County Government of Migori,County Government of Bungoma,Council of Governors,Anyang’ Nyong’o & Jakoyo Midiwo v Privatization Commission of Kenya & Attorney General [2017] KEHC 2037 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

PETITION NO. 187 OF 2016

THE COUNTY GOVERNMENT OF MIGORI ..……....1ST PETITIONER

THE COUNTY GOVERNMENT OF BUNGOMA.........2ND PETITIONER

THE COUNCIL OF GOVERNORS ……..……….…...3RD PETITIONER

HON ANYANG’ NYONG’O……………………….…...4TH PETITIONER

HON. JAKOYO MIDIWO…………….…….............…5TH PETITIONER

VERSUS

THE PRIVATIZATION COMMISSION OF KENYA...1ST RESPONDENT

THE ATTORNEY GENERAL……………………….2ND RESPONDENT

JUDGMENT

Introduction

By an Order of the Court in this Petition by consent of the Parties, the Petition which was originally filed as Petition No. 2 of 2016 in the High Court at Migori was consolidated with other proceedings as follows:

“Court:

By consent

This Petition is consolidated with Petition No. 208/16 and Petition 119 of 2016 and Judicial Review No. 166/2016 and therefore-

1. The County Government of Migori – 1st Petitioner

2. The county Government of Bungoma – 2nd Petitioner

3. Council of Governors – 3rd Petitioner

4. Peter Anyang’ Nyong’o and Jakoyo Midiwo – 4th and 5th Petitioner

5. The Privatization Commission of Kenya – 1st Respondent

6. The Attorney General  - 2nd Respondent

7. Directions to be taken on 26th May 2016

8. Interim orders extended to 23/5/2016”

The cause of action

The four proceedings before the Court are a challenge a decision for the privatization of five sugar-milling companies made public via Gazette Notice No. 8739 of 2009 and in subsequent public advertisement through which the national Government invited expression of interest in the purchase of its shares in five sugar milling companies.  The relevant Gazette Notice No. 8739 of 2009 was issued to the Privatization Act, 2005.

The common denominator in the proceedings consolidated above is the prayers for nullification of the gazette notice on the ground that under the constitutional devolution of functions, agriculture including crop and animal husbandry is the function of the County Government and the National Government in the purported privatization of government shares in the companies, through the privatization programme approved by the Cabinet in October 2010 is unconstitutional and unlawful.  In addition it is contended that the privatization programme was undertaken without public participation in contravention of the constitution and terms or conditions of the National Assembly’s approval of the said privatization programme.

The individuals named as 4th and 5th Petitioners were the ex parte applicants in the Judicial Review proceedings JR. No. 166 of 2016.

The specific reliefs sought

The prayers in the consolidated proceedings were similar as follows:

1. “Pet. 187/16 dated 19th April 2016

Prayers

a) A declaration that the intended privatization of South Nyanza Sugar Company Limited by National Government through the Respondents is a violation of Article 1 (1) & (2), 6 (2), 10, 63 (1) & (2)  (d) (ii), 123, 186 (1), (a) & 2 (a) & (b), 189 (2), 190 (3) (a) and / or Part 2 of the Fourth Schedule of the Constitution.

b) A declaration that within the meaning of Article 6 (2) 186 (1), 187 (2) (b), 187 (2) (a), 189 (1) (a) and Part 2 of the Fourth Schedule sugar milling is a devolved function and cannot be performed by the National Government.

c) A Permanent injunction prohibiting the National Government through the Respondents from undertaking in any activities or such acts towards actualizing the privatization of South Nyanza Sugar Company Limited.

d)A declaration that within the meaning of Articles 6(2), 186, 187 and 189 (1) (a) the National Government should transfer its shareholding in South Nyanza Sugar Company to the devolved Government being Migori County Government.

e) In the alternative to prayer (d) above, an order compelling the National Government through the Respondent to grant the Petitioner the first right of refusal in its intended privatization of South Nyanza Sugar Company Limited.

f) The Honourable Court do issue such other orders and give such further directions as it may fit to meet the ends of justice.

g) Cost of and incidental to this suit be awarded to the Petitioner.”

2. Pet. No. 119 of 2016 dated 6th April, 2016

Prayers

a. A declaration that within the intendment of Article 10 of the Constitution and resonating Articles 201(a) and 231(1) of the Constitution, the Respondents are bound by the key national values and principles, to wit, transparency and public participation.

b.A declaration that within the intendment of Article 6 (2), 186, and 189 (1) (a) of the Constitution, sugar milling is a devolved function that cannot be performed by the National Government.

c. A declaration that within the intendment of Article 6 (2), 186, and 189 (1) (a) of the Constitution, any shareholding by the National Government in a company/entity engaged in a devolved function is unconstitutional, null and void.

d. A declaration that within the intendment of Article 6 (2), 186, and 189 (1) (a) of the Constitution, the transfer of devolved functions includes the transfer of shareholding in any state corporation engaged in a devolved function.

e. A declaration that within the intendment of Article 6 (2) and 189(2) of the Constitution, the Respondents are bound to consult counties in the privatization process of the sugar factories.

f.A permanent injunction prohibiting the Respondents from privatizing Nzoia Sugar Company, South Nyanza Sugar Company, Chemelil Sugar Company, Muhoroni Sugar Company and Miwani Sugar Company.

g. There be an order as to costs.

3. Judicial Review 166/16Notice of Motion dated 20/4/16

1. An order of certiorari to bring to the High Court for purposes of quashing the decision of the 1st Respondent calling for expression of interest for the Privatization of Nzoia Sugar Company Limited, South Nyanza Sugar Company Limited, Chemelil Sugar Company Limited, Muhoroni Sugar Company Limited (in receivership), Miwani Sugar Company (1989) Limited (in receivership) as advertised in The Standard Newspaper of 11th March, 2016 and any other similar advertisement made before calling for expression of interest for the privatization of the said companies.

2. An Order of prohibition prohibiting the 1st Respondent from in anyway proceeding with the privatization process of the subject companies until the Commission is properly and legally constituted.

3. An order of prohibition prohibiting the 1st Respondent from in anyway proceeding with the privatization process of the subject companies until consultations among and participation of all stakeholders is done, and the thorny issues ironed out.

4. Cost to be provided for.

5. Such further and other reliefs that the Honourable Court may deem just and expedient to grant in the interest of justice.

The pleadings

In PET. NO. 187 OF 2016, dated 19thApril, 2016 the 1st petitioner set out the facts that he relies on, which are similar to the facts relied on by the other petitioners as follows:

THE FACTS AND GROUNDS FOR RELIEF

19. Vide a Gazette Notice No. 8739 of 14th August, 2009 the Cabinet approved the 1st Respondent’s Privatization Programme established under Section 17 of the Privatization Act to privatize five (5) sugar companies in Kenya namely:

a) South Nyanza Sugar Company Limited

b) Nzoia Sugar Company Limited

c) Chemilil Sugar Company Limited

d) Muhoroni Sugar Company Limited (in receivership)

e) Miwani Company Sugar Company Limited (in receivership)

20. Following the approval of the Privatization Programme by the Cabinet, the 1st Respondent in November, 2009 prepared detailed specific proposals on each of the Government owned/Controlled Sugar Companies’ privatization and forwarded the same to the Cabinet for consideration.

21. In October 2010, the Cabinet considered and approved the detailed proposals prepared by the 1st Respondent on the privatization of the five (5) sugar companies and in November, 2010, Treasury sent a report to Parliament for presentation to the Finance Planning and Trade committee.

22. In January 2013 Parliament resolved to postpone privatization of the 5 sugar companies until such time when all the legislations affecting the Agricultural Sector and specifically Sugar and legislation regarding County Governments were put in place.  These Conditions were fulfilled through the enactment of the Agriculture, Livestock and Food Authority Act and the devolution process that ushered in the County Governments in March, 2013.

