Kongaren Multipurpose Cooperative Society v Ministry of Industrialization Trade & Enterprise Development, Agriculture and Food Authority, Kenya Revenue Authority, Ministry of Finance & National Treasury & Attorney General;Beatrice Nyamwau & another (Affected Parties) [2022] KEHC 1701 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT ELDORET

PETITION NO.E026 OF 2021

IN THE MATTER OF ARTICLES 1, 2(4), 10, 21, 22, 23, 43, 47, 201

AND 232 (d) OF THE CONSTITUTION OF KENYA 2010

AND

IN THE MATTER OF VIOLATION OF ARTICLES 10, 47

AND 232 (d) OF THE CONSTITUTION OF KENYA 2010

AND

IN THE MATTER OF MINISTRY OF INDUSTRIALIZATION,

TRADE AND ENTERPRISE DEVELOPMENT

AND

IN THE MATTER OF CROPS (SUGAR) (IMPORTS, EXPORTS ANDBY-PRODUCTS) REGULATIONS 2020

BETWEEN

KONGAREN MULTIPURPOSE COOPERATIVE SOCIETY......................................................PETITIONER

AND

MINISTRY OF INDUSTRIALIZATION TRADE & ENTERPRISE DEVELOPMENT.....1ST PETITIONER

AGRICULTURE AND FOOD AUTHORITY........................................................................2ND RESPONDENT

KENYA REVENUE AUTHORITY..........................................................................................3RD RESPONDENT

MINISTRY OF FINANCE & NATIONAL TREASURY......................................................4TH RESPONDENT

THE ATTORNEY GENERAL..................................................................................................5TH RESPONDENT

AND

BEATRICE NYAMWAU..................................................................................................1ST AFFECTED PARTY

WILLI AUDI MAGAK.....................................................................................................2ND AFFECTED PARTY

RULING

1.     This is the ruling on Petitioner’s amended Notice of Motion dated 9/11/2021 and amended on 18/11/2021.  The application is filed pursuant to Article 159 of the Constitution; section 1A, 1B and 3A of the Civil Procedure Act and other enabling legislation.

2.     The motion prays for the following orders:

1.  That this application be certified urgent.

2.   That pending the hearing and determination of this application inter-partesa conservatory order be issued to stop any intended meeting to be held on 10/11/2021 by the Respondents and any other party with intention of passing a decision granting Ugandan sugar access to the Kenyan market to a tune of 99,000 metric tonnes per annum on duty free basis.

3.  That pending the hearing and determination of this petition a conservatory order be issued to stop any intended meeting to be held on 10/11/2021 by the Respondents and any other party with intention of passing a decision granting Ugandan sugar access to the Kenyan market to a tune of 99,000 metric tonnes per annum on duty free basis.

4.  That pending the hearing and determination of this petition, the Respondents and in particular the 2nd and 3rd Respondents, be restrained from allowing any clearance of sugar from Uganda to be affected on rebated customs and excise duties unless such sugar falls within COMESA Treaty prescribed quota.

5.   That the costs of this application be provided for.

3.     The motion is premised on grounds set out therein and supported by affidavit of Andrew Bett sworn on 18/11/2021.

4.     The Applicant’s case is that it is a registered corporative society whose members are mainly small scale farmers from the Western Kenya, Nyanza and Rift Valley regions.  The Applicant avers that it is also a stakeholder and contributor in the local sugar industry in Kenya.

5.     The Applicant’s case is that the petition herein highlights the illegalities and gross violations of constitutional provisions perpetuated by the Respondents through a special arrangement made between Kenya and Uganda over the importation of duty free sugar from Uganda into the Kenyan market.  The Applicant states that it has come to learn about an intended meeting which was scheduled to take place on 10/11/2021 between the Respondents and other authorities involved in the sugar industry in Kenya.  The said meeting was to discuss importation of the duty free sugar from Uganda into the Kenyan market.  If this meeting is allowed, the  Applicant avers that the Kenyan market will be flooded with cheap sugar thereby destroying the local market for the Petitioner’s members who depend on their local sugar produce to earn a living.  The members of the Petitioner aver that they cannot compete with the imported sugar on that rate; arguing that Kenya is a signatory and a member state of Common Market for Eastern and Southern Africa (COMESA) which is made up of 19 member states from East and Southern Africa.  The Petitioner avers that COMESA was created in 1994 with the aim of attaining a sustainable growth and development of the Member States by promoting a more balanced and harmonious development of its production and marketing structures to raise the standard of living of its people by fostering a close relation among its member states.  That COMESA aimed at creating a huge market block so as to encourage free trade between the member states by maximizing on the production of whatever produce a region is best suited to produce, and in turn sell the same to the other member states at subsidized importation and custom duties.

