NAIROBI, Kenya, Aug 26 – Lawmakers have raised questions over the Insurance Regulatory Authority’s (IRA) payment of Sh342.8 million to a law firm following a protracted dispute over legal fees.
The payment came under scrutiny on Wednesday when the Public Investments Committee on Commercial Affairs and Energy questioned how the law firm was allowed to represent the regulator in court before a final agreement on its fees had been reached.
The committee, chaired by Pokot South MP David Pkosing, also raised concerns over Sh79.8 million in interest that accrued after IRA delayed settling an earlier court award in favour of the law firm.
According to the Auditor-General’s findings, IRA engaged the firm to represent it in a legal dispute involving a liquidated insurance company that had sued the regulator.
However, the two parties failed to agree on the final amount payable for the legal services.
The advocate initially sought Sh176.1 million in legal fees, calculated on the basis of the claim made by the liquidated insurer.
IRA, however, disputed the amount and was willing to pay Sh875,197, based on the audited financial statements of the insurance company involved in the dispute.
The disagreement eventually escalated into a court battle, with IRA challenging the award.
The regulator failed to secure a stay of execution, while subsequent attempts by its management and board to resolve the matter through mediation also collapsed.
The law firm subsequently sought garnishee orders to compel IRA to settle the amount awarded by the court.
The court granted an order allowing the firm to recover Sh15 million from IRA’s bank account, followed by further orders for payment of the outstanding balance.
By May 2023, the advocate had recovered Sh303.8 million through various court orders, prompting IRA to seek approval from the National Treasury for a supplementary budget to settle the contingent liability.
The approval was granted on May 29, 2023.
The committee questioned the circumstances under which the law firm commenced legal proceedings on behalf of IRA before the parties had concluded their contractual negotiations.
Mr Pkosing also sought to establish the role played by IRA’s internal legal department in the dispute and why the disagreement over fees was allowed to escalate to the point of court intervention.
“My understanding is that an advocate moves to court after final instructions from the client and that is what partly informs the contractual agreement between the two. How did this advocate begin representing you in court without an agreement?” Mr Pkosing asked.
IRA Chief Executive Officer Godfrey Kiptum told the committee that the firm had been compelled to act urgently because of the circumstances of the case.
He said the advocate commenced work at the initial stages while negotiations over the terms of engagement were still ongoing, but the parties ultimately failed to reach an agreement on the fees.
The explanation, however, prompted the committee to seek greater clarity on IRA’s procedures for engaging external lawyers.
The lawmakers directed the regulator to submit a comprehensive report detailing its framework for procuring external legal services, including the requirements for prequalification of law firms.
IRA was also ordered to provide information on the status and operations of its internal legal department, including circumstances under which the regulator opts to outsource legal work.
The committee further demanded details of the officials who were responsible for overseeing the contractual negotiations between IRA and the law firm at the time.
The inquiry places scrutiny on the regulator’s management of public funds, particularly the circumstances that led to a legal fees dispute escalating into a multimillion-shilling liability.