23. Parliament approved to write-off excess debt of the sugar companies to facilitate their privatization on 10th January, 2013.

24. On 21st April, 2015, the National Assembly approved the privatization of 5 sugar companies in Kenya.  Another approval had been given prior by Cabinet in October, 2014.

25. The Clerk of the National Assembly sent a letter to the Principal Secretary of the National Treasury, Dr. Kamau Thugge attaching a Certificate in respect of the approval for privatization of the sugar companies and a copy of the Report of the Departmental Committee on Finance, Planning and Trade of December, 2014 as adopted by the National Assembly. On 21st April, 2015.

26. On Monday 15, 22 and 26, 2015 1st Respondent made announcements in the Daily Nation and Standard Newspapers regarding the proposed privatization of the five sugar companies.  It announced the approved privatization strategy for 5 companies to be as follows:

a) Sale of new shares comprising of 51% of each of the sugar companies through a competitive process to reputable strategic partner(s) with a track record of manning profitable sugar companies.

b) Sale of 24% of the shares to the outgrowers and employees through investment trusts to be formed for that purpose.

c) Retention by the Government of the remaining 25% shareholding of each of the sugar companies which it may decide to sell later through an Initial Public Officer (IPO) or any method determined at the time of sale.

d) Creation of financially viable sugar companies able to access cane considering the breakeven crushing factory capacity required per annum, the average cane yield per hectare, cane maturity period and the planted cane area required to breakeven.

e) Write off to clear excess debt and conversion of debt to equity of various amounts to revamp the sugar companies, as an initial step to creating healthy balance sheets.

27. The National Assembly approved privatization of the five (5) sugar companies on 21st April, 2015 subject to the purported compliance of two provisos by the 1st Respondent:

i) Any ancestral land currently held by any sugar companies remains under the ownership of the local community; and

ii) Further consultations on the privatization process should be held between the Government, the sugarcane farmers and any other key stakeholder consultations.  The petitioner was not invited to attend the said workshop despite being a key stakeholder in the privatization of South Nyanza Sugar Company.

28. On 24th August, 2015, the 1st Respondent organized a workshop at the Kenya School of Monetary Studies for purposes of stakeholder consultations.  The Petitioner was not invited to attend the said workshop despite being a key stakeholder in the privatization of South Nyanza Sugar Company.

29. On 7th and 8th December, 2015 the 1st Respondent advertised in various local dailies Requests for Expression of Interest (EOIs) from prospective investors interested in investing as strategic partners in either one or more of the five (5) sugar companies.  The advertisements were made without the decision to privatize the sugar companies being subject to public and stakeholder input which goes against the principle of public participation.

30. Separately in the same newspapers, the 1st Respondent caused to be published additional information on the specifics of the impugned privatization process.

31. Following the advertisement of Request for Expression of Interest in the Standard Newspaper of 8th December, 2015, the defunct Transition Authority filed a Judicial Application JR Misc.  application No.440 of 2015 contesting the process of privatization as undertaken by the 1st Respondent for violating Section 354 of the Transition of Devolved Government Act.

32. The privatization was temporarily injuncted in a suit filed by the Transition Authority, JR 440 of 2015 but upon the Transition Authority winding up, the suit was withdrawn.

33. The 1st Respondent after withdrawals of the suit advertised for Requests for Expression of Interest (EOI’s) in the Standard Newspaper of 11th March, 2016.

34. The National Government unilaterally discussed and approved the privatization of Sony Sugar Company Limited without involving the County Government of Migori making the entire privatization process unconstitutional and any action taken by the 1st Respondent since then purporting to implement that decision is null.  County Government of Migori should have been consulted and actively involved from the commencement of the privatization process.

35. The County Government of Migori was not consulted or involved in the decision-making process of privatization of South Nyanza Sugar Company Limited even though they have a constitutional right to be consulted.

36. The Petitioner was only invited to a meeting to debate over the privation of the sugar companies when the decision to begin the privatization had already been made and there was nothing much that could have been done.

37. The 1st Respondent, on 14th September, 2015, held a cosmetic stakeholder meeting at which meeting counties aired their specific objections to the privatization process which views have been blatantly disregarded.

38. It is apparent that the decision to privatize was final and the stakeholder meeting was merely for show.

39. South Nyanza Company Limited had an asset base of Kshs.5. 5 Billion and a liability margin of Ksh.3. 1 Billion as at 31st March, 2009 thus in trading verbiage it is a company that is capable of turning around.  The County Government of Migori ought to be given the opportunity to effect this turn around in performance of its constitutional function.

The 1st petitioner contends that the actions of the respondents infringed the petitioner’s rights as follows:

D. INFRINGMENT OF THE PETITIONERS’S RIGHTS

40. The National Government seeks to retain a substantial stake in companies involved in sugar milling, which function is part of parcel and the agricultural mandate of counties and so doing the provisions of Part 2 of the Fourth Schedule of the Constitution, Article 6 (2), 186, and 189 (1) (a) which provide for the devolution of functions and distinctiveness and separation of powers between the two levels of government.

41. It is the 1st Respondent’s opinion as advertised in their publicized articles in the People Daily and the Standard Newspaper 7th and 8th of December 2015 that;

a) The sugar companies remain the owners of the land as per the respective leases.

b) The land owned by the sugar companies was either bought by them from previous owner or acquired by the government from the owners through compulsory acquisition based on valuations determined at the time of transaction took place.

42. It is erroneous for the 1st Respondent to state that sugar companies remain the owners of the land as they bought them from previous owner as the land on which sugar is community land and the owners are the community.

43. The 1st Respondent has by its own admission stated that factory land is part of the assets available to the strategic investor.  With South Nyanza Sugar Company Limited’s land being classified as an asset, it is inevitable that the interest therein will be transferred and/ or exchanged as the company is being sold as a going concern, and that contravenes the Article 63 (4) of the Constitution.

44. The National Assembly was guided by issuing this proviso that ownership of ancestral land remain with the local community, therefore land as an asset cannot form part of the assets available to the strategic investor nor should it be used as a collateral to lure such strategic investor.

45. The Respondents failed to consult the Petitioner during the formative stage of the privatization process hence violating the provisions of Article 6 (2) and 189(2) which provide for consultation and cooperation between the two levels of government.

46. The 1st Respondent has not undertaken any meaningful or qualitative public participation to involve farmers and local residents deriving a livelihood from the sugar factories.

47. The 1st Respondent violated the National Values and Principles of governance under Article 10 of the Constitution of Kenya which bind all state organs, state officers, public officers and all persons whenever any of them makes or implements public policy decisions.  Amongst the national values and principles that the 1st Respondent violated include; democracy and participation of the people social justice; inclusiveness; and transparency and accountability.

48. Under Article 1 (1) and (2) all sovereign power belongs to the people of Kenya and the people may exercise it directly or through their democratically elected representatives in this event the Governors, Senators and Members of Parliament.  The 1stRespondent failed to consult representatives of the people of Migori County who represent the general views and opinions of the people.

49. Then National Assembly’s approval of the privatization process through and through is a nullity because pursuant to Article 123 of the Constitution such decision should have been made by the Senate considering that privatization of South Nyanza Sugar Company Limited are matters that touch on county affairs and well within the ambit of the Senate.

Between them, the Petitioners raise the following matters in controversy:

1. That the sugar milling is a function of the County Government under the constitutional devolution of functions pursuant to Article 186 and the Fourth Schedule of the Constitution.

2. That transfer of devolved functions includes transfer of shareholding in state corporations engaged in devolved functions.

