14 Riverside’s decade-long legal battle

The protracted legal dispute surrounding 14 Riverside, a luxury real estate project on Nairobi’s Riverside Boulevard, has lasted for more than a decade with no sign of resolution.

The controversial dispute, which involves billions of shillings, has involved multiple lawsuits, arbitrations and appeals. Both parties are preparing to go to court again in October 2024.

It all started in 2009 when Cape Holdings started construction on 14 Riverside, an ambitious luxury complex in the Chiromo area of ​​Nairobi. Designed to be a model of high-end architecture, the project included five office towers, a five-star hotel, a car park, a food court and other facilities. Become a landmark in Nairobiattracting high-end 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 buildings within the complex.

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

The dispute escalated rapidly, leading to arbitration proceedings being initiated in May 2012, with James Ochieng Oduol appointed as arbitrator. During the arbitration, Cape Holdings reportedly offered to settle for Sh750 million, but Synergy rejected the offer.

In January 2015, the arbitrators ruled in favour of Synergy, finding that Cape Holdings had breached the contract by failing to transfer the agreed property. The arbitrators awarded Synergy a total of Sh1.7 billion in damages, including principal, interest and compensation for various losses. Cape Holdings was ordered to pay the amount within 30 days, or 18% annual interest if it failed to comply.

Cape Holdings immediately challenged the arbitration award in the High Court, arguing that the arbitrator exceeded the scope of his or her authority. The developer argued 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 Act.

In March 2016, High Court Judge C. Kariuki set aside the arbitration award, agreeing with Cape Holdings that the arbitrators exceeded their authority. However, the court’s ruling did not clarify whether new arbitration proceedings should be initiated, leaving the matter in legal limbo.

Synergy was not satisfied with the High Court’s decision and sought to appeal. However, their appeal was dismissed as the law at the time did not allow for an appeal against an arbitration award of the High Court under Section 35 of the Arbitration Act.

Determined to pursue the matter further, Synergy took the case to the Supreme Court in February 2017. In a landmark ruling in 2019, the Supreme Court sent the case back to the Court of Appeal, directing it to review the case under Section 35 of the Arbitration Act to address any potential injustice.

The Court of Appeal began hearing the case in 2020. But the litigation process The ruling was delayed due to the court president’s recusation due to a known relationship with the arbitrator. A newly constituted bench finally issued a ruling in November 2020, overturning the High Court’s decision and criticizing the lower court for not adequately addressing the terms of the arbitration agreement. The Court of Appeal also revised the award amount, finding that the initial figure was too high.

After the Court of Appeal ruling, Cape Holdings requested the Supreme Court to grant it leave to appeal, saying the original Supreme Court directive had not been fully complied with. However, their application was dismissed in October 2021 when the High Court recalculated the amount of compensation, which now stands at Sh4.4 billion.

In March 2022, Cape Holdings again filed a lawsuit in the Court of Appeal seeking a review of the award and seeking a reduction in the amount of compensation. The company argued that the calculation of interest should be limited to six years, in accordance with Section 4(4) of the Limitation Act. In addition, Cape Holdings sought to replace the commercial rate of 18% per annum with the court’s standard rate of 12% per annum. They also asked that the amount of compensation be limited to the originally agreed Sh577.2 million, rather than the Sh1.7 billion determined by the arbitrator.

“In addition, the company requested that the calculation of interest be limited to six years under Section 4(4) of the Limitation Act. The decision in the case was delivered in December 2023, and the court dismissed Cape Holdings’ appeal. Cape Holdings raised concerns about the calculation of the compensation amount, especially since the amount in dispute was initially stated to be Sh577.2 million, but the final compensation amount was much higher than the initial figure.”

The Court of Appeal dismissed Cape Holdings’ plea and upheld the award which now totals Sh5.4 billion. Cape Holdings, through its lawyer Allen Gichuhi, argued that the award was punitive and contrary to public policy, saying “it would be unconscionable and unlawful to uphold the award as it means that out of the partly paid purchase price, Synergy is now claiming more than Sh5.4 billion.”

Adding complexity The case centers on I&M Bank, which was involved in the legal dispute over a Sh2.8 billion loan to Cape Holdings secured by a bond for the 14 Riverside property. The bank sought to stop Synergy from selling the property, arguing that it had to protect the interests of its lenders.

The property’s managers also applied to the court for an order restraining Synergy from interfering with the management of the complex, claiming that Synergy had threatened to sell the entire property, despite the managers having interests in several of the buildings. The court granted the order and the case is set to be heard on October 2, 2024.

The decade-long legal battle, which is still working its way through the Kenyan judicial system with billions of shillings at stake and many legal issues yet to be resolved, shows the complexities and challenges that can come with high-stakes real estate deals.

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

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