Struggling Uchumi Supermarkets' recent sale of a 20-acre piece of land in Roysambu, Nairobi, to a church group for Sh2.8 billion has received a huge blow.
Judges Philip Waki, Mohammed Warsame and Agnes Murgor have refused to strike out a case that Sidhi Investments filed against Uchumi in 2005, claiming that the retailer reneged on a sale deal after receiving 10 per cent payment for the land.
After retired High Court Judge John Osiemo refused to strike out the case in 2007, Uchumi challenged the decision.
Uchumi insists there was no sale agreement, and that it did not receive any money from Sidhi Investments as deposit for the prime property.
The suit could lead to a landmark decision around the law of contract, as it could further draw lines on when an agreement becomes legally enforceable.
Last November, Uchumi inked a fresh deal to sell the land to Jewel Complex Limited, a firm owned by five top officials of Jesus Winners Ministry, for Sh2.8 billion.
Edward Mwai Kiongo has a 36.36 per cent stake in Jewel Complex, while Agnes Wanjiku Kiongo, Raphael Mwiti Thiaru and James Kiongo Mwai each own 18.8 per cent in the firm.
Paul Gichohi Mutune owns the other 9.09 per cent. Jewel Complex paid Sh330 million deposit in December.
The Court of Appeal's decision could complicate the deal and make matters harder for Uchumi, which is already struggling under the weight of billions owed to its suppliers.
The supermarket is fighting a petition to wind up operations, the second in three years.
During Uchumi's first cash crunch in 2005, the retail chain set its sights on selling the Roysambu land to ease its financial troubles.
On March 9, 2005, Sidhi Investments offered to buy the land for Sh118 million, which Uchumi was satisfied with.
The firm agreed to pay a 10 per cent deposit for the land and wrote a Sh11.8 million cheque in favour of Uchumi.
But two days later Uchumi advertised the land for sale and Sidhi Investments decided to sue.
The firm asked the High Court to compel Uchumi to enter into a sale agreement with it and wrap up the transaction.
Uchumi however argued that there was no agreement to sell the land to Sidhi Investments and denied receiving any payment for the property.
The Court of Appeal has now agreed with retired Justice Osiemo, who ruled that if indeed Uchumi received Sh11.8 million as a 10 per cent deposit for the land then there was a valid sale contract.
Justices Waki, Warsame and Murgor hold that the issues Sidhi has raised in its suit can only be determined after hearing arguments from both sides.
"According to Sidhi Investments, there are two issues for trial: whether the offer was accepted and whether there was constructive trust.
"On our part, we agree that the trial judge was right in refusing to strike out the plaint for it discussed issues of fact and law which could only be determined upon hearing both sides of the dispute.
"Can the judge (Justice Osiemo) be said to have arrived at a wrong decision which failed to consider the law and the prima-facie facts before him, or that he failed to exercise his discretion correctly? We think not," the judges held.
Uchumi will also pay Sidhi Investments' legal bills during the appeal process. The prime land was one of Uchumi's last few assets.
Uchumi's creditors have been salivating over its sale as most of the proceeds were intended to pay some of the retailer's debts.
Uchumi has previously fought off two self-help groups that also laid claim on the land.
Both Roysa Self Help Group and Njathaini Electricity Project have previously unsuccessfully sued Uchumi, laying claim on the land.
Njathaini Electricity Project members claimed to have occupied the land since the 1970s, a claim that Uchumi denied.
The retailer bought the land from Solio Construction in 2001. Uchumi deals with the land through its subsidiary -- Kasarani Mall Limited.
Both Uchumi and Kasarani Mall are respondents in the suit filed by Sidhi Investments. The dispute will now go back to the High Court.