6.     With regard to the sugar market, COMESA introduced the use of Sugar Export quota System whereby each member state is allocated an annual metric tonnes of sugar that it can import from other member states depending on the local sugar production and consumption rate.  This was geared towards regulating the amount that can be imported by any member state so as to create a fair play field for all the member states.

7.     The Petitioner states that as per COMESA trade agreement, the duty advantage for each member state varies as per country trade arrangement under COMESA.  For example sugar imported from Uganda pays an importation tax of 20% duty and 80% advantage while sugar imported from Swaziland pays importation tax of 10% and 90% advantage.  However once the allocated quota of 210,163 MT is reached any sugar imported thereafter attracts 100% import tax.  This was made to be so because the member states appreciated the fact that there was need to protect some of the partner states with regard to some of their products in order not to completely destroy the opportunity of other member states in terms to the production of some of the goods.

8.    The Applicant avers that Kenya and Uganda are member states of COMESA and are thus bound by the terms and rules contained in the COMESA Treaty more especially with regard to importation and exportation of sugar from COMESA member states.  The Applicant states that for the year 2021 Kenya was allocated an annual quota rate of 210,163 metric tonnes of sugar.  This means that any sugar imported from any of the COMESA member states into Kenya is at subsidized rates thus the importer is exempted from paying 100% import tax. And since the production of sugar from Kenyan industries is not sufficient to cater for the local consumption, Kenya fills in the deficit by importing sugar mainly from COMESA region through individual traders or business men to cater for the need  of the local market.  The said importation is based on first come first served basis for the 210,163 MT.  No member state is to be favoured over the other as that is in line with the rules set out in the COMESA Treaty.  Once the allocated quota of 210,163MT is reached any sugar imported thereafter should attract 100% import tax.

9.     The Applicant states that sometime in March 2019 Kenya and Uganda entered into a special arrangement whereby Kenya granted Uganda sugar free access into the Kenyan market to the tune of 90,000 metric tonnes over and above the quota allocated by COMESA for Kenya in the year 2016.  This is evidenced in a Joint Communique issued by the Republic of Kenya and the Republic of Uganda dated 15th April 2021, hereafter referred to as the “bilateral agreement.”  According to the applicant, the said bilateral agreement on the importation of sugar on rebated excise and customs duty terms renders the COMESA Treaty an ineffective treaty, on the basis that Uganda is one among many other countries who are members of the COMESA Treaty.  Therefore, there cannot be any basis favouring Uganda only and moreover, it does not appear proper for Kenya to enter into a major treaty, such as COMESA Treaty and in the same breath, negate the effect of such a Treaty by entering into separate bilateral arrangements over the same subject matter, with individual members in the COMESA Treaty as are covered in the COMESA Treaty.  Therefore, the Applicant avers, the state organs and officers engaged in negating the decisions made by the Governments in the COMESA Treaty are acting in violation of Articles 10, 47 and 2 (5) and 2 (6) of the Constitution of Kenya, 2010.

10.    The Applicant further avers that based on the said special arrangement, Uganda has been exporting sugar to Kenya on zero percent import duty regardless of the fact that such import should incur 20% import tax.  The Applicant states that there is a real threat of huge quantities of sugar flooding the Kenyan market, which are to be cleared for home use in Kenya from Uganda literally on a zero customs and excise duty basis.     Such flooding of sugar on a zero duty rating will mean that the sugar produced by a Kenya famer would be more costly in the market and therefore will not attract any buyers.  This will according to the Applicant, will amount to killing the Kenya sugar industry, thereby violating the social-economic rights of the Kenyan sugar industry and the social economic rights of the Kenyan sugar farmers.  That fundamental right is covered by Article 43 of the Constitution of Kenya.

