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Republic v Unclaimed Financial Assets Authority; Cabinet Secretary, Treasury & 2 others (Interested Parties); AIG Kenya Insurance Company Limited (Exparte) (Judicial Review Application E015 of 2021) [2022] KEHC 12435 (KLR) (Judicial Review) (6 July 2022) (Judgment)

Republic v Unclaimed Financial Assets Authority; Cabinet Secretary, Treasury & 2 others (Interested Parties); AIG Kenya Insurance Company Limited (Exparte) (Judicial Review Application E015 of 2021) [2022] KEHC 12435 (KLR) (Judicial Review) (6 July 2022) (Judgment)
Citation
Republic v Unclaimed Financial Assets Authority; Cabinet Secretary, Treasury & 2 others (Interested Parties); AIG Kenya Insurance Company Limited (Exparte) [2022] KEHC 12435 (KLR)
Media Neutral Citation
[2022] KEHC 12435 (KLR)
Court
High Court
Court station
High Court at Nairobi (Milimani Law Courts)
Outcome
Allowed in part
Case number
Judicial Review Application E015 of 2021
Judges
AK Ndung'u
Judgment date
6 July 2022
Language
English
Type
Judgment
Original source file
Download DOCX (50.0 KB)
Collections
Date published
06 September 2022
Case action
Judgment
Court division
Judicial Review
Filing county
Nairobi
Order
(i) An order of certiorari was issued to quash the demand letter dated November 23, 2020 issued against the ex-parte applicant, demanding the payment of Kshs 138,250,058.00 being unclaimed assets and Kshs 3,926,751.00 being audit fees. (ii) An order of certiorari was issued to quash the findings of the audit report prepared and published by Messrs KM Ndura & Associates on a date unknown to the ex-parte applicant in so far as it returned a finding that (1) the ex-parte applicant was holding identified unclaimed assets under section 5 of the Unclaimed Financial Assets Act whose value totaled Kshs 138,250,058.00, (2) penalties and interest payable by the ex-parte applicant under the provisions of sections 33 of the Unclaimed Financial Assets Act was a sum of Kshs 312,793,838.00. (iii) An order of prohibition prohibiting and restraining the respondent whether acting directly or through any of their agents, employees and/or officers from issuing, executing, enforcing and/or implementing any or any further decisions, demands or notices as against the ex-parte applicant based on the Messrs KM Ndura & Associates audit report. (iv) A declaration that the provisions of section 52(5) of the Unclaimed Financial Assets Act are not unconstitutional. (v) Each partry to bear own costs.
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1.The ex parte applicant (hereinafter “the applicant”) moved this court vide a notice of motion application dated February 25, 2021 seeking the following orders:1.Certiorari to remove into the High Court and quash the demand letter dated November 23, 2020 issued against the ex-parte applicant, demanding the payment of Kshs 138,250,058.00 being unclaimed assets and Kshs 3,926,751.00 being audit fees.2.Certiorari to remove into the High Court and quash the findings of the audit report prepared and published by Messrs KM Ndura & Associates on a date unknown to the ex-parte applicant in so far as it returned a finding that (1) the ex-parte applicant was holding identified unclaimed assets under section 5 of the Unclaimed Financial Assets Act whose value totaled Kshs 138,250,058.00, (2) penalties and interest payable by the ex-parte applicant under the provisions of sections 33 of the Unclaimed Financial Assets Act was a sum of Kshs 312,793,838.00.3.Prohibition directed at the respondent prohibiting and restraining the respondent whether acting directly or through any of their agents, employees and/or officers from issuing, executing, enforcing and/or implementing any or any further decisions, demands or notices as against the ex-parte applicant based on the Messrs KM Ndura & Associates audit report.4.Declaration that the provisions of section 5 of the Unclaimed Financial Act (sic) do not apply to the asset described in the audit report of Messrs KM Ndura 8: Associates as “credit balances on accounts receivable" (being premium receivables).5.Declaration that the provisions of section 5 of the Unclaimed Financial Act (sic) do not apply to the asset described in the audit report of Messrs KM Ndura & Associates as "credit balances in paid claims register”.6.Declaration that the provisions of section 52(5) of the Unclaimed Financial Assets Act are unconstitutional, and to the extent of the unconstitutionality, null and void.7.Declaration that in assessing the interest and penalties payable by the ex-parte applicant [or any other person or holder] under the provisions of sections 33(4) and 33(5) of the Unclaimed Financial Assets Act, the respondent has a constitutional, statutory, and legal duty and obligation to ensure that the ’willful’ threshold has been met and also, consider relevant mitigating factors and give reasons for applying any penalty [highest or lowest] provided for in law.8.Declaration that there is no obligation under the provisions of section 20(1) of the Unclaimed Financial Assets Act for an entity/person which is not holding assets presumed abandoned and subject to the custody of the Authority to file a report with the Authority.9.Declaration that the provisions of section 31(6) and 31(7) of the Unclaimed Financial Assets Act are inoperable as the Cabinet Secretary is yet to gazette applicable daily rates for examination of records under section 31(3) of the Unclaimed Financial Assets Act.10.Declaration that prior to 2016, there being no regulations in place, the Unclaimed Financial Assets Act had not been operationalized and the obligation therefore to file returns could only be complied with after 2016 —the holders cannot therefore be penalized under section 20(1) as read with section 33(4) and (5) of the Act as compliance was not practically feasible.11.Declaration that an agent appointed by the respondent under section 31(3) of the Unclaimed Financial Assets Act has no mandate to (a) compute penalties and interest payable by a holder/entity or (b) identify any other potential qualifying unclaimed assets not categorized by the Act for consideration by the Authority.12.Costs to be borne by the respondent.
