Inside the decade-long bruising legal battle for 14 Riverside

The protracted legal battle over 14 Riverside, a prime luxury property complex along Riverside Drive in Nairobi, has been ongoing for over a decade and shows no signs of resolution.

This contentious dispute, involving billions of shillings, has seen the parties embroiled in numerous court cases, arbitrations, and appeals. The parties are preparing to return to court in October 2024.

It all began in 2009 when Cape Holdings broke ground on 14 Riverside, an ambitious luxury complex in Nairobi’s Chiromo area. The project was designed to be the epitome of high-end construction, featuring five office blocks, a five-star hotel, a parking silo, a food court, and other amenities. The development was poised to become a landmark in Nairobi, attracting high-profile tenants and businesses.

In March 2011, Cape Holdings entered into a series of agreements with Synergy Industrial Credit Limited, under which Synergy would become the owner of two blocks within the complex.

• .

  Keep Reading

• 
  Tussle between upmarket hotel owner and creditor

The total value of the deal was Sh703 million, with Synergy paying Sh577 million upfront and the balance due upon completion of the project. However, by May 2011, Synergy expressed its intention to terminate the agreement, demanding a refund of the money already paid.

The dispute quickly escalated, leading to arbitration proceedings initiated in May 2012, with James Ochieng Oduol appointed as the arbitrator. During the arbitration, it was reported that Cape Holdings offered to settle the matter for Sh750 million — an offer that Synergy declined.

In January 2015, the arbitrator ruled in favour of Synergy, finding that Cape Holdings had breached the contract by failing to transfer the agreed-upon property. The arbitrator awarded Synergy a total of Sh1.7 billion, which included the principal amount, interest, and compensation for various losses. Cape Holdings was ordered to pay the amount within 30 days, with an interest rate of 18 per cent per annum applicable if they failed to comply.

Cape Holdings immediately challenged the arbitration award in the High Court, arguing that the arbitrator had overstepped his mandate. The developer contended that the award was excessive and that the interest rate applied was punitive. Cape Holdings also argued that the arbitrator failed to consider key legal provisions, including the Limitation of Actions Act.

In March 2016, Justice C. Kariuki of the High Court set aside the arbitration award, agreeing with Cape Holdings that the arbitrator had exceeded his authority. The court’s decision, however, did not specify whether fresh arbitration proceedings should commence, leaving the matter in a state of legal limbo.

Synergy, dissatisfied with the High Court’s ruling, sought to appeal the decision. However, their appeal was struck out based on the legal position at the time, which did not allow for an appeal of High Court decisions on arbitration awards under Section 35 of the Arbitration Act.

Determined to pursue the matter further, Synergy took the case to the Supreme Court in February 2017. The apex court, in a landmark decision in 2019, referred the matter back to the Court of Appeal, instructing it to review the case under Section 35 of the Arbitration Act to address any potential injustices.

The Court of Appeal began hearing the case in 2020, but the proceedings were delayed after the court’s president recused himself due to a known connection with the arbitrator. A newly constituted bench eventually ruled in November 2020, overturning the High Court’s decision and criticising the lower court for not adequately addressing the arbitration agreement’s terms. The Court of Appeal also revised the award amount, finding the initial figure to be excessive.

Following the Court of Appeal's decision, Cape Holdings sought leave to appeal to the Supreme Court, arguing that the initial Supreme Court directions had not been fully adhered to. However, their application was denied in October 2021, with the High Court by then having recalculated the award, which now stood at Sh4.4 billion.

In March 2022, Cape Holdings returned to the Court of Appeal, asking for a review of the decision and seeking to have the award reduced. The firm argued that the interest computation should be limited to six years, in line with Section 4(4) of the Limitation of Actions Act. Additionally, Cape Holdings sought to have the commercial interest rate of 18 percent per annum replaced with the court’s standard rate of 12 percent per annum. They also requested that the award be limited to the Sh577.2 million initially agreed upon, rather than the Sh1.7 billion figure determined by the arbitrator.

"In addition, the firm requested that the interest computation be limited to six years in accordance with Section 4(4) of the Limitation of Actions Act. The ruling on this matter was delivered in December 2023, with the court disallowing Cape Holdings' appeal. Cape Holdings had raised concerns about the calculation of the award, particularly how the amount in dispute, originally Sh577.2 million, resulted in a final award significantly higher than the initial figure."

The Court of Appeal denied Cape Holdings’ request, leaving the award, now totaling Sh5.4 billion, in place. Cape Holdings, through its lawyer Allen Gichuhi, has argued that the award is punitive and against public policy, stating that it is "unconscionable and unlawful for the award to stand as it means that from a partial payment of the purchase price, Synergy now claims in excess of Sh5.4 billion."

Adding to the complexity of the case, I&M Bank, which had provided a loan of Sh2.8 billion to Cape Holdings secured by a debenture on the 14 Riverside property, has also become involved in the legal dispute. The bank sought to block any sale of the property by Synergy, arguing that the lender’s interests must be protected.

The property’s administrators also moved to court to obtain an order preventing Synergy from interfering with the management of the complex, claiming that Synergy had threatened to sell the entire property, despite the administrators having interests in several of the blocks. The court granted the order, and the matter is set to be heard on October 2, 2024.

The decade-long legal saga shows the complexities and challenges that can arise in high-stakes property deals. With billions of shillings at stake and numerous legal issues still unresolved, the case continues to wind its way through Kenya’s legal system.

As the parties prepare for the next round of hearings, the outcome remains uncertain, but one thing is clear: this is a legal battle that is far from over. The case not only highlights the intricacies of arbitration and contract law in Kenya but also underscores the importance of clear agreements and the potential consequences of disputes in high-value transactions.

For now, all eyes are on the October hearing, where the future of 14 Riverside—and the fate of billions of shillings—will once again be in the hands of the courts.