3. That the privatization process of the sugar factories contravened the provisions for public participation, consultation with county governments and approval of the Senate pursuant to Article 123.

4. That the land upon which the factories stand is ancestral/community land within the meaning of Article 63.

The respondents filed respective responses to the petitions and the Judicial Review Proceedings.  In response to Petition No. 187 of 2016 as consolidating the four proceedings, SOLOMON AMK KITUNGU, the Executive Director/CEO of the 1st respondent filed a replying affidavit sworn on 19th July 2016 substantively responding to the petitioners’ cases as follows:

5. THAT I am aware that the Constitution recognizes Public Investment as a function and under Article 186 and the Fourth Schedule of the Constitution assigns the function to the National Government.

6. THAT the 2nd Petitioner herein, the County Government of Bungoma has not in any manner engaged the National Government to agree, as required under Article 187 of the Constitution, to have Nzoia Sugar Company Limited transferred to it, which under the same Article would require demonstration that the investment in the sugar company would be more effectively performed or exercised by the County Government of Bungoma.

7. THAT in any event, from the contents of Article 187, the National Government will remain the holder of the Constitutional responsibility for performance of the function and the responsibility for ensuring the resources necessary for the performance of the function are provided will remain its responsibility.

8. THAT one of the problems facing the five sugar companies is the inadequacy of the financial resources that the National Government is able to provide to finance their investments and working capital needs; considering the County Governments mostly rely on the National Government for funding it is not certain that they can adequately finance the companies.

9. THAT following application for Judicial Review in Nairobi HC JR. No. 440 of 2015 by the Transition Authority, to which three county Governments, including the County Government of Bungoma, the 2nd Petitioner herein were later enjoined, as part of the agreement to set aside the stay order issued against privatization of the sugar companied, the demand by the County Governments to have the companies transferred to them was referred to the National and County Government Coordination Summit, which is the apex forum established to facilitate discussions between the National and County Governments on such issues.

(Annexed hereto and marked ‘SKI’ is a true copy of the letter by the 2nd Respondent on referral of the transfer issue to the National and County Government Coordination Summit and related minutes.)

10. THAT at the same meeting where agreement was reached to set aside the stay order in the Juridical Review Application, the need for the 1st Respondent to complete the Request for Expressions of Interest (EOI) Process was noted.  It was noted that the EOI process is a preliminary stage and does not in any way prejudice any future decision to be reached in view of the matters referred to the National and County Government Coordination Summit.

11. THAT it remains factual that the EOI process does not in any way prejudice any future decision to be reached in view of the matters referred to the National and County Government Coordination Summit.  The meeting also noted the timing of the lapsing of the COMESA sugar safeguards in February next year when sugar manufactured in Kenya will complete with sugar from other countries and hence the need to complete any preparatory work that does not prejudice any decisions on the matter referred to the Summit; The EOI process in this respect takes between two to three months and would make it difficult to implement any agreed decisions by February next year if it were to be repeated at a future date.

12. THAT in response to paragraph 6 of the 2nd Petitioner’s Notice of Motion and paragraph 30of the Petition, I wish to state that the decision by the Transition Authority to withdraw JR. 440 OF 2015 was informed by earlier agreement to set aside the stay order made at the meetings referred to in paragraphs 9 and 10 above, which took place before the expiry of the Authority’s term.

13. THAT in response to paragraph 8 of the 2nd Petitioner’s Notice of Motion and Paragraph 32 of the Petition, I wish to state that in view of the objectives that are to be achieved through privatization in preparation of the company to compete with sugar imports from other countries after lapsing of the COMESA sugar safeguards in Company Limited would have a devastating effect on the company the numerous farmers and employees and other stakeholders whose livelihoods depends on the company.

14. THAT in response to paragraphs 8-14, 16-20 and29 of the 2nd Petitioner’s Notice of Motion and paragraphs 32-38, 40-44 and 53of the Petitioner, I wish to state that in order to facilitate implementation of the recommendation of the National that “any ancestral land currently held by any of the sugar companies remain under the ownership of the local community”:

a) The commission detailed it Transaction Advisors to conduct a comprehensive legal due diligence on the ownership of the land held by the five sugar companies, including Nzoia Sugar Company Limited.

b) The legal due diligence exercise revealed that Nzoia Sugar Company Limited owns several parcels of land ………………

c) The due diligence confirmed that the six parcels of land belong to Nzoia Sugar Company Limited as per the respective leases/ Title documents.

(Annexed hereto and marked ‘SK2’ are true copies of the leases/title documents in the name of Nzoia Sugar Company Limited.)

15. THAT further and in response to the grounds in paragraphs 8-2, 16-20 and 29 of the 2nd Petitioner’s Notice of Motion and paragraphs 32-38, 40-44 and 53 of the Petition, I wish to state that the 2nd Petitioner has not substantiated its “ancestral land” and “illegal acquisition” claims in respect of the land described in paragraph 13 above and the 2nd Petitioner is put to strict proof thereof.

16. THAT in response to paragraph 15 of the grounds in 2nd Petitioner’s Notice of Motion and paragraph 39 of the Petition, I wish to state that the approved privatization strategy seeks to safeguard the land and other proprietary rights of the Nzoia Sugar Company by:

a) Requiring that matters of significant mutual interest be subjected to shareholders veto powers to ensure adequate consensus building in the identified areas; and

b) Ensuring that farmers and employees possess significant influence on the Company’s affairs through ring-fencing of the shares to be held by the employees and farmers through the Out-growers and Employees Investment Trust.

17. THAT in response to grounds in paragraphs 21 and 30 of the 2nd Petitioner’s Notice of Motion and paragraphs 45 and 54 of the Petition, I wish to reiterate paragraphs 5-7 above and state that:

(a) Whereas the Fourth Schedule of the Constitution of Kenya, 2010 assigns the function of crop and animal husbandry to the County Governments, the Sugar Companies are public investments involved in milling of sugar cane, which is not part of the devolved function; and

(b) In view of its assigned investment function, the National Government is not barred from retaining or disposing shares in the existing sugar companies, buying shares in another sugar company or even starting a new company in which it may own any percentage of the shares and that with regard to the 25% shareholding, the shares will be sold at a later date through a method determined based on the needs of the company.

18. THAT in response to the grounds in paragraphs 22, 23 and 25of the 2nd Petitioner’s Notice of Motion and paragraphs 46, 47 and 49 of the Petition.  I wish to state that participation by the National Government in the ownership of the five sugar companies and its privatization role through the Commission is an investment function and not an agricultural policy function as implied under the said paragraph.

19. THAT further and in response to the grounds in paragraphs 23, 24and 27of the 2nd Petitioner’s Notice of Motion and paragraphs 47, 48 and 51 of the Petition, I wish to state that:

(a) Ownership and operation of sugar mills is an investment and a commercial activity and function performed and operated efficiently and effectively by the private sector worldwide, and that private sector, Accordingly, the privatization of the five sugar companies by the National Government, considering the objectives that are to be met through privatization (including sale of 30% of the shares to the farmers and employees) does not in any way hinder or impact negatively on agriculture as a devolved function.  If anything through mobilization of the resources required to rehabilitate and to modernize the factories to enhance their competitiveness, the factory and cane catchment counties will benefit immensely from privatization.

(b) In view of its assigned investment function, the National Government is not barred from retaining shares in the existing sugar companies, buying shares in another sugar company or even starting a new company in which it may own any percentage of the shares and that with regard to the 25% shareholding, the shares will be sold at a later date through a method determined based on the needs of the company.

