Company (KPC) is facing a Sh1 billion claim from Victoria Furnitures Ltd for a botched subcontract 15 years ago, a move that has exposed the state corporation to paying twice for the same deal.

Victoria Furnitures has asked arbitrator Festus Litiku to award it Sh883 million and interest on the amount as compensation for fittings that were intended for KPC’s Industrial Area headquarters, and which were rejected after the state corporation altered specifics of its furnishing plans.

KPC hired Don Woods Company Ltd to partition and furnish its headquarters in 2006 for Sh500 million. The deal would set in motion a subcontracting chain.

Don Woods subcontracted Victoria Furnitures for the tender, a deal which would have earned the latter Sh114.7 million.

Victoria Furnitures then subcontracted the same work to Zadock Furniture Systems at Sh65 million.

In the course of the contracts, KPC made some changes to its décor plans, and omitted some of the furniture that had already been ordered. The state corporation also switched suppliers for some of the furniture.

A series of disputes

KPC’s move led to a series of disputes among the subcontractors, who all tried to get compensation for the botched tender, while arguing that furniture and fittings had already been ordered and paid for.

Don Woods sued KPC for compensation, but the parties reached an out-of-court deal that saw KPC fork out Sh386 million.

Despite receiving the full settlement, Don Woods did not let the money flow downwards to the two subcontractors.

Zadock Furniture Systems initiated arbitration proceedings against Victoria Furnitures in 2010, and was awarded Sh118 million by the arbitrator, Mr Stanley Kebathi. Victoria Furnitures unsuccessfully challenged Mr Kebathi’s decision.

Victoria Furnitures then initiated arbitration proceedings against Don Woods in 2009, but the hearing of the case has never started.

Following declaration of a dispute under the contract with Don Woods, Victoria Furnitures initiated the arbitration proceedings and informed the Architectural Association of Kenya (AAK), which appointed Mr Litiku to preside over the matter, but the parties have over the years sought one adjournment after the other.

Mr Litiku’s appointment letter did not disclose who the parties in the arbitration were, and he sought a clarification. The AAK wrote back on November 11, 2009, confirming that the parties were Don Woods and Victoria Furnitures.

But on June 26, 2020 Victoria Furnitures wrote to Mr Litiku indicating that KPC is the respondent.

Mr Litiku informed Victoria Furnitures that the proceedings in his possession show that Don Woods is the respondent, and that any changes to the listing can only be done by the authority that approved the arbitration – the AAK.

The arbitrator somehow still allowed Victoria to thrust KPC into the proceedings, and to file a statement of claim for the Sh883 million, together with interest.

Victoria filed its statement of claim on February 16, 2021.

KPC has now opposed the proceedings, insisting that it was never a party to the contract between Victoria Furnitures and Don Woods.

The state corporation adds that the proceedings are irregular, as the arbitrator and one of the lawyers in the case are faced with a conflict of interest.

Initiated arbitration

KPC, in its objection, has raised issue with Mr Litiku’s handling of the matter, citing his removal from the arbitration proceedings between Zadock Furniture Systems and Victoria Furnitures.

When Zadock Furniture Systems initiated arbitration against Victoria Furnitures, the latter opposed the appointment of Mr Litiku as arbitrator and even successfully sued to stop the move.

Following orders from two judges – George Odunga and Jonathan Havelock -Mr Litiku was kicked out of the proceedings.

KPC’s lawyer, Mr Gad Ouma, argues that it is strange that Victoria Furnitures is rooting for the same individual it fought in the proceedings filed by Zadock Furniture system and which were about the same subject – the botched tender.

Mr Ouma insists that once Mr Litiku was found unfit to handle the proceedings between Zadock Furniture and Victoria Furnitures, the arbitrator was, by extension, stopped from presiding over disputes involving any of the parties in the botched tender.

“While Victoria Furnitures had previously sought to have KPC included in the proceedings, it was promptly reminded by the arbitrator to follow the procedure of appointment of an arbitrator, which it did not follow and actually abandoned. KPC has never participated in the proceedings prior to the proceedings of 2021,” Mr Ouma said.