An audit process that did not consider the queries on the audit report raised by the audited body was procedurally unfair and a violation of the right to fair administrative action.

Brief facts

AIG Kenya Insurance Company Limited filed the instant judicial review application in which they sought to quash the findings of an audit report conducted on the applicant on the account of the respondent (the Unclaimed Financial Assets Authority). The respondent engaged the firm of KM Ndura and Associates (the auditor))  pursuant to section 31(5) of the Act to conduct an audit of unclaimed assets which audit included the applicant and its subsidiaries to confirm compliance with section 31(3) of the Act. The scope of work of the audit was to identify unclaimed financial assets under the Act with the audit exercise stated to be retrospective in nature since incorporation of the holder to the latest qualifying date of unclaimed financial assets.

Upon conclusion of the audit, the auditors report made two substantive findings, that:

    (i)the applicant was holding identified unclaimed assets under section 5 of the Unclaimed Financial Assets Act whose                 value totaled Kshs 138,250,058.00,

    (ii)penalties and interest payable by the ex-parte applicant under the provisions of sections 33 of the Unclaimed Financial            Assets Act was a sum of Kshs 312,793,838.00.

Upon receiving the audit report, the applicants wrote to the auditor challenging the findings of the report and requesting consideration of their documentation. The applicant alleged that the auditor verbally informed the applicant that they did not have time to consider the management comments and review the submitted documentation. The applicant further alleged that instead of issuing a response to the comments, a demand letter dated November 23, 2020 was issued to the applicant. The applicant contended that that was as an act of bad faith and malice, one demonstrating complete procedural unfairness, abuse of power and administrative action that was pre-determined.

Subsequently the applicant filed the instant case where sought for the audit report and its recommendations to be quashed for violating the applicants right to fair administrative action. 

The applicant also challenged the constitutionality of section 52(5) of the Unclaimed Financial Assets Act.  Section 52(5) provided that it was an offence to fail to meet a demand by the Unclaimed Financial Assets Authority whether to pay funds or deliver assets. The applicants challenged the provisions on ground that the provision removed the constitutional presumption of innocence under article 50(2) of the Constitution and did not allow a person to challenge a demand by the Authority. It thus contended that the section was thus ultra vires to the Constitution and should be declared unconstitutional, null and void to the extent of the unconstitutionality. 

Issues

1. Whether a judicial review court had the jurisdiction to consider issues touching on the constitutionality of an Act of Parliament in an application that primarily challenged an administrative action.
2. Whether section 52(5) of the Unclaimed Financial Assets Act that provided that it was an offence to fail to meet a demand by the Unclaimed Financial Assets Authority whether to pay funds or deliver assets was unconstitutional for removing the constitutional presumption of innocence for not allowing a challenge to a demand by the Authority.
3. Whether in issuing audit reports on asset holders on presumed abandoned/unclaimed financial assets, the Unclaimed Financial Assets Authority was obliged to respond to challenges to the audit report that were raised by the audited bodies.
   1. Whether failure to respond to challenges to the audit reports was a breach of the audited bodys right to fair administrative action on account of procedural unfairness.

Relevant provisions of the law

Unclaimed Financial Assets Act, Act No. 40 of 2011

Sections 31(4) (5) and (6) and 52(5)

31.      Report of unclaimed assets; examination of records, etc.

(3)       The Authority shall have powers to, at reasonable times and upon reasonable notice, examine the records of a person to determine whether the person has complied with this Act.

(4)       The Authority shall have powers to conduct the examination referred to in sub section (3) whether or not the person believes he or she is not in possession of any assets reportable or deliverable under this Act.

(5)       The Authority shall have power to enter into a contract with any other person to conduct examination under this section on behalf of the Authority.

52.      Offences and penalty

(5)       A person who wilfully refuses after written demand by the Authority to pay or deliver assets to the Authority as required under this Act commits an offence.