20. THAT in response to the grounds in paragraph 28 of the 2nd Petitioner’s Notice of Motion and paragraph 52 of the Petition, I wish to state that the application by the Transition Authority was withdrawn by the Authority through an application filed and recorded by the High Court on 1st and 3rd March 2016, respectively following two meetings under the Chairmanship of the Attorney General (also attended by the 2nd Petitioner’s Lawyers) at which it was agreed to refer the issue on transfer of the Companies to the National and County Government Coordination Summit and to constitute and inter- agenda forum under the chairmanship of the Attorney General to discuss other issues that arise during the privatization implementation.

21. THAT in response to paragraph 31 of the 2nd Petitioner’s Notice of Motion and Paragraph 55 of the Petition, I wish to state that with respect to the cited transfer of major health facilities, the facilities have been specially assigned to the County Governments under Section 2, Part 2 of the Fourth Schedule of the Constitution of Kenya, 2010.

22. THAT in response to paragraphs 32-38 and 40of the 2nd Petitioner’s Notice of Motion and paragraph 56-62 and 64 of the Petition, I wish to state that the Commission undertook extensive consultations as per the details below:

(a) Following inclusion of the sugar companies in the privatization programme, a ‘Kamukunji’ was held in the old Parliamentary Chamber in June 2009, whereby the Commission’s Consultants and the CEO led by the then Minister of Agriculture made a presentation on the privatization process to the Members of Parliament from the sugar growing areas and other Members of Parliament who were able to attend.

(b) Prior to formulation of the strategy, the Commission visited all the Sugar companies July 2009, sensitized the staff, Boards Directors and the farmers on the privatization process and collected the farmers view regarding the preferred strategy and concerns that needed to be addressed.

(Annexed hereto and marked ‘SK3’ are true copies of the correspondence in respect of the sensitization meetings.)

(c) Following completion of due diligence and options analysis work on the strategy, the Commission organized a workshop which was held on 3rd October 2009 at the Tom Mboya College.  The workshop was attended by over 600 stakeholders including 100 farmers and farmers’ representatives from each of the five factories comprising of representatives from each area from which the sugar companies get their cane.  The Commission then presented the findings to the meeting and obtained comments which were captured in the consultants’ findings and recommendations and finally in the recommendations approved by the Cabinet and Parliament.

(Annexed hereto and marked ‘SK4’ are true copies of the correspondence in respect of the stakeholders’ workshop.)

(d) After the approval by the National Assembly in April 2015, in August and September 2015 the Privatization Commission organized several stakeholders’ meetings with key Stakeholders including Government Ministries and Departments and institution identified as key Stakeholders in the privatization of the sugar companies; the other Shareholders and Boards of Directors of the sugar companies; Members of parliament (National Assembly and Senate) and Governors from the factory and cane catchment Counties; Farmers, employees and related Unions and other stakeholders from respective Counties such as the national leaders of the Kenya National Federation of Sugar Cane Growers; and other groups that sought to engage the Commission to obtain more information on the transaction.

(e) At each meeting the Commission made presentations to the Stakeholders on the strategy and the proposed process and allowed for adequate time for the Stakeholders to make comments, to seek more information and/or clarifications on the strategy and the proposed process to implement the transaction and to make additional proposals.  In some cases follow up meetings were agreed on and has maintained an open door policy for all Stakeholders with respect to which it continues meeting any stakeholder who wishes to have consultations with the Commission at short notices, or at its offices.

(f) After conclusion of the consultations, the Commission completed a Stakeholders consultations report which it submitted to the National Treasury.  This report was submitted by the National Treasury to the National Assembly in view of earlier directives.

(Annexed hereto and marked ‘SK5’ is a true copy of the Stakeholders Consultation report.)

(g) The Commission compiled a list of the Frequently Asked Questions (FAQs) and Reponses on the same which it published in the daily papers on4th and 8th December 2015 with an invitation for consultations.  The FAQs were also placed in its website (www.pc.go.ke) to be updated from time to time in response to additional issues that may arise.

(Annexed hereto and marked ‘SK6’ is a true copy of the FAQs.)

(h) The commission made several amendments to the proposed process to incorporate agreed inputs from the consultations, including changes to the draft Trust Deed, which is the document governing the participation of the farmers.  The amendments have been made by the Technical Committee to the draft which is awaiting release to the farmers for discussion and endorsement.

(i) That as part of the Consultations referred to above, the Commission visited each of the Sugar factories and held consultations with the farmers, staff and other local stakeholders.

(Annexed hereto and marked ‘SK7’ are true copies of correspondence and attendance registers singed by farmers, staff and other local stakeholders.)

(j) That also as part of the Consultations referred to above, the Commission held consultations with the Governors at two meetings.  (One in Nairobi and another one in Kisumu) at which the Governors demanded that the companies be transferred to them.  In this regard it was agreed that the transfer was not within the purview of the privatization process and that the County Government needed to engage the National Government to have the matter considered within the framework of the transfer functions under the Constitution.

(Annexed hereto and marked ‘SK8’ are true copies of correspondence and attendance registers singed by Governors.)

(k) In addition to the stakeholders workshops arranged by the Commission.  Nzoia Outgrowers Company (NOCO) Directors sought to further consults the Commission and were met on 14th October 2015.  Issues raised by the Directors for consultation were discussed to the Director’s satisfaction.

(Annexed hereto and marked ‘SK9’ are true copies of correspondence relating to the above consultations and the Stakeholders Consultation Report.)

(l) That the Commission has videos coverage of all the stakeholders’ meetings and the same are available for viewing at the Commission’s Offices upon request.

23. THAT further and in response to the grounds in paragraph 39 of the 2nd Petitioner’s Notice of Motion and paragraphs 63 of the Petition, I wish to state that privatization of the Nzoia Sugar Company Limited began in 2009 before the Counties came into being and the requiring that the process be restarted would not only be contrary to Article 262 and the Sixth Schedule of the Constitution on transitional and consequential provisions but would also set a dangerous precedent to the extent that the 2nd Petitioner seeks to apply the Constitutional provisions on their involvement, retroactively.

24. THAT further and in response to the prayers in paragraphs 41 and 42 of the 2nd Petitioner’s Notice of Motion and Paragraphs (a) -  (k) of the Petition, I wish to state that granting the orders being sought by the 2nd Petitioner would occasion prejudice to the Nzoia Sugar Company Limited, the sugar cane farmers supplying the Company and the creditors as well as cause the Respondents to incur costs as demonstrated below:

a) The fact that if the EOI process is to be repeated at a later date, the country will not be able to complete the privatization and related resource mobilization required to be completed by February 2017 when the COMESA sugar safeguard lapse, rendering the factory susceptible to more competitive sugar from other COMESA countries without any safeguard; and

b) The possibility that when this matter is heard the petition will be found to be erroneous and that the 2nd Petitioner’s actions would have amounted to interfering with a process that affects the livelihood of more than six (6) million Kenyans which is currently under threat in view of the lapsing of the COMESA sugar safeguards, which were extended recently in support of the progress made by Kenya in the Privatization process (advertisement for Expressions of Interest for the Strategic Partner) to mobilize resources to rehabilitate and modernize the factories to enhance their competitiveness.  Similar threats also exist with respect to creditors seeking to liquidate some of the companies and the Kenya Revenue Authority which has made concerted endeavors to collected billions of Kenya shillings in taxes owed to the Authority.  The action would have also contributed to continued suffering of the farmers whose cane sometimes takes up to 40 months to harvest while under the privatization initiative it is envisaged that the period would easily be reduced to about 10 months, thereby doubling and in some cases tripling farmers’ incomes.  In addition advertisement of the Expressions of Interest would have to repeat taking more time and expense which is very limited in view of the need to mobilized the resources and to undertake the rehabilitation, expansion and modernization work prior to expiry of the safeguards in February 2017.  Some of the five sugar companies under Government control are also private sector companies under Government control are also private sector companies under Government control on account of their receivership status.