2.The application is founded on the grounds set out on the face therein, the Statutory statement dated February 4, 2021, the supporting affidavit sworn by Stella Njunge on even date and further affidavit sworn by James Kamau in July 2021. The applicant’s case is that by a contract entered into on January 29, 2020, the respondent, Unclaimed Financial Assets Authority (hereinafter “UFAA”) ostensibly engaged Messrs KM Ndura & Associates (hereinafter “the auditor”) under the provisions of section 31(5) of the Unclaimed Financial Assets Act (hereinafter “the Act") to conduct an examination under section 31(3) of the Act and communication to this effect was received from the respondent vide a letter dated the February 3, 2020. The scope of work with reference to the applicant herein was stated to be“identifying unclaimed financial assets under the Act with the audit exercise stated to be retrospective in nature since incorporation of the holder to the latest qualifying date of unclaimed financial assets”.
3.On or about February 26, 2020, the auditor requested for an explanation for (1) receivables with credit balances and (2) claims paid/outstanding with credit balances. The applicant, through an e-mail dated the March 3, 2020 duly responded to the queries. Upon having a meeting with the auditor, the applicant received a draft report from the auditor dated March 2020. By an email dated June 25, 2020, the applicant wrote to the auditor and provided a detailed analysis of the draft report that had been submitted by the auditor where they addressed in detail both (1) credits in claims paid and (2) credits in premium receivables and requested the auditor to amend the draft report appropriately in view of the provided analysis and attached documents. The email was never responded to or actioned on.
4.In addition, the applicant issued management comments to the auditor through an e-mail dated the June 26, 2020 detailing its response and addressing issues of concern which it requested the auditor to take into account and/or correct prior to taking any further action with respect to the examination process and finalizing its report. However, the email was never acknowledged or acted upon.
5.Thereafter, an exit meeting was held with the auditor whereby the auditor verbally informed the applicant that they did not have time to consider the management comments and review the supplied documentation and analysis done by AlG. Subsequently, the applicant issued a detailed letter dated the August 7, 2020 to the respondent addressing each singular area of alleged non-compliance and requesting for reconsideration and amendment of findings and recommendations of the report. Without either acknowledging or responding to that letter, the respondent proceeded to issue the demand letter dated the November 23, 2020 and completely ignored the representations of the applicant as contained in their letter.
6.In the applicant’s view, this was an act of bad faith and malice, and complete derogation and breach of its statutory mandate and the applicant’s right to fair administrative action. This action, according to the applicant demonstrates complete procedural unfairness, abuse of power and administrative action whose outcome was pre-determined. Further, the decision to issue the letter dated the November 23, 2020 was tainted with demonstrable malice to the extent that the letter is copied to a third party, the Chief Executive Officer of the Insurance Regulatory Authority without a basis in law or in fact and without prior notice to the applicant with the sole purpose and intent of embarrassing the applicant and to bring pressure to bear on the applicant to pay the demand.
7.Indeed, the applicant contended that the engagement that was held with them by UFAA and the auditors was manifestly superficial, meant to create an impression that UFAA had satisfied legal requirements of fair hearing and due process as all issues raised by the applicant in their management comments were ignored. Despite the grave and serious concerns of non-compliance raised by the applicant in its letter dated August 7, 2020, no action was taken by the respondent. Indeed, no steps have been taken by the respondent to date hence necessitating the filing of the instant proceedings.
8.The applicant also filed written submissions dated January 28, 2022 in support of the motion. In sum, counsel submitted that the respondent failed to take into account relevant and material considerations before issuing the demand letter dated November 23, 2020. In counsel’s view, the material was relevant and critical as it ultimately absolved the applicant of any liability of breach of the relevant provisions of Act. Furthermore, the applicant had a legitimate expectation that both the auditor and the respondent would (1) give due weight and consideration of their numerous representations and (2) communicate the outcome of that consideration in a clear and logical manner which they failed to do.
9.It was also the applicant’s submission that the respondent acted in excess of its jurisdiction. With regard to appointment of auditors, counsel submitted that this appointment was ultra vires the provisions of the Act as an agent appointed under section 31(3) and (5) of the Act has no mandate to (a) compute penalties and interest or (b) identify any other potential qualifying unclaimed assets not categorized by the Act for consideration by the Authority. The Authority is limited to examine the records of the Applicant to determine compliance with the Act. The auditor acted pursuant to delegated power in contravention of the law prohibiting such delegation.
10.Secondly, the contract between the auditor and the respondent did not give the auditor as part of its scope of work, assessment of penalties and interest under the Act. Thirdly, the discretion and power to compute, claim, pursue and enforce penalties and interest under sections 33, 47(2) and 50 of the Act, is the preserve of the Authority and cannot be delegated to any party. It was therefore submitted that this assessment of penalties and interest was ultra vires and in excess of jurisdiction and ought to be quashed by this court.
11.On liability to file returns, counsel submitted that a plain reading of the provisions of section 20(1) of the Act discloses that there is no legal obligation to file an annual report with the Authority upon an entity/person not holding assets presumed abandoned and subject to the custody of the Authority. Accordingly, it was submitted that it is clear that the applicant did not hold any assets subject to the custody of the respondent. It therefore follows that for the years in question, there was no obligation to file an annual report. The finding by the respondent and the auditor that there was an obligation to file an annual return is thus ultra vires the express provision of the Act and cannot stand. Consequently, the finding on penalties and interest also fails.