11.    The Applicant avers that for the foregoing reasons the petition herein is of great public importance and interest as it is aimed at ensuring that no sugar should be landed in Kenya outside the COMESA treaty prescribed quota unless the importer would be ready to comply with the law by paying 100% customs and excise duty as required by the law.  Any relaxation of this rule will result in the annihilation of the local sugar production which would adversely affect many people who sustain their livelihoods, particularly in the Western and Rift Valley regions of Kenya, from the local sugar production.

12.    The Applicant avers that the said decision according Uganda preferential tariff treatment was made without the involvement or input and participation of various stakeholders of the sugar industry in Kenya who were gravely affected by the same.  The said preferential tariff treatment amounts to discrimination against other COMESA member states who have equal capacity to export sugar produce to Kenyan market.   The terms of the said special arrangement between Kenya and Uganda amounts to a variation or alteration of the terms and rules set by COMESA on importation of sugar by member states.

13.    The Applicant states that in March 2019 Uganda forwarded a request to Kenya to consider increasing the sugar quota granted by Kenya under their special arrangement from 36,000MT to 90,000MT.  Subsequently, a bilateral meeting was held on 18/12/2020 between Kenya and Uganda whereby the said request by Uganda was discussed at length.  Among the recommendations made in the said meeting was that Kenya was to undertake a verification mission to Uganda to ascertain the capability of Uganda to undertake the said request.  That indeed, a seven days verification exercise was undertaken from 11th to 17th April 2021 by a team of Kenyan authority drawn from various ministries in conjunction with Ugandan authorities.  Subsequently, a report was filed by the said team which made recommendations inter alia to grant the request made by Uganda by enhancing the sugar quota allocation from 36,000MT to 90,000MT.  The applicant avers that the said team recommended to the Government of Kenya to seek an undertaking from Ugandan government that Uganda will not import or allow the importation of brown sugar from outside the East Africa Region which recommendation is contrary the spirit of COMESA protocol that advocates for the trade between the COMESA member states.

14.    The Applicant avers that in the course of interaction with authorities in the sugar industry, the Petitioner has come to learn that the Respondents have scheduled a meeting which was to take place on 10/11/2021 to deliberate on the said recommendations and the request made by Uganda.  The Applicant avers that the said meeting and any decision which will arise therefrom amounts to an illegality based on the various facts stated herein.

15.    The applicant therefore prays for conservatory orders stopping any deliberations to import sugar from Uganda, pending the determination of the petition herein.

The Response

16.    The 1st, 4th and 5th respondents filed grounds of opposition on 1/12/2021, stating that the applicant has not satisfied principles set down for the court to exercise its discretionary power to grant the conservatory orders sought.  They further contended that the importation and regulation of sugar is not within the control of the 1st, 4th and 5th Respondents, but within the functions and powers of the 2nd Respondent, and that this application seems to push a private interest.

17.   The 2nd Respondent filed grounds of opposition on 29/11/2021 stating that the 2nd Respondent is not aware of any valid permits for sugar imports that have been given by the 1st Respondent as the 2nd Respondent is the only body responsible for the permits, as per the Crops (Sugar Imports, Exports and by-products) Regulations 2020.  The 2nd Respondent states that the Common Market for Eastern Southern Africa (COMESA) quote allocation for sugar in 2021 was a total of 210,163MT of mill white/brown sugar and the same was communicated via Kenya Gazette Notice No.221 dated 2nd March 2019 which quota the 2nd Respondent continues to be guided by.  The 2nd Respondent avers that contrary to the Petitioner’s assertions, the COMESA quota was not exhausted in September 2021 and remains unexhausted to date.  The total sugar imports from COMESA countries for the period of January to October 2021 was 201,530MT.

18.    The 2nd Respondent contends that it is neither aware nor is it part of any Bilateral Agreements between itself as regulator and Uganda to grant Uganda preferential treatment as alleged by the Petitioner/Applicant.  The 2nd Respondent avers that the COMESA quota for Uganda sugar export into Kenya in 2021 is 18,923. 63MT.  As at October 2021, the 2nd Respondent had authorized import of 41,893. 11MT, the extra imported sugar having been subjected to the requisite taxes.  However, the 2nd Respondent has no objection to sugar imports in excess of the COMESA quota as long as the approval is granted and the importer pays the requisite taxes levied by the 3rd Respondent.

19.    In the alternative and without prejudice, the 2nd Respondent avers that it cannot confirm whether the Petitioner’s members are registered as farmers of sugarcane or sugar importers as required by the Crops Act 2013 since no evidence of such has been adduced, and contends that this application is improperly before this court.  In view of the above the Applicant lacks a prima facie case against the Respondents to warrant the orders sought herein.

