A few weeks ago, when Wal-mart, the world’s largest supermarket chain was thinking of opening its first superstore outside South Africa in Kenya, they made their first call to Renaissance Capital for advice.

Wal-mart, which is considered the lodestar of American business had good reason to speak to this Russia-based investment bank that has aggressively expanded across Africa so fast that today the company represents the face of Moscow on Africa.

Renaissance, through its real estate investment arm had launched a master plan in October 2010 for Africa’s first charter city christened Tatu City, that would cost $4 billion to build on 2,500 acres of land on a coffee farm just outside Nairobi, and boast at least 60,000 residents and 30,000 daily visitors.

It had teamed up with local investors including former Central Bank Governor Nahashon Nyagah, Bidco Ltd boss Vimal Shah and Josphat Kinyua.  

Bureaucrats at Kenya’s Vision 2030, a secretariat established to co-ordinate the country’s long development plan were so excited by the project that it is today listed as one of the flagship projects that will propel the country to a middle-income development status.

However, within days of the project launch, a ferocious wrangle emerged between the Russians and one of the Kenyan shareholders who was demanding for $1 billion for his one share in the company.

Within the same month, the local shareholder headed to the High Court demanding that the company and the project be shut down.

With Wal-mart looking to open a massive superstore at Tatu City, targeting the city’s huge residential and visitor base and looking to cash in on the lucrative Kenyan retail market, it wanted to get more details about such things like investor protection laws, intellectual property, how long it takes to clear goods at the port and how long courts take to resolved commercial disputes.

But it found that Tatu City has been the centre of a two-year flurry of distrust, scheming and intrigue that has played out in the country’s commercial courts with at least 11 applications filed in the High Court so far.

The numerous delays now mean that the real estate company risks defaulting on a Ksh5 billion ($62.5 million) loan from Renaissance Capital to buy the land where the proposed city is to be built. The loan is attracting an interest of 33 per cent per year, in addition to penalties that come with defaulting.

It’s a situation that Chief Justice Willy Mutunga has been working hard to resolve, and it could be one of his biggest challenges as he tries to revamp the Judiciary and restore long-lost public confidence.

On Tuesday 31, the CJ is scheduled to launch a new report detailing the backlog of cases at the commercial courts, and what judicial officers are doing to fix the mess.

The dispute which started in October 2010 continues to date without the substantive argument being heard after almost two years of procedural delays — and going through at least six judges.

It has become a focal point of how international businesses keen on expanding into Kenya are likely to be put off by the lethargic pace of the country’s commercial courts in concluding cases.

It takes 465 days on average to resolve a commercial dispute in Kenya. Case backlog has been the greatest challenge in the judiciary.

By December 2009, there were 910,013 cases pending in courts, government statistics show. At the Court of Appeal, there were 2,372 pending cases and 115,344 at the High Court. At the magistrates’ courts, there were 792,297 cases, with the majority — 398,136 —being traffic offences.

The clog is so bad that a committee set up to vet sitting judges last week kicked out two judges, Mohammed Ibrahim of the Supreme Court and Court of Appeal Judge Roselyn Nambuye for allegedly delaying cases, declaring them unfit to hold judicial office.

Over the past few years, dozens of big businesses have dragged each other to court while others have been locked in expensive legal battles with government agencies and shareholders.

Business executives are increasingly getting worried by the pace at which such disputes are being handled in courts.

“Delays in dispensing legal disputes have been a big problem for businesses. The main implication has been delayed investments and sometimes jeopardised operations.

You can hardly plan when a dispute is running in court,” said Tabitha Karanja, the managing director at Keroche Breweries, Kenya’s second biggest beer maker.

In March, Renaissance, which owns a majority stake at Tatu City, said it had petitioned Chief Justice Willy Mutunga to have the cases fast-tracked, arguing the delays had frustrated plans to begin the project.

The first stage of the 10-phase project is expected to be completed by the fourth quarter of next year, and today, Tatu City has already secured all but one initial approvals from Ruiru Municipal Council for the project.