12.On illegality and procedural impropriety, counsel submitted that in refusing to take into consideration the answers and submissions made by the applicant, the respondent had an ulterior motive in ensuring that the liability to settle any auditors fees under section 31(6) of the UFAA would fall on the applicant and not the respondent. Secondly, and without prejudice to the above, counsel submitted that as a matter of law, the respondent under section 31(6) of the Act can only assess the costs of an examination ‘at such daily rate as the Cabinet Secretary may determine’ and as at the date of the demand letter, the same were yet to issue. Accordingly, in the absence of gazetted daily rates, the provisions of section 31(6) and 31(7) of the Act are therefore inoperable as the Cabinet Secretary is yet to gazette applicable daily rates for examination of records under section 31(3) of Act. The respondent therefore had no basis in law to compute and or demand payment of ‘auditor’s fees’ and the demand was therefore an illegality, null and void ab initio.
13.Counsel also submitted that due process and rules of natural justice demand that a party is given an opportunity to present their position on a given matter and that such representations are given due consideration before a final decision is made by the decision-making body. It was submitted that the respondent and the auditor failed on many occasions to consider representations made by the applicant, did not respond in any way to representations made by the applicant neither did it seek for any clarifications from the applicant and ultimately, came to a wrong decision which assertion is not disputed by the auditor. Consequently, in the face of this procedural flaw and admission by the auditor, it was submitted that the decision-making process was therefore procedurally improper.
14.Counsel further submitted that the Unclaimed Financial Assets Regulations under section 53 of the UFAA were promulgated in the year 2016. Regulation 5(1) therefore explicitly created a mechanism through which the annual report contemplated under section 20(1) of the Act would be filed including relevant forms in the first, second, third, twelfth and sixteenth Schedules. However, prior to 2016, there being no regulations in place, it would be unreasonable to expect any qualifying holder to comply with the section 20(1) as read with section 33(4) and (5) of the Act for failure to comply with an obligation to file returns prior to the year 2016 as compliance yet the applicant was penalised for not filing annual reports for the years 2014, 2015 and 2016. Counsel therefore urged the court to nullify this finding in the auditor’s report. Accordingly, it was urged that the application be allowed as prayed.
The Respondent’s case
15.The respondent party filed a replying affidavit sworn by Gideon Mwanzia Nzioki on April 21, 2021 opposing the motion. The respondent’s case is that vide a contract for provision of audit services dated January 29, 2020, the respondent engaged the firm of KM Ndura & Associates pursuant to section 31(5) of the Act to conduct an audit of unclaimed financial assets which included among others AIG Kenya Insurance Company Limited and its subsidiaries to confirm compliance with the Act in accordance with section 31(3) of the Act.
16.Consequent to the foregoing, the respondent proceeded to inform and notify the applicant of the said audit and the applicant co-operated and was well involved in the audit process and was further given a fair opportunity to present all the information through their letter of representation which was duly taken into consideration in preparation of the audit report. After review of all the requisite documentation as well as the applicant’s responses vide its letter dated August 7, 2020 together with the management comments, the firm of KM Ndura & Associates proceeded to prepare their final report dated August 6, 2020 which indicated that the applicant is a holder of unclaimed assets by virtue of holding account receivables credit balances amounting to Kshs 136,930,096 and claim payments amounting to Kshs 1, 319,962 as per the Unclaimed Financial Assets Regulations, 2016 (hereinafter referred to as “the Regulations”).
17.Based on those findings, the respondent proceeded to issue a demand letter dated November 23, 2020 demanding for payment of the now disputed unclaimed financial assets within 14 days from the date of receipt of the letter and the same copied to the Insurance Regulatory Authority in a bid to notify the applicant’s regulatory authority of the same in accordance to section 37 of the Act. It is on the basis of the said letter that the applicant filed the instant application.
18.The respondent also filed written submissions dated February 11, 2022 opposing the motion. On whether the applicant is a holder of unclaimed financial assets under the Act, counsel submitted that it is apparent from the literal reading of section 2, 3, 5, 18 of the Act and the Regulations that accounts receivable credit balances and claim payments were held by the applicant and thus is classified as a holder of unClaimed assets. The respondent was thus well within its statutory mandate in conducting an audit on the applicant and procedurally issued the demand after the audit conducted in accordance with section 31(4) of the Act. Counsel further submitted that the applicant’s assertion that section 5 of the Act does not apply to the assets described the audit report as “account receivable credit balances or memo” is superfluous and unsupported by law.
19.On whether penalties under section 20(1) as read with sections 33(4) and 33(5) accrued to the applicant, it was submitted that the applicant had knowledge, whether actual or constructive, of its obligations under the Act thereby demonstrating its willful failure to pay or deliver the assets to the authority. Further, section 31(7) of the Act provides that “the costs of examination made pursuant to sub section (3) shall be imposed only against the holder.” As such, the issue of legitimate expectation cannot arise in this instance as there is a clear provision of the statute that provides for the same. Moreover, it is settled law that legitimate expectation cannot override the law.
