VZCZCXYZ0000
RR RUEHWEB

DE RUEHNR #1210/01 1661451
ZNR UUUUU ZZH
R 151451Z JUN 09
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 9860
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS NAIROBI 001210 
 
STATE FOR EEB/IFD/OIA HEATHER GOETHERT AND KIMBERLY BUTLER, AND 
L/CID PATRICK PEARSALL 
 
STATE ALSO FOR AF/E AND AF/EPS 
 
USDOC FOR 3131/USFCS/OIO/RD/ANESA 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: KIDE EINV OPIC CASC PGOV KE
SUBJECT: 2009 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CLAIMS 
- KENYA 
 
REF: STATE 49477 
 
SENSITIVE BUT UNCLASSIFIED.  CONTAINS BUSINESS PROPRIETARY 
INFORMATION.  NOT FOR RELEASE OUTSIDE USG CHANNELS. 
PLEASE PROTECT ACCORDINGLY. 
 
¶1.  (U) The U.S. Mission in Kenya is aware of one (1) outstanding 
claim of a United States business interest against a branch of the 
Government of Kenya (GOK). 
 
¶2.  (U) Background: In the mid-1990s, Claimant A entered into a 
partnership with a Kenyan public university ("the university"), via 
a Memorandum of Agreement (MOA), to establish computer instruction 
centers.  This partnership sought to impart computer skills to 
Kenyan students and over the years expanded to several centers 
across the country, using U.S. expertise, intellectual property, and 
technology supplied by Claimant A to staff and run the curriculum. 
 
¶3.  (SBU) According to Claimant A, the partnership ran successfully 
for seven years when, in June 2003, the university, citing 
management irregularities, unilaterally took over the entire 
enterprise.  Though the university agreed in principle to proceed to 
arbitration, as provided for by the MOA that established the 
partnership, the arbitration process has yet to commence, despite 
the significant efforts that U.S. Embassy officers, including the 
previous U.S. Ambassador and several Senators and Members of 
Congress have expended in pursuit of a satisfactory resolution since 
the management takeover. 
 
¶4.  (SBU) At the time of the university takeover, Claimant A 
contends it had invested approximately KSh 35 million (USD 500,000), 
but had only recouped about 50% of this amount.  Furthermore, 
Claimant A estimates a loss of investment in excess of USD 5 million 
when projected revenues are considered and also estimates that the 
university is currently collecting in excess of KSh 100 million (USD 
1.43 million) annually from the IT Learning Center, based at its 
campus in Juja Town, and from 16 other accreditation centers in 
Nairobi.  Finally, according to Claimant A, the university has also 
set into motion plans to develop a technology park, a project 
concept that had been envisioned for implementation at some later 
phase within the spirit of the joint MOA.  Claimant A asserts that 
the university needs to reverse its suspension of the MOA or provide 
financial compensation. 
 
¶5.  (SBU) U.S. Mission Actions on Behalf of U.S. Claimant: In June 
2003 Claimant A formally sought U.S. Embassy Nairobi intervention in 
its dispute with the Kenyan university, citing a unilateral breach 
of the parties' MOA and claiming that Claimant A's interest in the 
partnership had been expropriated.  Subsequently, Embassy officials 
contacted GOK counterparts on Claimant A's behalf and persuaded the 
university to submit the case to arbitration, as agreed in the MOA. 
The Embassy has also signaled to the GOK the desirability of an 
early and, if possible, amicable settlement of this dispute on many 
occasions.  To date, Claimant A has refused to engage local counsel 
or pursue this case in the Kenyan legal system.  Claimant A has also 
refused to accept the university's offer of arbitration under the 
MOA's terms. 
 
¶6.  (SBU) As part of a March 20, 2007 conference call, Claimant A's 
president requested that the U.S. Ambassador intervene in the 
matter.  Claimant A's local representative also participated in the 
conference call.  In response, on April 24, 2007, the Ambassador 
wrote to the Kenyan Minister of Education, requesting the 
reinstatement of the MOA by the Kenyan university.  A copy of this 
letter was also sent to the then Minister of Internal Security 
because Claimant A's president believes the former Internal Security 
Minister can assist in facilitating a decision that would bring both 
parties closer to a negotiated resolution.  U.S. Embassy Foreign 
Commercial Service (FCS) officers have followed up with contacts in 
both the Education and Internal Security ministries but have yet to 
receive a concrete reply to the Ambassador's letter.  U.S. Embassy 
officers have met and corresponded with Claimant A's local 
representative on several occasions. 
 
