A Sh342.8 million legal fees bill paid by the Insurance Regulatory Authority (IRA) has come under scrutiny after MPs questioned why the regulator allowed an external law firm to handle a court case before the two sides had agreed on the terms of its engagement.
The National Assembly’s Public Investments Committee on Commercial Affairs and Energy, led by Pokot South MP David Pkosing, is investigating how the dispute over legal fees grew into a multimillion-shilling liability, including Sh79.8 million in interest that accumulated after an earlier court award was not settled on time.
The matter arose from a case involving a liquidated insurance company that had sued IRA. According to the Auditor-General, the regulator hired the law firm to represent it, but the parties failed to settle on the final fees payable for the legal services.
The firm had initially sought Sh176.1 million, basing its demand on the value of the claim filed by the plaintiff. IRA, however, offered only Sh875,197, relying on the audited financial statements of the liquidated insurer.
The disagreement later turned into a three-year court battle. IRA challenged the award but lost its attempts to overturn the decision and later failed to secure a stay of execution.
Attempts by IRA management and its Board of Directors to settle the matter through mediation also failed, leaving the law firm to seek enforcement of the court award.
The firm subsequently obtained garnishee orders against IRA, resulting in the freezing and withdrawal of money from the regulator’s bank accounts.
It was first granted an order allowing it to recover Sh15 million from an IRA account before obtaining additional court orders to collect the remaining amount.
By May 2023, the advocate had recovered Sh303.8 million through various court orders. This prompted IRA to approach the National Treasury for approval of a supplementary budget to meet the contingent liability.
Treasury approved the request on May 29, 2023, but MPs questioned why the law firm had been allowed to take up the case in the first place when there was allegedly no final contractual agreement setting out the terms of the engagement.
Pkosing also questioned the role of IRA’s internal legal department and sought an explanation on how and why the external lawyers were brought into the matter.
“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?” posed Pkosing.
IRA Chief Executive Officer Godfrey Kiptum told the committee that the law firm went to court during the early stages of the matter because of the urgency involved.
He said negotiations on the contractual terms were taking place at the same time, but the two parties eventually failed to reach an agreement.
The committee has now ordered IRA to submit a detailed report outlining how it engages external advocates, including the requirements used when prequalifying law firms.
Lawmakers also want a full report on the regulator’s internal legal department, its operations and the circumstances under which external legal services are sought.
IRA has further been directed to provide details of the officials who were in charge of overseeing the contractual relationship between the regulator and the law firm when the disputed engagement took place.
The inquiry places IRA’s legal procurement practices under fresh scrutiny, particularly over how an engagement that began without a final fee agreement ended with a Sh342.8 million payment after years of litigation and accumulated interest.