20.On whether section 52(5) of the Act is unconstitutional, counsel submitted that section 29 of the Act is a substantive provision that gives the right to challenge a decision or demand of the respondent. That being the case, section 52(5) of the Act must be read with section 29 of the Act which guarantees persons the right to challenge the respondent’s action. It therefore goes without saying that the right to fair administrative action is protected.
21.Based on the foregoing analysis, counsel submitted that it is manifest and crystal clear that the applicant has failed to discharge the burden to prove that section 52 (5) of the Act is unconstitutional. Furthermore, that this court should find that the order for declaring a law unconstitutional is outside the scope of a judicial review application and the limited orders that can be sought under section 11 of the Fair Administrative Action Act. It was therefore urged that the application is devoid of merit and should be dismissed with costs to the respondent.
The 1st & 3rd Interested Parties’ Case
22.The interested party filed written submission dated July 14, 2021 opposing the motion. On whether the decision reached by the respondent was procedurally flawed and therefore null and void, counsel submitted that pursuant to section 31 of the Act, the respondent conducted an audit of the unclaimed financial assets of the applicant by engaging the firm of KM Ndura & Associates in accordance with section 35(1) whose final audit indicated that the applicant was a holder of unclaimed assets by virtue of holding account receivables credit balances and claim payments. Counsel also urged that the applicant was well involved in the process including attendance of the preliminary and exit meetings as well as providing management comments which were taken into consideration in the preparation of the final audit report. As such, the above decision was not arrived at arbitrarily but was procedurally fair.
23.On whether the agents appointed by the respondent have mandate to compute penalties and interest payable by a holder of an entity, counsel submitted that the appointment of the respondent’s agents was conducted within the confines of section 49 of the Act. On whether the Act was inoperable prior to 2016 as there were no regulations in place, counsel submitted that the date of commencement of the Act was September 16, 2011 and the said Act applies retrospectively pursuant to section 34.
24.On unconstitutionality of section 52 of the Act, counsel submitted that section 52(5) of the Act is a penalty provision which makes it possible for the Unclaimed Financial Assets Authority to exercise their mandate and a declaration that the said section is unconstitutional would make the entire Act unenforceable. Be that as it may, it was urged that an order for declaring a law to be unconstitutional cannot be sought in a judicial review application as that would amount to delving into the merits of the case. Accordingly, counsel submitted that the application is unmeritorious and ought to be dismissed.
The 2nd Interested Party’s Case
25.The 2nd interested party filed a replying affidavit sworn by Michael Sialai, CBS on November 12, 2021 opposing the motion. It is the 2nd interested party’s case that the National Assembly’s mandate to enact, amend and repeal laws is derived from article 94 and 95 of the Constitution. Therefore, the role of the court is to review but not to interfere with the operations of other arms of Government. That in exercising its constitutional mandate, the National Assembly enacted the Unclaimed Financial Assets Act No 40 of 2011 procedurally. Accordingly, the court can only be called to intervene by the applicant only where there is a breach of the Constitution or any other law; it is shown that the relevant Committee failed to adhere to the rules of natural justice and procedure and; the process leading up to the enactment of the Unclaimed Financial Assets Bill, 2011 is proved to be improper and/or illegal.
26.It is stated that the laws enacted by the Parliament are presumed constitutional and fair and the burden falls on the person who alleges otherwise to rebut this presumption which the applicant has failed to do. In their view, the applicant has not met the legal threshold required to declare a law unconstitutional and has not set out with certainty the manner in which a violation or infringement of the right to access fair administrative action has been limited by the provision of section 52(5) of Act.
27.Furthermore, the cannons of interpretation of the Constitution and statutes provides that they must be read and interpreted as an integrated whole with provisions supporting each other instead of destroying one another to achieve a proper interpretation of the intent of the provision. In any event, they contended that the applicant’s prayer for orders of declaration that the provisions of section 52(5) of the Act are unconstitutional exceeds the scope of orders that may be granted by this court under section 11 of the Fair Administrative Actions Act and should therefore be dismissed.
28.The 2nd interested party also filed written submissions dated February 28, 2022. Counsel submitted that the process of enacting a law does not fall within the purview of article 47 of the Constitution and the Fair Administrative Action Act, 2015, since the National Assembly in enacting a law is not taking an administrative action but carrying out its legislative function. Furthermore, counsel submitted it is trite law that every legislation enacted enjoys a rebuttable presumption that it is consistent with the Constitution and the party that alleges unconstitutionality therefore has the burden of proving such a contention.
29.It was further submitted that the intended purpose of the impugned provision was to provide in clear terms what amounts to an offence in relation to the Unclaimed Financial Assets Act No 40 of 2011 and the applicant has not provided sufficient evidence to prove the manner in which the impugned provision barred it from seeking a review of the administrative decision made by the respondent. Indeed, it was submitted that the impugned section of the Act does not limit or interfere with the applicant’s right to a review or an internal appeal of the decision made by the respondent.
30.On interpretation of the statutes, it was submitted that the court ought to adopt a construction that will provide the general legislative purpose underlying the provision. Further, counsel submitted that it is an expectation of the law that any administrative action taken by a state authority must adhere to the provisions of section 4 of the Fair Administrative Action Act. As such, the impugned provision should be read in tandem with the provisions of the Constitution and those of the Fair Administrative Action Act and the applicant has not met the requirements to be granted a declaratory order since they have failed to evidence the manner in which the impugned provisions have limited their right to fair administrative Action.
