It has been described by judges as a gigantic legal battle that has been playing out in court corridors for over a decade.
It began sometime in 2009 when Cape Holdings Limited decided to develop the complex in Nairobi's Westlands area known as 14 Riverside.
The directors of Cape Holdings then invited their friends and directors of Synergy Industrial Credit Ltd to buy some of the properties earmarked for development.
Synergy Industrial Credit then paid Sh750 million for two blocks of 14 units and parking lots.
Trouble began when the property was completed and Cape Holdings allegedly refused to transfer the property as agreed. The matter was then referred to an arbitrator.
Lawyer James Ochieng Oduol was appointed as the arbitrator and in 2015 he ordered the developer to refund the principal and interest amounting to Sh1.66 billion, which included the principal, loss of interest, opportunity cost and loss of exchange rate fluctuation, as the money was paid in dollars.
Not satisfied with the outcome, Cape Holdings went to the High Court and persuaded the court to set aside the award. Justice Charles Kariuki ruled that the award was flawed because the arbitrator had gone beyond the scope of the case.
Synergy then moved to the Court of Appeal, but the matter was dismissed by Justices (retired) Kihara Kariuki, Philomena Mwilu (then a Court of Appeal judge) and Festus Azangalala (retired), who said that arbitration matters should end in the High Court.
Undeterred, Synergy approached the Supreme Court and in a majority decision, the apex court judges ruled that not all arbitration disputes end at the High Court as there are exceptional and limited circumstances where the Court of Appeal can be called upon to correct an error.
The Supreme Court then referred the matter back to the Court of Appeal for a fresh hearing.
After hearing the appeal, judges Kathurima M'Inoti, Fatuma Sichale and Jamila Mohammed faulted the High Court judge for setting aside the award.
The judges said the High Court did not confine itself to the real issue, which was the terms of the arbitration agreement, but went on to find that the amount awarded by the arbitrator was wrong.
Cape Holdings then sought to take the matter back to the High Court, but the application was dismissed. The developer was not satisfied, as it went to the Supreme Court, but the application was dismissed.
In the meantime, the High Court had calculated the award and ordered Cape Holdings to pay Sh4.5 billion as the buyer commenced execution proceedings.
Synergy Industrial Credit then advertised the complex for sale in February 2022 in a bid to recover the amount, but I&M Bank went to court and blocked the sale, arguing that the building was encumbered with a Sh2.82 billion loan to the lender.
Cape Holdings made another attempt to review the amount, arguing that it was unlawful and against public policy as the money claimed, in excess of Sh5.4 billion, represented the entire development of the property.
Through senior counsel Allen Gichuhi argued, Cape Holdings argued that equity abhors "unjust enrichment and unconscionable interest", which increases the amount from the original Sh577 million to Sh5.4 billion on the basis of illegal commercial rates and which was awarded outside the pleadings.
The application was also dismissed and in a fresh application. I&M Bank appealed, claiming that a first priority right had been created in favour of the bank over the company's assets, overriding the rights of any other party, including Synergy.
Through lawyer William Kabaiku, the bank argued that it had acquired a legal interest in the property in question by virtue of the duly registered debenture.
He said the bank had lawfully placed Cape Holdings under administration and because the property had not been sold when the debenture was crystallised, I&M Bank had a priority interest in the property and was entitled to prevent its sale.
Mr Kabaiku said allowing Synergy to continue with the execution process would defeat the essence of the administration and divert the attention of the administrator from his statutory duties.
Gichuhi supported the bank's argument that as a secured creditor by virtue of the debenture, the bank had a superior legal interest in Cape Holdings' properties, including the suit property.
Synergy Credit, through senior counsel Ahmednasir Abdullahi, opposed the application, saying it was yet another attempt by Cape Holdings to stop the execution.
Abdullahi pointed out that Synergy gave instructions to Moran Auctioneers who advertised the suit property for sale by public auction on February 8, 2022.
He said Cape Holdings appealed to the High Court against the action of the deputy registrar but by then the execution had been completed.
After hearing the case, a three-judge bench of the Court of Appeal ruled last Friday that the execution by the decree-holder – Synergy Industrial Credit Limited – had been completed after attachment.
The court ruled that the lender's placing of Cape Holdings under administration was a well calculated move by the bank to block execution.
Judge Patrick Kiage noted that the administration was activated at a most suspicious time – immediately after the High Court had dismissed another appeal, putting "the final nail in the coffin of legal manoeuvring".
The judge said the bank had taken drastic action against a company that was not in default and whose accounts showed it was so solvent that rental income exceeded monthly loan repayments. Justice Kiage also pointed out that the bank was aware that the company was using its surplus funds to build personal properties.
“I am thus persuaded, on a balance of probabilities, in fact more, that the statutory management was executed for the sole purpose of aiding Cape Holdings to escape execution,” the judge said.
Justice Kiage went on to say that it was a rather ingenious and cynical use of the law to perpetuate an injustice against a debenture holder. It is ill for the bank to expect to benefit from the salutary jurisprudence on bonds based on good faith, which is absent in this case because it is based on collusion and mala fide.
Justices Lydia Achode and Mwaniki Gachoka concurred with Justice Kiage's finding.
“My inevitable answer on the question whether the Bank did sufficiently establish its legal interest in the suit property is in the negative,” Justice Kiage said.
The judge added that High Court Judge Alfred Mabeya did not err in his findings that Cape Holdings and the bank acted in bad faith, in concert and collusion for the sole purpose of shielding the former from performing its lawful obligations under a lawful decree that has been repeatedly upheld by the country's superior courts and with finality by the Supreme Court.
Cape Holdings Limited was placed under administration on October 12, 2021, but was terminated on June 9, 2023 due to non-performance by the administrator.
Justice Kiage said a schedule to the debenture did not list the property in question.
“The effect is that it has no bearing whatsoever to the suit property over which no legal charge was ever created by the Bank. The said property remained free of encumbrances. Absent such charge, I would think there is substance in Synergy’s contention that it is false and misleading for the Bank to refer to the suit property as the charged property in its submissions,” the judge said.
Justice Kiage added that the record was clear that the charge was registered over a different property, Parkside Towers.
The property, known as 14 Riverside Drive, near the University of Nairobi's Chiromo campus, sits on 5.2 acres of land and comprises five office blocks, a five-star hotel (Dusit D2) with a swimming pool, a car park, a food court and a cafeteria.