20.    The 2nd Respondent urged the Court to dismiss the application with costs as it lacks merit.

21.   On their part, the 3rd Respondent filed grounds of opposition stating that it does not take part in the allocation of quotas and imports and its mandate is to ensure that the goods that leave the country are as per the set legal framework.  Further, that there was nothing that has been placed before the court to demonstrate that there was any meeting on 10th November 2021 or on any other date and the agenda of such meeting.  There is no evidence on who was to attend the meeting.  The 3rd Respondent states that the orders sought will strain the diplomatic relations between Kenya and Uganda who have entered into a bilateral agreement which is the subject of the suit; that this application calls for interference with executive process even before the intended action arises which is a breach of the doctrine of separation of powers.  The 3rd Respondent urged the court to dismiss the application with costs.

Determination

22.   The application was heard inter-partes on 2/12/2021.  I have carefully considered the application and submissions of parties and the cited authorities.

23.   In disposing off the application, I have noted that the application is pursuant to a petition which ultimately seeks the same remedies.  At this stage, this Court is merely required to satisfy itself that the motion before the court raises aprima facie case to enable the court to grant conservatory orders to protect the subject matter of the petition – pending the hearing and determination of the petition.

24.   The Petitioner/Applicant is a local player in the sugar industry in Kenya and is a cooperative of small scale sugar farmers.  They have interest in the sugar industry and would be interested to know the amount of sugar entering the country, especially sugar which is not subject to payment of any duty.  Any intended meeting therefore, which is planned without their input, and which seeks to raise the quotas of imported sugar into the country would therefore affect the Petitioner/Applicant’s economic and social interests.  That is why on 2/12/2021, this Court granted interim conservatory orders stopping any interference with the subject matter of the petition pending the delivery of this ruling.

25.   The Respondents had submitted that there was no meeting on 10/11/2021 and that there would be no meeting and so the apprehension by the Petitioner has no basis.  However, through an application for contempt of court by the applicant dated 28/2/2022, it appears that certain meetings adverse to the interests of the Petitioner, and contrary to the conservatory orders issued herein on 2/12/2021 have taken place, thereby proving right the apprehensiveness by the Petitioner/Applicant.

26.   I have carefully considered the motion.  In my view, this court is under duty to protect the interest of small scale sugar farmers in this country, and to ensure that any importation of sugar into the country supposedly duty free is done strictly according to the relevant laws and regulations.  This, however, is an issue which can only be fairly determined in the full hearing of the petition herein.  In the meantime, this Court is satisfied that the Petitioner has established a prima facie case for conservatory orders pending the hearing of the petition.

27.   In the upshot, I make the following orders;

a)     That pending the hearing and determination of this petition a conservatory order be and is hereby issued to stop any intended meeting to be held on 10/11/2021 or on any other date by the Respondents and any other party with intention of passing a decision granting Ugandan sugar access to the Kenyan market to a tune of 99,000 metric tonnes per annum on duty free basis.

b)     That pending the hearing and determination of this petition, the Respondents and in particular the 2nd and 3rd Respondents, be and are hereby restrained from allowing any clearance of sugar from Uganda to be affected on rebated customs and excise duties unless such sugar falls within COMESA Treaty prescribed quota.

c)     For avoidance of doubt, and in the event that the Respondents have actually authorized any importation of sugar from Uganda or elsewhere, then in that case, the 3rd Respondent-the Kenya Revenue Authority is hereby prohibited and shall not authorize the release of any such sugar imported from Uganda or elsewhere in terms outside the COMESA Treaty or on rebated non COMESA terms until the petition herein is heard and determined.

d)     The petition herein will be heard on priority basis.

e)     Costs for the application shall be for the Petitioner and shall be paid proportionally by all the Respondents.

DATED, SIGNED AND DELIVERED AT ELDORET ON THIS 10TH DAY OF MARCH 2022.

E.K. OGOLA

JUDGE

In the presence of:

M/s Wahome holding brief for Gikandi for Petioner

Mr. Letting for 1st, 4thand 5th Respondents

Letting holding brief for Mugoye for 2nd Respondent

Letting holding brief for 3rd Respondent

Court Assistant:  Kenei