31.Moreover, the orders prayed for in this case if granted will undermine the National Assembly’s ability to discharge its constitutional mandates by casting doubt on its competence while formulating legislation. Counsel therefore urged that the application lacks merits.
Analysis and Determination
32.I have painstakingly considered the application, the supporting grounds as seen on the face thereof, the statutory statement and verifying affidavit filed as well as the responses and the learned submissions by counsel. The issues that crystalize for determination are:i.The applicable legal principlesii.Whether the subject audit was conducted free of illegality, irrationality or procedural impropriety.iii.Whether the auditors (agents) appointed by the respondent had the mandate to compute penalties and interest payable by the Applicant and whether the application of the maximum penalty was unfair.iv.Whether the absence of Unclaimed Financial Assets Regulations prior to 2016 made it impractical to file returns as required under section 20(1) as read with section 34(4) and (5) of the Act.v.Whether section 52(5) of the Unclaimed Financial Assets Act is unconstitutional.vi.What orders should issue
i) The Applicable Legal Principles
33.The applicant has approached this court by way of judicial review. The advent of the Constitution of Kenya 2010, and specifically the proviso in article 47 gave judicial review constitutional underpinning The article provides:“47.Fair administrative action(1)Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.(2)If a right or fundamental freedom of a person has been or is likely to be adversely affected by administrative action, the person has the right to be given written reasons for the action.
34.Article 47(3) required parliament to legislate to give effect to the rights under article 47(1). This birthed the Fair Administrative Action Act (FAAA). Section 7(2) of the FAAA specifies the dos and don’ts by those empowered to take administrative action. The section provides for grounds of review which include bias, procedural impropriety, ulterior motive, failure to take into account relevant matters, abuse of discretion, unreasonableness, violation of legitimate expectation or abuse of power. Thus, for the court to review an administrative decision, an applicant must demonstrate the above grounds. Prove of any single one of them is enough to vitiate the impugned administrative action.
35.The scope of judicial review is a well-trodden path by our courts. The Court of Appeal in Municipal Council of Mombasa v Republic & another [2002] eKLR the expressed itself as follows:“The court would only be concerned with the process leading to the making of the decision. How was the decision arrived at? Did those who made the decision have the power, i.e. the jurisdiction to make it? Were the persons affected by the decision heard before it was made? In making the decision, did the decision maker take into account relevant matters or did he take into account irrelevant matters? These are the kind of questions a court hearing a matter by way of judicial review is concerned with, and such court is not entitled to act as a court of appeal over the decider; acting as an appeal court over the decider would involve going into the merits of the decision itself-such as whether there was sufficient evidence to support the decision -and that, as we have said, is not the province of judicial review"
36.Better clarity in the application of the judicial review remedies in our jurisdiction post the Constitution of Kenya 2010 is found in the sentiments of the Court of Appeal in Independent Electoral and Boundaries Commission v National Super Alliance Kenya & 6 others [2017] eKLR where the court stated;“In our considered view presently, judicial review in Kenya has constitutional underpinning in articles 22 and 23 as read with Article 47 of the Constitution and as operationalized through the provisions of the Fair Administrative Action Act. The common law judicial review is now embodied and ensconced into constitutional and statutory judicial review. Order 53 of the Civil Procedure Act and Rules is a procedure for applying for remedies under the common law and the Law Reform Act. These common law remedies are now part of the constitutional remedies that the High Court can grant under article 23(3)(c) and (f) of the Constitution. The fusion of common law judicial review remedies into the constitutional and statutory review remedies imply that Kenya has one and not two mutually exclusive systems for judicial review. A party is at liberty to choose the common law order 53 or constitutional and statutory review procedure. It is not fatal to adopt either or both. In the instant case, we have examined the original application filed before the High Court. Whereas the application is stated to be grounded on order 53 of the Civil Procedure Rules, on the face thereof, articles 10, 38 (2), 47, 88 and 227 of the Constitution are cited. In our view, this correctly reflects the fusion of constitutional and common law judicial review in Kenya as one system for judicial review.’’
