What you need to know:
- Two years ago, 14 Riverside Drive suffered one of the worst terror attacks in Kenya’s history.
- Riverside Drive hosts several embassies and foreign multinationals with business interests in Kenya.
When Vinay Sanghrajka decided to venture into the real estate industry in 2008, he set his eyes on the high end of the market with a plan to develop grade A offices in Nairobi’s exclusive Riverside suburb.
The imposing commercial complex developed on his prime 14 Riverside Drive land matched his big dream, attracting top-end tenants including several multinationals.
But 13 years later, Mr Sanghrajka’s gamble with the real estate industry through his construction firm, Cape Holdings, has become a living hell.
Two years ago, 14 Riverside Drive suffered one of the worst terror attacks in Kenya’s history as 22 people were killed in a 20-hour battle between security agencies and Al Shabaab terrorists.
While GA Insurance released Sh400 million compensation to Cape Holdings under a policy the real estate company had taken out on 14 Riverside Drive, the amount was not enough to stop the financial haemorrhage that followed.
Synergy Industrial Credit, which was a decade ago to acquire one office block from Cape Holdings for a price of Sh703 million, is now pursuing a court-ordered compensation package from Mr Sanghrajka’s company for breach of contract and loss of income.
Arbitrator James Ochieng Oduol awarded Synergy Industrial Credit Sh1.66 billion in 2015, but the amount has increased by more than three times when compounded at an interest rate of 18 percent per annum.
The Supreme Court in March allowed Synergy Industrial Credit to claim Sh4.9 billion from Cape Holdings, dealing a death blow to Mr Sanghrajka’s dreams.
The claim continues to compounded until Mr Sanghrajka, whose family also owns the equally well known Tile & Carpet Centre multi-billion shilling business, pays the debt in full.
And last week, I&M Bank piled onto Cape Holdings’ misery by placing the company under administration following default in payment of loans. I&M did not, however, declare how much it is claiming from Cape Holdings.
“Notice is hereby given that Vruti Shantilal Shah… has been appointed as an administrator of Cape Holdings Limited (Under Administration) effective October 12, 2021. Following the appointment, all the affairs and business of the company are being conducted by the administrator. The powers of the administrator extend to all assets and undertakings of the company. The powers of the directors in terms of dealing with the company assets ceased.”
“Any party having a claim against the company shall submit the claim in writing with relevant supporting documentation to the administrator on or before the 12th day of November 2021 for consideration. The administrator acts as an agent of the company without personal liability,” the notice by I&M Bank reads.
While the administration order indicates that all assets are affected, the High Court had in March protected the 14 Riverside property from auction, on account of Synergy’s compensation package.
“An order be and is hereby issued prohibiting the respondent (Cape Holdings) or its agents, until the further order of this honourable court, from transferring or charging in any way its property known as Land Reference 209/19436 by sale or otherwise, and that all persons be restrained and prohibited from receiving the property by purchase, gift or otherwise,” the High Court order issued on March 25, 2021 reads.
The freeze order will only be lifted if Cape Holdings furnishes Synergy with collateral or a bank guarantee.
In 2008 when construction of the 14 Riverside Drive commercial complex started, the timing could not have been better for Mr Sanghrajka to get into the real estate industry.
Several corporates were desperately trying to move their offices from the congested Nairobi city centre.
Expatriates and international businessmen have a preference for office and accommodation that is close to what brings them to Nairobi.
Riverside Drive hosts several embassies and foreign multinationals with business interests in Kenya, so it was just right for Mr Sanghrajka that the Dusit D2 Hotel was interested in taking up one block to set up a luxurious establishment.
In 2009, Synergy Industrial Credit offered to buy one office blocks with 14 units and parking silos for Sh703 million.
The deal sounded good on paper. Synergy Industrial Credit would get its building, and Mr Sanghrajka would get much needed funds to proceed with the real estate development.
For three years, the proprietors of Synergy Industrial Credit and Cape Holdings seemed to have trusted each other, as they reached several agreements without signing a single document.
By the time the two companies signed their first agreement in 2011, Synergy had already paid Sh712.5 million – more than the agreed purchase price.
Synergy first released Sh577.2 million to Cape Holdings, before sending $1,526,888 (Sh135 million by 2011 exchange rates) to another company, Icarus Equities Inc, on behalf of the 14 Riverside Drive owner.
Despite the initial reliance on word of mouth, the transaction was complex.
On February 8 2011 Cape, Holdings and Synergy signed 14 agreements detailing how the property would be transferred to the latter.
Six months after signing the 14 agreements, Synergy accused Cape Holdings of diverting funds and slowing down construction.
The fallout was bitter, as Synergy also filed a complaint with the Directorate of Criminal Investigations (DCI) seeking to have Cape Holdings investigated for fraud.
At arbitration, the key question for the arbitrator, Mr Oduol, was whether there were oral agreements that were enforceable and which of the two parties had breached contracts.
Ahmednasir Abdullahi, Synergy’s lawyer, argued that his client borrowed money in dollars to purchase the 14 Riverside Drive office block, hence it was also fair to consider losses incurred as a result of exchange rate fluctuations during repayment.
Challenging the award
Mr Oduol faulted Cape Holdings for slowing down construction, which breached the contracts and verbal agreements with Synergy.
The arbitrator ordered that Cape Holdings refund the Sh577 million received from Synergy. He also ordered Cape Holdings to refund the Sh135 million that Synergy sent to Icarus Equities.
The real punishment, however, was Mr Oduol’s order that Cape Holdings pays compound interest on the award, which pushed the total debt to Sh1.66 billion.
Cape Holdings was annoyed at the fact that interest was larger than the award issued, claiming that it was against public policy.
In challenging the award at the High Court, Cape Holdings also faulted Mr Oduol for relying on the oral agreements, arguing that the verbal deals were not covered by arbitration clauses in contracts that were signed later.
Curiously, as it was faulting Mr Oduol for relying on the oral agreements to rule in Synergy’s favour, Cape Holdings’ counterclaim for Sh506.9 million was also based on the verbal deals struck between 2009 and 2011.
High Court judge Charles Kariuki in March, 2016 overturned Mr Oduol’s decision, agreeing with Cape Holdings.
Synergy, disgruntled, filed challenged the judge’s decision at the Court of Appeal.
In December, 2016 the Court of Appeal ruled that the High Court was the last stop for appeals against arbitration decisions.
Once again disgruntled, Synergy moved to the Supreme Court.
Synergy’s lawyer, Mr Abdullahi, argued that there are instances where appellate judges can preside over arbitration appeals after the High Court makes a determination, to avoid miscarriage of justice.
The Supreme Court in November, 2019 agreed with Mr Abdullahi, and ordered the Court of Appeal to preside over the case.
One year later, the Court of Appeal held that Justice Kariuki was wrong in dismissing Mr Oduol’s arbitration decision.
Justices Kathumira M’inoti, Fatuma Sichale and Jamila Mohammed agreed with Mr Abdullahi that the High Court had irregularly reopened the arbitration proceedings.
As the three judges found that Mr Oduol’s judgment had been arrived at after due process, they upheld the arbitrator’s decision.
Elias Mwangi, representing Cape Holdings, sought to return the dispute to the Supreme Court, arguing that the judges misunderstood the 14 agreements which opened the door for arbitration in the event of a dispute.
In March, the Supreme Court dismissed Cape Holdings’ application, bringing an end to the 10-year fight.
In the five years that the two parties have moved from one court to the next, Cape Holdings’ debt to Synergy has grown by Sh3.89 billion.
And until Mr Sanghrajka’s company pays up, the interest will continue to inflate the debt.