May 26, 2014

Five Key Decisions Which Cost MTN Shs9.5bn To Threeways

Kiryoowa (R) charting with Threeways CEO Oscar Baitwa as they left court yesterday (Photo by Alex Bukumunhe)
Kiryoowa (R) charting with Threeways CEO Oscar Baitwa as they left court yesterday (Photo by Alex Bukumunhe)
Tasking a high level boardroom decision may reward handsomely or cost the company colossal sums of Money and when it comes to contractual obligations, the risk is even higher. This was the scenario in the MTN against Threeways battle over alleged inflated invoices where great managerial skills were at play and as Justice Christopher Madrama found on Friday, MTN took the battle and Threeways won the war.

Below we bring you five key important decisions that MTN directors will live to regret if the Appeal and probably the Supreme court agree with the Decision of Justice Madrama which in effect exonerates Threeways of any liability to pay USD3.8m over Shs9.5m.

Turning Against Their Employee
From 2009 the two companies had a good working relationship with Threeways Shipping Group performing well its contract to transport Communications equipment for the

Telecommunications giant from abroad to Uganda. In 2012, MTN discovered that it had overpaid some of the invoices from Threeways and it suspected its employees to have connived with Threeways Company to inflate invoices.

It went ahead and made a complaint to the Criminal Investigations and Intelligence Directorate (CIID) against its employees. A reconciliation of invoices was done and it was discovered that money in excess of USD4m had been overpaid. Instead of pursuing this path alone and leave the rest to the DPP or filing a case in the commercial court for recovery of the overpaid money, they chose to enter an understanding with Threeways directors to have them pay the money and at the same time agree to be witnesses in the case MTN filed against its employees. This was on condition that MTN would not file any criminal of civil suit against the Threeways directors.

On September 10, 2012 MTN directors Mazen Mroue, Anthony Katamba together with their lawyers Peter Kabatsi and Joseph Matsiko of Kampala Associated Advocates signed the MoU with Threeways Executive Officer Oscar Baitwa and its Managing director Geoffrey Bahamaiso together with their lawyers David Mpanga. This decision, as Justice Madrama found, also contravened Article 126 (2) (d) of the constitution which, though recommends for reconciliation, it caters for only cases filed before court and not parties choosing to stifle prosecution in the name of reconciliation.

Unfreezing The Account
Through the Director of Public Prosecution, MTN had already filed an application in the Anti-corruption court and had been granted an order freezing Threeways accounts for six months. During the MoU signing, it was agreed that once the directors cooperate, their company accounts would be freed. To the Threeways director, this made business sense to save their company from colossal losses though on the other hand it amounted to exerting undue pressure and influence which is prohibited under the contract law.

But as Threeways lawyers Kiwanuka Kiryoowa and Wycliffe Birungi submitted in the Commercial court, the withdrawal amounted to interfering with the powers of the DPP which contravenes article 120 of the Constitution that empowers the DPP to execute its
mandate independently – thus illegal.

Backstabbing
After unfreezing the company accounts, the Threeways directors also took a good gesture and paid USD330,000 about over Shs831m. To their shock, MTN directors went ahead and filed criminal proceedings against them and they were charged in the Anti-corruption court. “A deeper analysis of the situation before the court raises some pertinent issues.

It was submitted without evidence being adduced that Threeways officials have been charged. In other words, if that is taken to be the truth, then the agreement has fallen apart because clause 10 specifically provided that the shareholders, directors and chief
executive officer shall be absolved from all or any liability whether civil or criminal relating to or arising out of the questioned invoices,” Justice Madrama observed. This partly shows why the Threeways directors chose not to complete the payment.

Committing Themselves To Withdraw The Charges
In the MoU MTN made it a condition for Threeways directors to cooperate with the police and even agree to be witnesses to pin its current and former employees. Threeways lawyers reasoned that clause 9 and 10 of the MoU which made it a condition for the Threeways directors to cooperate so that MTN can refrain from instituting criminals charges against them contravened section 104 of the Penal Code Act which makes it a crime for one to receive money or any benefit in order conceal a crime.