37.Emerging jurisprudence shows that some extent of merit review is permissible in judicial review. This is, however, only in appropriate cases. The Court of Appeal in Judicial Service Commission & another v Njora (Civil Appeal 486 of 2019) [2021] KECA 366 (KLR) (7 May 2021) stated:“In our own jurisdiction, judicial review has taken the same trajectory in recent years, spurred in large measure by the Constitution of Kenya, 2010. It changed the fundamental underpinnings of judicial review from the common law as codified in the Law Reform Act, to its article 22(3)(f), which recognizes judicial review as one of the appropriate reliefs available. This is bolstered by article 47(1), which decrees the right to fair administrative action, given further effect by the Fair Administrative Action Act which, at section 7(2), sets out an expansive list of circumstances in which a court may review an administrative action or decision.The superior courts of this country have spoken with near-unanimity that the current constitutional and statutory landscape calls for a more robust application of the relief of judicial review to include, in appropriate cases, a merit review of the impugned decision. See, for instance, Communication Commission of Kenya v Royal Media Services & 5 others [2014] eKLR by the Supreme Court, this court’s decisions in Suchan Investment Ltd v Ministry of Natural Heritage & Culture & 3 others [2016] eKLR and Child Welfare Society of Kenyavarious Republic & 2 others ex parte Child In Family Focus Kenya [2017] eKLR and the High Court’s. in Republic v Commissioner of Customs Services Exparte Imperial Bank Ltd[2015] eKLR (per Odunga, J) They all speak to the unmistakable sea change and approach, ……’’
38.Developing jurisprudence in our country shows that merit review is permissible in the new constitutional dispensation. However, such development in the law cannot be stretched to the extent of allowing the judicial review court to substitute the decision of the subject body with its own. Case in point being that in the instances of the performance of a public duty in a technical sphere like in the present suit, the court cannot substitute the decision of the auditor but can review the process and the audit review on the merits restricted to whether the action taken was authorized by law, whether the affected parties were heard, whether the decision maker considered irrelevant matters or failed to consider relevant matters, whether there was bias and generally whether the principles of natural justice were complied with. These considerations would inform the propriety or otherwise of the impugned audit report. Such merit review would include , in the words of the Court of Appeal in Suchan Investment Ltd v Ministry of Natural Heritage & Culture & 3 others [2016] eKLR;“Analysis of article 47 of the Constitution as read with the Fair Administrative Action Act reveals the implicit shift of judicial review to include aspects of merit review of administrative action. Section 7(2)(f) of the Act identifies one of the grounds for review to be a determination if relevant considerations were not taken into account in making the administrative decision; section 7(2)(j) identifies abuse of discretion as a ground for review while section 7(2)(k) stipulates that an administrative action can be reviewed if the impugned decision is unreasonable. Section 7(2)(k) subsumes the dicta and principles in the case of Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223 on reasonableness as a ground for judicial review. Section 7(2)(i)(i) and (iv) deals with rationality of the decision as a ground for review. In our view, whether relevant considerations were taken into account in making the impugned decision invites aspects of merit review. The grounds for review in section 7(2)(i) that require consideration if the administrative action was authorized by the empowering provision or not connected with the purpose for which it was take and the evaluation of the reasons given for the decision implicitly require assessment of facts and to that extent merits of the decision. It must be noted that the even if the merits of the decision is undertaken pursuant to the grounds in section 7(2) of the Act, the reviewing court has no mandate to substitute its own decision for that of the administrator. The court can only remit the matter to the administrator and or make orders stipulated in section 11 of the Act…….’’
ii) Whether the Subject Audit was Conducted Free of Illegality, Irrationality or Procedural Impropriety
39.In addressing this issue, the necessary ingredients to consider are whether the respondent through its agent had the jurisdiction to conduct the audit, acted within the law, reached a rational decision and in the process of making the decision acted fairly. The explanation in the Uganda case of Pastoli v Kabale District Local Government Council and others [2008] 2 EA 300. while citing Council of Civil Unions v Minister for the Civil Service [1985] AC 2 and An Application by Bukoba Gymkhana Club [1963] EA 478 at 479 captures what is expected of the respondent as a body taking an administrative action that affected the applicant. The court held;“In order to succeed in an application for judicial review, the applicant has to show that the decision or act complained of is tainted with illegality, irrationality and procedural impropriety ...Illegality is when the decision-making authority commits an error of law in the process of taking or making the act, the subject of the complaint. Acting without jurisdiction or ultra vires, or contrary to the provisions of a law or its principles are instances of illegality. It is, for example, illegality, where a Chief Administrative Officer of a District interdicts a public servant on the direction of the District Executive Committee, when the powers to do so are vested by law in the District Service Commission...Irrationality is when there is such gross unreasonableness in the decision taken or act done, that no reasonable authority, addressing itself to the facts and the law before it, would have made such a decision. Such a decision is usually in defiance of logic and acceptable moral standards...Procedural Impropriety is when there is a failure to act fairly on the part of the decision-making authority in the process of taking a decision. The unfairness may be in non-observance of the rules of natural justice or to act with procedural fairness towards one to be affected by the decision. It may also involve failure to adhere and observe procedural rules expressly laid down in a statute or legislative Instrument by which such authority exercises jurisdiction to make a decision.”
40.In the instant suit, the respondent engaged the firm of KM Ndura and Associates pursuant to section 31(5) of the Act to conduct audit of unclaimed assets which audit included the applicant and its subsidiaries to confirm compliance with section 31(3) of the Act. A notice of the impending exercise was duly issued to the applicant. I set out section 31(4)(5) and (6)3)The Authority shall have powers to, at reasonable times and upon reasonable notice, examine the records of a person to determine whether the person has complied with this Act.4)The Authority shall have powers to conduct the examination referred to in sub section (3) whether or not the person believes he or she is not in possession of any assets reportable or deliverable under this Act.5)The Authority shall have power to enter into a contract with any other person to conduct examination under this section on behalf of the Authority.A plain reading of these provisions clearly shows that the respondent was within its statutory mandate in conducting the audit.
41.In so far as the actual conduct is concerned, the record shows a smooth entry of the auditor. The attendance register dated February 10, 2020 shows that in attendance were representatives from the respondent, the applicant and the auditor. A perusal of the draft audit report readily shows the participation of the applicant complete with management comments. At the end of the exercise the auditor made 2 specific findings namely;1.AIG Insurance Limited did not submit reports for 3 years starting from June 30, 2014 to June 30, 2016 and its first report was filed as at June 30, 2017. This first report was submitted on November 9, 2017 which was 9 days late. Reports for 2018 and 2019 were filed on January 30, 2020 which was 15 months and 3 months late respectively. The management comment on the issue was; As guided by UFAA during the audit exit meeting , we shall submit the 2014 to 2016 reports after finalization of this audit report. We are also seeking a waiver of the related penalties and assure UFAA that we have instituted appropriate internal controls to ensure full compliance with the annual submissions going forward in accordance with the UFAA Act.2.As at June 20, 2019, there were credit balances in receivables and paid claims which were identified as unreported to UFAA. These were; credit balances in receivables 136,930,036; credit balances in claims paid 1,319,962 totaling to 138,249,998. The management comment on this was that they had analysed the findings in details and provided schedules to the audit team demonstrating that the credits in both receivables and claims paid do not fall under the category of unclaimed assets.
