State ordered to pay Mauritian backed sugar investor Sh24b

Kwale International Sugar Company Ltd on February 7,  2019.  [File, Standard]

The High Court has ordered the government to pay $185.6 million (Sh24 billion) to Kwale International Sugar Company Ltd (KISCOL). The ruling is seen as a strong judicial defence of contractual obligations and investor rights.

Justice Florence Wangari ruled that the State had breached its commitments to the investor, who was blocked from developing a flagship agricultural project. The award of Sh24 billion is set to increase with interest and costs.

The case centred on a $300 million (Sh39 billion) integrated sugar project in coastal Kwale County, initiated in 2007. KISCOL, a joint venture between Mauritius-based Omnicane Ltd and Kenya’s Pabari Group, leased 15,000 acres for a new sugar estate and mill.

Court documents showed the government had committed to providing “quiet and peaceful possession” of the land. However, the project was paralysed almost immediately by occupations from local residents asserting ancestral claims. The State failed to enforce court orders evicting the squatters, leaving KISCOL unable to use nearly half the leased land.

Further complications arose when the government carved out about 1,000 hectares of the lease for mineral sands miner Base Titanium without compensating KISCOL or providing alternative land.

The investor argued in court documents that this State failure constituted a fundamental breach, preventing the project from becoming viable and forcing costly debt restructurings.

The government, however, defended its actions, stating it had provided vacant possession and that KISCOL had failed to secure the site. It also argued the case was time-barred and filed a counterclaim to terminate the lease.

Justice Wangari, however, dismissed the State’s arguments, finding it had breached its contractual and legal duties.

“I find that the defendants (the government) were in breach of the sublease agreements dated August 20, 2007 and the statutory obligations… and they failed to do so by failing to accord the plaintiff (KISCOL) quiet and peaceful possession of land and subsequent conduct by defendants only compounded and aggravated the said breach,” said the judge in her judgement. She further found that the firm suffered losses as a result of the breach and directed the government to pay Sh24 billion in damages. 

“I find that the plaintiff suffered both financial and operational losses as land was a crucial element to the success of the plaintiff’s business… I find that the plaintiff is entitled to the relief sought and also in respect to special damages, out of the claim of $227.66 million, I find in favour of the plaintiff for a total of $185.62 million (Sh24 billion) in special damages.”

The government was also ordered to pay the firm other costs that the firm incurred following breach of contract, including additional project costs, additional shareholder loans and interest on such loans, as well as the cost of restructuring the project. 

The ruling is being closely watched by Kenya’s business community. KISCOL’s Legal Adviser Benson Musili hailed the ruling as a “monumental victory” for the principle that governments must honour commitments.

The judgment presents a significant test for President William Ruto’s administration, which has actively courted foreign investment by promoting Kenya as “a rules-based destination.” Officials said the ruling would be reviewed but noted its message aligned with the Kenya Kwanza government’s public stance on respecting contracts.

The decision caps a 13-year legal struggle for the investors. The state has 14 days to appeal.

Analysts suggest the ruling’s long-term impact on investor confidence could outweigh the substantial financial penalty, sending a signal that Kenyan courts will hold the government accountable for its commercial promises.