Held

1. The Constitution of Kenya, 2010 gave judicial review constitutional underpinning and was operationalized through the Fair Administrative Action Act.
2. In appropriate cases, some extent of merit review was permissible in judicial review. Merit review was permissible under the Constitution. However, such development in the law could not be stretched to the extent of allowing the judicial review court to substitute the decision of the subject body with its own.
3. In the instances of the performance of a public duty in a technical sphere like in the instant suit, the court could not substitute the decision of the auditor but could review the process and the audit review on the merits restricted to whether the action taken was authorized by law, whether the affected parties were heard, whether the decision maker considered irrelevant matters or failed to consider relevant matters, whether there was bias and generally whether the principles of natural justice were complied with. Those considerations would inform the propriety or otherwise of the impugned audit report.
4. Sections 31(4) (5) and (6) of the Unclaimed Financial Assets Act (the Act) showed that the respondent was within its statutory mandate in conducting the audit. In so far as the actual conduct was concerned, the record showed a smooth entry of the auditor. The attendance register dated February 10, 2020 showed that in attendance were representatives from the respondent, the applicant and the auditor. A perusal of the draft audit report readily showed the participation of the applicant complete with management comments.
5. The applicants request of re-consideration of the auditors report on the basis that the report had failed at all to either refer to or consider management comments and supporting information and documentation supplied with reference to areas of non-compliance was not acknowledged or replied to. Instead, a demand letter was issued to the applicant. The applicants assertions were not controverted and not challenged. The auditor had not sworn an affidavit to counter the applicants accusations.
6. The allegation that the auditor stated verbally that they did not have time to consider the management comments and review the supplied documentation and analysis done by the applicant stood out. The respondents did not find it necessary to controvert by way of evidence allegations that seriously dented the propriety of the audit process. However correct an audit report could be, the process through which it was reached had to of necessity abide by the tenets of natural justice.
7. Ignoring the representations by the applicant was in complete derogation of the applicants right to fair administrative action provided under article 47 of the Constitution and as operationalized in the Fair Administrative Action Act (FAAA). The failure to put into account the applicants representations meant that the respondents agent failed to consider relevant matters. The process and the impugned audit report failed the test of procedural propriety. The same offended the provisions of section 7(2)(c),(f)and (n) of the FAAA in respect of procedural unfairness, failure to take into account relevant considerations and unfairness.
8. The process and the audit report arrived at by the agent of the respondent did not meet the legal muster of an administrative action that afforded the applicant the right to fair administrative function envisaged under article 47 and in the FAAA. The audit report and the consequential letter of demand dated November 23, 2020 ought to be quashed.
9. The quashing was not to be interpreted to mean that the applicant was not to be audited as per the law provided. The respondent retained the statutory powers to initiate such an audit provided the same afforded the applicant latitude in the manner specified.
10. This suit was predicated on the impugned audit report. The report had fallen by the wayside to the extent that it had been found to suffer procedural impropriety. All the contents of the audit report and anything done on the strength of the report was a nullity.
11. The expanded space by the Constitution if not well checked and managed could be a key to anarchy confusion, and uncertainty in the courts operations. Despite the apparent fusion of the jurisdictions majorly because of the enforcement of the constitutional ethos that cut across all Kenyan courts, the specific jurisdictions remained distinct and had to be observed for good order and predictability in the court processes. The work of the courts was cut out and the need to delineate the extents of merit review was urgent.
12. All Acts of Parliament were presumed to be constitutional unless proven by the party alleging otherwise. Section 52(5) of the Unclaimed Financial Assets Act provided that it was an offence to fail to meet a demand by the Unclaimed Financial Assets Authority whether to pay funds or deliver assets. The section established the offence and its ingredients but did not in any way preclude a party from enjoying the presumption of innocence or mounting a defence. The establishment of an offence in the law did not make such a law unconstitutional. Were that to be the case, penal codes all over the world would have been declared unconstitutional a long time ago. It was incumbent on the applicant to prove the unconstitutionality of the section. Other than stating that the section did not allow a person to challenge the demand by the Authority, nothing more was proffered.
13. The courts duty in interpreting a statute was to give effect to the intention of the legislature, the objects and purpose being the key drivers, all the while alive to the need of the statute to conform with the Constitution. The object and purpose of section 52(5) of the Unclaimed Financial Assets Act was to ensure compliance with the demands by the Unclaimed Financial Assets Authority by establishing non-compliance as an offence. That would go a long way in facilitating the execution of the Authorities mandate. The section did not provide for a penalty to be meted out without a party being heard. The section was constitutional.