42.It is the applicant’s case as gleaned from the affidavits of Stella Njunge and James Kamau that the applicant’s management comments in the draft report and an email dated June 26, 2020 addressed to the auditor and detailing analysis of credits in claims paid and credits in premium receivables elicited no response from the auditor and that in an exit meeting , the auditor verbally informed the applicant that they did not have time to consider the management comments and review the submitted documentation. It is urged that the auditor’s report had failed at all to either refer to or consider management comments and supporting information and documentation supplied with reference to areas of non compliance. A further detailed letter by the applicant to the respondent requesting for re consideration of the report on the basis of the information supplied was not acknowledged or replied to.
43.Instead, the demand letter dated November 23, 2020 was issued to the applicant. The applicant views this as an act of bad faith and malice, one demonstrating complete procedural unfairness, abuse of power and administrative action that is pre-determined.
44.The assertions above have not been controverted by the respondent. Of worthy of note is that the auditor has not sworn an affidavit to counter the applicant’s accusations. The applicant’s position that its views on the audit were not considered remain unchallenged. Standing out as a sore thumb is the allegation by Stella Njunge in her affidavit that the auditor stated verbally that they did not have time to consider the management comments and review the supplied documentation and analysis done by the applicant. The respondents did not find it necessary to controvert by way of evidence this serious allegation that seriously dents the propriety of the audit process.
45.The respondent in their submission have expended considerable energy positing why and how the audit report was correct. However, correct the audit report could be, the process through which it was reached must of necessity abide by the tenets of natural justice. In the case of Onyango Oloo v Attorney General it was held that:“A decision in breach of the rules of natural justice is not cured by holding that the decision would otherwise have been right if the principle of natural justice is violated, it matters not that the same decision would have been arrived at “Ignoring the representations by the applicant is in complete derogation of the applicant’s right to fair administrative action, a right ring-fenced in no lesser than the Constitution itself under article 47 and as operationalized in the FAAA. The failure to put into account the applicant’s representations means that the respondent’s agent failed to consider relevant matters. The process and the impugned audit report fail the test of procedural propriety. The same offends the provisions of section 7(2)(c),(f)and (n) of the FAAA in respect of procedural unfairness, failure to take into account relevant considerations and unfairness.
46.In Msagha v Chief Justice & 7 others Nairobi HCMCA No 1062 of 2004 [2006] KLR the court set out the ingredients of fairness and natural justice. It was held;“The ingredients of fairness or natural justice that must guide all administrative decisions are, firstly, that a person must be allowed adequate opportunity to present their case where certain interests and rights may be adversely affected by a decision maker; secondly, that no one ought to be a judge in his or her case and this is the requirement that the deciding authority must be unbiased when according the hearing or making the decision; and thirdly, an administrative action must be based upon logical proof or evidence material.”And as held in ex parte Preston [1985] AC 835,“I must make it clear in my view that the principle of fairness has an important place in the law of judicial review.; and that in an appropriate case, it is a ground upon which the court can intervene to quash a decision made by a public officer or authority in purported exercise of powers conferred by law.”
47.From the foregoing, it is manifestly clear that the process and the audit report arrived at by the agent of the respondent does not meet the legal muster of an administrative action that afforded the applicant the right to fair administrative function envisaged under article 47 and in the FAAA. The audit report and the consequential letter of demand dated November 23, 2020 ought to be brought before this court to be quashed.
48.The quashing must not be interpreted to mean that the applicant should not be audited as per the law provided. The respondent retains the statutory powers to initiate such an audit provided the same affords the applicant latitude in the manner specified hereinabove.
49.This suit was predicated on the now successfully impugned audit report. The said report has fallen by the wayside to the extent that it has been found to suffer procedural impropriety. All the contents of the audit report and anything done on the strength of the report is a nullity. In those circumstances I do not find it necessary to delve into the other issues flagged for determination save the question of constitutionality of section 52(5) of the Act and the issue of costs.
50.Before I venture into the endevour, I need to express my view on the unbridled tendency by parties to combine claims that ought to go directly to the Constitutional Division of this court with the claims that are strictly speaking for judicial review jurisdiction of this court. The expanded space by the Constitution if not well checked and managed may be as well a key to anarchy confusion, and uncertainty in the court’s operations. Despite the apparent fusion of the jurisdictions majorly because of the enforcement of the constitutional ethos that cut across all our courts, the specific jurisdictions remain distinct and must be observed for good order and predictability in the court processes. What springs to mind is the words of the Court of Appeal in where it stated;“Analysis of article 47 of the Constitution as read with the Fair Administrative Action Act reveals the implicit shift of judicial review to include aspects of merit review of administrative action. Section 7(2)(f) of the Act identifies one of the grounds for review to be a determination if relevant considerations were not taken into account in making the administrative decision; section 7(2)(j) identifies abuse of discretion as a ground for review while section 7(2)(k) stipulates that an administrative action can be reviewed if the impugned decision is unreasonable. Section 7(2)(k) subsumes the dicta and principles in the case of Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223 on reasonableness as a ground for judicial review. Section 7(2)(i)(i) and (iv) deals with rationality of the decision as a ground for review. In our view, whether relevant considerations were taken into account in making the impugned decision invites aspects of merit review. The grounds for review in section 7(2)(i) that require consideration if the administrative action was authorized by the empowering provision or not connected with the purpose for which it was take and the evaluation of the reasons given for the decision implicitly require assessment of facts and to that extent merits of the decision. It must be noted that the even if the merits of the decision is undertaken pursuant to the grounds in section 7(2) of the Act, the reviewing court has no mandate to substitute its own decision for that of the administrator. The court can only remit the matter to the administrator and or make orders stipulated in section 11 of the Act. On a case by case basis, future judicial decisions shall delineate the extent of merit review under the provisions of the Fair Administrative Action Act.Our work as courts is cut out and the need to delineate the extents of merit review is urgent.