¶7.  (SBU) On July 11, 2007, Claimant A's president contacted U.S. 
Embassy FCS following an "East African Standard" article alleging 
corruption at the university.  U.S. Embassy Charg d'Affaires spoke 
with Claimant A's president on July 12 and held a follow-up meeting 
with Claimant A's representative in Kenya on July 13.  The Charg d' 
Affaires reiterated that, while the U.S. Embassy would continue to 
seek a negotiated political solution to this dispute, Claimant A 
ought to pursue local legal remedies and/or international 
 
arbitration, which Claimant A has thus far refused to do. 
 
¶8.  (SBU) On September 10, 2007, Claimant A's president held a 
conference call with then Acting Deputy Chief of Mission (DCM) and 
FCS staff, during which he indicated that he no longer wished to 
pursue a negotiated solution to his claims against the university. 
Claimant A's president requested a determination by the USG that his 
assets had been expropriated.  In a September 21, 2007 letter from 
the Ambassador to Claimant A's president, and a subsequent 
conference call involving both parties on October 4, 2007, the 
Ambassador reviewed USG policy on expropriation in detail to 
Claimant A.  The Ambassador explained that U.S investors must 
exhaust all local remedies or prove the futility of pursuing such 
remedies prior to claiming expropriation.  Since the October 4, 2007 
conference call with the Ambassador, Claimant A's president has to 
date neither initiated local legal action to seek redress or 
initiated international arbitration, nor initiated negotiations with 
the University to reach a settlement. (U.S. Embassy officers 
continue to maintain regular contact with Claimant A's local 
representative). 
 
¶9.  (SBU) On May 14, 2008, the DCM sent Claimant A's president a 
letter clarifying that the Counselor for Commercial Affairs is 
Claimant A's principal point of contact.  The DCM asked that 
Claimant A henceforth communicate any changes in this case to the 
Foreign Commercial Section of the Embassy. 
 
¶10.  (SBU) On July 21, 2008, the Claimant wrote to inform the new 
vice chancellor of the university, Prof. Mabel Imbuga, of his 
decision to pursue arbitration as provided by the MOA, with a 
proposal that the arbitration process begin on August 12, 2008, at a 
mutually acceptable time and venue in Nairobi.  In anticipation of a 
positive response from the university, Claimant A's president 
traveled to Kenya to participate in the arbitration.  Unfortunately, 
the university failed to respond to Claimant A's offer. 
 
¶11.  (SBU) Embassy representatives met with Claimant A's president 
in September 2008, when they learned that Claimant A's president and 
local representative had met with the university's vice chancellor 
in August and again on September 1, 2008.  According to Claimant A, 
the university vice chancellor committed herself to provide a 
response after a university council meeting to be held on September 
17, 2008.  Alas, she has not done so to date. 
 
¶12.  (SBU) During his visit to Kenya, Claimant A's president also 
met on August 11, 2008 with the Kenyan deputy prime 
minister/minister of trade (currently minister of finance) to 
discuss the case.  On September 5, 2008, the Ministry of Trade's 
permanent secretary wrote the university's vice chancellor to ask 
the university to seek an amicable solution in keeping with the 
government's efforts to increase joint ventures and public-private 
partnerships.  According to Claimant A, the university has to date 
failed to respond to the deputy prime minister's instructions. 
 
¶13.  (SBU) While Claimant A has yet to pursue legal remedies, Post 
learned from Claimant A that the university's former vice chancellor 
filed a lawsuit against Claimant A and others on December 15, 2005. 
In his suit, the plaintiff alleged that Claimant A, Claimant A's 
president and its local representative, and the university's deputy 
vice chancellor had entered into a conspiracy to defraud the 
university. 
 
¶14.  (SBU) At a May 13, 2008 hearing, the court ruled in favor of 
the defense and supported a counterclaim filed by Claimant A and its 
president.  The court set aside an earlier judgment that Claimant A 
had been properly served with a summons by the plaintiff. 
 
¶15.  (SBU) At the May 13, 2008 hearing, Claimant A's local 
representative also applied to the court for a dismissal of the suit 
against Claimant A and its partners.  The court has yet to deliver a 
ruling which was originally set for November 7, 2008. 
 
¶16.  (SBU) Claimant's Name: 
 
Claimant A: Nebraska-based Micro-Mini Systems (MMS) 
 
University: Jomo Kenyatta University of Agriculture and Technology 
(JKUAT) 
 
¶17.  (U) Primary U.S. Mission contacts: 
FCS Counselor for Commercial Affairs Jim Sullivan 
Email: jim.sullivan@mail.doc.gov 
 
Tel: 254-20-363-6066 
Fax: 254-20-363-6722 
 
FCS Senior Commercial Specialist Humphrey Lilech 
Email: humphrey.lilech@mail.doc.gov 
Tel: 254-20-363-6438 
 
State Department Economics Officer George W. Aldridge 
Email: aldridgegw@state.gov 
Tel: 254-20-363-6048 
Fax: 254-20-363-6011 
 
Ranneberger