Garden City owners now sue Chinese builder of mall

The owner of Nairobi’s biggest shopping mall, Garden City, has opened a court battle with a Chinese firm it hired to build the $49 million (Sh5.05 billion) facility, citing the contractor’s failure to keep to the construction schedule.

The Chinese firm, Sinohydro, had initially moved to court seeking to stop G. C. Retail (formerly known as Actis),  which owns the mall, from collecting a performance bond of $5.946 million (Sh606 million) that was issued in their favour to ensure the project’s continuity in the event of a dispute during construction.

Sinohydro is claiming $9.5 million (Sh969 million) from Garden City for unforeseen changes it was forced to make during construction, following the owner’s failure to deliver crucial materials that were stipulated in the original architectural design.

G. C. Retail responded to the suit with a $12.14 million (Sh1.2 billion) counter-claim against the Chinese firm for delays in project completion as expressed in the contract.

“It is these losses and additional costs that the delay damages under the contract are intended to compensate,” says G.C. Retail.

G. C. Retail officially opened the mall on May 28 despite the significant amount of outstanding works and disruption to the mall’s tenants.

Sinohydro was to initially complete construction in October last year, but sought an extension to January before asking for a May 2015 deadline.

G. C. Retail’s refusal to grant the Chinese firm another extension in January has seen Sinohydro rack up the Sh1.2 billion penalty going by the penalties in the contract that are calculated on a daily basis.

Sinohydro is yet to complete the works and Garden City says it has been forced to contract another firm to take over the project.

The mall owner now says it is facing potential lawsuits from tenants who had been promised a swift and timely completion. It adds that the delay has stalled a plan to customise space for some tenants like retail chain Game, which opened its first branch in Kenya at Garden City in May.

“For instance, G. C. Retail had an agreement for lease with the anchor tenant - Game Discount World (Kenya) - where it also undertook to carry out the fit-out of the premises.

Garden City is facing claims from tenants of the mall, who signed agreements that provided for penalties in the event of delay,” G.C. Retail says.

G. C argues that the flashy shopping mall has already lost $1.5 million (Sh153 million) in rental income and another $1.88 million (Sh188 million) it paid another firm to continue with construction.

Arbitration

Garden City and Sinohydro have agreed to resolve their differences over delays before an arbitration panel of at least three mediators, but the Chinese firm wants to stop the shopping mall owners from cashing the performance bond until the arbiters have made a decision.

Sinohydro says it presented its Sh969 million claim to the shopping mall at an August meeting.

But G. C. Retail holds that the gathering was privileged and that Sinohydro should have consulted it before mentioning matters discussed then in pleadings.

“The latest meeting between the two parties was on August 24 when Sinohydro presented its extension of time claim amounting to $9.5 million,” the Chinese firm says.

The dispute has sucked in Equity Bank, which Garden City has accused of colluding with Sinohydro to delay payment of the Sh606 million performance bond.

The terms of the performance bond required Equity to release the funds within five days of receiving a written demand from Garden City, court documents say.

“It now appears from the timing of the suit that there were discussions between Sinohydro and Equity with a view to frustrating payment. I was very disappointed to be informed that Equity was seeking to avoid payment on the excuse that there was a dispute to go to arbitration when the terms of the bond are very clear on this point,” says Michael Kingshott of Aspire, one of the managers of the mall.

Garden City holds that the performance bond is a document between it and Equity Bank, hence Sinohydro has no authority to challenge its cashing.

G. C. Retail says it wants to use the performance bond to settle with contractors that were hired to take over construction, pay penalties it promised to tenants as a result of completion delays and to repay bank loans it took to put up Garden City.

The Garden City owners are set to construct offices in the next phase of the mixed development on Thika Road, Nairobi. The office blocks will be put up next to the mall.