51.It is contended by the applicant that section 52(5) makes it clear that it is an offence to fail to meet a demand by the Authority whether to pay funds or deliver assets. It is urged that the provision removes the constitutional presumption of innocence under article 50(2) of the Constitution and does not allow a person to challenge a demand by the Authority. The section is thus ultra vires the Constitution and should be declared unconstitutional, null and void to the extent of the unconstitutionality. That contention is opposed by the respondent and the interested parties.
52.The section provides;“A person who willfully refuses after written demand by the Authority to pay or deliver assets to the Authority as required under this Act commits an offence.’’
53.As held in the case of Council of County Governors v Inspector General of the National Police Service & 3 others [2015] eKLR all Acts of Parliament are presumed to be constitutional unless proven by the party alleging otherwise.
54.My reading of section 52(5) clearly shows that the section establishes the offence and its ingredients but does not in any way preclude a party from enjoying the presumption of innocence or mounting a defence. The establishment of an offence in the law does not make such a law unconstitutional. Were that to be the case, penal codes all over the world would have been declared unconstitutional a long time ago. It was incumbent on the applicant to prove the unconstitutionality of the section. Other than stating that the section does not allow a person to challenge the demand by the Authority, nothing more is proffered. In Kenya Human Rights Commission v Attorney General & another [2018] eKLR the court stated;“There is a general but rebuttable presumption that a statute or statutory provision is constitutional and the burden is on the person alleging unconstitutionality to prove that the statute or its provision is constitutionally invalid. This is because it is assumed that the legislature as peoples’ representative understands the problems people they represent face and, therefore enact legislations intended to solve those problems. In Ndynabo v Attorney General of Tanzania [2001] EA 495 it was held that an Act of Parliament is constitutional, and that the burden is on the person who contends otherwise to prove the country.48. Another key principle of determining constitutional validity of a statute is by examining its purpose or effect. The purpose of enacting a legislation or the effect of implementing the legislation so enacted may lead to nullification of the statute or its provision if found to be inconsistent with the Constitution. In Olum and another v Attorney General [2002] EA, it stated that;“To determine the constitutionality of a section of a statute or Act of parliament, the Court has to consider the purpose and effect of the impugned statute or section thereof. If its purpose does not infringe a right guaranteed by the Constitution, the Court has to go further and examine the effect of the implementation. If either its purpose or the effect of its implementation infringes a right guaranteed by the Constitution, the impugned statute or section thereof shall be declared unconstitutional.”
55.The court’s duty in interpreting a statute is to give effect to the intention of the legislature, the objects and purpose being the key drivers, all the while alive to the need of the statute to conform with the Constitution. I take the view that the object and purpose of section 52(5) is to ensure compliance with the demands by the Authority by establishing non compliance as an offence. This would go a long way in facilitating the execution of the Authorities mandate. It is worth noting that the section does not provide for a penalty to be meted out without a party being heard. Am satisfied that the section is constitutional.
56.With the result that the notice of motion is successful to the extent indicated hereinabove. I make the following orders;1.An order of certiorari is hereby issued to quash the demand letter dated November 23, 2020 issued against the ex-parte applicant, demanding the payment of Kshs 138,250,058.00 being unclaimed assets and Kshs 3,926,751.00 being audit fees.2.An order of certiorari is hereby issued to quash the findings of the audit report prepared and published by Messrs KM Ndura & Associates on a date unknown to the ex-parte applicant in so far as it returned a finding that (1) the ex-parte applicant was holding identified unclaimed assets under section 5 of the Unclaimed Financial Assets Act whose value totaled Kshs 138,250,058.00, (2) penalties and interest payable by the ex-parte applicant under the provisions of sections 33 of the Unclaimed Financial Assets Act was a sum of Kshs 312,793,838.00.3.An order of prohibition is hereby directed at the respondent prohibiting and restraining the respondent whether acting directly or through any of their agents, employees and/or officers from issuing, executing, enforcing and/or implementing any or any further decisions, demands or notices as against the ex-parte applicant based on the Messrs KM Ndura & Associates audit report.4.A declaration that the provisions of section 52(5) of the Unclaimed Financial Assets Act are not unconstitutional.5.Since this determination has not been arrived at based on the merits of whether the applicant was holding unclaimed asset but on the basis of the flawed process, I direct that each party bears its own costs.
DATED, SIGNED AND DELIVERED AT NAIROBI THIS 6TH DAY OF JULY 2022...................................AK NDUNG'UJUDGE
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