They reasoned that it was against the public policy for MTN to enter such an agreement because the public policy is to the effect that all criminals must be prosecuted without any interference. In other words MTN directors committed a misdemeanor (a crime where one can be fined). Justice Madrama concluded thus: “Om the basis of the analysis of the MoU clauses, my conclusion is that it violates section 104 of the Penal Code Act.

The basis of the violation is that the abstinence or forbearance of MTN to pursue its complaint against Threeways directors in their co-operation.” He said there was an agreement to receive a benefit by way of co-operation from Threeways to abstain or continue prosecution for the felonies of embezzlement, theft and causing financial loss. This made the MoU unenforceable.

Clever Lawyers
This battle was handled by top lawyers, but as it is now, it has turned to correlate a situation of students beating their lecturers in the deal using the very skills the lecturers imparted. The MoU was partly signed by Peter Kabatsi, the only Ugandan criminal lawyer other than Macdosman Kabega who can defend any person at the Hegue-based International Criminal court and former Director for Civil Litigation in the Attorney General Chambers Joseph Matsko for MTN. Both of them are from Kampala Associated Advocates (KAA). For Threeways, it was David Mpanga also a former KAA associate, who has up to now saved former FDC president Dr. Kizza Besigye from Rape, Treason and numerous other criminal charges stemming from demonstrations and riots.

As the pressure mounted on his clients, Mpanga kept his cool, witnessed the signing and after it was done, he advised his clients that whatever had been done was illegal who in turn procured the services of Kiwanuka, Karugire advocates a law firm owned by President Yoweri Museveni’s son in-law Edwine Karugire and Kiwanuka Kiryoowa.

When the matter came to court, Kutesa tried to reason that Threeways and Mpanga cannot turn around to claim the MoU was illegal because they all signed it, but Mpanga intellectually told court that at the time of signing, he did not foresee the illegality. He distanced himself saying the illegality was noticed by Kiryoowa and Karugire and the two officers of court were duty bound to bring it to the attention of court.

In the end it has been Kiwanuka Kiryoowa’s services and those of Birungi that has sealed MTN’s claim and may seal it for good if the appellate courts do not overturn it. With Matsiko and Kabatsi MTN was convinced it had the best brains and indeed they smiled after part payment was made, but Mpanga and Threeways had the last lough on Friday.

Rushing To Commercial Court
It is this last decision that has finally squandered everything. MTN was technically beaten hands down in the Commercial Court. The most critical decision which laid everything bare was during the scheduling memorandum (agreeing on issues under contention). MTN lawyers Paul Kutesa and Bruce Musinguzi agreed when Threeways lawyers proposed that they will raise a preliminary point of law (an illegality) at the beginning of the hearing.

Kiwanuka Kiryoowa informed them in advance that this point of law was capable of dealing with the whole suit without going into arguments. When the time came for raising this point of law, the same lawyers turned around and claimed that court cannot choose to determine whether the MoU was illegal or an illegality without allowing both lawyers to prove circumstances under which it was signed by of a full hearing where witnesses would be called. Justice Madrama agreed with Kiryoowa that MTN lawyers are stopped (prohibited) from submitting that to resolve the point of law requires adducing evidence (hearing the case and calling witnesses) because it was an agreed position by all parties during the scheduling.

In the end Justice Madrama concluded that the court cannot lend its process to the enforcement of an illegality and dismissed MTN case with costs. When contacted yesterday, Threeways lawyer Birungi informed us that this decision has a bearing on the criminal charges in the Anti-corruption court against the Threeways directors and former MTN staff. “It has a bearing because the judge found that no charge whether civil or criminal can stem from a felonious agreement.

But we are still studying it because the judge gave a detailed analysis of the issues at hand,” he said. He said MTN had presented this agreement to the CIID as further proof of criminal liability against the Threeways directors.

Analysis by Alex Bukumunhe

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