25. THAT in seeking for the declarations and the permanent injunction the 2nd Petitioner has acted in total disregard of the following facts:

(a) The privatization of the Nzoia Sugar Company Limited has so far been conducted in full compliance with the Act;

(b) The request for EOIs is a time- consuming (2-3 months) preliminary stage which does not in any way prejudice any decisions to be made at the National and County Government Coordination  Summit; and

(c) The issue of transfer of the Nzoia Sugar Company Limited to the 2nd Petitioner is not within the purview of the Privatization Programme and has been referred to the National and County Government Coordination Summit for policy direction.

26. THAT the Application and the Petition herein are premised on erroneous and total misrepresentation of facts and the same should be dismissed.  Among other things:

(a) The privatization process is not flawed in any way as it is being undertaken under and in compliance with a comprehensive legal framework;

(b) The sugar company is a public investment which is assigned by the Constitution to the National Government;

(c) The National Government is not barred from retaining of disposing shares in the existing sugar companies, buying shares in another sugar company or even starting a new company in which it may own any percentage of the shares and that with regards to the 25% shareholding, the shares will be sold at later date through a method determined based on the needs of the company; and

(d) The orders sought have no significant impact on protection of public interest as public interest is already fully protected through the privatization process which is entrenched in the law and has rigorous provisions and mechanisms to protect public interest.

The 2nd Respondent raised a NOTICE OF PRELIMINARY OBJECTION

Dated 14th April 2016, as follows:

1. The petitioner has not complied with the mandatory Alternative Dispute Resolution Mechanisms required by the provisions of Article 189(3) and (4) of the Constitution of Kenya and Section 31(b) and 33 (1) and (2) of the Inter-governmental Relations Act 2012 and the petition is therefore premature and ought to be struck out with costs to the Respondents.

Counsel for the parties filed respective written submissions and made supplementary oral arguments and judgment was reserved.

Issues for Determination

The Court must at the outset determine whether it has jurisdiction to entertain the dispute the subject of the consolidated proceedings in view of the provisions for alternative Dispute resolution under the Intergovernmental Relations Act, 2012.  Upon finding jurisdiction in the matter, the Court shall then determine the central questions in the proceedings whether sugar milling is a constitutional function for the national or county government and whether in devising and implementing the privatization programme for the five suit sugar factories, the 1st respondent Commission has adequately provided for public participation in accordance with the law.

Determination

I have considered the submissions of the parties on the matters in dispute.  With regard to the preliminary Objection, all the petitioners were united with the submission that the parties had already attempted without success alternative dispute resolution through the Attorney General following the filing of JR proceedings No. 440 of 2015 which was subsequently withdrawn by consent of the parties.  During the highlighting of submissions, Mr. Ateka for the 2nd and 3rd petitioners made the strongest pitch for the alleged failure of Alternative Dispute Resolution before the petitioners approached the Court, as follows:

“ADR before the County Government approached the Court.

Intergovernmental Relations Act.  There is factual evidence that County Government pursed the ADR process before the current petitions.  In JR 440 of 2015 the 2nd and 3rd petitioners were interested parties.  There attempts to resolve the dispute.  Supplementary Affidavit has minutes of meetings with County Governments and Attorney General.  The Governments attempted to settle before the petitions.  The County Governments approached the Court as a last resort when the Expression of Interest (EOIs) were advertised afresh.”

The respondent’s response as detailed in the replying affidavit of Solomon AMK Kitungu of 19th July 2016 gave the circumstances of the advertisement of EOIs were a formal set which was agreed on as it could not prejudice any settlement  of the dispute under the Intergovernmental relations Act, as follows:

10. THAT at the same meeting where agreement was reached to set aside the stay order in the Juridical Review Application, the need for the 1st Respondent to complete the Request for Expressions of Interest (EOI) Process was noted.  It was noted that the EOI process is a preliminary stage and does not in any way prejudice any future decision toe be reached in view of the matters referred to the National and County Government Coordination Summit.

THAT it remains factual that the EOI process does not in any way prejudice any future decision to be reached in view of the matters referred to the National and County Government Coordination Summit.  The meeting also noted the timing of the lapsing of the COMESA sugar safeguards in February next year when sugar manufactured in Kenya will complete with sugar from other countries and hence the need to complete any preparatory work that does not prejudice any decisions on the matter referred to the Summit; The EOI process in this respect takes between two to three months and would make it difficult to implement any agree decisions by February next year if it were to be repeated at a future date.”

The respondents object that although there were two initial meetings held in an attempt to reach a settlement, the respondents came to court before the process was exhausted and that in any event the dispute was not formally processed in accordance with section 33 of the Intergovernmental Relations Act with an attempt to resolve the issue among the contestants and a declaration of a Dispute in the event of failure to reach a settlement between the parties themselves.

Whether there was compliance with the constitutional and legislative procedure for settlement of disputes between the national government and the county governments involved is mainly a matter of fact which the court shall consider on the facts presented before it by the affidavits filed for the parties.

Alternative Procedure of Resolution of Dispute

In the words of the Court of Appeal in Chimweli Jangaa Mangale & 3 others v Hamisi Mohamed Mwawasaa & 15 others [2016] eKLR -

“It cannot be gainsaid that when the Constitution has created a specific mechanism for redress of particular grievances, that mechanism must be resorted to. (See Narok County Council v. Transmara County Council & Another, CA No. 25 of 2000andMutanga Coffee & Tea Company Ltd v. Shikara Ltd & Another, CA No 54 of 2014 (Malindi).”

In Narok County v. Council case cited above, Kwach, JA with whom Akiwumi and O’Kubasu, JJA. agreed, said of unlimited jurisdiction of the High under the former constitution-:

“Section 60 of the Constitutiondoes give the High Court unlimited jurisdiction but I do not understand it to mean that it can be used to clothe the High Court with jurisdiction to deal with matters which a statute has directed should be done by a minister as part of his statutory duty.”

In the present case, it is the Constitution of Kenya itself that has directed the procedure of alternative dispute resolution to be given effect by national legislation.  The Constitution decrees a system of respectful cooperation between the county and national governments, under Article 189 (1) of the Constitution as follows: -

“189 (1) Government at either level shall –

(a) Perform its functions, and exercise its powers, in a manner that respects the functional and constitutional integrity of government at the other level, and respect the constitutional status and institutions of government at the other level and, in case of county government, within the county level;

(b) Assist, support and consult and, as appropriate, implement the legislation of the other level of government; and

(c) Liaise with government at the other level for the purpose of exchanging information, coordinating policies and administration and enhancing capacity”.

The sub-Article (2) of Article 189 requires cooperation between different governments at the county level through joint committees and authorities for the performance of the functions and exercise of powers of the counties.  Under Article 189 (3), the Constitution provides that in cases of disputes between the governments be settled through procedures of alternative dispute resolution by negotiation, mediation and arbitration among others as provided under national legislation.  Such legislation is The Intergovernmental Relations Act, 2012.  Sections 7 and 8 of the Act establishes a National and County Government Co-ordinating Summit which shall be the apex body for intergovernmental relations with membership of (a) the President or in the absence of the President, the Deputy President, who shall be the chairperson; and (b) the governors of the forty-seven counties and with the function among others to provide forum for:

“k. facilitating and co-ordinating the transfer of functions, power or competencies from and to either level of government;”

Under sections 11 and 12 of the Act, there is established an Intergovernmental Relations Technical Committee comprising (a) a chairperson competitively recruited and appointed by the Summit; (b) not more than eight members who shall be competitively recruited and appointed by the Summit; and (c) the Principal Secretary of the State department for the time being responsible for matters relating to devolution, which Committee shall (a) be responsible for the day to day administration of the Summit and of the Council and in particular (i) facilitate the activities of the Summit and of the Council; and (ii) implement the decisions of the Summit and of the Council.

