Economy

Railways Club land at stake in Sh26bn case

erdemann

Erdemann Property managing director John Zeyun Zang (left) and lawyer Gichuki King’ara outside a Nairobi court. Erdemann wants the Kenya Railways Corporation and the Kenya Railways Staff Retirement Benefits Scheme to compensate it after the three parties failed to agree on a tender to develop three of its properties in Nairobi. PHOTO | FILE | NATION MEDIA GROUP

Kenya Railways retirees risk losing three prime parcels of land in a suit lodged against them by a private developer that wants them compelled to pay over Sh26 billion as compensation for a botched tender agreement.

The High Court on Friday barred Kenya Railways from interfering with Railways Club, Makongeni Estate and a piece of land on Kindaruma Road as security in the event that Erdemann Property Limited wins a pending suit against the retirees and the Kenya Railways Corporation in the Court of Appeal.

Erdemann wants the Kenya Railways Corporation and the Kenya Railways Staff Retirement Benefits Scheme to compensate it after the three parties failed to agree on a tender to develop three of its properties in Nairobi, including the Railways Club on Haile Selassie Avenue.

READ: China firm seeks Sh26b in golf city tender row

The property developer moved to court in 2012 after Kenya Railways sold one of the pieces of land it was to be leased for development and feared the other two would be sold as well. After applying for a property search with the lands authorities, Erdemann was informed that the land had been transferred to Greenfield Developers for Sh650 million.

The sale of the land, according to the property developer, was in breach of the tender agreement as well as their rights.

Erdemann had planned to build 24 apartment blocks, office suites and a five-star hotel on the said land. The project dubbed Golf City was expected to cost the property developer over Sh40 billion. It now wants the court to compel Kenya Railways to pay it over Sh26 billion in damages and to stop the railway company from selling or leasing Railways Club and Makongeni Estate.

Justice Alfred Mabeya had in 2012 discharged some of the Kenya Railways property in his ruling, which the firm moved to contest at the Court of Appeal. The case in the appellate court is still ongoing.

Justice Eric Ogola declined to freeze the railways retirees’ accounts as Erdemann had asked, but agreed to issue restraining orders against the three parcels of land pending the outcome of the Court of Appeal case. The judge argued that the retirement scheme would be unable to pay pensioners, which he said would be punishing them for no reason.

“Railways Retirement Benefits Scheme is not a criminal and is not running away from jurisdiction. Such an order would cripple its operations completely. This would be against public interest and more than 10,000 members of the scheme would be affected negatively for no reason,” said Justice Ogola.

Kenya Railways had asked the court not to issue an order on costs on it, arguing it did not own any of the land parcels affected by the suit. All parcels of land in the suit are registered to its staff retirement benefits scheme.
Justice Ogola added that the prohibitory orders were more suitable than granting costs of Sh26 billion to Erdemann, arguing that it was in the best interest of the developer to have the land preserved.

Kenya Railways and its retirees, the judge said, would be unable to settle the claim in the event that it sold the property and Erdemann won its claim for damages.
“Although the claim is quantified, unless preservatory orders are given it may be impossible for the defendants after hearing the suit, to satisfy a decree in favour of Erdemann in the absence of such property due to the huge claim,” said the judge.

The judge declined to enjoin more properties that were not part of the botched tender agreement, arguing that it would be unjust to the defendants, as some of the properties Erdemann wanted enjoined in the freeze are leased to third parties.

Kenya Railways had told the court that an initial freeze in 2012 on properties outside the tender it was to give to Erdemann initiated lawsuits as some third parties sued it claiming proprietary rights, and that adding more properties to the barred list would put it at risk of more lawsuits.

The judge, however, agreed with Erdemann’s argument that the land is placed strategically near the central business district, and would be impossible to replace if sold.

“If Erdemann is successful in its suit and seeks damages, the said properties will be available and the balance of the claim can still be realised since Kenya Railways and its retirees are not entities of straw,” added the judge.

The railways retirement scheme, through its lawyer Benson Milimo, said it would appeal the ruling within the 14 days the judge gave to any aggrieved party to do so. Mr Milimo had asked the court to grant him time to consult his client.

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