High Court Nullifies EADB Privileges

In a significant legal development, Kenya’s High Court declared certain provisions of the East African Development Bank (EADB) Act unconstitutional. The court ruled that immunity from prosecution granted to the EADB, as well as Treasury’s unilateral power to access public funds to meet obligations without parliamentary approval, violated Kenya’s constitutional principles.

This landmark ruling has far-reaching implications for financial governance, regional lending institutions, and the role of the judiciary in upholding constitutional values. Below, we delve deeper into the ruling, its impact, and why it matters for both citizens and institutions.

Understanding the East African Development Bank (EADB)

The EADB was established in 1967 to promote regional development and integration among its member states: Kenya, Uganda, Tanzania, and Rwanda. It provides development financing for projects that foster economic growth across East Africa.

To ensure its efficiency, the EADB Act granted the bank privileges, including immunity from prosecution and exemptions from certain national laws. These provisions were meant to protect the bank from undue legal and administrative interference while facilitating its regional mandate.

The Contested Amendments of 2013

In 2013, through Section 30 of the Finance Act, key amendments were made to the EADB Act:

1. Access to Public Funds:
   The amendments allowed the National Treasury Cabinet Secretary to withdraw funds directly from the Consolidated Fund to meet Kenya’s obligations to the EADB. Crucially, this could be done without parliamentary approval, bypassing one of the key tenets of public finance management—legislative oversight.
2. Immunity Provisions:
   Articles 44-48 of the amended EADB Act provided the bank with extensive immunity from legal proceedings, except where the bank explicitly waived such immunity in writing. This meant that aggrieved parties had limited recourse to challenge the bank in Kenyan courts.

The Legal Challenge

The amendments were challenged by Paul Lihanda Nusu, a public interest litigant, who argued that they violated several constitutional principles:

1. Parliamentary Oversight:
   Article 206 of the Constitution mandates parliamentary oversight in financial management, especially withdrawals from the Consolidated Fund. By allowing the Treasury CS to bypass Parliament, the amendments undermined this constitutional requirement.
2. Access to Justice:
   Articles 48 and 50 of the Constitution guarantee every citizen’s right to access justice and a fair hearing. The immunity provisions in the EADB Act effectively denied aggrieved parties their constitutional rights.
3. Public Participation:
   Article 10 emphasizes public participation in the legislative process. The amendments were passed without adequate consultation, raising questions about their legitimacy.

The High Court’s Ruling

Justice Francis Rayola Olel delivered the judgment, striking down the contested provisions as unconstitutional. Key points of the ruling include:

1. Unconstitutionality of Treasury’s Powers:
   The court found that allowing the Treasury CS to access public funds without parliamentary approval contravened constitutional principles of accountability and transparency.
2. Invalidation of Immunity Provisions:
   Justice Olel ruled that the immunity granted to the EADB violated citizens’ rights to access justice. He emphasized that no institution, regardless of its regional mandate, is above the law.
3. Importance of Public Participation:
   The judge underscored the need for public participation in legislative processes, affirming its role as a cornerstone of democratic governance.

Implications of the Ruling

1. For the EADB

The revocation of immunity provisions subjects the EADB to legal scrutiny in Kenya. This could increase its operational risks and necessitate reforms in its legal and procedural frameworks to align with national laws.

2. Strengthening Parliamentary Oversight

The judgment reinforces Parliament’s role in overseeing public finance. This sets a precedent that no government entity can bypass legislative scrutiny in managing public resources.

3. Empowering Citizens

By affirming the right to access justice and public participation, the ruling empowers citizens to challenge unconstitutional laws and practices.

4. Precedent for Regional and Global Institutions

The decision sends a strong message to other regional and international financial institutions operating in Kenya: compliance with national laws and constitutional principles is non-negotiable.

Comparative Perspectives

Kenya’s Judiciary and Financial Governance

Kenya’s judiciary has increasingly taken a proactive role in safeguarding public finance principles. For instance:

• In a 2024 ruling, the Supreme Court invalidated Treasury’s decision to bypass procurement laws in issuing government bonds, emphasizing transparency in public borrowing.
• In another case, the Court of Appeal upheld citizens’ rights to challenge mismanagement of public funds allocated to county governments.

Regional Precedents

The ruling aligns with similar decisions across East Africa:

• Uganda: The High Court declared cross-border lending illegal without prior authorization from the Bank of Uganda, highlighting the need for regulatory compliance.
• Tanzania: The government’s recent decision to amend the legal status of regional banks was challenged on grounds of inadequate public consultation, echoing Kenya’s emphasis on public participation.

Stakeholder Reactions

Legal Experts

Legal scholars have praised the ruling as a victory for the rule of law. They argue that it underscores the judiciary’s critical role in maintaining checks and balances in financial governance.

Financial Institutions

Some financial institutions have expressed concerns about potential disruptions in regional lending frameworks. However, others view the ruling as an opportunity to enhance transparency and accountability.

Civil Society Organizations

Advocacy groups have welcomed the decision, calling it a significant step toward safeguarding public resources and ensuring that institutions operate within constitutional frameworks.

Public Participation: A Democratic Imperative

The ruling highlights the importance of public participation in legislative processes. Involving citizens ensures that laws reflect public interests and uphold democratic principles.

Kenya’s Constitution mandates public participation in all stages of law-making. Failure to consult citizens not only undermines the legitimacy of laws but also creates avenues for abuse of power.

Read: Kenya High Court Overturns KBC Advertising Monopoly

Conclusion

The High Court’s decision to nullify the EADB’s privileges is a milestone in Kenya’s legal and financial governance landscape. By emphasizing constitutional principles such as accountability, access to justice, and public participation, the ruling strengthens democratic values and sets a powerful precedent for other regional and global institutions.

As Kenya continues to navigate the complexities of regional integration and financial governance, this judgment serves as a reminder that no institution, however influential, is above the law.