The Court only allows opportunity for alternative dispute resolution mechanisms to be called into action in accordance with the restful cooperation principle of Article 189 of the Constitution whose clear textual provisions stipulate under sub-Articles (3) and (4) that –

“(3) In any dispute between governments, the governments shall make every reasonable effort to settle the dispute,including by means of procedures provided under national legislation

(4) National legislation shall provide procedures for settling intergovernmental disputes by alternative dispute resolution mechanisms, including negotiation, mediation and arbitration.”

The said national legislation The Intergovernmental Relations Act, 2012 has a whole Part dedicated to alternative dispute resolution mechanisms of disputes between national and county governments and between county governments, as follows:

“PART IV ?DISPUTE RESOLUTION MECHANISMS

30. (1) In this Part, unless the context otherwise requires, ?dispute? means an intergovernmental dispute.

(2) This Part shall apply to the resolution of disputes arising?

(a) between the national government and a county government; or

(b) amongst county governments.

31. The national and county governments shall take all reasonable measures to?

(a) resolve disputes amicably; and

(b) apply and exhaust the mechanisms for alternative dispute resolution provided under this Act or any other legislation before resorting to judicial proceedings as contemplated by Article 189(3) and (4) of the Constitution.

32. (1) Any agreement between the national government and a county government or amongst county governments shall?

(a) include a dispute resolution mechanism that is appropriate to the nature of the agreement; and

(b) provide for an alternative dispute resolution mechanism with judicial proceedings as the last resort.

(2) Where an agreement does not provide for a dispute resolution mechanism or provides for one that does not accord with subsection (1), any dispute arising shall be dealt with within the framework provided under this Part.

33. (1) Before formally declaring the existence of a dispute, parties to a dispute shall, in good faith, make every reasonable effort and take all necessary steps to amicably resolve the matter by initiating direct negotiations with each other or through an intermediary.

(2) Where the negotiations under subsection (1) fail, a party to the dispute may formally declare a dispute by referring the matter to the Summit, the Council or any other intergovernmental structure established under this Act, as may be appropriate.

34. (1) Within twenty-one days of the formal declaration of a dispute, the Summit, the Council or any other intergovernmental structure established under this Act shall convene a meeting inviting the parties or their designated representatives ?

(a) to determine the nature of the dispute, including?

(i) the precise issues in dispute; and

(ii) any material issues which are not in dispute; and

(b) to –

(i) identify the mechanisms or procedures, other than judicial proceedings, that are available to the parties to assist in settling the dispute, including a mechanism or procedure provided for in this Act, other legislation or in an agreement, if any, between the parties; or

(ii) subject to Article 189 of the Constitution, agree on an appropriate mechanism or procedure for resolving the dispute, including mediation or arbitration, as contemplated by Articles 159 and 189 of the Constitution.

(2) Where a mechanism or procedure is specifically provided for in legislation or in an agreement between the parties, the parties shall make every reasonable effort to resolve the dispute in terms of that mechanism or procedure.

(3) Where a dispute referred to the Council or any other intergovernmental structure established under this Act, fails to be resolved in accordance with section 33(2), the Summit shall convene a meeting between the parties in an effort to resolve the dispute and may recommend an appropriate course of action for the resolution of the dispute.

35. Where all efforts of resolving a dispute under this Act fail, a party to the dispute may submit the matter for arbitration or institute judicial proceedings.

36. (1) A person commits an offence under this Act if, in relation to section 34, the person−

(a) fails, without justifiable cause, to attend a meeting for settling a dispute when required to;

(b) refuses to produce any article or document when lawfully required to do so;

(c) knowingly gives false evidence or information; or

(d) interrupts any proceedings of the meeting.

(2) A person who commits an offence under subsection (1) is liable, upon conviction, to a fine not exceeding two hundred thousand shillings or to imprisonment not exceeding six months, or to both.”

Section 31 of the Act incompliance with sub-Article 4 of Article 189 provides for alternative dispute resolution as follows:

“31. The national and county governments shall take all reasonable measures to-

(a) resolve disputes amicably; and

(b) apply and exhaust the mechanisms for alternative dispute resolution provided under this Act or any other legislation before resorting to judicial proceedings as contemplated by Article 189(3) and (4) of the Constitution.”

Section 33 provides for the formal steps towards declaration of a dispute for reference to the structures of the Intergovernmental Relations Act.

The court process as a last resort

Section 35 of the Intergovernmental Relations Act provides for judicial procedure as a last resort:

“35. Where all efforts of resolving a dispute under this Act fail, a party to the dispute may submit the matter for arbitration or institute judicial proceedings.”

I respectfully agree with Mumbi Ngugi, J. in International Legal Consultancy Group & another v Ministry Of Health & 9 others [2016] eKLR that the provision for dispute resolution between governments under the Act and the Constitution is intentionally established a consultative and amicable process in preference to court procedures resort to which is only as last measure, if the alternative dispute resolution mechanism fail.  The learned judge said:

65. “It is, in my view, apparent that the constitutional and legislative intent was to have all disputes between the two levels of government resolved through a clear process established specifically for the purpose by legislation, a process that emphasizes consultation and amicable resolution through processes such as arbitration rather than an adversarial court system. As a result, a separate dispute resolution mechanism for dealing with any disputes arising between the national and county governments, or between county governments, has been established.

66. Before a dispute arising between these parties can be placed before the courts, the Constitution and legislation require that a reasonable attempt at amicably resolving the matter be made. Indeed, if there was any doubt about this, section 35 of the Act clears it away with specific words. ….

67. The legislative intention was therefore that judicial proceedings would only be resorted to once efforts at resolving the dispute between the two levels of government failed….”

Therefore, it is only anticipated that the national and county governments would only resort to contentious court proceedings, pursuant to Article 189 (4), if ‘the alternative dispute resolution mechanisms, including negotiation, mediation and arbitration’ fail.

According to Minutes of the second Meeting held under the auspices of the office of the Attorney General on 5th February in an attempt to settle the matter, attached as exhibit NO.SK1 to the Replying Affidavit of Solomon AMK Kitungu sworn on 19th July 2016 in Petition No. 187 of 2016, it was the matters in dispute would be addressed through the machinery of the Intergovernmental Relations Act, as follows:

“OFFICE OF THE ATTORNEY GENERAL AND

DEPARTMENT OF JUSTICE

OFFICE OF ATTORNEY GENERAL

MINUTES OF THE 2ND MEETING HELD IN THE ATTORNEY GENERAL CHAMBERS ON 5TH FEBRUARY 2016 AT 10. 00AM TO DISCUSS THE PRELIMINARY STATUS OF DISPUTE BETWEEN TRANSITION AUTHORITY AND THE PRIVATISATION COMMISSION IN JUDICIAL REVIEW NO. 440 OF 2015 REPUBLIC VERSUS PRIVATIZATION COMMISSION AND OTHERS

Present

1. Prof. GithuMuigai, Atttorney General (Chairing)

2. Hon. HentryObwacha, Chairman, Privatisaton Commission

3. KinuthiaWamwangi, Chairman, Transition Authority

4. Solomon Kitungu, Executive Director/CEO, Privatisation Commission

5. WanjikuWakogi, Office of the Attorney General & Department of justice

6. WanjikuMbiyu, Office of the Attorney General & Department of Justice

7. Beatrice Gathirwa, Director, National Assets & Liabilities, The National Treasury

8. Hon. Amos W. Omollo, Kisumu County Attorney

9. Jacqueline Muindi, Privatisation Commission

10. Rosemary Ndiritu, Privatisation Commission

11. Rizpha M. David, Ministry of Agriculture, Livestock & Fisheries

12. BakariOmara, Transition Authority

13. Stephen M. Mogaka, Advocate, Transition Authority

14. JuleChesire, Agriculture, Fisheris& Food Authority (AFFA)

15. Peter Wnayama, Advocate, Kisumu County

16. Amina Hashi, Advocate, Migori County

17. Lucy Konyanjuui, Advocate, Migori County

18. Tom Odede, Office of the Attorney General &Department of Justice (taking Minutes)

Agenda

To review and consider the outstanding issues isolated by the parties and chart the mechanism for resolution of issues.