The falling out began in October 2010 when minority shareholders Rosemary Wanja and Stephen Mwagiru moved to court to block Tatu City Ltd from selling off some parcels of land it owned to begin repaying the loan, accusing their business partners of excluding them in the management of the project.

They wanted Tatu City to either wind up — liquidate assets and share them out among shareholders — or alternatively, for the majority shareholders to buy them out.

Flurry of options

The court battle would soon feature petitions calling for the disqualification of lawyers representing the defendant, to one calling for the presiding judge to disqualify himself, to a criminal case in which one of the petitioners is accused of forging documents used in filing an application — not to mention the numerous occasions when hearings were adjourned because files could not be found, or judges were not available to listen to the cases.

In the latest development, presiding judge Daniel Musinga advised the feuding parties to settle out of court. In a ruling delivered on July 6, Justice Musinga urged the parties involved to “again attempt to reach a mutually agreeable way forward”.

But the drama at Tatu City, Kenya’s single largest real estate investment by the private sector, is just a hint of the feeble state of the country’s judicial mechanisms.

Kenya scores badly on the ease of enforcing contracts—it takes 465 days on average to resolve a commercial dispute in Kenya, the third-slowest in the EAC, compared with 230 days in Rwanda, according to the Doing Business in the East African Community 2012 report published by the International Finance Corporation.

“Delays in dispensing commercial disputes is a big worry for investors in Kenya. The country still ranks lowly in resolution of court cases even with the ongoing judicial reforms,” said Philip Kinisu, PricewaterhouseCoopers (PwC) territory senior partner, Africa central region.  

“There is hardly any evidence the judiciary is supporting businesses. For foreign investors, this is a big worry,” he told The EastAfrican.

Only Burundi scores worse than Kenya in the number of procedures it takes to resolve a dispute, with 44 procedures compared to Kenya’s 40.

And justice isn’t cheap, either—about half (47.2 per cent) of the value of an average claim goes to meet the financial cost of being in court in Kenya — legal fees and so on — compared with just 14.3 per cent in Tanzania.

With this kind of a monolithic judiciary that makes it hard to do business in the country, it means that Kenya is losing out on attracting foreign direct investments (FDIs)—according to Stanbic Investments, FDIs in Kenya account for 22 per cent of cumulative net FDIs to the three biggest East African countries in 2011, compared to 40 per cent in Uganda and 36 per cent in Tanzania. But according to some legal practitioners, things are improving.

“There now appears to be drastic changes. The commercial division is now adequately manned and disputes are moving faster. At least for now, a bad decision is better that no decision at all, one can still appeal” said Phillip Murgor, a former Director of Public Prosecutions.  

Tatu City is not the only case languishing in judicial limbo — the Kenya Revenue Authority and edible oils manufacturer Bidco have been in a legal tussle since 2009 whose outcome could define the future handling of tax issues in the region.

The dispute pits KRA against Bidco over a Ksh1.3 billion ($15.2 million) tax demand by KRA.

United in delays

Another case is Glencore Energy (UK) vs. Kenya Pipeline Corporation, a 2009 case revolving  around oil worth Ksh3.3 billion ($38.4 million) that Kenya Pipeline Company (KPC) released to the collapsed Triton oil company allegedly without the authorisation of British firm Glencore.

The British firm sued KPC in 2009, asking the High Court in Nairobi to compel KPC to pay it the Ksh 3.3 billion or return oil worth that sum.

But the Doing Business report notes that Kenya is making some steps in speeding up the gears of justice — in 2010/11, Kenya introduced a “case track” system, categorising cases as “small claims,” “fast track” or “multi-track” and allocating resources strategically to avoid delays in commercial disputes.

While cases with complex facts and legal issues get “multi-track” treatment, those that involve undisputed facts and legal issues, and are likely to be concluded within 180 days after pre-trial directions, get “fast track” treatment.

“A lot of the backlogged cases have gone stale, or people are just not showing up to court,” says Dennis Kabaara, a private advisor at the Judiciary. “So it’s not just that the judiciary is not working per se, there’s a whole lot of other reasons.”

Additional Reporting By Mwaura Kimani