Minute 1/Feb/2016

The issues isolated by parties at the previous meeting were presented as follows:

1. The Transition Authority:

Wanted a list of all assets and liabilities of the sugar factories whose privatization is in issue:

Requires the Privatization Commission to obtain their approval for the privatization of the said factories; and

Demanded payment of costs of the pending litigation.

2. The Privatization Commission:

Was of the view that privatization of the five sugar companies is not subject to the prior approval of the transition Authority; and that even if the 2013 opinion of the Attorney General were to be set aside, that approval would be at a later stage after the Commission determines to whom the new shares would be transferred and on what terms;

Was concerned about the wastage of public resources occasioned by the delay of the process;

Was concerned that there would be negative impact on farmers and the sugar factories occasioned by delayed privatization.

3. Migori and Kisumu County governments:

Wanted the transfer of all assets and liabilities in the agriculture sector including the sugar factories to the respective county governments since they are public assets;

Wanted a conditional grant from the treasury to pay off the liabilities;

Required a guarantee that they will be involved in mobilizing farmers in the process of privatization, specifically on the framework of shares;

Wanted the Privatization Commission to undertake meaningful and qualitative public participation;

Wanted protective measures to be undertaken in the international arena to cushion the sugar industry; and

Raised the issue of who is the mediator in the envisaged process.

Minute 2/Feb/2016

The Attorney General noted that the issues raised by the County Governments regarding transfer of the sugar Companies are deep-seated policy matters and advised as follows:

i) The issues ought to be escalated to the intergovernmental Relations Technical Committee for direction;

ii) That Privation of the Sugar Companies is a matter of great public interest;

iii) That is the desire of the Government to undertake the divesture programme while companies are still going concerns;

iv) Due to the COMESA deadline set for February 2017 the sugar industry is threatened with total collapse and the nation risks being a net importer of sugar;

v) A multi-agency committee of all stakeholders be formed to facilitate necessary consultations during the transaction implementation period;

vi) The Privatization to continue following record of consent in court to vacate the orders in  court by the Transition Authority, Privatization Commission and the County Governments of Kisumu and Migori.

The issues of transfer of the Sugar Companies be placed before the National and County Government Co-ordinating Summit at its next meeting to be held on 10th February 2016:

Minute 3/Feb/2016

The Commission restated the significance of the privatization exercise and noted:

That the approved privatization does not involve transfer of any existing assets but is an avenue by which additional capital will be injected into the enterprise by new investors;

Through the sale of new shares, the government would mobilize about 62 billion Kenya Shilling to rehabilitate and modernize the Sugar Companies; and

That the Commission had already obtained and submitted the Sugar Companies’ lists of assets and liabilities to the Transition Authority.

Minute 4/Feb/2016

The Transition Authority stated that it has a statutory role to oversee transfer of assets and liabilities through a process that involves;

i. Formal application:

ii. Due diligence to ascertain allocation the assets and liabilities:

iii. Verification and validation; and

iv. Public participation.

Made a proposal for establishment of a Steering Committee convened periodically by the Attorney General to give direction to the Multi- Agency committee.

Minute 5/Feb/2016

The County Attorney of Kisumu County agreed that issues raised by the County Governments are policy matters which ought to be addressed at the Summit level:

Supported the idea of the mediation process to avert prospect of delays as the court case continues;

The Advocate representing Kisumu County also stated that Bungoma County had applied to the enoy7ined in the suit and seeks to participated in the discussion;

He also explored the possible entry points for the County Governments; in the intended divesture and suggested the following options;

i) National government to offer grant to the County Government for purchase; or

ii) Reservation of shares for the County Government in the companies.

Members supported the idea of multi-agency committee and agreed on needed to develop a framework to govern its proposed functions.

Minute 6/Feb/2016

Arising from the above discussions, the parties resolved as follows:

a. Attorney General to send a communication to the Cabinet Secretary responsible for devolution to place the assets transfer issues before the inter-governmental Relations Technical Committee for policy direction;

b. Bungoma County Government be included in the Multi-Agency committee;

c. A Multi-agency committee comprising of relevant stakeholders be set up to facilitate necessary consultations on the issues before the court and other issues that may arise during the transactions implementation period;

d. The Multi-agency committee to develop a framework to govern its proposed functions; and

e. Adoption of a draft consent to be executed by the Advocates of the parties and filed in court set out in the following terms:

By consent of all the parties herein it is hereby ordered:-

1. THAT Bungoma County Government be and is hereby enjoined as a 3rd interested party.

2. THAT the stay order issued on 14th December 2015 be and is hereby vacated and or set aside on the following conditions:-

(a) Establishment of a Multi-Agency Team and or Committee to be convened by the Attorney General comprising of, inter alia:-

(i) Transition Authority;

(ii) Privatization Commission;

(iii) Representatives of the County governments of Migori, Bungoma and Kisumu;

(iv) Representative from the National Treasury;

(v) Representative from Ministry of Agriculture, Fisheries and Livestock;

(vi) Representative from Office of the Chief of Staff and Head of Public Service.

(vii) Representative from the AFFA (Agriculture, Fisheries and Food Authority);

(viii) Representative from Ministry of Devolution and Planning; and

(ix) Any other persons or agencies as the Multi-Agency Team may deem fit to co-opt)

To inter alia do the following:

(i) Deliberate upon and agree on the statutory approval process envisaged in the Transition to Devolved Government Act 2012 and the Privatization Act 2005(Rev 2012); and

(ii) To consider and or capture the concerns of the County Governments parties herein and recommend an appropriate framework for resolution of the said concerns to the appropriate agencies for Intergovernmental Relation.

3. THAT the suit be and is hereby stood over generally.

4. THAT parties be and are hereby at liberty to apply.

Minute 7/Feb/2016

Next meeting to be convened on notice.

There being no other business the meeting ended at 1. 45pm.”

The alternative dispute resolution efforts ended at only a second meeting at which it was agreed that the matter should be referred to the appropriate intergovernmental Relations Committee and that a “A Multi-agency committee comprising of relevant stakeholders be set up to facilitate necessary consultations on the issues before the court and other issues that may arise during the transactions implementation period”.  Following the 2nd meeting of which took place on 5th February 2016, the court proceedings then in place was withdrawn only for the petitioners to back to court in April and May 2016 before any further attempts at amicable settlement in accordance with Article 189 of the Constitution and the Intergovernmental Relations Act..

Accordingly, as the mechanism for alternative dispute resolution of any disputes between the national and county governments as ordained by the Constitution have not been exhausted, I find that the proceedings before the Court are premature.

Should the Court determine the dispute now that it is before it, however improperly?

In the now famous decision of The Motor Vessel Lilian SS[1989] KLR 1cited below, the Court of Appeal held that once a court finds that it has no jurisdiction on a matter it should decline to deal with the dispute on its merits.  In Kakuta Maimai Hamisi v Peris Pesi Tobiko & 2 others[2013] eKLR, the Court of Appeal emphasized the central and primary status of a determination of the Court on its jurisdiction as follows:

“So central and determinative is the question of jurisdiction that it is at once fundamental and over-arching as far as any judicial proceeding is concerned. It is a threshold question and best taken at inception. It is definitive and determinative and prompt pronouncement on it, once it appears to be in issue, is a desideratum imposed on courts out of a decent respect for economy and efficiency and a necessary eschewing of a polite but ultimately futile undertaking of proceedings that will end in barren cul de sac. Courts, like nature, must not act and must not sit in vain.

The proper place of jurisdiction and the necessity to deal with it as the first order of business before an enquiry into merits of a cause was best captured in the timeless words of Nyarangi J.A in The OWNERS OF THE MOTOR VESSEL LILLIAN ‘S’ Vs. CALTEX KENYA LTD [1989] KLR 1;

“I think that it is reasonably plain that a question of jurisdiction ought to be raised at the earliest opportunity and the court seized of the matter is then obliged to decide the issue right away on the material before it. Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction. Before I part with this aspect of the appeal, I refer to the following passage which will show that what I have already said is consistent with authority;

‘By jurisdiction is meant the authority which a court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision. The limits of this authority are imposed by the statute, charter, or commission under which the court is constituted, and may be extended or restricted by the like means. If no restriction or limit is imposed the jurisdiction is said to be unlimited. A limitation may be either as to the kind and nature of the actions and matters of which the particular court has cognizance, or as to the area over which the jurisdiction shall extend, or it may partake of both these characteristics. If the jurisdiction of an inferior court or tribunal (including an arbitrator) depends on the existence of a particular state of facts, the court or tribunal must inquire into the existence of the facts in order to decide whether it has jurisdiction; but, except where the court or tribunal has been given power to determine conclusively whether the facts exist, where a court takes it upon itself to exercise a jurisdiction which it does not possess, its acquired before judgment is given.’

See Words and Phrases Legally defined – Volume 3: 1 – N Page 113. ””

Once determine no jurisdiction the court will down its tools.

Principle of Constitutional Avoidance

Even where a dispute is properly before the Court, the principle of constitutional avoidance bears upon the consolidated petitions and judicial review proceedings.  In MOMBASA HC CONSTITUTIONAL PETITION NO. 61 OF 2012,Jackson Maina Ngamau v. Ethics and Anti—Corruption Commission &3 Ors., this Court discussed constitutional avoidance  as follows:

18. The principle of ‘constitutional avoidance’ as discussed by the Supreme Court of Kenya in Communications Commission of Kenya & 5 Ors. v. Royal Media Services Ltd & 5 Ors. (2014) eKLR that the Court will not determine a constitutional issue or question even where it is properly before it, if there is another basis upon which the case can be disposed of, does not oust the jurisdiction of the Court but rather calls for judicial restraint in cases where there exists an statutory or other remedy.  In addition, in accordance with the rule in The Speaker of the National Assembly v. Karume (2008) EG&F, it is now accepted as a principle of constitutional adjudication that where the constitution or statute makes provision for the process for determination of a particular matter that procedure should be strictly followed.

The jurisdiction of the High Court as the Constitutional Court is not ousted by such stance, nor is the Court abdicating it role as the interpreter of the constitution under Article 165(3) (d) of the Constitution.  The Court only considers that there is adequate and appropriate remedy elsewhere.

The setting of the dispute herein provides a classic example where the principle of constitutional avoidance at this stage with regard to determination by constitutional interpretation of any aspect of the dispute must be employed, firstly because the Constitution decrees resolution of the disputes of the nature now before the court by alternative dispute resolution mechanism; secondly, because the nature of the dispute involving, apart from construction of constitutional provisions of functions and powers of national and county governments, technical questions of most effective functioning of governmental policy, resources and responsibilities in agricultural production, value addition, national and international trade, and public investment, which are better considered and resolved by respective technical organs of the State; and thirdly, because in the event of failure of settlement through the ADR mechanism, the matter may end up in court.

There is no suggestion that the structures of alternative dispute resolution under the Intergovernmental Relations Act, 2012 cannot remedy the situation manifested in the dispute about whose function between the national and county government is the business of milling of sugar, that is whether it is an public investment function for the national government or a crop husbandry function reserved for the county governments.  Indeed, whether it were considered that the sugar milling is a public investment or an agricultural function, the organs of the Intergovernmental Relations Act are still capable of amicable settlement of the dispute in accordance with the Act and Article 189 of the Constitution by suitable transfer of functions as mandated under section 8 (f) of the Act.  Only in the event of failure of reasonable efforts at settlement shall resort be had to judicial proceedings.

Conclusion

Although, there appears to be substantial questions presented to the High Court for interpretation of the Constitution as to the nature and extents of the County Government’s agricultural function and the correlated agricultural policy function of National Government’s and the latter’s substantive public investment function with respect to the sugar milling factories which are the subject of the privatization programme challenged in the suits before the Court, the Constitution itself prescribes for harmonious resolution of any disputes that may arise between the governments.  For this reason, a course of avoidance by the Court is a constitutional imperative, at least until the alternative dispute resolution methods have reasonably been employed without success.

Such reasonable efforts towards resolution of the dispute have not been exhausted or failed.

The Court cannot, therefore, be asked to resolve the dispute anyhow now that the matter is before the Court.  That would be usurping the prior jurisdiction of the organs of Intergovernmental Relations Act, through which “the governments shall make every reasonable effort to settle the dispute.”  To determine the dispute by constitutional interpretation of the constitutional court is unconstitutionally to deprive the governments at the two levels their constitutional mandate to resolve the matter by means of respectful co-operation method of the Constitution, and thereby defeat one of the very objects of devolution under dictates of Article 6 (2) and 189 (2) the Constitution, that –

“Art. 6(2) The governments at the national and county levels are distinct and inter-dependent and shall conduct their mutual relations on the basis of consultation and cooperation.”

“Art. 189 (2)Government at each level, and different governments at the county level, shall co-operate in the performance of functions and exercise of powers and, for that purpose, may set up joint committees and joint authorities.”

If, as it appears from the strong positions taken by the parties herein, no resolution is forthcoming, the governments will be at liberty pursuant to section 35 of Intergovernmental Relations Act, 2012 to come to Court – the High Court for constitutional interpretation under Article 165(3) (d), and or for resolution by advisory opinion of the Supreme Court under Article 163 (4) of the Constitution which provides as follows:

“(6) The Supreme Court may give an advisory opinion at the request of the national government, any State organ, or any county government with respect to any matter concerning county government.”

The eventuality contemplated by section 35 of the Intergovernmental Relations Act 2012 has not crystallized because all efforts of resolving the dispute have not been exhausted and failed.  Indeed, such efforts were only at the initial stages when the petitioners came to court.

There was much learning, indeed to scholarly levels, in the parties’ submissions on the merits of the dispute and the importance of devolved system of government, which the Court, in view of its finding on the Preliminary Objection by the 2nd Respondent, regrettably cannot delve into, but the Court is grateful to the Counsel for their industry.

Orders

Accordingly, for reasons set out above, the Court strikes out the Petitions Nos. 119 of 2016, 187 of 2016 and 208 of 2016 and the Judicial Review proceedings No. 166 of 2016 consolidated under Petition No. 187 of 2016.  In view of the public nature of the proceedings, the Court does not make any order as to costs.

EDWARD M. MURIITHI

JUDGE

DATED AND DELIVERED THIS 10TH DAY OF NOVEMBER 2017.

E C MWITA

JUDGE

Appearances: -

Ms. Hashi for the 1st Petitioner

Mr. Ateka for Mr. Wanyama for the 2nd and 3rd Petitioners

Mr. Obondi for the 4th and 5th Petitioners

Mr. Njoroge with Mr. Bita for Respondents.